Q2 2019 Earnings Call

July 30, 2019

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Good morning, and welcome to the writer systems second quarter 2019 earnings release Conference call.

All lines are in a listen only mode until after the presentation.

Today's call is being recorded.

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I would now like to introduce Mr., Bob Loughran, Vice President Investor Relations corporate strategy and product strategy for Ryder Mr., Brian you may begin Sir.

Bob Brunn: Thanks very much. Good morning, welcome to Ryder's Second Quarter 2019 Earnings Conference Call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political, and regulatory factors. More detailed information about these factors is contained in this morning's earnings release and in Ryder's filings with the Securities and Exchange Commission. This conference call also includes certain non-GAAP financial measures. You'll find reconciliations of each non-GAAP measure to the nearest GAAP measure in the written presentation accompanying this call, which is available on our website in investors.ryder.com.

Thanks, very much good morning, and welcome to Ryder second quarter 2019 earnings Conference call.

I'd like to remind you that during this presentation, you'll hear some forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.

Actual results may differ materially from these expectations due to changes in economic business competitive market political and regulatory factors.

Bob Brunn: More detailed information about these factors is contained in this morning's earnings release and in Ryder's filings with the Securities and Exchange Commission. This conference call also includes certain non-GAAP financial measures. You'll find reconciliations of each non-GAAP measure to the nearest GAAP measure in the written presentation accompanying this call, which is available on our website in investors.ryder.com.

More detailed information about these factors is contained in this morning's earnings release at Ryder's filings with the Securities and Exchange Commission.

This conference call also include certain non-GAAP financial measures, you'll find reconciliations of each non-GAAP measure to the nearest GAAP measure written presentation accompanying this call.

Which is available on our website at investors thought rider Dot com.

Bob Brunn: Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer, and Scott Parker, Executive Vice President and Chief Financial Officer. Additionally, Dennis Cooke, President of Global Fleet Management Solutions, John Diez, President of Dedicated Transportation Solutions, and Steve Sensing, President of Global Supply Chain Solutions, are on the call today and available for questions following the presentation. This time, I'll turn the call over to Robert.

Presenting on today's call are Robert Sanchez, Chairman, and Chief Executive Officer, and Scott Parker Executive Vice President and Chief Financial Officer.

Additionally, Dennis Cooke President of Global Fleet Management solutions, John D. as President of dedicated transportation solutions, and Steve sensing President of global supply chain solutions are on the call today available for questions. Following the presentation.

At this time I'll turn the call over to Robert Good morning, everyone and thanks for joining us.

Robert Sanchez: Good morning, everyone, and thanks for joining us. This morning, we'll recap our Q2 2019 results, discuss the current outlook for our business, and highlight progress on some of our strategic initiatives. We'll open the call for questions. With that, let's turn to an overview of our Q2 results. Comparable earnings per share from continuing operations were $1.40 for the Q2 of 2019, down 4% from the prior year, primarily reflecting lower used vehicle results, partially offset by improved operating performance. Comparable results were slightly above the midpoint of our forecast range of $1.34 to $1.44, reflecting better than expected operating performance in our contractual businesses, largely offset by lower than expected demand conditions in used vehicle sales and rental that began late in the quarter.

This morning, we'll recap our second quarter to 2019 results.

Discuss the current outlook for our business and highlight progress on some of our strategic initiatives.

Then we'll open the call for questions.

With that let's turn to an overview of our second quarter results.

Comparable earnings per share from continuing operations were $1.40 for the second quarter of 2019 down 4% from the prior year, primarily reflecting lower used vehicle results, partially offset by improved operating performance.

Robert Sanchez: Comparable results were slightly above the midpoint of our forecast range of $1.34 to $1.44, reflecting better than expected operating performance in our contractual businesses, largely offset by lower than expected demand conditions in used vehicle sales and rental that began late in the quarter.

Comparable results were slightly above the midpoint of our forecast range of $1.34 to $1.44, reflecting better than expected operating performance in our contractual businesses.

Largely offset by lower than expected demand conditions in used vehicle sales and rental.

Began late in the quarter.

Robert Sanchez: Comparable pre-tax earnings were down 4%, reflecting depreciation headwinds of $8 million and higher valuation adjustments of $10 million related to lower used vehicle pricing. Sales activity remained solid, and we delivered strong revenue growth in all segments, driven by secular outsourcing trends as well as our sales and marketing initiatives. Operating revenue, which excludes fuel and subcontracted transportation, increased by 11% to a record $1.8 billion for Q2. Page five includes additional financial information for Q2. Comparable EBITDA was $579 million, up 14% from the prior year, reflecting the earnings contribution from our growing portfolio of contractual lease, dedicated, and supply chain business. The average number of diluted shares outstanding for the quarter was 52.5 million, down slightly from the prior year.

Comparable pre tax earnings were down, 4%, reflecting depreciation headwinds of $8 million at higher valuation adjustments of $10 million.

Related to lower used vehicle pricing.

Sales activity remains solid and we delivered strong operating.

Strong revenue growth in all segments, driven by secular outsourcing trends as well as our sales and marketing initiatives.

Operating revenue, which excludes fuel and subcontracted transportation increased by 11% to a record $1.8 billion for the second quarter.

Robert Sanchez: Page five includes additional financial information for Q2. Comparable EBITDA was $579 million, up 14% from the prior year, reflecting the earnings contribution from our growing portfolio of contractual lease, dedicated, and supply chain business. The average number of diluted shares outstanding for the quarter was 52.5 million, down slightly from the prior year.

Page five includes additional financial information for the second quarter.

Comparable EBITDA was $579 million up 14% from the prior year, reflecting the earnings contribution from our growing portfolio of contractual lease dedicated and supply chain business.

The average number of diluted shares outstanding for the quarter was 52.5 million down slightly from the prior year.

Robert Sanchez: We began repurchasing shares under a two-year, 1.5 million share anti-dilutive repurchase program in February 2018. During the quarter, we bought approximately 119,000 shares at an average price of $59.20. Including pension costs and other items, the comparable tax rate was 26.9% for Q2 2019, down slightly from the prior year's rate. The return on capital spread was 20 basis points, down from 40 basis points spread in the prior year, primarily reflecting lower used vehicle sales results. Return on Equity was approximately 13%. I'll now turn to page six and discuss key trends that we saw in each business segment. Fleet Management Solutions operating revenue, which excludes fuel, increased 9% organically from the prior year, driven by growth in all product lines.

We began repurchasing shares under a two year 1.5 million share anti dilutive repurchase program in February of 2018.

During the quarter, we brought approximately 119000 shares at an average price of 59 20.

Looking pension costs and other items the comparable tax rate was 26.9 for the second quarter of 2019.

Down slightly from the prior year's rate.

The return on capital spread was 20 basis points down from 40 basis point spread in the prior year, primarily reflecting lower used vehicle sales results.

Return on equity was approximately 13%.

Robert Sanchez: I'll now turn to page six and discuss key trends that we saw in each business segment. Fleet Management Solutions operating revenue, which excludes fuel, increased 9% organically from the prior year, driven by growth in all product lines. ChoiceLease revenue increased 9%, primarily due to fleet growth and to a lesser extent, higher rates on replacement vehicles. The lease fleet increased by 3,800 vehicles during the quarter. Growth in the lease fleet this quarter benefited from earlier than anticipated vehicle deliveries from the OEMs.

I'll now turn to page six and discuss key trends that we saw in each business segment.

Fleet management solutions operating revenue, which excludes fuel increased 9% organically from the prior year driven by growth in all product lines.

Robert Sanchez: ChoiceLease revenue increased 9%, primarily due to fleet growth and to a lesser extent, higher rates on replacement vehicles. The lease fleet increased by 3,800 vehicles during the quarter. Growth in the lease fleet this quarter benefited from earlier than anticipated vehicle deliveries from the OEMs. We continue to effectively penetrate the non-outsourced market, with approximately 40% of year-to-date fleet growth coming from customers new to outsourcing. We also continue to see growth from customers expanding their fleet sizes. We remain on track to achieve organic lease fleet growth this year of at least 11,000 vehicles, which would be a new record for the company. SelectCare revenue increased 9%, reflecting higher ancillary maintenance activity. The average SelectCare full service and preventive fleet grew by nearly 600 vehicles from the prior year.

Choice lease revenue.

Increased 9%, primarily due to fleet growth and to a lesser extent higher rates on replacement vehicles.

Lease the lease fleet increased by 38 800 vehicles during the quarter.

Growth in the lease fleet this quarter benefited from earlier than anticipated vehicle deliveries from the Oems.

Robert Sanchez: We continue to effectively penetrate the non-outsourced market, with approximately 40% of year-to-date fleet growth coming from customers new to outsourcing. We also continue to see growth from customers expanding their fleet sizes. We remain on track to achieve organic lease fleet growth this year of at least 11,000 vehicles, which would be a new record for the company. SelectCare revenue increased 9%, reflecting higher ancillary maintenance activity. The average SelectCare full service and preventive fleet grew by nearly 600 vehicles from the prior year.

We continue to effectively penetrate the non outsourced market with approximately 40% of year to date fleet growth coming from customers new to outsourcing.

We also continue to see growth from customers expanding their fleet sizes.

We remain on track to achieve organic lease fleet growth. This year of at least 11000 vehicles, which would be a new record for the company.

Select tier revenue increased 9%, reflecting higher ancillary maintenance activity.

The average select your full service and preventive fleet grew by nearly 600 vehicles from the prior year.

Robert Sanchez: Commercial rental revenue was up 9%, driven by higher demand and pricing. Global rental demand on power units was up 8%. Pricing was up 2%. Rental utilization was 75.3, down from 79.4 in the prior year, primarily reflecting lower than expected tractor demand on a 10% larger average fleet and very strong prior year comparisons. Our strategy to capture higher e-commerce driven demand for medium duty trucks remains on track. Late in Q2, however, we saw softer demand for heavy duty tractors, which impacted utilization for Q2 against very strong prior year comparisons. Used vehicle results for Q2 were down year-over-year. I'll discuss those results separately in a minute.

Commercial rental revenue was up 9% driven by higher demand and pricing.

Global rental demand on power units was up 8% and pricing was up 2%.

Rental utilization was 75.3 down from 79.4 in the prior year.

Primarily reflecting lower than expected tractor demand on a 10% larger average fleet and very strong prior year comparisons.

Robert Sanchez: Our strategy to capture higher e-commerce driven demand for medium duty trucks remains on track. Late in Q2, however, we saw softer demand for heavy duty tractors, which impacted utilization for Q2 against very strong prior year comparisons. Used vehicle results for Q2 were down year-over-year. I'll discuss those results separately in a minute.

Our strategy to capture higher e-commerce , driven demand for for medium duty trucks remains on track.

Late in the second quarter. However, we saw softer demand for heavy duty tractors, which impacted utilization for the quarter against very strong prior year comparisons.

Used vehicle results for the quarter were down year over year.

I'll discuss those results separately in a minute.

Robert Sanchez: Overall, FMS earnings decreased, reflecting lower used vehicle results, including higher depreciation of $8 million from residual value changes and higher valuation adjustments of $10 million. Results were also negatively impacted by higher overheads, including higher than normal levels of bad debt, and to a lesser extent, the impact from the adoption of the new lease accounting standard. Results benefited from lease growth and benefits from our maintenance cost initiative. Earnings before tax and FMS decreased 25%. FMS earnings as a percent of operating revenue were 4.9%, down 220 basis points from the prior year, primarily reflecting lower used vehicle sales results. Page 7 summarizes key results for used vehicle sales. Used vehicle results for the quarter were down, as increased pricing and volume were more than offset by higher valuation adjustments on larger inventory.

Overall.

Fms earnings decreased reflecting lower used vehicle results, including higher depreciation of $8 million from residual value changes and higher valuation adjustments of $10 billion.

Results were also negatively impacted by higher overheads, including higher than normal levels of bad debt.

And to a lesser extent the impact from the adoption of the new lease accounting standard.

Results benefited from lease growth and benefits from our maintenance.

Robert Sanchez: Earnings before tax and FMS decreased 25%. FMS earnings as a percent of operating revenue were 4.9%, down 220 basis points from the prior year, primarily reflecting lower used vehicle sales results. Page 7 summarizes key results for used vehicle sales. Used vehicle results for the quarter were down, as increased pricing and volume were more than offset by higher valuation adjustments on larger inventory.

For for used vehicle sales.

Used vehicle results for the quarter were down as increased pricing and volume were more than offset by higher valuation adjustments on a larger and larger inventory.

Robert Sanchez: We sold 5,100 used vehicles during the quarter, up 9% versus the prior year and up 3% sequentially. Used vehicle inventory totaled 8,300 vehicles at quarter end, which is within our target range of 7,000 to 9,000 vehicles. Inventory increased by 2,700 vehicles compared to the prior year, and increased 700 vehicles sequentially, reflecting a greater number of units coming off lease this year as expected. Proceeds per vehicle sold were up 19% for tractors and down 1% for trucks compared to a year ago. Year-over-year comparisons for tractors benefited from market pricing improvements that began in Q3 2018. Tractor pricing this quarter was in line with pricing levels we realized in Q4 of last year.

We sold 5100 used vehicles during the quarter up 9% versus the prior year and up 3% sequentially.

Used vehicle inventory totaled 8300 vehicles at quarter end, which is within our target range of seven to 9000 vehicles.

Inventory increased by 2700 vehicles compared to the prior year and increased 700 vehicles sequentially, reflecting a greater number of units coming off lease this year as expected.

Robert Sanchez: Proceeds per vehicle sold were up 19% for tractors and down 1% for trucks compared to a year ago. Year-over-year comparisons for tractors benefited from market pricing improvements that began in Q3 2018. Tractor pricing this quarter was in line with pricing levels we realized in Q4 of last year.

Proceeds per vehicle sold were up 19% for tractors and down 1% for trucks compared to a year ago.

Year over year comparisons for tractors benefited from market pricing improvements that began in the third quarter of 2018.

Tractor pricing this quarter was in line with pricing levels, we realized in the fourth quarter of last year.

Robert Sanchez: Sequentially, tractor pricing was down 2% from Q1, reflecting weaker demand conditions late in the quarter, while truck pricing was up 3%. I'll turn now to Supply Chain Solutions on page 8. Total revenue grew 7%, and operating revenue grew 12%, driven by new business, higher pricing, and increased volumes. Supply chain earnings before tax were up 24%, driven by revenue growth and improved operating performance. Segment earnings before tax as a percent of operating revenue, were 9.5% for the quarter, up 90 basis points from the prior year. On page 9, our dedicated business achieved strong revenue growth, with total revenue up 10% and operating revenue up 16%. Revenue growth was driven by new business and expansion with existing customers.

Sequentially.

Tractor pricing was down 2% from the first quarter, reflecting weaker demand conditions late in the quarter, while truck pricing was up 3%.

I'll turn now to supply chain solutions on page eight.

Total revenue grew 7% and operating revenue grew 12% driven by new business higher pricing and increased volumes.

Supply chain earnings before tax were up 24% driven by revenue growth and improved operating performance.

Segment earnings before tax as a percent of operating revenue were 9.5% for the quarter up 90 basis points from the prior year.

Robert Sanchez: On page 9, our dedicated business achieved strong revenue growth, with total revenue up 10% and operating revenue up 16%. Revenue growth was driven by new business and expansion with existing customers. Favorable outsourcing trends, including a very challenging driver market, contributed to strong DTS sales results again this quarter. We also continue to see lease customers expanding their relationship with Ryder by adding outsourced driver services and moving into dedicated solutions.

On page nine our dedicated business achieved strong revenue growth with total revenue up 10% and operating revenue up 16%.

Revenue growth was driven by new business and expansion with existing customers.

Robert Sanchez: Favorable outsourcing trends, including a very challenging driver market, contributed to strong DTS sales results again this quarter. We also continue to see lease customers expanding their relationship with Ryder by adding outsourced driver services and moving into dedicated solutions. This continues to be a significant ongoing growth opportunity for the dedicated business. DTS earnings increased due to revenue growth and improved operating performance. Segment earnings before tax as a percent of operating revenue, were 10.9% this quarter, up 230 basis points from the prior year. At this point, I'll turn the call over to our CFO, Scott Parker, to cover several items, starting with capital.

Favorable outsourcing trends, including a very challenging driver market contributed to strong sales results again this quarter.

We also continue to see lease customers expanding their relationship with Ryder by adding outsource driver services and moving into dedicated solutions.

Robert Sanchez: This continues to be a significant ongoing growth opportunity for the dedicated business. DTS earnings increased due to revenue growth and improved operating performance. Segment earnings before tax as a percent of operating revenue, were 10.9% this quarter, up 230 basis points from the prior year. At this point, I'll turn the call over to our CFO, Scott Parker, to cover several items, starting with capital.

This continues to be a significant ongoing growth opportunity for the dedicated business.

Dts earnings increased due to revenue growth and improved operating performance.

Segment earnings before tax as a percent of operating revenue.

Were 10.9% this quarter up 230 basis points from the prior year.

At this point I will turn the call over to our CFO , Scott Parker to cover several items, starting with capital spending.

Scott Parker: Thanks, Robert. Turning to page 10, year-to-date gross capital total to approximately $2 billion, around $760. This increase reflects higher growth, the contractual lease fleet. Proceeds of $256 million were up $54 million, primarily due to $43 million from the sale of a property.

Thanks, Robert turning to page 10 year to date gross capital expenditures totaled approximately $2.2 billion.

Up around $750 million in the prior year.

This increase reflects higher planned investments to grow and refresh the contractual lease fleet.

Proceeds of $256 million were up $54 million, primarily due to $43 million from the sale of the property.

Scott Parker: Net capital expenditures increased by nearly $700 million to just under $2 billion, reflecting contractual lease growth. Turning to the next page, we generated cash from operating activities of over $1 billion year-to-date, up approximately $180 million or 21%. The increase was driven primarily by higher cash-based earnings and lower working capital needs. We generated about $1.3 billion of total cash, up approximately $230 million from the prior year, reflecting higher operating cash and proceeds from a property sale. Cash payments for capital expenditures increased by $790 million to just over $2.2 billion.

Net capital expenditures increased by nearly $700 million to just under $2 billion, reflecting contractual lease growth.

Turning to the next page, we generated cash from operating activities of over $1 billion year to date.

Approximately $180 million or 21%.

The increase was driven primarily by.

Higher cash based earnings and lower working capital needs.

We generated about $1.3 billion of total cash.

Up approximately $230 million from the prior year.

Reflecting higher operating cash and proceeds from a property sale.

Cash payments for capital expenditures increased by 700.

$90 million to just over $2.2 billion.

Companys free cash flow was negative $909 million year to date.

Scott Parker: The company's free cash flow was negative $909 million year-to-date, down from the prior year of negative $354 million, primarily reflecting increased capital spending to grow the lease fleet and a normalized level of lease and rental replacement spending. Our full year forecast for free cash flow remains unchanged at negative $1.1 billion, reflecting the significant growth capital spending. Debt to equity at the end of Q2 increased to 294% from 262% at the end of 2018, and primarily reflects investment in our fleet growth. Our balance sheet leverage is towards the top end of our range of 250% to 300%. Our leverage is expected to decline in the second half, and our year-end forecast remains around 285%.

Down from the prior year of negative $354 million.

Primarily reflecting increased capital spending to grow the lease fleet and a normalized level of lease and rental replacement spending.

Our full year forecast for free cash flow remains unchanged at negative $1.1 billion, reflecting the significant growth capital spending.

Debt to equity at the end of the second quarter increased to 294% from 262% at the end of 2018.

And primarily reflects investment in our fleet growth.

Scott Parker: Our balance sheet leverage is towards the top end of our range of 250% to 300%. Our leverage is expected to decline in the second half, and our year-end forecast remains around 285%. At this point, I'll hand it back over to Robert to cover our current outlook.

Our balance sheet leverage is towards the top end of our range of 250% to 300%.

Our leverage is expected to decline in the second half and our year end forecast remains around 285%.

Scott Parker: At this point, I'll hand it back over to Robert to cover our current outlook.

At this point ill hand, it back over to Robert.

Cover our current outlook.

Robert Sanchez: Thanks, Scott. Overall, we continue to see a healthy demand environment across our contractual lease, Dedicated, and Supply Chain businesses, despite a softer freight environment. We're encouraged by the ongoing strength in our contractual sales activity. We're also pleased with the progress on longer-term strategic initiatives to drive higher revenue and earnings over time as we launch new products in markets with strong growth potential. We expect continued strong operating performance in our Supply Chain and Dedicated businesses, resulting in pre-tax margins within their long-term target range. In DTS, we expect revenue growth rate comparisons to remain favorable, although below first half 2019 levels. We are also encouraged by a robust sales pipeline in Dedicated that's only slightly below last year's record levels.

Thanks Scott.

Overall, we continue to see a healthy demand environment across our contractual lease dedicated and supply chain businesses. Despite a softer freight environment and we're encouraged by ongoing strength the ongoing strength in our contractual sales activity.

We're also pleased with the progress on longer term strategic initiatives to drive higher revenue and earnings over time, as we launch new products and in markets with strong growth potential.

We expect continued strong operating performance in our supply chain and dedicated businesses, resulting in pre tax margins within their long term target range.

Robert Sanchez: In DTS, we expect revenue growth rate comparisons to remain favorable, although below first half 2019 levels. We are also encouraged by a robust sales pipeline in Dedicated that's only slightly below last year's record levels. In Supply Chain Solutions, we expect year-over-year revenue comparisons to turn negative for the second half of the year, primarily due to previously announced lost business, but expect pre-tax margins to remain within the target range. In Commercial Rental, our strategy to capture medium-duty truck demand, driven by e-commerce growth, is on track.

In Dts, we expect revenue growth rate comparisons to remain favorable although below first half 2019 levels.

We are also encouraged by a robust sales pipeline and dedicated that's only slightly below last year's record levels.

Robert Sanchez: In Supply Chain Solutions, we expect year-over-year revenue comparisons to turn negative for the second half of the year, primarily due to previously announced lost business, but expect pre-tax margins to remain within the target range. In Commercial Rental, our strategy to capture medium-duty truck demand, driven by e-commerce growth, is on track. Heavy-duty tractor rental demand is somewhat softer than our prior forecast, due primarily to lower activity with for-hire carriers. However, we expect to largely mitigate this impact by leveraging our asset management capabilities and taking other cost actions. During the second half of the year, we expect to fill more lease contracts with used rather than new equipment, which should result in lower than originally forecast lease CapEx in the latter part of the year.

In supply chain solutions, we expect year over year revenue comparisons to turn negative for the second half of the year, primarily due to previously announced loss business.

But expect pre tax margins to remain within the target range.

In commercial rental.

Our strategy to capture medium duty truck demand driven by E Commerce growth is on track.

Robert Sanchez: Heavy-duty tractor rental demand is somewhat softer than our prior forecast, due primarily to lower activity with for-hire carriers. However, we expect to largely mitigate this impact by leveraging our asset management capabilities and taking other cost actions. During the second half of the year, we expect to fill more lease contracts with used rather than new equipment, which should result in lower than originally forecast lease CapEx in the latter part of the year.

Heavy duty tractor rental demand is somewhat softer than our prior forecast due primarily to lower activity with four higher carriers. However, we expect to largely mitigate this impact by leveraging our asset management capabilities and taking other cost actions.

During the second half of the year, we expect to fill more lease contracts with used rather than new equipment, which should result in lower than originally forecast lease capex in the latter part of the year.

Robert Sanchez: This should be offset by vehicles received earlier than anticipated from the OEMs at the beginning of the year, resulting in full-year CapEx being around the original forecast. In used vehicle sales, we saw lower tractor demand beginning in June and now expect tractor pricing to be below our previous forecast, primarily due to more vehicles being sold through the wholesale channel as we manage inventory levels. In light of these factors, we're revising our full-year comparable EPS forecast to $5.50 to $5.80, versus our prior range of $6.05 to $6.35, primarily to reflect lower used vehicle sales results. Our Q3 comparable EPS forecast is $1.45 to $1.60, compared to $1.67 in the prior year.

This should be offset by vehicles received earlier than anticipated from the Oems at the beginning of the year, resulting in full year capex being around the original forecast.

In used vehicle sales, we saw lower tractor demand beginning in June and now expect tractor pricing to be below our previous forecast primarily due to more vehicles being sold through the wholesale channel as we manage inventory levels.

In light of these factors, we're revising our full year comparable EPS forecast to 550 to 580 versus our prior range of six so five to 635, primarily to reflect lower used vehicle sales results.

Robert Sanchez: Our Q3 comparable EPS forecast is $1.45 to $1.60, compared to $1.67 in the prior year. Q3 comparisons include a -$0.09 to -$0.14 year-over-year impact from lease accounting, reflecting an estimated -$0.05 to -$0.10 impact in Q3 2019, compared to a +$0.04 benefit in the prior year. The negative impact from lease accounting in 2019 reflects an expected decline in lease fleet age. The full year 2019 impact from lease accounting is now expected to reduce earnings per share by approximately $0.05 to $0.10 as compared to the prior accounting method.

Our third quarter comfortably EPS forecast is $1.45 to $1.60 compared to $1.67 in the prior year.

Robert Sanchez: Q3 comparisons include a -$0.09 to -$0.14 year-over-year impact from lease accounting, reflecting an estimated -$0.05 to -$0.10 impact in Q3 2019, compared to a +$0.04 benefit in the prior year. The negative impact from lease accounting in 2019 reflects an expected decline in lease fleet age. The full year 2019 impact from lease accounting is now expected to reduce earnings per share by approximately $0.05 to $0.10 as compared to the prior accounting method. Turning to Slide 15, I'd like to provide you with a brief update on the progress we're making on some of our strategic initiatives. First, we continue to focus on driving profitable contractual growth. We remain on track to meet or exceed our record lease fleet growth forecast of 11,000 vehicles this year.

Third quarter comparisons include a negative nine to negative 14 year cents year over year impact from lease accounting, reflecting an estimated negative five cents to negative 10 cent impact in the third quarter of 2019 compared to a positive four cents benefit in the prior year.

The negative impact from lease accounting and 29 team reflects an expected decline in lease fleet age.

The full year 2019 impact from lease accounting is not is now expected to reduce earnings per share by approximately five to 10 cents as compared to the prior accounting method.

Robert Sanchez: Turning to Slide 15, I'd like to provide you with a brief update on the progress we're making on some of our strategic initiatives. First, we continue to focus on driving profitable contractual growth. We remain on track to meet or exceed our record lease fleet growth forecast of 11,000 vehicles this year. As previously discussed, beginning in 2018, we made changes to our residual value assumptions to improve returns on new vehicles being leased and continue to evaluate additional steps to improve lease returns.

Turning to slide 15.

I'd like to provide you with a brief update on the progress we're making on some of our strategic initiatives.

First we continue to focus on driving profitable contractual growth.

We remain on track to meet or exceed our record lease fleet growth forecast of 11000 vehicles. This year.

Robert Sanchez: As previously discussed, beginning in 2018, we made changes to our residual value assumptions to improve returns on new vehicles being leased and continue to evaluate additional steps to improve lease returns. Additionally, we continue to see strong contractual sales activity in Dedicated and Supply Chain, and expect 2019 to be the third highest year for total company sales of contractual lease, Dedicated, and Supply Chain deals. These contracts provide more stable revenue and earning streams over multiyear periods, delivering returns on new capital invested. We're also making strategic investments in new products to provide new avenues for long-term revenue and earnings growth. Among these initiatives is our new e-commerce fulfillment solution that provides order fulfillment services for brands that want to sell directly to consumers. Our rollout is on track with three fully operational facilities strategically located throughout the US.

As previously discussed.

Beginning in 2018, we made changes to our residual value assumptions to improve returns on new vehicles being leased and continue to evaluate additional steps to improve lease returns.

Robert Sanchez: Additionally, we continue to see strong contractual sales activity in Dedicated and Supply Chain, and expect 2019 to be the third highest year for total company sales of contractual lease, Dedicated, and Supply Chain deals. These contracts provide more stable revenue and earning streams over multiyear periods, delivering returns on new capital invested. We're also making strategic investments in new products to provide new avenues for long-term revenue and earnings growth.

Additionally, we continue to see strong contractual sales activity and dedicated and supply chain and expect 2019 to be the third highest.

Year for total company sales of contractual lease dedicated and supply chain deals.

These contracts provide more stable revenue and earnings streams.

Over multi year periods delivering returns on new capital invested.

We're also making strategic investments in new products to provide new avenues for long term revenue and earnings growth.

Robert Sanchez: Among these initiatives is our new e-commerce fulfillment solution that provides order fulfillment services for brands that want to sell directly to consumers. Our rollout is on track with three fully operational facilities strategically located throughout the US. They're able to reach 95% of the US and Canada with 2-day delivery. We expanded Coop by Ryder, the first commercial vehicle sharing platform of its kind, into the Florida market and are encouraged by the strong customer interest we continue to see with this platform.

Among these initiatives is our new e-commerce fulfillment solution that provides order fulfillment services for brands that want to sell directly to consumers.

Our rollout is on track with three fully operational facilities strategically located throughout the us that are able to reach 95% of the U.S. in Canada with two day delivery.

Robert Sanchez: They're able to reach 95% of the US and Canada with 2-day delivery. We expanded Coop by Ryder, the first commercial vehicle sharing platform of its kind, into the Florida market and are encouraged by the strong customer interest we continue to see with this platform. Finally, we're on track to achieve the full year cost savings expected from our multiyear maintenance cost reduction initiative, and expect additional opportunities to lower costs and drive efficiencies in the future. Slide 16 provides our expectations for 2019 results as compared to the 3-year financial targets we laid out in early 2018. FMS and DTS are expected to beat their operating revenue growth targets, reflecting secular trends and other initiatives. SCS is expected to come in below their revenue target this year, primarily due to previously announced lost business.

We expanded coop by Ryder.

The first commercial vehicle sharing platform of its kind into the Florida market and are encouraged by the strong customer interest we continue to see with this platform.

Robert Sanchez: Finally, we're on track to achieve the full year cost savings expected from our multiyear maintenance cost reduction initiative, and expect additional opportunities to lower costs and drive efficiencies in the future. Slide 16 provides our expectations for 2019 results as compared to the 3-year financial targets we laid out in early 2018. FMS and DTS are expected to beat their operating revenue growth targets, reflecting secular trends and other initiatives. SCS is expected to come in below their revenue target this year, primarily due to previously announced lost business.

Finally, we're on track to achieve the full year cost savings expected from our multi year maintenance cost reduction initiative and expect additional opportunities to lower costs and drive efficiencies in the future.

Slide 16 provides our expectations for 2019 results as compared to the three year financial targets, we laid out in early 2018.

Fms in Dcs are expected to beat their operating revenue growth targets, reflecting secular trends and other initiatives.

SCS is expected to come in below the revenue.

Target this year, primarily due to previously announced lost business.

Robert Sanchez: As we look ahead, we expect to lap this issue beginning in the second half of 2020 and anticipate returning to more normalized growth rates at that time. Our three-year CAGR for operating revenue growth is expected to be 11% this year. Given our pipeline of new business, we remain confident in our ability to meet or beat our long-term Supply Chain target of 7% to 8% revenue growth over time. FMS EBT is expected to remain below the target, primarily due to the ongoing impacts from used vehicle sales. Supply Chain EBT percent is currently within the segment's 8% to 9% target range and is expected to remain in the target range over the balance of the year, reflecting the benefits from operational improvements in previously underperforming accounts.

As we look ahead.

We expect a lot this issue beginning in the second half of 2020 and anticipate returning to more normalized growth rates at that time.

Our three year CAGR for operating revenue growth is expected to be 11% this year.

Given our pipeline of new business, we remain confident in our ability to meet or beat our long term supply chain.

Target of 7% to 8% revenue growth.

Overtime.

Fms EBITDA is expected to remain below the target primarily due to the ongoing impact from used vehicle sales.

Robert Sanchez: Supply Chain EBT percent is currently within the segment's 8% to 9% target range and is expected to remain in the target range over the balance of the year, reflecting the benefits from operational improvements in previously underperforming accounts. We are raising our 2019 forecast for dedicated EBT percent from yellow to green status. We've made operational improvements and addressed a challenging prior year startup that have improved our return outlook for this business. Return on capital spread is now expected to break even this year due to our revised used vehicle outlook.

Supply chain E beam, 8% is currently within the segments, 8% to 9% target range and is expected to remain in the target range over the balance of the year, reflecting the benefits from operational improvement in previously previously underperforming accounts.

Robert Sanchez: We are raising our 2019 forecast for dedicated EBT percent from yellow to green status. We've made operational improvements and addressed a challenging prior year startup that have improved our return outlook for this business. Return on capital spread is now expected to break even this year due to our revised used vehicle outlook. Finally, we expect leverage to remain within our target range of 250 to 300. That concludes our prepared remarks this morning. At this time, I'll turn it over to the operator to open up the line for questions. In order to give everyone an opportunity, please limit yourself to one question each. If you have additional questions, you're welcome to get back in the queue. We'll take as many calls as we can. Operator?

We are raising our 2019 forecast for dedicated CPT percent from yellow to green status.

We've made operational improvements and address the challenging prior year startup that have no that have improved our return outlook for this business.

Our return on capital spread is now expected to breakeven this year due to our revised used vehicle outlook.

Robert Sanchez: Finally, we expect leverage to remain within our target range of 250 to 300. That concludes our prepared remarks this morning. At this time, I'll turn it over to the operator to open up the line for questions. In order to give everyone an opportunity, please limit yourself to one question each. If you have additional questions, you're welcome to get back in the queue. We'll take as many calls as we can. Operator?

Finally, we expect leverage to remain within our target range of 250 to 300.

That concludes our prepared remarks this morning.

At this time I will turn it over to the operator to open up the line for questions.

In order to give everyone an opportunity please limit yourself to one question each.

If you have additional questions you're welcome to get back in the queue and we'll take as many calls as we can.

Operator.

Operator: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Matt Breukleer with Buckingham Research. Please go ahead.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach out equipment.

Again press Star one to ask a question, we'll pause for just a moment hello, everyone an opportunity to signal for questions.

Take our first question from Matt Brooklier with Buckingham Research. Please go ahead.

Yes, thanks, and good morning.

[Analyst] (Buckingham Research): Yeah, thanks, and good morning. Maybe if you could, want to talk about the rental business and, you know, there's some deceleration there. Can you talk about your thoughts on the size of the fleet this year? You know, are the expectations that potentially you grow a little bit, you know, a little bit less than maybe how you're thinking about things in the first half? You know, I know we're a little bit a ways, but what are your thoughts on the rental fleet as we look into 2020?

Matthew Brooklier: Yeah, thanks, and good morning. Maybe if you could, want to talk about the rental business and, you know, there's some deceleration there. Can you talk about your thoughts on the size of the fleet this year? You know, are the expectations that potentially you grow a little bit, you know, a little bit less than maybe how you're thinking about things in the first half? You know, I know we're a little bit a ways, but what are your thoughts on the rental fleet as we look into 2020?

Maybe if you could one talking about the rental business and you know if there's some deceleration there but can you can you talk about your thoughts on.

The size of the fleet. This year, you know are the expectations that potentially grow a little bit you know a little bit less than maybe how you're thinking about things in the first half and then you know I know, we're a little bit of ways, but.

What are your thoughts on the rental fleet as we look into 2020.

Yeah, Let me let me just give you a high level overview of kind of what's changed from maybe a quarter ago.

Robert Sanchez: Yeah, let me just give you a high-level overview of kind of what's changed from maybe a quarter ago. It is a relatively contained area where we saw really a slowdown in rental demand. It was really around tractors and primarily driven, I would say, by the for-hire carrier market, where there was just less demand for rental tractors. We would expect now in the second half, we're going to downsize the fleet, and we'd expect less demand in that area. The rest of the business, though, I would tell you on the truck side, especially around the medium-duty tractors, where we've upsized the fleet in order to capture more of that e-commerce-driven demand, it's on track and going well.

And it is a it is a.

Relatively contained area, where we saw really a slowdown in rental demand. It was really around tractors and primarily driven I would say by the for hire.

Carrier market, where there was just less demand for rental tractors. So we would expect now in the second half we're going to downsize the fleet and we'd expect less demand in that in that area. The rest of the business, though I would tell you on the truck side, especially around the medium duty tractors, where we upsized the fleet in order to capture more of that ecommerce driven demand. It it's on track and and are going well. So Dennis if you want to give them a little more color Matt I'd just add when you look at Q2, we had originally expected tractor demand to be up year over year about 13%, we realized 6%. So we're still growing just a slower rate than we expected.

Robert Sanchez: The rest of the business, though, I would tell you on the truck side, especially around the medium-duty tractors, where we've upsized the fleet in order to capture more of that e-commerce-driven demand, it's on track and going well. Dennis, I don't know if you want to give him a little more color.

Robert Sanchez: Dennis, I don't know if you want to give him a little more color.

Dennis Cooke: Yeah, Matt, I'd just add, when you look at Q2, we had originally expected tractor demand to be up year-over-year about 13%, we realized 6%. It's still growing, just at a slower rate than we expected. Trucks actually were pretty robust. We realized that 11% demand increase year-over-year. We had expected even a little more. We still feel good about what's happening from a truck point of view. Tractors are softer.

Products actually were pretty robust, we realized 11% demand increase year over year.

We had expected even a little more but we still feel good about what's happening from a truck point of view, but tractors are softer.

Okay. So it sounds like this is you know that the cycle is a little bit you know a little bit different and the fact that there's some secular tailwinds.

[Analyst] (Buckingham Research): Okay, it sounds like this is, you know, this cycle is a little bit, you know, a little bit different in the fact that there's some secular tailwinds on the truck side that's potentially offsetting, you know, incremental softness, on the tractor side, and you guys feel pretty good about the, I guess, the fleet size for the year.

Matthew Brooklier: Okay, it sounds like this is, you know, this cycle is a little bit, you know, a little bit different in the fact that there's some secular tailwinds on the truck side that's potentially offsetting, you know, incremental softness, on the tractor side, and you guys feel pretty good about the, I guess, the fleet size for the year.

On the on the truck side, that's potentially offsetting you know incremental softness on on on the tractor side, you guys feel pretty good about the I guess the fleet size for the year.

Dennis Cooke: I guess right. Obviously, we're reducing the tractor fleet side, but on the truck front, we feel good. You know, you compare this to 2012, and Q1 was actually stronger this year than in 2012, when we saw that downturn. Q2 was a little weaker, but in the second half, we see the trucks remaining very strong.

I guess right, obviously, we're reducing the tractor fleet side, but on the truck front, we feel good when you compare this to 2012 and.

Q1 was actually stronger.

This year than in 2012, when we saw that downturn Q2 was a little weaker but in a in the second half we see the trucks remaining very strong.

[Analyst] (J.P. Morgan): Okay, and what, what's the mix right now between tractors and trucks in the rental fleet?

Matthew Brooklier: Okay, and what, what's the mix right now between tractors and trucks in the rental fleet?

Okay, and what what's the mix right now between tractors and trucks and the rental fleet.

Yes, so we have got a 33% of the fleet is trackers and 52% as trups.

Robert Sanchez: Yeah. We have got 33% of the fleet is tractors and 52% is trucks.

Dennis Cooke: Yeah. We have got 33% of the fleet is tractors and 52% is trucks.

Got it okay, I really I would add that to is that is that it doesn't really change our long term strategy, though as we've said, we we view rental is really a a complementary product line to lease and our goal is to really grow it at about the pace that we grow <unk> Lee So I wouldn't say that I'd say that that remains on track and again. The good news is I think we've got some solid asset management policies and strategy that we're implementing that'll we'll get the fleet rightsized in a short period of time.

[Analyst] (J.P. Morgan): Got it. Okay. I appreciate it.

Matthew Brooklier: Got it. Okay. I appreciate it.

Robert Sanchez: Really, I would add, Matt, too, is that it doesn't really change our long-term strategy, though. You know, we said we view rental as really a complementary product line to lease, and our goal is to really grow it at about the pace that we grow lease. I wouldn't say that I'd say that that remains on track. Again, the good news is, I think we've got some solid asset management policies and strategy that we're implementing that'll get the fleet right sized in a short period of time.

[Analyst] (J.P. Morgan): Okay. It's helpful, Robert. Appreciate the time.

Matthew Brooklier: Okay. It's helpful, Robert. Appreciate the time.

Okay. That's helpful. Robert I appreciate the time.

Robert Sanchez: Thanks, Matt.

Thanks, Matt.

And ladies and gentlemen, if you find that your question has been answered you may remove yourself from the queue by pressing the star key followed by the digit too.

Operator: Ladies and gentlemen, if you find that your question has been answered, you may remove yourself from the queue by pressing the star key followed by the digit two. We'll take our next question from Scott Group with Wolfe Research. Please go ahead.

Well take our next question from Scott Group with Wolfe Research. Please go ahead.

Hey, Thanks morning, guys. So I think last quarter, you guys talked about a 40 cents headwind in 19, and then again in 20 from losses on sales and lower residual values can you give the updated number now in the guidance for 19, and then you know does this make the 2020 number or worse as well.

[Analyst] (Wolfe Research): Hey, thanks. Morning, guys.

Scott Group: Hey, thanks. Morning, guys.

Robert Sanchez: Hey, Scott.

[Analyst] (Wolfe Research): I think last quarter, you guys talked about a $0.40 headwind in 2019 and then again in 2020 from losses on sales and lower residual values. Can you give the updated number now in the guidance for 2019? Then, you know, does this make the 2020 number worse as well? Then I got the used truck pricing year-over-year, but I didn't hear sequentially. Maybe if you can give us that, too, and what you're thinking about for back half of the year used truck price.

Scott Group: I think last quarter, you guys talked about a $0.40 headwind in 2019 and then again in 2020 from losses on sales and lower residual values. Can you give the updated number now in the guidance for 2019? Then, you know, does this make the 2020 number worse as well? Then I got the used truck pricing year-over-year, but I didn't hear sequentially. Maybe if you can give us that, too, and what you're thinking about for back half of the year used truck price.

And then I got they used truck pricing year over year, but I didn't hear sequentially. So maybe if you can give us that too and what you're thinking about for back half of the are used truck price.

Yeah, Let me, let me address the second half of the year the majority of the reduction in.

Robert Sanchez: You know, let me address the second half of the year. The majority of the reduction in guidance is really from the used truck side. You can argue those, that's just incremental, whether it's accelerated depreciation, valuation, adjustments, or losses, that'll be incremental to the $0.38 that we discussed at the beginning of the year. As it relates to what the pricing assumptions that we've made to build that guidance, we believe we made some prudent adjustments to the forecast. To put it into some context, it is really based on a slowdown in volume that we saw beginning late in the quarter, I mean, June.

Guidance is really from the used truck side. So you can argue those that's just incremental whether it's accelerated depreciation valuation adjustments are losses that would be incremental to the 38 cents that we discussed at the beginning of the year.

As it relates to what the pricing assumptions that we've made to to build that guidance. We believe we made prudent adjustments to the forecast.

To put it into some context it is really based on.

A slowdown in volume that we saw beginning late in the quarter I mean June .

Robert Sanchez: In June, we had been kind of clipping along at a pretty decent volume level with the pricing we had, and in June, we really saw a drop off, which I think is what the broader market has also saw in June. Based on that and our assessment of the pricing environment for used trucks, we did take down our tractor pricing. This is really a tractor issue, a Class A tractor issue. We brought down our tractor pricing about 10% in July to align with where kind of we saw the market. As we go into the second half of the year, that's built in.

So in June we saw we had been kind of clipping along at a pretty decent volume level.

With the pricing we had and in June we really saw a drop off which I think is what the broader market is also saw in June so.

Based on that and our assessment of the.

Pricing environment for used trucks, we did take down our our tractor pricing. This is really a tractor issue of classic tractor issue, we brought down our tractor pricing about 10% in July .

To align with where kind of we saw the market.

So as we go into next we go to the second half of the year that's built in.

Robert Sanchez: In addition to that, we know we have more volume to sell in the second half, and we want to retail as much of that volume that we can. Given the softness that we saw in June, we assumed in the forecast that most of that is going to be wholesale. That's why you see a maybe a more disproportionate impact from that. That doesn't take away from the fact that we're doing everything we can based on the expanded sales force and inside sales to retail as much as we can. We felt given that level, one month only of really seeing it, and that level of uncertainty, we felt it was prudent to come in at that level. As it relates to 2020, I would tell you it's still too early to tell.

In addition to that we know we have more volume to sell in the second half.

And we want to retail as much of that volume that we can.

But given the softness that we saw in June we assumed in the forecast that most of that is going to be wholesale.

So that's why you see a maybe a more disproportionate impact from that so that doesn't take away from the fact that we're doing everything we can based on the expanded sales force and inside sales to retail as much as we can but we felt given that that level. One month only have a really seeing it.

And that level of uncertainty we felt it was prudent to come in at that level.

Robert Sanchez: As it relates to 2020, I would tell you it's still too early to tell. I think if used truck pricing, you know, does decline, and the amount of wholesaling that we have to do materializes as we go into 2020, you'd probably, if that trend continues, you'd have more impact from either gains or losses or accelerated. The policy impact probably wouldn't change much. It's a 5-year rolling average, but you would see that. There's still a lot remains to be seen. Number one is, does the decline really materialize? If it does materialize, how steep will it go? The duration of a slowdown, if it does happen.

As it relates to 2020 I would tell you it's still too early to tell.

Robert Sanchez: I think if used truck pricing, you know, does decline, and the amount of wholesaling that we have to do materializes as we go into 2020, you'd probably, if that trend continues, you'd have more impact from either gains or losses or accelerated. The policy impact probably wouldn't change much. It's a 5-year rolling average, but you would see that. There's still a lot remains to be seen. Number one is, does the decline really materialize? If it does materialize, how steep will it go? The duration of a slowdown, if it does happen.

I think if if used truck pricing does decline.

And the amount of wholesale yet we have to do it materializes as we go into 20 as we go into 2020, you'd probably if that trend continued you'd have more impact from either gains or losses or accelerated policy, probably wouldn't the policy impact probably wouldn't change much as the five year Rolling average, but you would see that so still a lot remains to be seen number. One is is the decline really materialize. If it does materialize. The how steep will that go and then the duration of a slowdown if it does happen. So it's kind of a challenging time for us to do a forecast only because we only had really one month and now maybe call. It a month and a half of really seeing the impact of this so we try to give you. The best view that we can based on the information that we have but clearly our goal is to try to again stays the same or strategist a retail as many vehicles as we possibly can.

Robert Sanchez: It's kind of a challenging time for us to do a forecast, only because we only had really 1 month, and now maybe call it a month and a half, of really seeing the impact of this. We try to give you the best view that we can based on the information that we have. Clearly our goal is to try to, again, stays the same. Our strategy is to retail as many vehicles as we possibly can.

Just so I understand when you guys were originally talking about that 47 give or take headwind again in 2020, we are you assuming additional.

[Analyst] (Wolfe Research): Just so I understand, when you guys were originally talking about that $0.40, give or take, headwind again in 2020, were you assuming additional accelerated depreciation next year? I guess, does it now feel more likely that we'll have to do that?

Scott Group: Just so I understand, when you guys were originally talking about that $0.40, give or take, headwind again in 2020, were you assuming additional accelerated depreciation next year? I guess, does it now feel more likely that we'll have to do that?

Accelerated depreciation next year, and then I guess doesn't now feel more likely that we'll have to do that.

We we were assuming more accelerated depreciation next year, and then a larger policy adjustment with less accelerated in 2021, so what what if pricing comes down there will be more accelerated I would argue than what we had before but again Scott I think that still remains to be seen if I. If I had three months of experience under my belt before we gave you. This forecast I'd be able to probably give you a little bit better color, but given it was such a short timeframe I think we try to take a prudent number here, but it's hard to tell exactly where you know the market will settle in the next several months.

Robert Sanchez: We were assuming more accelerated depreciation next year, and then a larger policy adjustment with less accelerated in 2021. What would if pricing comes down, there will be more accelerated, I would argue, than what we had before. Again, Scott, I think that still remains to be seen. If I had had 3 months of experience under my belt before we gave you this forecast, I'd be able to probably give you a little bit better color. Given it was such a short time frame, I think we try to take a prudent number here, but it's hard to tell exactly where, you know, the market will settle in the next several months.

Okay. Thank you.

[Analyst] (Wolfe Research): Okay. Thank you.

Scott Group: Okay. Thank you.

Robert Sanchez: Okay.

Right.

We will take our next question from Brian Ossenbeck with Jpmorgan. Please go ahead.

Operator: We will take our next question from Brian Ossenbeck, with J.P. Morgan. Please go ahead.

Hey, good morning, Thanks for taking the question.

[Analyst] (J.P. Morgan): Hey, good morning. Thanks for taking the question. Maybe just to follow up on the last line of questioning on trends in the market, specifically tractors. You mentioned things particularly got softer in June. I know there's a little bit of seasonality coming into July and the summer, can you give us an update on how things trended from June into July so far, both in rental and in used vehicles, specifically on the tractor side?

Brian Ossenbeck: Hey, good morning. Thanks for taking the question. Maybe just to follow up on the last line of questioning on trends in the market, specifically tractors. You mentioned things particularly got softer in June. I know there's a little bit of seasonality coming into July and the summer, can you give us an update on how things trended from June into July so far, both in rental and in used vehicles, specifically on the tractor side?

Maybe just a follow up on on the last.

Line of questioning on trends in the market, specifically tractors I mentioned things, particularly got softer in in June .

I know there is less seasonality coming into July in the summer, but can you give us an update on how things trended from from June and into July so far both and rental and used vehicle specifically on the tractor side.

Yeah, I think on the rental side, specifically around tractors, we're seeing we're seeing the trend behaves seasonally what you'd expect.

Robert Sanchez: Yeah, I think on the rental side, specifically around tractors, we're seeing the trend behave seasonally the way you'd expect. I would say tractor rental was consistent with what we saw in June, which was, you know, kind of what we've got built into the forecast. Around used vehicle sales, again, it's still too early to tell, because a lot of the sales really come in at the end of the month. With the change in pricing, we have seen more activity, both in our inside sales and at our lots. You know, more retail activity would obviously be good for the balance of the year forecast. Again, I'd say it's still too early to tell on that.

So I would say tractor rental was consistent with what we saw in June .

Which was kind of what we've got built into the forecast around used vehicle sales again, it's still too early to tell a lot of the sales really come in at the end of the month.

But with the with the changing in pricing, we have seen more activity.

Both in our inside sales and at our lots. So you know more retail activity would obviously be.

Good for the the balance a year forecast, but again I'd say, it's still too early to tell on that.

Okay and then the.

[Analyst] (J.P. Morgan): Okay. The export market, I know it's not a huge factor here, but it can be a swing, specifically in North America. What are you guys seeing so far year to date and expecting for the rest of the year?

Brian Ossenbeck: Okay. The export market, I know it's not a huge factor here, but it can be a swing, specifically in North America. What are you guys seeing so far year to date and expecting for the rest of the year?

The export market I know, it's not a huge factor here, but it can be a swing.

Specifically North America, what are you guys seeing so far year to date and expecting for the rest of the year.

Robert Sanchez: Yeah, during this cycle, it's been tough because, you know, with the strong dollar and what's going on outside the US and some of the emerging markets, we haven't seen the same level of demand that we've seen at other times. It's still somewhat limited, I would say, in terms of demand. You know, I think it's kind of interesting because, I think if you look at used vehicle sales, it's relatively easy to forecast the supply of used trucks that'll be in the market based on what's been built over the last several years. The tough part is really forecasting demand.

Yes, you are in this cycle, it's been it's been tough because you know with the strong dollar and what's going on outside the U.S. and some of the emerging markets. We haven't seen the same levels of demand that we've seen at other times. So it's still somewhat limited I would say in terms of of demand. So I think it's kind of interesting because.

I think if you look at used vehicle sales, it's pretty it's relatively easy to forecast the supply of used trucks. It will be in the market based on what's been built over the last several years. The tough part is really forecasting demand and you know with what happened in the poor higher market over the last 12 months as you've seen.

Robert Sanchez: You know, with what happened in the for-hire market over the last 12 months, as you've seen for-hire rates come down, you've seen freight begin, volumes begin to soften the last several months. I think that all plays into just less demand, if you will, for some of these vehicles. As, as everything goes, the economy picks up, you start seeing more stuff moving around, and you can see this thing flip the other way pretty quickly, too.

For higher rates come down Youve seen freight beginning volumes begin to soften the last.

Several months I think that all plays into just fewer to less demand. If you will for some of these vehicles, but as a as everything goes the economy picks up.

You start seeing more stuff moving around and you can see this thing flip the other way pretty quickly too. So theres still a lot of I would say uncertainty around it.

[Analyst] (J.P. Morgan): Mm-hmm.

Brian Ossenbeck: Mm-hmm.

Robert Sanchez: There's still a lot of, I would say, uncertainty around it, but we're certainly seeing in the used truck market what I think you've heard from other companies that are in this space in terms of really what was volume softness in June. You know, we're trying to be prudent about what we expect for the balance of the year.

But we're certainly seeing in the used truck market, what I think you've heard from other.

Companies that are that are in this space and in terms of really what was volume softness in June .

And then you know we're we're we're trying to be prudent about what we expect for the balance of the year.

All right, Thanks, and if I guess, just one quick follow up in the backlog sort of big split when I'm looking at tractor specific these are big split between sleepers and take caps.

[Analyst] (J.P. Morgan): All right. Thanks. In fact, I guess just one quick follow-up in the backlog. Is there a big split when we're looking at tractors specifically, is there a big split between sleepers and day cabs?

Brian Ossenbeck: All right. Thanks. In fact, I guess just one quick follow-up in the backlog. Is there a big split when we're looking at tractors specifically, is there a big split between sleepers and day cabs?

You're talking about and that we have to sell.

Robert Sanchez: You're talking about in the, that we have to sell?

[Analyst] (J.P. Morgan): Yes. Yeah, what's held for sale? Is there a different mix, you know, now versus early in the year or last year when you look at what's in there, any material difference with sleepers and day cabs?

Brian Ossenbeck: Yes. Yeah, what's held for sale? Is there a different mix, you know, now versus early in the year or last year when you look at what's in there, any material difference with sleepers and day cabs?

Yes, yeah, what's what's held for sale is there a different mix now versus earlier in the year and last year. When you look at what's in there.

Any material difference was sleepers and indeed, yes, no. It it's about 50 50 about 50 okay.

Robert Sanchez: Yeah, no, it's about 50/50.

[Analyst] (J.P. Morgan): Okay.

Brian Ossenbeck: Okay.

Robert Sanchez: Yeah.

Okay. All right. Thanks for the time is mine.

[Analyst] (J.P. Morgan): All right. Thank you for the time this morning.

Brian Ossenbeck: All right. Thank you for the time this morning.

Robert Sanchez: All right, Brian.

Hi, Brian .

Well take our next question from Todd Fowler with Keybanc capital markets. Please go ahead.

Operator: We'll take our next question from Todd Fowler with KeyBanc Capital Markets. Please go ahead.

[Analyst] (KeyBanc Capital Markets): Great. Thanks, good morning.

Great. Thanks, and good morning, Robert can you just talk a little hey, good morning can you talk a little bit more about the lease pipeline I mean, obviously had strong visibility coming into this year and you've been pretty confident around that 11 11000.

Todd Fowler: Great. Thanks, good morning.

Robert Sanchez: Hey, Todd.

[Analyst] (KeyBanc Capital Markets): Robert, can you just talk? Hey, good morning. Can you talk a little bit more about the lease pipeline? I mean, obviously, you had strong visibility coming into this year, and you've been pretty confident around that 11,000 units. You've booked a lot of that now, in the first half. As you look out over into the second half, I guess, how do we think about the cadence of additions? I think you've talked about kind of 3,500 as a baseline into 2020. You know, can you just talk a little bit about what you're seeing on the lease side and expectations going forward?

Todd Fowler: Robert, can you just talk? Hey, good morning. Can you talk a little bit more about the lease pipeline? I mean, obviously, you had strong visibility coming into this year, and you've been pretty confident around that 11,000 units. You've booked a lot of that now, in the first half. As you look out over into the second half, I guess, how do we think about the cadence of additions? I think you've talked about kind of 3,500 as a baseline into 2020. You know, can you just talk a little bit about what you're seeing on the lease side and expectations going forward?

Units Youve booked a lot of that now in the first half as you look out over into the second half I guess, how do we think about the cadence of additions and I think you've talked about kind of 3500 as a baseline into 2012 or 2020.

Yes can you just talk a little bit about what you're seeing on the lease side and expectations going forward.

Well I'll tell you the lead sales I would say its heightened across.

Robert Sanchez: Well, I'll tell you the lease sale, I'll tell you, it's the same across all of our contractual businesses, that it remains very strong. Now, for all of them versus last year, we're down from last year because last year was a record year in terms of sales. If you look at where we're going to end the year, I'd say for contractual businesses and even in our ChoiceLease business, it should be third best sales year in the history of the company. Still a very healthy pipeline, a lot of demand, you know, more companies wanting to outsource truck fleets, wanting to outsource to dedicated, wanting to outsource logistics. Those secular trends are in full swing, and we don't see them necessarily slowing down.

All of our contractual business is that it remains very strong very strong now.

For all of them versus last year and were down from last year, because last year was a record year in terms of of sales, but if you look at where we're going to end the year I'd say for contractual businesses and even in our choice leads business. It should be third best sales year in history of the company. So still a very healthy pipeline a lot of demand more companies wanting to outsource truck fleets wanting to outsource to dedicated wanting to outsource logistics. So the secular trends are in full swing and we don't see them necessarily slowing down obviously, the just the level of overall economic activity is less than it was last year, but.

Robert Sanchez: Those secular trends are in full swing, and we don't see them necessarily slowing down. Obviously, the level of overall economic activity is less than it was last year. We still see those going forward as, you know, good trends for growth. You know, I would expect this year's growth, we're looking at now maybe 11,000 or so. Last year was about 10,000. Next year, given the OEM production information and forecast that we have, which, you know, a lot of folks expect to be down maybe 20%, I would expect our growth will be down also, just relative to there's fewer at bats, if you will, for us.

Robert Sanchez: Obviously, the level of overall economic activity is less than it was last year. We still see those going forward as, you know, good trends for growth. You know, I would expect this year's growth, we're looking at now maybe 11,000 or so. Last year was about 10,000. Next year, given the OEM production information and forecast that we have, which, you know, a lot of folks expect to be down maybe 20%, I would expect our growth will be down also, just relative to there's fewer at bats, if you will, for us.

We still see those going forward as as.

Good trends for growth now you know I would expect this year's growth we're looking at now maybe.

11000, or so last year was about 10000 next year given the.

Oh am production information and forecast that we have which you know a lot of folks expect to be down maybe 20%.

I would expect our growth will be down also just relative to the fewer at bats, if you will for <unk>.

[Analyst] (KeyBanc Capital Markets): Mm-hmm.

Todd Fowler: Mm-hmm.

Robert Sanchez: I also, based on the asset management actions that we're taking to reduce our rental fleet and redeploy equipment, I would expect more of our lease sales to be fulfilled with used equipment versus new. That will mostly impact the late in this year, as a lot of our new leases are already locked in or scheduled through end of October, beginning of November. I would expect as we go into next year, we'll still continue to have more of that redeployment activity, and that should have, you know, some reduction in CapEx as we get into 2020, in addition to less growth.

I also based on the asset management.

Actions that we're taking to reduce our rental fleet and redeploy equipment.

I would expect more of our lease sales to be fulfilled with used equipment.

Versus new.

That will mostly impact late in the in this year.

As a lot of our our new leases already locked in or or schedule through to a end of October beginning in November .

But I would expect as we go into next year, we'll still continue to have more of that redeployment activity and that should reduce.

Some reduction in Capex as we get into 2020 in addition to less growth.

[Analyst] (KeyBanc Capital Markets): Okay, that's helpful.

Todd Fowler: Okay, that's helpful.

Okay. That's helpful. And then just a follow up as you see that shift on rental to you know the strength that you're seeing in medium duty versus you know the the tractor market.

Robert Sanchez: Okay.

[Analyst] (KeyBanc Capital Markets): Just to follow up, as you see that shift on rental to, you know, the strength that you're seeing in medium duty versus, you know, the tractor market, is there an impact on profitability? I mean, is the margin profile different? I would think that the revenue per unit's, you know, probably meaningfully different between those two classes or the breakout there. How do we think about the profitability, you know, if we see kind of that continued secular demand on the medium-duty side relative to the tractor side?

Todd Fowler: Just to follow up, as you see that shift on rental to, you know, the strength that you're seeing in medium duty versus, you know, the tractor market, is there an impact on profitability? I mean, is the margin profile different? I would think that the revenue per unit's, you know, probably meaningfully different between those two classes or the breakout there. How do we think about the profitability, you know, if we see kind of that continued secular demand on the medium-duty side relative to the tractor side?

Is there any impact on profitability I mean is the margin profile different I would think that the revenue per units probably meaningfully different between those two classes or the break out there how do we think about the profitability you know if we see kind of that continued secular demand on the medium duty side relative to the tractor side.

Robert Sanchez: I think if you looked at it, if you step back and look at it, the profitability overall, the returns overall on the trucks will be better than on the tractors.

Yeah, I think I think if you looked at it if you step back and look at it the profitability overall the returns overall on the trucks will be better than on the tractors. So it's not a bad thing necessarily but tractors are part of obviously our portfolio harder the lease portfolio. So youre going to see that tractor demand move up and down and rental just like truck demand at some point, but also.

Robert Sanchez: I think if you looked at it, if you step back and look at it, the profitability overall, the returns overall on the trucks will be better than on the tractors.

[Analyst] (KeyBanc Capital Markets): Okay.

Todd Fowler: Okay.

Robert Sanchez: It's not a bad thing necessarily, tractors are part of, obviously, our portfolio, part of the lease portfolio. You're going to see that tractor demand move up and down in rental, just like truck demand at some point could also. Over the cycle, both of them will, you know, provide good returns for us. That's really the way I would characterize it. I'd say the move from tractors to truck is not a bad thing for returns.

But over the cycle both of them will provide good returns for us. So that that's really the way I would characterize that I'd say, but I'd say the move from tractors to truck.

There is not a bad thing for returns.

[Analyst] (KeyBanc Capital Markets): Okay, for returns, it makes sense, but maybe some impact depending on where we're at in the cycle from a margin standpoint.

Todd Fowler: Okay, for returns, it makes sense, but maybe some impact depending on where we're at in the cycle from a margin standpoint.

Okay for returns it makes sense, but maybe some impact depending on where we're at in the cycle from a margin standpoint, correct correct. Okay. Good that's helpful. I'll get back in line. Thank you for the time.

Robert Sanchez: Correct. Correct.

[Analyst] (KeyBanc Capital Markets): Okay, good. That's helpful. I'll get back in line. Thank you for the time.

Todd Fowler: Okay, good. That's helpful. I'll get back in line. Thank you for the time.

Robert Sanchez: Thanks, Todd.

Thanks.

And we'll take our next question from Jeff Kauffman with loop capital markets. Please go ahead.

Operator: We will take our next question from Jeff Kaufman with Loop Capital Markets. Please go ahead.

Thank you good morning, everybody.

[Analyst] (Loop Capital Markets): Thank you. Good morning, everybody. Good morning, Scott. I want to go a different direction and talk about some of the growth initiatives on the table, particularly on the alternative fuel side. In particular, a company called Nikola is coming out with their fuel cell product. You're one of a number of companies partnering, not just in the leasing of this product to their initial customers, but also the buildout of their hydrogen fueling stations over the next couple of years. Can you talk a little bit about this project and what kind of expectations there might be on, you know, capital or returns? My understanding is these fuel cell trucks are going to be fairly expensive, and you're going to be leasing them to the customers.

Jeff Kauffman: Thank you. Good morning, everybody. Good morning, Scott. I want to go a different direction and talk about some of the growth initiatives on the table, particularly on the alternative fuel side. In particular, a company called Nikola is coming out with their fuel cell product. You're one of a number of companies partnering, not just in the leasing of this product to their initial customers, but also the buildout of their hydrogen fueling stations over the next couple of years.

Good morning, Scott.

I wanted to go a different direction and talk about some of the growth initiatives on the table, particularly on the alternative fuel side.

In particular, a company called Nicola.

Is coming out with their fuel cell product you are one of a number of companies partnering not just in the leasing of this product to their initial customers, but also the build out of their hydrogen fueling stations over the next couple of years.

Jeff Kauffman: Can you talk a little bit about this project and what kind of expectations there might be on, you know, capital or returns? My understanding is these fuel cell trucks are going to be fairly expensive, and you're going to be leasing them to the customers.

Can you talk a little bit about this project and what kind of expectations there might be on.

Capital or returns my understanding is these fuel cell trucks or that will be fairly expensive and you're gonna be leasing them to the customers.

Right we are we.

Robert Sanchez: Right. We've, we announced our partnership with Nikola now a couple of years ago.

We announced our partnership with nickel I know a couple of years ago correct.

[Analyst] (Loop Capital Markets): Correct.

Jeff Kauffman: Correct.

Robert Sanchez: We've gone out and looked for companies that are startups and innovators in new engine technology and alternative fuels. Our role and our partnership with Nikola is really as their sales and service arm, or sales and service network, if you will, here in North America. As they move through their development phase and into production, you know, once they're in production and at a point where they can deliver, they're going to be delivering trucks, that's when Ryder really will start to play a bigger role in terms of us being able to provide a sales avenue for them and also a maintenance and service avenue for them. I think we're still early innings, if you will, in that process.

As we've gone out and look for companies that are.

Startups and innovators in and.

And new engine technology, and and alternative fuels.

So our growth.

And our partnership with nickel as really as their sales and service arm.

Our sales and service network, if you will hear in North America, so as they move through their development.

Phase and into production.

What's the current production at a point, where they can deliver they're going to be delivering trucks. That's one ride it really will start to play a bigger role in terms of.

US being to provide a sales.

Avenue for them and also a.

Maintenance and services Avenue for them, but I think we're still early innings. If you will in that process I think we're still looking at a earliest rollout still several years from now so it's an interesting technology and it's a we're encouraged by it but still a lot of work to do to get it to production.

Robert Sanchez: I think we're still early innings, if you will, in that process. I think, you know, we're still looking at a earliest rollout still several years from now. It's an interesting technology. It's, we're encouraged by it, but still, a lot of work to do to get it to production.

Robert Sanchez: I think, you know, we're still looking at a earliest rollout still several years from now. It's an interesting technology. It's, we're encouraged by it, but still, a lot of work to do to get it to production.

[Analyst] (Loop Capital Markets): Yeah, I think just to follow up, they had given a presentation at the ACT Expo. I think they said their first trucks were going to be delivered to customers later this year with a larger rollout, probably by 2022. Will you be owning those trucks, purchasing them, and then leasing them out to the customers? Will you be bearing risk in the marketplace when those leases expire?

Jeff Kauffman: Yeah, I think just to follow up, they had given a presentation at the ACT Expo. I think they said their first trucks were going to be delivered to customers later this year with a larger rollout, probably by 2022. Will you be owning those trucks, purchasing them, and then leasing them out to the customers? Will you be bearing risk in the marketplace when those leases expire?

Oh, Yeah, I think just to follow up.

They had given a presentation at the act Expo and I think they said their first trucks are going to be delivered to customers. Later this year with a larger rollout probably by 2022.

But will you be owning those trucks.

Purchasing them and then leasing them out to the customers and will you be bearing.

Risk in the marketplace when those leases expire.

Yes, no we won't be partnering with them on on that because a lot of details around exactly how.

Robert Sanchez: Yeah, no, we will be partnering with them on that piece. A lot of the details around exactly how that'll be put together is still to be worked out. You know, clearly on these types of vehicles, there's a significant upfront capital expenditure that we will be working with Nikola on how to address those.

That will be put together still to be worked out but.

Clearly on the these types of vehicles, there's a there's a significant upfront capital expenditure that we will work, we will be working with nickel on how to how to to address those.

[Analyst] (Loop Capital Markets): All right. Sounds exciting.

Jeff Kauffman: All right. Sounds exciting.

Oh, that's really exciting it's still early it's still early.

Robert Sanchez: It's still early.

[Analyst] (Loop Capital Markets): Yeah.

Jeff Kauffman: Yeah.

Robert Sanchez: It's still early.

[Analyst] (Loop Capital Markets): Okay, that's what I wanted to know. Thank you.

Jeff Kauffman: Okay, that's what I wanted to know. Thank you.

Okay. That's what I wanted to know thank you yes. Thank you.

Robert Sanchez: Thank you.

Our next question will come from Stephanie Benjamin with Suntrust. Please go ahead.

Operator: Our next question will come from Stephanie Benjamin with SunTrust. Please go ahead.

Hi, Good afternoon, I wanted to circle back on just the.

[Analyst] (SunTrust): Hi, good afternoon. I wanted to circle back on just the used truck pricing environment and the guidance reduction. Could you give a little bit of color, still kind of a broad range with your expectations for the full year for EPS? What's baked in? I know you mentioned that you took pricing down about 10%, kind of based on what you saw in June. Can you kind of walk through the levers of how, what kind of happens to get to the low end of your guidance and then conversely, the high end of your guidance? Thanks.

Stephanie Benjamin: Hi, good afternoon. I wanted to circle back on just the used truck pricing environment and the guidance reduction. Could you give a little bit of color, still kind of a broad range with your expectations for the full year for EPS? What's baked in? I know you mentioned that you took pricing down about 10%, kind of based on what you saw in June. Can you kind of walk through the levers of how, what kind of happens to get to the low end of your guidance and then conversely, the high end of your guidance? Thanks.

Used truck pricing environment in the guidance.

Production could use a little bit of color on still kind of broad range. What's your expectations for the full year for EPA asked whats baked in I know you mentioned that you kept pricing down about 10% kind of based on what you saw in June can you kind of walk through the levers of how what kind of happens to get to the low end of your guidance and then Conversely, the high end of your guidance. Thanks.

Robert Sanchez: Yeah, Stephanie, you know, I wanted to give you a little bit of color with that 10% and then the fact that we're going to wholesale more. You know, given still a lot of uncertainty in the market, I certainly don't want to be totally prescriptive about exactly what's built in, only because we don't know yet. We've tried to give a range that gives you some indication of where things could go. It could be that, you know, the range was built on 10% decline in retail that we already put in place, and then the incremental amount of vehicles we have to wholesale, tractors we have to wholesale, we have to sell will be wholesaled. That may not be the way we get there. We may retail more.

Yes, you know I wanted to give you a little bit of color was that 10% and then the fact that we're going to wholesale Mart, but you know.

Given given still a lot of uncertainty in the market I, certainly don't want to be totally prescriptive about exactly what's built it only because we don't know yet and we've tried to give a.

A range that gives you some indication of where things could go and it could be that I.

The the range was built on 10% decline in retail that we already put in place and then the incremental amount of vehicles, we have to wholesale tractors. We have to wholesale we have to sell will be wholesale.

Robert Sanchez: That may not be the way we get there. We may retail more. Hopefully, we do retail more. We don't know what the retail price is going to be. I think this gives you a good view of where the results would be or could be, and that we think we've made the right adjustments and the prudent adjustments. There's obviously upside if we do better, but I don't want to get too prescriptive of exactly the numbers, because the truth is, we don't know, and we certainly don't want to impact the market, you know, precise assumptions that we're making.

That.

May not be the way, we get there we may retail more hopefully, we'll do retail more we don't know what the retail price is going to be so I think this gives you a.

Robert Sanchez: Hopefully, we do retail more. We don't know what the retail price is going to be. I think this gives you a good view of where the results would be or could be, and that we think we've made the right adjustments and the prudent adjustments. There's obviously upside if we do better, but I don't want to get too prescriptive of exactly the numbers, because the truth is, we don't know, and we certainly don't want to impact the market, you know, precise assumptions that we're making.

A good view of where.

The results would be.

Or could be and then we think we've made the right adjustments in the prudent adjustments Theres, obviously upside if we do better but I don't want to get too prescriptive them exactly the numbers because we don't know and we certainly don't want to impact the market.

You know precise assumptions that we're making.

No understood I think that makes lot of sense and then just a follow up to that in terms of other initiatives and they've been pretty vocal on what you've been doing a build out your retail sales force internally. This such that wholesale to retail is there anything else from just from a cost perspective, or overall cost reduction programs that you might be able to either accelerate or off to offset some of this decline as well just kind of maybe walk through some other levers you have to Paul.

[Analyst] (SunTrust): No, understood. I think that makes a lot of sense. Just a follow-up to that. In terms of other kind of initiatives, I know you've been pretty vocal on what you've been doing to build out your retail sales force internally to switch from that wholesale to retail. Is there anything else from just a cost perspective or overall cost reduction programs that you might be able to either accelerate or to offset some of this decline as well? Just kind of maybe walk through some other levers you have to pull.

Stephanie Benjamin: No, understood. I think that makes a lot of sense. Just a follow-up to that. In terms of other kind of initiatives, I know you've been pretty vocal on what you've been doing to build out your retail sales force internally to switch from that wholesale to retail. Is there anything else from just a cost perspective or overall cost reduction programs that you might be able to either accelerate or to offset some of this decline as well? Just kind of maybe walk through some other levers you have to pull.

Robert Sanchez: Yeah, I think, look, cost reduction. We talked about the maintenance cost initiatives. We're really encouraged by that, making very good progress, and we're on target for this year and really seeing good progress for the ongoing components of that. We're very encouraged by that. Zero-based budgeting continues to be at the foundation of our budgeting process. Those are levers that we could continue to pull. We also, I would tell you, beyond that, we're also looking at within our used vehicle sales operation, continuing to find efficiencies with more of our inside sales and drawing more leads into inside sales. We are making continued enhancements on our website to really attract more buyers and make it easier for people to buy online.

Yeah, I think look cost reduction we talked about the maintenance cost initiatives, we're really encouraged by that making very good progress and were on target for this year and really seeing good progress for the ongoing.

Components of that so we're very encouraged by that zero based budgeting continues to be at the foundation of our budgeting process. So those are levers that we could continue to the pool. We also.

I would tell you that that beyond that we're also looking at within our used vehicle sales operation.

Continuing to find efficiencies with more of our inside sales.

And drawing board leads into inside sales, we are making a continued enhancements on our website.

Robert Sanchez: We are making continued enhancements on our website to really attract more buyers and make it easier for people to buy online. We've got some changes coming in now, and we've got some changes coming in at the end of the year that could really help us facilitate bringing more people to our website and then making it easier for them to transact with us, which we're encouraged about. I think those are the big things that we're gonna work on. We also, I would tell you, are also looking to continue to de-risk our leases, right?

Took to really attract more buyers and make it easier for people to buy online. So we've got some changes coming in now and we've got some changes coming in at the end of the year that could really help us facilitate bringing more people to our website and then making it easier for them to transact with US which were were encouraged about so I think those are the those are the big things that we were going to work on we also I would tell you.

Robert Sanchez: we've got some changes coming in now, and we've got some changes coming in at the end of the year that could really help us facilitate bringing more people to our website and then making it easier for them to transact with us, which we're encouraged about. I think those are the big things that we're gonna work on. We also, I would tell you, are also looking to continue to de-risk our leases, right? We talked about last year, the beginning of last year, we really reduced the residual value assumptions on all of our leases to really improve the, or reduce the risk associated with that final residual value, which obviously we've been impacted with over the last few years.

We are also looking to continue to de risk our leases right. We talked about last year beginning last year. We started we really reduce the residual value assumptions on all of our leases.

Robert Sanchez: We talked about last year, the beginning of last year, we really reduced the residual value assumptions on all of our leases to really improve the, or reduce the risk associated with that final residual value, which obviously we've been impacted with over the last few years. We feel very good about the new leases that we're putting on, but we're gonna continue to look for more ways to reduce that risk, right?

To really improve the the or reduce the risk associated with that final residual value, which obviously we've been.

We've been impacted with over the last few years. So we feel very good about the new leases that were putting on but we're going to continue to to look for more ways to reduce that risk right whether its continue to reduce the residuals, maybe getting more granular about the returns of our leases by industry sector. So which are the industries that we maybe have better returns that don't have better returns. So we're going to continue to refine I think capital allocation.

Robert Sanchez: We feel very good about the new leases that we're putting on, but we're gonna continue to look for more ways to reduce that risk, right? Whether it's continuing to reduce the residuals, maybe getting more granular about the returns of our leases by industry sector, which are the industries that we maybe have better returns or don't have better returns. We're gonna continue to refine that. I think capital allocation is extremely important in our business with the amount of capital that we deploy, and really being able to, now that we have this growth, also be able to now be more precise and more targeted about where the capital goes to make sure over time, we're getting improved returns.

Robert Sanchez: Whether it's continuing to reduce the residuals, maybe getting more granular about the returns of our leases by industry sector, which are the industries that we maybe have better returns or don't have better returns. We're gonna continue to refine that. I think capital allocation is extremely important in our business with the amount of capital that we deploy, and really being able to, now that we have this growth, also be able to now be more precise and more targeted about where the capital goes to make sure over time, we're getting improved returns.

Is extremely important in our business with the amount of capital that we that we deploy and really being able to now that we have this growth also be able to now.

The more more precise and more targeted about where the capital goes to make sure overtime. We are getting improved improved returns.

[Analyst] (SunTrust): Great. Really appreciate the color. Thanks so much.

Stephanie Benjamin: Great. Really appreciate the color. Thanks so much.

Great really appreciate the color. Thanks, so much.

Robert Sanchez: Thank you, Stephanie.

Thank you Sir.

We'll take our next question from David Ross with Stifel. Please go ahead.

Operator: We'll take our next question from David Ross with Stifel. Please go ahead.

[Analyst] (Stifel): Yes, good morning, everyone.

David Ross: Yes, good morning, everyone.

Yes, good morning, everyone.

Robert Sanchez: Good morning, David.

Good morning, David.

[Analyst] (Stifel): Yeah, Rob, you made a quick comment at the end of, one of those answers there about a bigger policy adjustment in 2021. Can you just explain what you're talking about there?

David Ross: Yeah, Rob, you made a quick comment at the end of, one of those answers there about a bigger policy adjustment in 2021. Can you just explain what you're talking about there?

Yeah problematic.

Quick comment at the end of one of those answers there about a bigger policy adjustment in 2021.

Can you just explain what you're talking about there.

Robert Sanchez: Yeah. No, what I meant is we gave some guidance at the beginning of this year, where we said, if used truck pricing remains at the 2018 levels, that we would have similar impact from used vehicle sales with the combination of policy accelerated and gains and losses, that we would have a similar impact in 2020 and 2021, as we saw in 2019, or we were originally forecasting in 2019, which was $0.38. What I was trying to explain is that obviously, if used truck pricing were to drop below those levels, I would expect us in 2020 to have more, whether you call it losses or accelerated depreciation.

Yeah, No what I meant is we gave we gave some guidance at the beginning of this year.

Where we said if used truck pricing remain.

At the 2018 levels that we would have similar.

Impact from used vehicle sales, what's the combination of policy accelerated and and gains and losses.

That we would have a similar impact in in 2020 and 2021 as we saw in 2019 or were originally forecasting in 2019, which was 38 cents.

So.

What I was trying to explain is that obviously have used truck pricing were to drop below those levels I would expect us in 2020 to have worn whether you call it losses or accelerated depreciation.

Robert Sanchez: Then as I get into 2021, if it remained at that level, which is still a big if, and, you know, really getting ahead of ourselves if we're making that assumption, I would say that then your 5-year rolling average, you would be adding probably a lower year in 2020 than we had originally forecast, somewhat lower, which would mean that the 5-year rolling average would be, it would have more depreciation headwind from that. Again, that's hypothetical, and there's still a lot of things that need to happen between now and then.

And then as I get into 2021, if it remains at that level, which is still a big yes, and and you know really getting ahead of ourselves if we're making that assumption.

I would say that then your five year Rolling average you would be adding probably a lower year.

In 2020 than we had originally forecast somewhat lower which would which would mean that the five year Rolling average would be you would have bore.

More depreciation headwind from that but again that's.

Hypothetical and there is still a lot of things that need to happen between now and then but I just wanted to put a little bit of context to say hey, if you strip pricing were to come down and stay down yes, there would be more pressure on used vehicle sales and 2020 and 2021 than we had originally and we had originally forecast.

Robert Sanchez: I just wanted to put a little bit of context to say, hey, if used truck pricing were to come down and stay down, yes, there would be more pressure on used vehicle sales in 2020 and 2021 than we had originally forecast.

[Analyst] (Stifel): The FMS target range for the margin of 10% to 12% has only been achieved, I think, 3 of the last 10 years. Why do you think that's a realistic long-term target range? What would you assign the odds of, you know, falling within that range in 2020 be?

And then the Fms target range for the margin of 10% to 12%.

David Ross: The FMS target range for the margin of 10% to 12% has only been achieved, I think, 3 of the last 10 years. Why do you think that's a realistic long-term target range? What would you assign the odds of, you know, falling within that range in 2020 be?

He has only been achieved I think three of the last 10 years. So.

Why do you think thats, a realistic long term target range and what would you assign the odds of.

Hello, falling within that range in 2020.

Robert Sanchez: I think, I think the way we've modeled this out, if used truck pricing stays where it was in or averages to where it was in 2018, I think you can start getting to the bottom end of that range by 2021. Clearly, with used truck pricing going down, I think it puts pressure on that, and it pushes it push it out some more. You know, there's a certain amount of used vehicle returns that we would normally expect on average. Unfortunately, over the last several years, we've been below that number. That's what's put pressure on our earnings.

Yeah, I think I think the way we'd modeled this out it used truck pricing stays where it wasn't in 20 states or or average as to where it was in 2018.

Thank you can you start getting to the bottom end of that range by 2021.

Clearly when would you start pricing going down I think it puts pressure on that and it pushes it could push it out to more so you know there is a certain amount of used vehicle returns that we would normally expect on average and unfortunately over the last several years, we've been below that number that's what's put pressure on our.

On our earnings.

Robert Sanchez: Our five-year rolling average methodology is now beginning to get us down to what we're currently seeing. I think once you get there, then you start to see the returns on the new business coming in. You really almost have to step back and, you know, we've been in business a long time. We've been doing this lease business for a long time. During that entire period of time, there have been numerous, you know, countless numbers of used vehicle cycles where demand goes up, demand goes down, supply goes up and down, and the pricing can move. That pricing change does impact our earnings. In good years, you're gonna have better returns. In bad years, you're gonna suffer some from losses and accelerated appreciation in this case.

Our our five year Rolling average methodology is now beginning to get us down to what we're currently seeing and I think once you get there then you start to see the returns on the new business coming in so yes, youre really almost have to step back and you know we've been in business a long time.

And we've been doing this lease business for a long time.

And during that during.

Talk a period of time there have been numerous.

No countless numbers of used vehicle cycles, where demand goes up.

And goes down supply goes up and down and the pricing can move.

Robert Sanchez: That pricing change does impact our earnings. In good years, you're gonna have better returns. In bad years, you're gonna suffer some from losses and accelerated appreciation in this case. I think what's happened over the last few years is there was a pretty significant drop in 2015 that has kind of brought us down to a new normal, if you will, that we're adjusting to. We're gonna get to that new normal, you know, using our normal methodology in the next couple of years. Whether it's a little bit more or a little bit less, might mean just where we are in the cycle.

That pricing change does impact our earnings.

And in good years, you're going to have better returns and in bad years, you're going to suffer some from losses in and accelerated depreciation in this case.

Robert Sanchez: I think what's happened over the last few years is there was a pretty significant drop in 2015 that has kind of brought us down to a new normal, if you will, that we're adjusting to. We're gonna get to that new normal, you know, using our normal methodology in the next couple of years. Whether it's a little bit more or a little bit less, might mean just where we are in the cycle. Ultimately, our depreciation policy will stabilize here over the next couple of years. What you're gonna see is more accelerated during times when the market is down, and then better gains when the market is up. That's really the way that the model should work. Again, we can't lose sight.

I think what's happened over the last few years is there was a pretty significant drop in 2015 and its kind of brought us down to a more a new normal if you will that we are adjusting to.

And we're going to get to that new normal using our norm methodology in the next couple of years and whether it's a little bit more a little bit less might mean, just where we are in the cycle, but ultimately our depreciation policy will stabilize here over the next couple of years and then what you're going to you what you're going to see is more accelerated during times when when the market is down and then better gains when the market is up and that's really the way that the that the model should work and and again, we can't lose sight of this is really been a tractor issue. So you know that we are really honed in on on making sure that we get this thing stabilize going forward, but once that's done I think that's the that's the time when you get you start to see SMS get back to those levels.

Robert Sanchez: Ultimately, our depreciation policy will stabilize here over the next couple of years. What you're gonna see is more accelerated during times when the market is down, and then better gains when the market is up. That's really the way that the model should work. Again, we can't lose sight.

Robert Sanchez: This has really been a tractor issue, so, you know, we're really honed in on making sure that we get this thing stabilized going forward. Once that's done, I think that's the, that's the time when you start to see FMS get back to those levels.

[Analyst] (Deutsche Bank): Great. Thank you.

David Ross: Great. Thank you.

Great. Thank you.

Robert Sanchez: Okay.

Okay.

Our next question will come from emit no real tough with Deutsche Bank.

Operator: Our next question will come from Amit Mehrotra with Deutsche Bank. Please go ahead.

Thanks, Hey, Robert just a quick follow up if I could on use values.

[Analyst] (Deutsche Bank): Thanks. Hey, Robert, just a quick follow-up, if I could, on used values. Just so I'm clear, based on the new pricing assumptions, you know, I guess very simply, when does the accounting loss become, I guess, neutralized against the rolling five-year policy and higher depreciation? I guess, I think it was 2021, kind of, related to what you said before in this hypothetical scenario, but now does that get pushed out to 2022 or beyond, based on the revisions you're making to the pricing?

Amit Mehrotra: Thanks. Hey, Robert, just a quick follow-up, if I could, on used values. Just so I'm clear, based on the new pricing assumptions, you know, I guess very simply, when does the accounting loss become, I guess, neutralized against the rolling five-year policy and higher depreciation? I guess, I think it was 2021, kind of, related to what you said before in this hypothetical scenario, but now does that get pushed out to 2022 or beyond, based on the revisions you're making to the pricing?

So just so I'm clear based on the new pricing assumptions.

You know I guess very simply when does the accounting loss.

Become I guess neutralized against the rolling five year policy and higher depreciation I guess, if I I think it was 2021 kind of related to what you said before in this hypothetical scenario, but now does that get pushed out to 2022 or beyond based on the revisions you're making to the pricing.

Robert Sanchez: Yeah. Remember, it depends on what happens with used vehicle pricing over the next couple of years, right? If used vehicle pricing normalizes to what we saw at the end of last year, I mean, during last year, you get there by the end of 2021. If it goes up, you're gonna get there sooner. If it goes down, it's gonna take a little longer. You know, the issue is just the timing of what happens with the used vehicle market over the next couple of years. You can't say the next six months aren't gonna dictate the next two years.

Yeah, and remember it depends it depends on what happens with used vehicle pricing over that couple of years right. If used vehicle pricing normalizes to what we saw at the end of last year I mean during last year.

You get there by the end of 2021.

If it goes up.

You're going to get there sooner if it goes down it's going to take a little longer. So you know that the the issue is just the timing of.

Of what happens with the used vehicle market over the next couple of years and you can't say the next six the next six months aren't going to dictate the next two years.

Robert Sanchez: You got to really look at it over a longer period of time, to really understand where, you know, when it is that the book values will normalize with what, where the market is.

So you got to really look at it over a longer period of time.

To really understand where you know what when it is that the the book values will normalize with what where the market is right right I guess I guess that would this revision down though kind of that end to 2021 based on your best guess gets pushed out to 2022, and then you just kind of this multi year headwind that you've been facing kind of then at that point neutralizes.

[Analyst] (Deutsche Bank): Right. I guess with this revision down, though, kind of that into 2021, based on your best guess, gets pushed out to 2022. Then this kind of, this multi-year headwind that you've been facing, kind of, then at that point, neutralizes.

Amit Mehrotra: Right. I guess with this revision down, though, kind of that into 2021, based on your best guess, gets pushed out to 2022. Then this kind of, this multi-year headwind that you've been facing, kind of, then at that point, neutralizes.

Robert Sanchez: It-

[Analyst] (Deutsche Bank): Could even come positive.

Amit Mehrotra: Could even come positive.

It could even be out what you said I met with if it stays down during that period of time, if it comes back up like it goes through a cycle you could end up where you weren't before you could end up better than you were before I mean, all depends it depends on what happens with side because I think most most people are looking at the next couple of years, saying, Hey, there might be pressure of oversupply in the next few months or in the next year, but then there's going to be a shortage of supply certainly in the model years that we sell because that's when the 2016 and 27 seats come in which there was fewer units built during that period of time.

Robert Sanchez: Caveat what you said, Amit, with if it stays down during that period of time.

[Analyst] (Deutsche Bank): Right.

Amit Mehrotra: Right.

Robert Sanchez: If it comes back up, like it's, you know, goes through a cycle-

[Analyst] (Deutsche Bank): Yeah

Amit Mehrotra: Yeah

Robert Sanchez: you could end up where you were before, you could end up better than you were before. I mean, it all depends.

[Analyst] (Deutsche Bank): Yeah

Amit Mehrotra: Yeah

Robert Sanchez: on what happens with the cycle. I think most people are looking at the next couple of years saying, Hey, there might be pressure of oversupply in the next few months or in the next year, but then there's gonna be a shortage of supply, certainly in the model years that we sell, because that's when the 2016s and 2017s come in, which there was fewer units built during that period of time.

[Analyst] (Deutsche Bank): Right.

Amit Mehrotra: Right.

Robert Sanchez: you know.

[Analyst] (Deutsche Bank): Yeah. Yeah.

Amit Mehrotra: Yeah. Yeah.

Yes, yes.

Robert Sanchez: Okay.

Okay.

[Analyst] (Deutsche Bank): No, no, sorry. We'll have a half decade cycle of gains, I guess.

Amit Mehrotra: No, no, sorry. We'll have a half decade cycle of gains, I guess.

No no sorry, then we'll have a half decade cycle of gains I guess [laughter].

Robert Sanchez: Looking forward to that.

Yeah, exactly I mean to me to me to let me ask one positive question on dedicated.

[Analyst] (Deutsche Bank): Yeah, exactly. Me too. Let me ask one positive question on Dedicated. It obviously saw a big step up in profitability. I just wanted to talk about the net impact of, you know, the contracts that you brought on at the end of last year that are ramping up, obviously, quite nicely, and then the initial investments needed to bring kind of new business online. If I'm not mistaken, you'd expect to kind of lower end of that 8% to 9% pretax margin this year. I mean, I assume that would be better just given the Q2 strong pretax margin performance. If you could just talk about kind of the margin profile on the back half and where you guys are tracking relative to the full year.

Amit Mehrotra: Yeah, exactly. Me too. Let me ask one positive question on Dedicated. It obviously saw a big step up in profitability. I just wanted to talk about the net impact of, you know, the contracts that you brought on at the end of last year that are ramping up, obviously, quite nicely, and then the initial investments needed to bring kind of new business online.

It obviously you saw a big step up in profitability I just wanted to talk about that the net impact of.

The contracts that you brought on at the end of last year that are ramping up obviously quite nicely and then the initial investments needed to bring kind of new business online. So if I'm not if I'm not mistaken you'd expected kind of lower end of that 8% to 9% pretax margin. This year. It I mean, I assume that would be better just given the twoq strong <unk> pre tax margin performance. If you just talk about kind of the margin profile in the back half and where you guys are tracking relative to the full year.

Amit Mehrotra: If I'm not mistaken, you'd expect to kind of lower end of that 8% to 9% pretax margin this year. I mean, I assume that would be better just given the Q2 strong pretax margin performance. If you could just talk about kind of the margin profile on the back half and where you guys are tracking relative to the full year.

So amid choppy as here just to give you a little bit perspective on the second half we do expect to be elevated from prior year. If you recall last year, we did have some headwinds around some of the new startups, but really second quarter with a really clean quarter from an operating performance for the business we had.

John Diez: Amit, John Diez here, just to give you a little bit of perspective on the second half. We do expect to be elevated from prior year. If you recall, last year, we did have some headwinds around some of the new startups. Really, Q2 was a really clean quarter from an operating performance for the business. We had the startups and the new business that we brought online perform quite well. We also saw the base portfolio also get better and back to kind of historical levels with regards to we reduced the age of our vehicle fleet, which improved the returns. We've also seen, candidly, an improvement in the labor market, which has obviously been a drag on margins for the last 18 months, and that's also starting to recover.

The start ups and the new business that we brought online performed quite well. We also saw the base portfolio also.

Get better and and back to to kind of historical levels with a with regards to we reduced the age of our vehicle fleet, which improved the returns.

John Diez: We've also seen, candidly, an improvement in the labor market, which has obviously been a drag on margins for the last 18 months, and that's also starting to recover. As we see the prospects going into the second half of next year, into this year and into next year, the labor market's better. We refreshed the fleet. We're seeing good activity and good leverage from the new business we've brought online, and we're seeing good sales momentum to help us get there.

We've also seen candidly an improvement in the labor market, which has.

Obviously been a drag on margins over the last 18 months and that is also starting to recover so as we see the prospects going into the second half of next year into this year and into next year, the labor market better.

John Diez: As we see the prospects going into the second half of next year, into this year and into next year, the labor market's better. We refreshed the fleet. We're seeing good activity and good leverage from the new business we've brought online, and we're seeing good sales momentum to help us get there. Overall, I think like you heard from Robert, we're gonna be in line with the long-term plan this year, and then next year, we should be kind of delivering at that eight to nine level again.

We refresh the fleet, we're seeing good activity and good leverage from the new business, we brought online.

And we're seeing good sales momentum to to help us get there. So overall I think like you heard from Robert we're going to be in line with the long term.

John Diez: Overall, I think like you heard from Robert, we're gonna be in line with the long-term plan this year, and then next year, we should be kind of delivering at that eight to nine level again.

Plant this year.

And then next year, we should be kind of delivering at that eight to nine level again.

[Analyst] (Deutsche Bank): I don't mean to be-

Amit Mehrotra: I don't mean to be-

And I don't mean to be yeah.

John Diez: Yeah, go ahead.

Robert Sanchez: Go ahead, go ahead.

Hi, guys.

[Analyst] (Deutsche Bank): I don't mean to be, like, overly specific on this, but I mean, year to date, you're above the high end of your plan, and I'm just trying to understand the back half of the year. I mean, should we expect kind of more 9-ish percent for the full year, i.e., the high end of that 8% to 9%, or just given the success in the first half, I guess?

Amit Mehrotra: I don't mean to be, like, overly specific on this, but I mean, year to date, you're above the high end of your plan, and I'm just trying to understand the back half of the year. I mean, should we expect kind of more 9-ish percent for the full year, i.e., the high end of that 8% to 9%, or just given the success in the first half, I guess?

I don't mean to be like overly specific on this but I mean year to date, you're above the high end of your plan and I'm just trying to understand the back half of the year.

I mean do you should we expect kind of more nine ish percent for the full year I.E. The high end of that 8% to 9% or just given given the success in the first half I guess.

John Diez: Yeah, I think that's a fair assessment, based on where we're at mid-year. Just keep in mind, Q2 is typically our strongest quarter, Q2 and Q3, so you will see Q3

John Diez: Yeah, I think that's a fair assessment, based on where we're at mid-year. Just keep in mind, Q2 is typically our strongest quarter, Q2 and Q3, so you will see Q3 also performed very well, and then Q4, it will taper off.

Yeah, I think that's a fair assessment based on where we are at mid year and then just keep in mind second quarter is typically are our strongest quarter second and third quarter. So you will see third quarter also performed very well and the fourth quarter to taper off.

Robert Sanchez: ... also performed very well, and then Q4, it will taper off.

Okay, all right guys. Thanks for taking my questions I appreciate it.

[Analyst] (Wolfe Research): Okay. All right, guys, thanks for taking my questions. I appreciate it.

Amit Mehrotra: Okay. All right, guys, thanks for taking my questions. I appreciate it.

Robert Sanchez: All right, Amit. Thank you.

All right. Thank you.

Our next question will come from Justin long with Stephens. Please go ahead.

Operator: Our next question will come from Justin Long with Stevens. Please go ahead.

Thanks, and I wanted to follow up with a question on rental so I am sorry, if I missed it but did you talk specifically about what you're assuming for the year over year change in rental demand in the second half and.

[Analyst] (Stevens): Thanks, wanted to follow up with a question on rental. I'm sorry if I missed it, did you talk specifically about what you're assuming for the year-over-year change in rental demand in the second half? As we think about the potential for rental to decline, what's your view on the decremental margin profile of the business? I'm just curious how much you can adjust the business and reallocate equipment to help offset a weaker demand environment.

Justin Long: Thanks, wanted to follow up with a question on rental. I'm sorry if I missed it, did you talk specifically about what you're assuming for the year-over-year change in rental demand in the second half? As we think about the potential for rental to decline, what's your view on the decremental margin profile of the business? I'm just curious how much you can adjust the business and reallocate equipment to help offset a weaker demand environment.

Also as we think about the potential for rental to decline what's your view on the decremental margin profile of the business I'm. Just curious how much you can adjust the business and reallocate equipment to help offset a weaker demand environment.

Robert Sanchez: let Dennis Cooke give you some color on that. Just to the last part of your question, what I would tell you is we have offset the vast majority of this decline that we're expecting between asset management actions and reducing the fleet and also cost actions that we took. You know, rental is a very small part of the overall takedown on the balance of year forecast. It's primarily used vehicle story. I'll let Dennis Cooke tell you know, more specifics around what we're expecting to happen with rental.

Well, let me let alone the Dennis give you some color on that but just the last part of your question what I would tell you is.

We we have offset the vast majority of this decline that we're expecting.

Between asset management actions and reducing the fleet and also cost actions that we took so I wouldnt rental is a very small part of the overall take down on the.

On the balance of your forecast.

It's primarily use used vehicle story, but I'll, let I'll, let Dennis tell you you know more specifics around.

What we're expecting to happen with with rental.

Dennis Cooke: Yeah. Justin, we're expecting in Q3, demand for power to be up 3% year-over-year. It'll be really trucks driving that. In Q4, we expect it flat year-over-year, and you got the mix. You got trucks that are going to be doing well, you got trucks that have headwind.

Yes, so Justin we're expecting in Q3 demand for power to be up 3% year over year, it'll be really trucks driving that and then in Q4, we expect it to be flat.

Year over year, and you've got the mix you get trucks that are going to be doing well, yeah tractors have headwind.

Okay. That's really helpful. And then circling back on used you've talked about wholesaling more units in the in the back half of the year, but that can you help us understand what you were previously assuming for the split at sales between retail and wholesale what that looks like in the updated guidance for this year and then maybe where you think that normalize it as we get into 2020.

[Analyst] (Stevens): Okay, that's really helpful. Circling back on used, you've talked about wholesaling, more units in the back half of the year. Can you help us understand what you were previously assuming for the split of sales between retail and wholesale, what that looks like in the updated guidance for this year, maybe where you think that normalizes as we get into 2020?

Justin Long: Okay, that's really helpful. Circling back on used, you've talked about wholesaling, more units in the back half of the year. Can you help us understand what you were previously assuming for the split of sales between retail and wholesale, what that looks like in the updated guidance for this year, maybe where you think that normalizes as we get into 2020?

Robert Sanchez: Again, what we put forward was a scenario to kind of estimate where we think things are going to end up. I don't want to, again, get too prescriptive. Our original forecast was that we were going to retail about 70% of what we sell. Obviously, what's currently in the balance of year forecast is really to wholesale more of the incremental units. I won't get into exact what that is. Again, my belief is that we'll probably end up retailing more than that. The unknown is just what the price is going to be in that market, and we're, you know, we're in a bit of a price discovery process here as we go into the back half of the year on the retail side.

Yes, yes, that's what we put forward was the son, a scenario that kind of estimate where we think things are going to end up I don't want to get too prescriptive, what our original forecast was that we were going to retail.

About 70% of what we sell obviously, what's currently in the <unk> and the balance of your forecast is really to wholesale more of the incremental units I won't get into exact what that is and again my my.

Robert Sanchez: Again, my belief is that we'll probably end up retailing more than that. The unknown is just what the price is going to be in that market, and we're, you know, we're in a bit of a price discovery process here as we go into the back half of the year on the retail side. Our push is to retail as much as we can.

My belief is that we'll probably end up.

Ah retailing more than that the unknown is just.

What the price is going to be in that market and we're you know we're in a bit of a price discovery process here as we as we go into the back half of the year on the retail side, but our our push is to retail as much as we can.

Robert Sanchez: Our push is to retail as much as we can.

Okay, Great I'll leave it at that thanks for the time.

[Analyst] (Stevens): Okay, great. I'll leave it at that. Thanks for the time.

Justin Long: Okay, great. I'll leave it at that. Thanks for the time.

Robert Sanchez: Thanks, Justin.

Thanks, Justin.

Well now take a follow up from Scott Group with Wolfe Research. Please go ahead.

Operator: We'll now take a follow-up from Scott Group with Wolfe Research. Please go ahead.

[Analyst] (Wolfe Research): Hey, thanks for the follow-up. Robert, just philosophically, I wanted to ask you a question. We've got visibility to these continued used headwinds for several more years. Why don't we do just a more aggressive write-down, more aggressive accelerated depreciation to just get through this and stop having this same discussion every single quarter?

Scott Group: Hey, thanks for the follow-up. Robert, just philosophically, I wanted to ask you a question. We've got visibility to these continued used headwinds for several more years. Why don't we do just a more aggressive write-down, more aggressive accelerated depreciation to just get through this and stop having this same discussion every single quarter?

Okay. Thanks for the follow up so Robert just philosophically I wanted to ask your questions. We've got visibility to these continued use headwinds for several more years.

Why don't we do just to have a more aggressive write down more aggressive accelerated depreciation to just get through this and stop having this same discussion every single quarter.

Robert Sanchez: Yeah, I feel your pain, Scott, I think the challenge for us is just the accountants and the way that accounting rules work, right? You really can't write down a vehicle that's in operation. As those residuals change, you have to take it over time as part of your new residual valuation and then depreciation expense. You know, that's really been the challenge, that's, you know, obviously, here at Ryder, anytime we have bad news, our goal is to get it out as soon as possible and get it behind us.

I I feel your pain, Scott and I think that the challenge for US is just.

The accounts and the way that accounting rules work right. It is you really can't write down a vehicle that's in operation and as those residuals change you have to take it over time as part of your your new residual valuation and that depreciation expense. So.

That's really been the challenge and that's.

Obviously, you're right or anytime we have bad news, our our goal is to get it out as soon as possible and get it behind us.

Robert Sanchez: This one, you know, as we go into the 4th year of this, we haven't been able to because of the way that you've got to treat vehicles, you know, and you've got to treat these residual assumptions. These residual assumptions are nothing more than an estimate of what we think the vehicle will sell for over time. Some of these vehicles are going to be sold in the next year, some of them will be sold 7 years from now. You know, this methodology of a rolling 5-year average has really held Ryder in good stead for many years. The challenge that we've run into is the precipitous drop in tractor pricing that happened in 2015. The first, the precipitous increase as used vehicle pricing really went up between 2011 and 2015, and then the big drop after that.

This one.

As we go into the fourth year. This we havent been able to because of the way that you've got to treat vehicles.

And you've got to treat these residual assumptions. These residual assumptions are nothing more than an estimate of what we think the vehicle will sell for overtime. Some of these vehicles are going to be sold in the next year someone would be sold seven years from now. So you know this methodology of a rolling five year averages has really held rider in good stead for many years. The challenge that would be brought into is the precipitous drop in tractor pricing that happened at 15.

Robert Sanchez: You know, this methodology of a rolling 5-year average has really held Ryder in good stead for many years. The challenge that we've run into is the precipitous drop in tractor pricing that happened in 2015. The first, the precipitous increase as used vehicle pricing really went up between 2011 and 2015, and then the big drop after that.

And the first the first a precipitous increase as used vehicle pricing really went up between 11 and 15 and then the big drop after that that that increase after the great recession.

Robert Sanchez: That increase after the Great Recession, really drifted up our residual values more than obviously now we would like them to have gone. Never went up to the pricing it was at, but had drifted a little too high, I would say. Now, we're through the process of with this elongated now, what appears to be a new, more new normal, we're on our way to drifting them down. You know, all the math we do says that this stuff, if we just continue with the methodology, and this is a new normal, we'll be done with this by 2021. If there's ways to get through that quicker, we're going to continue to look at them and try to get that done.

Really drifted up our residual values more than then obviously now we would like them to have gone never went up to the pricing was up it had a little bit drifted a little too high I would say now we're in the process of what this elongated now what appears to be a new more new normal we're on our way to drift to come down and you know all the math, we do says that this stuff or if we just continue with them our methodology.

And this is a new normal won't be done with this by 2021.

If there's ways to get through that quicker, we're going to continue to look at them and try to get that done but up to this point Scott. The answer has been that this is the way that this is the way to really get through it.

Robert Sanchez: To this point, Scott, the answer has been, that this is the way to really get through it.

Okay, and then just a couple other just quick things the bad debt expense you talked about in the second quarter is that some customer bankruptcies and do you think that continues and then along those lines are you seeing.

[Analyst] (Wolfe Research): Okay. Just a couple other just quick things. The bad debt expense you talked about in Q2, is that some customer bankruptcies, and do you think that continues? Along those lines, are you seeing a spike in early terminations, cancellations, anything like that tells you that we're really starting to see capacity exit the market here?

Scott Group: Okay. Just a couple other just quick things. The bad debt expense you talked about in Q2, is that some customer bankruptcies, and do you think that continues? Along those lines, are you seeing a spike in early terminations, cancellations, anything like that tells you that we're really starting to see capacity exit the market here?

Spike in early terminations cancellations anything like that tells you that we're really starting to see capacity exit the market here.

Yeah, no it wasn't unusual quarter in terms, if we had it wasn't just one it was a it was a group of them I would say, it's a handful of them that <unk> that we had challenges with having actually happened before our carriers.

Robert Sanchez: Yeah, no, I mean, it was an unusual quarter in terms of we had, it wasn't just one, it was a, it was a group of them. I would say it's a handful of them that we had challenges with. They happened, actually happened to be four hired carriers. We don't expect that to be an ongoing trend. Our credit standards and our credit ratings, profile of our customer hasn't really changed. It was just an unusual quarter in terms of that.

But we don't expect that to be an ongoing trend our credit our credit standards and our credit ratings or credit profile of our customers. It really changed it was just an unusual.

Quarter in terms of that.

Okay all right. Thank you.

Ken Sena: Okay. All right. Thank you.

Scott Group: Okay. All right. Thank you.

Well take another follow up from Brian Ossenbeck with JP Morgan. Please go ahead.

Robert Sanchez: Okay.

Operator: We'll take another follow-up from Brian Ossenbeck with JP Morgan. Please go ahead.

Hey, Thanks for the additional time, that's one I get your thoughts on two quick things I could please assist to the competition in the current market with little bit softer activity and more uncertainty FC dedicated is still pretty good in terms of the pipeline, but you have seen some some competition on on the supply chain.

[Analyst] (J.P. Morgan): Hey, thanks for the additional time. I just wanted to get your thoughts on two quick things if I could, please. Just the competition in the current market with a little bit softer activity and more uncertainty. Obviously, dedicated is still pretty good in terms of the pipeline, but you have seen some competition on the supply chain is going to show up in the back half of the year. Just wanted to get your thoughts on that as you look into the rest of this year and into next year.

Brian Ossenbeck: Hey, thanks for the additional time. I just wanted to get your thoughts on two quick things if I could, please. Just the competition in the current market with a little bit softer activity and more uncertainty. Obviously, dedicated is still pretty good in terms of the pipeline, but you have seen some competition on the supply chain is going to show up in the back half of the year. Just wanted to get your thoughts on that as you look into the rest of this year and into next year.

It's going to show up in the in the back half of the year. So just wanted to get your thoughts on on that as you look into the rest of this year and into next year.

Robert Sanchez: I think, Brian, all of our businesses are pretty contractual. Main contractual because they're all benefiting from this secular trend to more outsourcing. I think you talk to us, you talk to any competitor, they'll probably tell you the same thing. I don't think competition has gotten necessarily more intense. There are more players, but I think there's only a certain number of players that can large type outsource we do any of these groups. I would say that we continue to see a good market in terms of growth opportunities, a relatively rational market.

Yeah, I think Brian all all of our businesses are three contractual business being contraction because they're all benefiting from the secular trend to more outsourcing and I think you talked to US you talked to any competitor they'll probably tell you the same thing.

I don't think competition has gotten actually more intense there are more players, but I think there's only a certain number of players that can do the large type outsourcing that we do.

In any of these groups, so I would say that.

We continue to see a good market in terms of growth opportunities, we see a it's a relatively rational market you know I think over the last especially on the supply chain side over the last couple of decades, I think the market has learned how to really add value and do these deals in a way where they are good for the customer and also good for the provider.

Robert Sanchez: You know, I think over the last, especially on the Supply Chain side, over the last couple of decades, I think the market has learned how to really add value and do these deals in a way where they are good for the customer and also good for the provider. We're encouraged about what we're seeing really in new opportunities across the different industry sectors and Supply Chain and really across, you know, both the ChoiceLease and Dedicated.

And we're encouraged about what we're seeing a really a new opportunities across.

The different industry sectors, and supply chain and and really across.

Both the choice leasing and dedicated.

[Analyst] (J.P. Morgan): Okay. Then on the e-commerce fulfillment side, it looks like you've got some scale now, with three facilities. I know you've typically put that in final mile when you talk about the size and the run rate. Clearly, shipping speeds are increasing, across the industry, how do you feel like you're positioned there? What's the customer reception been like? If you could give us an update on the relative size, inclusive of Ryder Final Mile, which I think is how you've characterized it in the past.

Brian Ossenbeck: Okay. Then on the e-commerce fulfillment side, it looks like you've got some scale now, with three facilities. I know you've typically put that in final mile when you talk about the size and the run rate. Clearly, shipping speeds are increasing, across the industry, how do you feel like you're positioned there? What's the customer reception been like? If you could give us an update on the relative size, inclusive of Ryder Final Mile, which I think is how you've characterized it in the past.

Okay, and then on the e-commerce fulfillment side it looks like you've got some scale now.

With three facilities in that you've typically put that in final mile. When you talk about the size and the run rate.

Including shipping speeds are increasing.

Across the industry. So how do you feel like you're positioned there what's the customer reception been like and if you could give us an update on the relative size.

Inclusive of rider final mile, which I think is how you characterize it in the past.

Robert Sanchez: Yeah, there's two components. There's the Ryder Last Mile, which is the big and bulky home delivery business.

Yeah. There is two components, there's the rider last mile which is the big and bulky home delivery business right and then there's the evil.

[Analyst] (J.P. Morgan): Right.

Brian Ossenbeck: Right.

Robert Sanchez: There's the e-commerce fulfillment initiative, which is really getting after more parcel type business, targeting companies that want to go direct to consumer without going through an e-retailer. This second, the Last Mile is going very well. We're encouraged by the cross-selling opportunities that we're seeing. We've ramped up really our sales activity of leveraging our supply chain sales force to also cross-sell into Ryder Last Mile. Well-operated business. We see more and more companies looking for that as an option. We're encouraged by what's going on there. On the e-fulfillment, we're really in the more early innings. Got a pipeline that's growing, but I'll let Steve give you a little bit more color around e-fulfillment.

E Commerce fulfillment.

Initiative, which is really getting after more parcel type business targeting companies that want to go direct to consumer without going through any retailer. So.

This second the the last mile.

It's going very well we're encouraged by the.

Cross selling opportunities that we're seeing we're ramping up we've ramped up really our sales activity of leveraging our supply chain Salesforce to also cross sell into.

Interim rider last mile.

Well operated business, we see we see more and more companies looking for that as a as an option. So we're encouraged by what's going on there on the fulfillment we're really into more early innings got a pipeline that is growing but I'll, let I'll, let Steve give you a little bit more color around equal film.

Robert Sanchez: We see more and more companies looking for that as an option. We're encouraged by what's going on there. On the e-fulfillment, we're really in the more early innings. Got a pipeline that's growing, but I'll let Steve give you a little bit more color around e-fulfillment.

Steve Sensing: Yeah, I'd say that, you know, right now, as Robert said, we've stood up to 3 buildings, and they're up and operational, fully functional. Pipeline is healthy, so we're seeing a lot of attention through our marketing efforts and also inside sales across FMS and DTS. We have signed a few customers here recently, so we'll begin operation for them in the back half of the year. I would say that, you know, the team is excited about having the solutions. Our customers are continuing to have discussions. We look forward to really getting through the implementation this year and, you know, really executing on the strong pipeline as we go into 2020.

Yeah, I'd say that right now as Robert said, where we stood up the three buildings.

And there have been operational fully functional.

Pipeline is healthy so we're seeing a lot of attention through our marketing efforts and.

Also inside sales across Fms in Dts, we have signed a few customers here recently, so we'll begin operation for them in the back half of the year, but I would say that.

The team is exciting excited about having the solutions.

Steve Sensing: Our customers are continuing to have discussions. We look forward to really getting through the implementation this year and, you know, really executing on the strong pipeline as we go into 2020.

Our customers are continuing to have discussions so.

We look forward to really getting through the implementation this year and.

Really executing on strong pipeline as we go into 2020.

[Analyst] (J.P. Morgan): Okay.

Brian Ossenbeck: Okay.

Robert Sanchez: All right.

[Analyst] (J.P. Morgan): Thanks for the extra details. Appreciate it.

Brian Ossenbeck: Thanks for the extra details. Appreciate it.

Okay, all right. Thanks for actually detail appreciate it.

Robert Sanchez: Thanks, Brian.

Thanks, Brian .

And at this time there are no additional questions I'd like to turn the call back over to Mr., Robert Sanchez for closing remarks.

Operator: At this time, there are no additional questions. I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks.

Robert Sanchez: Okay. Well, thanks, everyone. We're at the end of July, so we look forward to seeing you guys as we get out in the market here, certainly at the end of August, I think is when things ramp up again. Take care and have a safe day.

Okay. Thanks, everyone and Oh, we're at the end of July . So we'll look forward to seeing Oh, you guys as we get out in the we get out in the market eared certainly at the end of August I think is when things ramp up again, so take care and have a safe day.

And that concludes today's conference. Thank you all for your participation.

Operator: That concludes today's conference. Thank you all for your participation.

Q2 2019 Earnings Call

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