Q1 2021 Ryder System Inc Earnings Call
Please standby we are about to begin.
Good morning, and welcome to the Ryder system first quarter 2021 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 you to Mr. Bob Brunn, Senior Vice President Investor Relations corporate strategy and new product strategy for Ryder. Mr. Brunn, you may begin.
Thanks, very much good morning, and welcome to Ryder's first quarter 2021 earnings conference call.
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 95.
These statements are based on management's current expectations and are subject to uncertainty on 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 and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website.
Presenting on today's call are Robert Sanchez, Chairman, and Chief Executive Officer, and Scott Parker Executive Vice President and Chief Financial Officer.
Additionally, John Diaz, President of Global Fleet management solutions, and Steve sensing President of global supply chain solutions and dedicated transportation or on the call today on 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.
On our call. This morning, we will provide an overview of our first quarter results.
Will then review our updated outlook for 2021 as well as the meaningful progress that we're making on actions to achieve our ROE target.
Following our prepared remarks, we'll open the call for questions with that let's turn to an overview of our current environment.
Overall, we're encouraged by the significant improvement in economic and freight conditions the.
The recovery for a great number of our customers has been stronger than anticipated, even just a few months ago.
Accelerating growth trends in logistics and transportation outsourcing, particularly in e-commerce fulfillment Ryder last mile.
To support long term growth opportunities for Ryder.
We remain primarily focused on increasing returns on our business and are encouraged by the meaningful progress we've made towards reaching our target.
While we are driving for higher returns at the same time. We also continue to invest in innovative customer solutions, such as Ryder share our freight visibility and collaboration platform and in our SCS and Dts ever better brand awareness campaign in support of our long term strategic objectives.
As customer awareness of supply chain resiliency continues to grow so does the market demand for innovative technology of strategic partnerships that can provide.
And logistics solutions with flexibility and scale.
As a result technology has moved to the forefront of supply chain sales discussions, resulting in a robust pipeline and record sales activity.
First quarter earnings were higher than our forecast driven by outperformance in Fms, primarily lease and rental as well as better used vehicle sales results.
In addition, we saw strong sales activity across all three business segments, and our multiyear maintenance cost savings initiative remains on track for this year's targeted savings of $30 million.
We raised our full year EPS forecast to reflect our updated outlook.
First quarter free cash flow was higher than prior year due to higher used vehicle sales proceeds and lower cash capital expenditures.
Our full year free cash flow forecast remains unchanged at $400 million to $700 million.
Assuming strong economic freight conditions continue with no change in tax policy, we now expect to achieve ROE of 12% to 13% in 2021 above our previous forecast due to stronger Fms performance.
We believe we're well positioned to realize our 15% long term ROE target in 2022.
At this point I'll turn it over to Scott to discuss our first quarter results and key trends that we saw on each business segment.
Thanks, Robert total company results for the first quarter on page five.
Operating revenue of $1 $8 billion in the first quarter increased 3% from the prior year, primarily reflecting higher supply chain and rental revenue.
Comparable earnings per share from continuing operations with the dollar of nine in the first quarter as compared to a loss of $1 38 in the prior year.
Higher earnings reflect improved used vehicle sales results and a declining depreciation expense impact related to the prior residual value estimate changes.
Improved lease and rental results also contributed to higher earnings.
Return on equity improved reflecting a lower depreciation impact and improved used vehicle sales results.
We expect continued improvement in ROE, our primary financial metric.
As we move past the earnings impact from the prior residual value estimate changes and COVID-19.
And continue to benefit from our actions to increase returns.
Free cash flow for the quarter was higher than the prior year as Robert just mentioned.
Turning to <unk> results on page six.
Fleet management solutions operating revenue increased 1% as higher rental pricing was mostly offset by declines in select care and other revenue.
Rental revenue increased 8% driven by a 9% increase in price, reflecting the robust market environment.
Although rental demand was down slightly increased during the quarter.
With the euro year over year comparisons turning positive for March and April to date.
Choice lease revenue increased 1%, primarily due to higher pricing on lease vehicles, partially offset by a smaller fleet.
As of now realized pretax earnings of $63 million.
Up by $178 million from the prior year.
$92 million of this improvement resulted from lower depreciation expense impact related to the prior residual value estimate changes and higher used vehicle sales results.
Improved lease and rental results also contributed to increased Fms earnings.
Higher lease pricing and fewer vehicles to be redeployed benefited earnings.
And rental higher pricing and utilization contributed to higher results.
The rental utilization on the power fleet was 73% in the quarter.
Above the prior year of 64% on a 12% smaller average fleet.
Utilization improved improved throughout the quarter and into April as we saw incremental demand.
Results also benefited from lower maintenance costs, including benefits from our maintenance cost savings initiative as well as lower bad debt expense.
Fms EBT as a percent of operating revenue for the first quarter was $5 four per cent.
For the trailing 12 month period, it was 8%.
Although the company's long term target of high single digits, primarily reflecting the depreciation expense on prior residual value estimate changes.
Page seven highlights global used vehicle sales results for the quarter.
We're very encouraged by the continued improvement in used vehicle market conditions, resulting in double digit price increases for both tractors and trucks.
Globally year over year proceeds were up 25% for tractors and 35% per trucks.
Sequentially tractor proceeds were up 11% and truck proceeds were up 8% versus the fourth quarter of 2020.
Higher sales proceeds primarily reflect improved market pricing and to a lesser extent, a higher mix of vehicles sold through our retail channels.
As you may recall on the second quarter of last year, we provided the sensitivity, noting that the 10% increase in trucks and a 30% increase in tractors in the U S would be needed by 2022 in order to maintain our current policy depreciation residual estimates.
Since the second quarter of 2020.
U S truck proceeds were up 25% and tractor proceeds were up 36%.
Although these increase increases are not age our mix adjusted.
Are generally indicative of pricing improvements that have occurred since the second quarter of 2020.
As such with these improvements average pricing in the U S for tractors and trucks.
Is at or above the policy depreciation levels.
During the quarter, we sold 6600 used vehicles up 20% versus the prior year.
Reflecting improved market conditions and investments that expanded our retail sales capacity.
Used vehicle inventory held for sale was 6200 vehicles at quarter end.
This is below our target range of seven to 9000 vehicles.
Inventory is down 5400 vehicles from the prior year and down 500 vehicles sequentially.
Yeah.
Turning the supply chain on page eight.
Operating revenue versus the prior year increased 8%, primarily due to new business and increased volumes.
Growth was driven by double digit percentage increases in our consumer packaged goods.
Retail and industrial sectors.
The offset by lost business in high Tech.
Automotive revenues were largely unchanged, reflecting the negative impact of the semi conductor of shortage and weather this year in.
And COVID-19 impacts in the prior year.
That's the U S pretax earnings increased 6%, reflecting higher pricing and volumes.
The offset by over higher overheads, including continued investment in marketing and technology.
The C. S E T as a percent of operating revenue was six 6% for the quarter, reflecting the seasonally softer first quarter.
However, it was eight 5% for the trailing 12 month period in line with our long term target of high single digits.
Moving to the dedicated on page nine.
Operating revenue was in line with the prior year as new business and pricing were offset by lower volumes.
Dts earnings before tax increased 7%, reflecting improved operating performance, partially offset by higher insurance costs.
D C. S E T as a percent of operating revenue was five 5% for the quarter.
Which is up from the prior year.
It was 8% for the trailing 12 month period in line with our high single digit target.
Turning to slide 10 lease capital spending of $217 million was in line with our forecast and below prior year.
Full year of lease spending is expected to be higher than prior year due to increased lease sales activity and COVID-19 effects in the prior year.
Lease returns are benefiting from pricing initiatives and supported and support increased lease capital investment.
The rental capital expenditure was $158 million up versus the prior year, reflecting higher planned investment in the rental fleet.
We plan to grow the rental fleet by approximately 10% in 2021.
In light and medium duty vehicles in order to capture increased demand expected from strong e-commerce and freight market activity.
The strong demand and pricing environment support this investment.
Our full year forecast for growth capital expenditures is unchanged at 2% to $2 $3 billion in 2021.
And as shown on the chart at the bottom of the page.
This is up from 2020 levels when spending was well below normalized replacement levels, primarily due to COVID-19.
Okay.
Turning to slide 11, our 2021 free cash flow remains at 400, the $700 million and.
And reflects our strategy of the balanced growth and the capital intensive of Fms business with generating free cash flow over the cycle.
2021 forecasted free cash flow is below the record level of last year under COVID-19 conditions, but is well above historical levels.
Balance sheet leverage this year is expected to decline to the bottom end of our target range.
Importantly, as Robert mentioned, we now expect to achieve ROE of 12% to 13% in 2021.
With the declining depreciation impact and a stronger than expected used vehicle sales market recovery.
Rental demand recovery and initiatives that include lease pricing and maintenance cost savings are also expected to contribute to higher or.
Higher first quarter comparable EBITDA reflects contractual growth and improved operating performance.
We expect comparable EBITDA to continue to increase in 2021.
I'll turn the call back over to Robert to discuss our outlook for the balance of the year.
Thanks Scott.
Turning now to our EPS outlook on page 12.
We're raising our full year comparable EPS forecast of $5 50 to $5 90 from our prior forecast of $4 15 of 465.
And well above our loss of 27 cents in the prior year.
We're also providing a second quarter comparable EPS forecast of $1 25 to $1 35 significantly above the prior year loss of 95.
Our forecast assumes the strong freight and economic conditions continue through at least 2021.
Lease rental and used vehicle sales performance are the key drivers of higher expected results we.
We expect at least the benefit from price from our pricing actions increased sales activity and improved operating performance.
We also expect pricing on rents on used vehicles sales to remain strong and we're forecasting quarterly gains for the balance of the year in line with first quarter levels.
And the Fms the depreciation impact from prior residual value estimate changes is expected to continue to decline, resulting in year over year earnings benefit of approximately $70 million in the second quarter of 2021.
The benefit does not include any potential impact from gains or losses on sale or valuation adjustments.
Accelerating outsourcing trends and supply chain, including growth in E Commerce and last mile delivery support strategic investments in new products and technology aimed at driving future growth opportunities.
In SCS and Dts, we're on track to meet or exceed our high single digit revenue growth targets supply chain of dedicated returns are also anticipated to be impacted by strategic investments in tech and new technologies and our brand awareness campaign.
Finally, the <unk>.
Semiconductor shortage is impacting activity levels for some of our supply chain automotive customers and could delay delivery of new lease and rental vehicles in Fms.
We have assumed there will be some impact of supply chain earnings due to the semiconductor shortage.
Fms, we expect the impact of delivery delays will be offset by higher than expected lease activity and vehicles already placed in service during the first quarter as well as higher rental utilization and pricing.
As a reminder, on slide 13.
Highlights our primary long term financial target of 15% Roe over the cycle.
The segment operating revenue growth in pre tax earnings goals. We previously outlined and that are shown here are key components to achieving this target.
Turning to slide 14.
Like to provide a brief reminder, regarding our planned actions to increase returns and achieve our ROE target.
As shown on the chart the biggest driver of that moving past the is moving past the higher levels of depreciation impact related to prior residual value estimate changes.
In addition continued cyclical recovery in rental demand and utilization is expected to provide earnings and returns benefits.
The remaining improvements needed to reach our ROE target is expected to come primarily from initiatives that include lease pricing increases that are more targeted at certain applications and customer types.
The cost actions, including our multiyear maintenance cost savings initiative.
And accelerated growth in our supply chain and dedicated businesses.
Slide 15 highlights the progress that we're making on the five key areas I just outlined.
Proving used vehicle market conditions are expected to continue to benefit used vehicle sales performance and returns in 2020 one.
We're capitalizing on strong market trends through pricing actions and by expanding our retail sales channel. We expect the depreciation impact of continued to decline.
In rental we saw strong first quarter performance and our planned rental growth is supported by favorable demand and pricing trends that continued into April.
In Fms results continue.
The benefit from our lease pricing initiatives.
Revenue on new lease vehicles increased year over year by mid single digit, reflecting our pricing actions.
We're using data analytics to further refined portfolio of pricing optimization and capital allocation decisions.
Our multiyear maintenance cost savings initiative has delivered more than 50 million of annual savings through the end of last year and we're on track to achieve an additional $30 million.
Savings in 2021.
We're investing in strategic initiatives to accelerate growth in our higher return supply chain of dedicated businesses.
These include our SCS and Dts brand awareness campaign.
The investment in Ryder share in our e-commerce fulfillment solutions and expanding our Ryder last mile network.
We continue to see strong trends that support logistics and transportation of outsourcing and believe we're well positioned to leverage these compelling opportunities.
That concludes our prepared remarks this morning.
Before we go to questions. Please note that we expect to file our 10-Q later today.
As a reminder, please limit yourself to one question each of you have additional questions you're welcome to get back in the queue and we'll take as many of US we can.
At this time I will turn it over to the operator to open up the line for questions.
Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Press Star one to ask a question, we'll pause just for a moment hello, everyone an opportunity to signal for questions.
And we'll go ahead and take our first question from Justin Long with Stephens. Please go ahead.
Thanks, Good morning, and congrats on the corner.
Thanks, Jeff on good morning.
I wanted to start with the question on the depreciation impact Robert I think you said in the second quarter, it would be $70 million.
Curious if you have updated thoughts on the tailwind for the full year. This year and 2022 and then also on the theme of used trucks.
Curious if you're seeing any change in the mix of used truck buyers that you're seeing some of the non traditional buyers enter the market just given the capacity tightness out there. Thanks.
Okay. Thanks, Justin well just a reminder, what we said it we said at the beginning of the year on the last call. We said it was $220 million year over year benefit this year.
And it would be $50 million on the first quarter. So we're saying now $70 million of it is in the second quarter Scott.
Scott.
I'll turn that over to Scott I don't think the significant changes in that number.
Scott is there anything you want to add to that.
Interestingly there is no change to what we did Robert.
We talked about of 220 million benefit and we still kind of think of that is the outlook of the remainder of the year and the 100 million improvement that we mentioned for 2022 is again, our best estimate at this point.
So and then your question on the used truck Bob Let me hand that over to John D. As in you give you a little bit of color on what percentage of the used truck market.
Sure Justin a few comments there on the use of B.
Vehicle sales side, one we are seeing as Bob noted in the dark here improved results from our retail investments and as part of that through our digital channel. We are seeing new buyers coming into the marketplace, many of which are new to trucking or looking to engage.
And the e-commerce side so.
So we are seeing good activity both in straight trucks as well as in the tractor market to meet that e-commerce needs. So that's where we see the new the new buyers coming in and that's what they're looking for.
Okay helpful. I appreciate the time.
Thanks, Justin.
And if you find your question has been answered you may remove yourself from the queue by pressing the star key followed by the day two.
And we will go ahead and move on to our next question.
Scott Group from Wolfe Research. Please go ahead.
Hey, Thanks morning, guys. So good morning, I wanted to ask the.
You raised the earnings guidance significantly no change in Capex guidance on how come the free cash flow guidance doesn't move up at all and then.
The I just wanted to clarify one thing that the $2 20 of of depreciation tailwind I think that excludes valuation adjustments. Just now that prices are are above the the the longer term a residual assumptions or are there incremental valuation adjustments to contemplate this year.
Well, let me just answer the question on the on the free cash flow I think the key there is Scott is we have a pretty wide range of our free cash flow forecast that was 400 of 700 million.
So all we're saying is that the the the impact of the change in earnings and the offset by some of the Capex doesn't hasn't really taken us out of that range yet. So some some puts and takes but we're still on that same range.
Scott you want to address the other growth inside of the part of the question.
Yes, Scott on the perspective at least thinking about.
The $2 20 assets excludes any impact of UBS.
As you remember, we had a little bit of accelerated depreciation in.
In 2021.
And most there was very little of that remaining so the bank.
Factored that into kind of of our outlook in regards to the gain on sales that we're seeing on the current.
Assets that we're selling as you remember we did accelerated depreciation at lower than policy, where all of those units that we expect the sell through the mid of 2022.
So those will just result in.
<unk> seen better gains on the.
And on the portfolio from a policy perspective, we've talked about that on the last earnings call. I think we we will revisit our policy depreciation as we mentioned we are at or above those levels.
And as we kind of worked through this year, we'll kind of look at.
Kind of any adjustments on that as we kind of get to the end of this year and see the kind of trends in the overall market on pricing.
Did you ever given I guess on them if.
If we.
Oh go ahead.
Well I can tell you that the the devaluation of adjustments are in that net UBS needs of what we're saying is it's kind of we're expecting for the balance of year to be similar to what we saw on the first quarter, which is about 30 million.
<unk> on the net UBS gains.
Okay.
I was just going to say did you ever give a rule of thumb, if we if and maybe I'm getting ahead of myself, but if we increase the the.
The residual assumption by 5% of 10% or something what that means from an earnings standpoint.
Yeah.
Scott we have not historically provided that kind of sensitivity.
From a rule of thumb perspective.
Okay Alright. Thank you guys appreciate it.
Thanks Scott.
And we'll go ahead and take our next question from Todd Fowler from Keybanc capital markets. Please go ahead.
Oh, great Thanks, and good morning.
Robert on the change to the full year guidance at the midpoint it looks like you're raising it by about $1 30, and it looks like maybe half of that was the the upside of the first quarter on your prepared remarks, you talked about you know better lease rental pricing and gains can you maybe help bucket you know kind of the the pieces to bridge.
The increase in guidance, where you're really seeing the drivers between those three areas.
Yeah, it's primarily of its familiar enough on that story.
And what we're seeing is is better performance in the lease and the impact of pricing and also the fact that they've got a lot of the vehicles that were being redeployed of gotten him out of out of the system.
We're seeing rental demand.
The demand coming in better than we had originally expected.
And as you know throughout the year, we expect what we had expected demand to increase throughout the year. So.
The benefit of that maybe isn't as big in the out quarters as it is in this quarter and then obviously of UBS we're expecting.
Gains to be better than what we had originally estimated when we originally said it was going to be a little bit below of what we saw on the fourth quarter and now we're looking maybe at a close to 30 million of some of the offset to that is some of the.
Some of the.
The headwinds that we have from the semiconductor piece of our supply chain business and then also some of the additional investments that we're making in that area, but John is there any of any other color you want to add to that.
The the one item that the.
Robert mentioned around rental it's of both better demand and also momentum around pricing that we saw in Q1 and debt carrying through the through the balance of the years is the one thing I would add to that part.
Okay, John just for clarification, I think Robert mentioned debt Rankle pricing.
It's going to be consistent with <unk> for the rest of the year is that a per cent increase or the the double digits that we saw on <unk> is that what we should expect for the rest of the year I know the comps get more difficult in the back half of if you could just clarify that I'd appreciate it. Thanks.
Yeah, I would say it's look the the first half you should expect that.
As you saw in the second half of last year, we started taking some pricing actions as we saw at the man coming back into the system.
But there's still going to be healthy year over year increases for the balance of the year. It may wobble, a little bit from Q2 down in Q3, and Q4, but theyre going to be a good good improvements year over year throughout the year.
That's helpful. Thanks for the time.
Thanks Scott.
And we'll take our next question from Stephanie Benjamin from Truest. Please go ahead.
Hi, good afternoon.
Hi, Stephanie.
Yeah.
I wanted to clarify just on the updated outlook. It appears you didn't get on your outlook on top line expectations and it sounds like Prime there are primarily the increased guidance instead of the athamas the format. So suffice it to say should we assume that the full year top line outlook for that segment should be higher than.
On kind of what was provided for.
Fourth quarter performance was released or are you now and then the similar on that question I'd love to hear a little bit of thought you know it appears to be of very strong demand environment, but also I think it.
Clear of that there's a shortage of the equipment to so I would love to hear how you're balancing the high demand and it's all of us being able to meet that demand.
Yeah, well I'll just I'll just give you a high level I mean, the forecast top line Theres some improvement, but a lot of it is not not proportional I would say to the bottom line, we're getting more than our than our fair share on the bottom line.
And I'll, let John address the second part of your question.
Yeah, So Stephanie what I, what I would highlight here is what we're seeing is.
The order book for the lease business is pretty robust.
We do think that the lease activity, even though we are seeing some challenges on new vehicle delivery is going to come in better of the full year than what we had expected.
And then previously we had mentioned rental on especially on the pricing and demand side outperforming youre going to see that carry through on the top line as well. So you are going to see some of that outperformance from rental revenue for the balance of the year.
Absolutely appreciate it and then secondly on the supply chain does the you'd noted an increased focus and that's the behind technology kind of in going forward can you maybe talk a little bit about that and what we should expect the in terms of those investments the thickness.
The error.
Yeah, we talked about it at the at the.
The beginning of the year. The fact that we're investing in and different technologies. We're investing may give some additional investments in our Ryder last mile, adding some nodes and.
And facilities and investing in and in technology also Ferrari fulfillment.
The product line. So I think what was really the takeaway from this quarter is we're just very encouraged by the results that we're seeing so far.
I'd say even beyond.
The fulfillment piece, just the acceptance of the Ryder share of visibility and collaboration tool that we developed over the last year and a half two years.
We're really it's really becoming a big driver for us winning supply chain.
Business and dedicated business. So let me hand, it over to Steve. So he can give you a little bit more color.
Yes, Stephanie I'll dig in a little bit deeper I think as you think about technology investments.
Robert said, we're really hitting across multiple product line.
Ryder share certainly serves our dedicated business and our transportation management business.
We act as the traffic department for our customers. So we're well on to launching that for those customers will be rolling out an application for warehousing later this year and early into 'twenty two.
As well as brokerage.
If you think about E com.
We have to continue to invest in technology, not only to retain our customers, but to make it easier for them to do business with us. The we're focused on that and we'll be rolling out of the order management system later this year.
And then last mile we're improving our customer experience. So the visibility of orders in transit to our end customers is a key focus area of force. There. So I'd say, it's really across the board and as Robert said, it's not only of retention, but it's also top line growth.
Great well. Thank you so much for the color.
Thank you Scott.
And we'll move to our next question from drawing on a go from Goldman Sachs. Please go ahead.
Alright.
On a little more color on the line of sight on the dedicated operating revenue growth I think you started out flat.
We still believe sort of high single digit revenue growth. So I'm just wondering.
What are you seeing in the pipeline or contracts closing and when the acceleration of sort of kick off.
Yeah, I'll tell you, where it's a great question, we're really encouraged by the sales activity we saw at this <unk>.
Back half of last year and into.
Into the beginning of this year, we're really looking at high single digit maybe even double digit growth in dedicated this year.
And those are deals many of those are deals that we've already signed or close to signing.
On a lot of it is the activity that you might expect as the driver shortage. There's no secret everybody is challenged with it and we're seeing more and more companies looking for help around that and around really running the private fleets. So I'll, let Steve give you a little more color on what we've seen.
Yes, we had a really good close to the end of the year last year I'd say already this year to.
To date, we are ahead of expectation there.
I think the the continued investment in our ever better campaign is certainly increasing our pipelines to historical levels.
And the the deal size that we're seeing right now is the some good large deal. So we're excited as Robert said.
We expect to see that.
At or above the range here in Q2 and for the balance of the year.
Okay.
Great. Thank you.
Yeah.
And we'll move on to our next question from Brian asking back from J P. Morgan. Please go ahead.
Okay.
Hey, good morning, everyone. Thanks for taking the question.
Just to follow up on the dedicated or are you seeing any challenges, whether it's a type of customer or certain regions, where youre seeing a little bit of.
Slow down or maybe a.
A bit more money of to put into the market to get drivers are you seeing any shortages, even on your side because of dedicated that or.
Impairing the growth, where youre not not having that sort of issue right now.
Yeah, I'll, let I'll, let Steve give you more color, but I'll tell you the driver shortages affects everybody, including US. However, net net it is a positive because we are I believe that we're a lot better at hiring and retaining drivers in most of private fleets are that's what we do for a living we have a team.
It specializes in driver recruiting in each of the markets.
So even though it is more challenging for US also it's actually a very good thing because more companies look for help on things get difficult and Thats what were seeing I'll, let Steve give you a little color on what we're seeing maybe by geography.
Yes, Brian I think Thats, a really good way to sum it up it is it is kind of ZIP code by Zip code.
As we as we go after some of the challenges I'll give you a little bit of <unk>.
Detail on what we're doing you know certainly we're always reviewing the drive of compensation and working with our customers to recover that and we've got had good success there.
Another investment that I didn't speak about earlier is a Ryder drive technology, which is effectively making a paperless driver experience. So that's very attractive.
The two to attracting drivers and retaining them, making their jobs easier.
As Robert said, we've increased investment in our recruiting teams and those recruiting teams are really focused on geography. So they know the nuances of those geographies and.
Can can be very proactive there.
One last thing we are adding out Pat on bonuses.
The key markets and that's been affected to date.
Thanks, Steve for the color there if I can just follow up on the the tax policy changes I know youre not expect anything to come through and we don't expect anything or know what might actually come through at this point, but just sort of high level can you remind us know yet of white paper out the last time tax changes. This time it might go the opposite direction.
So I guess postmortem of from the last time the tax change was that a big impact when you have things like tax shields and accelerated depreciation moving around did that affect the buy versus lease or is it too noisy can you even really tell on the customer by customer basis, just sort of what to think about when we start to see these headlines moving forward I am assuming towards the.
The back part of the year on taxes.
Yeah, I guess, you kind of about the the impact on the demand for our services such as the truck leasing side.
Yeah.
Yeah, Yeah, I would tell you that the first of all of the the.
The reason most companies are leasing trucks from Ryder.
It was really for the maintenance and the and the fleet management component of it there is always somewhat of a financial.
The piece, but this is not like your typical on a pure operating lease where all of their doing is getting the least it's really the bundle with the FERC the purchase of of the vehicle the bundle with the maintenance and the financing and then finally the the residual.
Guarantee.
So we don't expect that to change with it.
Tax law change.
I don't see that having an impact on demand.
Much at all.
And I think that Youll still continue to see.
Strong demand for the maintenance capabilities and again, the the growing complexity around the technology of vehicles will continue to drive more people to outsource.
Alright, Thank you Robert.
Thank you Bob.
And we'll go ahead and take our final question from Jeff Kauffman from vertical Research partners. Please go ahead.
Thank you very much. Thank you for taking my question.
Well first of all congratulations just a fantastic looking quarter.
I'm going to go on a different direction with the question as.
As Youre, probably aware of where one of your warehouse logistics fulfillment competitors will be spinning off that business into its own independent subsidiary later this year and valuations depending on who you listen to could be 13, 14 15 times EBITDA.
You probably have one of the better global businesses in this area trading at four and a half times EBITDA any any thoughts is that something you would consider evaluating if we had a publicly traded comparison of two and a half to three of the value.
Yes, Brian obviously, we're always focused on making sure that we're gonna get full value for what are the pieces of the business that we have that's why you've seen us per.
Hum.
More disclosure around the the specific returns of each of the businesses. We really as you know our strategy is really it's been over the last couple of years is really to have moderate growth in our leasing business generate free cash flow and invest that in accelerating the growth on our supply chain dedicated business.
Whichever of higher return range.
That strategy over time, I mean, it's still early I think of that strategy over time is going to pay dividends and really.
Have the the.
The company valued differently.
But we will.
We do look at things on a regular basis and we will continue to evaluate as we move forward.
But as you know, we don't we don't comment on either acquisitions or spin offs or anything else like that.
But again on the important thing is we really like the portfolio of businesses that we have.
I'd tell you I'm very encouraged by the progress that we've made.
In our in our move towards that 15% ROE of you because I think that is an important milestone to get to to really have the.
The company valued differently and again I want to remind everybody art right. Now we think it will do 12% to 13%. This year 15 per cent or more next year, but our goal is really 15 per cent over the cycle.
And that tells you that we still got work to do and there's still a lot of runway of things that we can do to continue to improve the returns so the depreciation roll off.
It has helped us, but we are still carrying quite a bit of this year is about 270 million of depreciation impact from those prior residual value changes that drops off each year over time.
But again, that's going to create some tailwind of an improvement in earnings year over year. The UBS the market has improved.
We expect that the two are.
<unk>, probably continue to improve if you think about the semiconductor shortage for that's impacting new truck deliveries.
That is gonna be a slowdown in the bringing new trucks into the market, which is going to really help used trucks, both on the supply and on the demand side there'll be demand for more used trucks, and that's where people will have to go to get on a truck they need it.
And on the on the supply side.
Gonna have fewer used trucks coming into the market because there's going to be fewer trade ins for new trucks. So on.
All in all of that looks like a very positive.
Outlook at least through this year and probably into into next year.
Around our pricing.
If you think about each of those columns in that 15% Roe.
Oh, we have been increasing our pricing since early 2018.
So we still have leases that have not come up for renewal that.
That were signed prior to 2018 that as we renew them you're going to get better pricing on that so youre going to see a continued.
Continued uplift there.
Maintenance costs, we continue to drive.
Maintenance costs down we still got another $50 million left it on 100 million number. So you still got a lot of out of room. There we're going to get 30 million. This should probably another 20 million still for next year and then the big one is really to see the accelerated growth rate in supply chain of dedicated and have the earnings from that growth really start to pull through because that's good.
To make a big difference too and Thats. We are early in the early innings of that we are in the innings of still investing and.
And sales of folks in marketing campaigns and technology, but the high return on value enhancing.
Earnings from that are still to come and then obviously as you if you remember on our capital allocation.
Allocation strategy that we talked about we are going to be looking for acquisition opportunities in the space.
And the the intent is really to grow and I would say disproportionately grow the supply chain of dedicated businesses, which are going to give us a higher return over time. So that's what we're doing that's what we're focused on we think that's going to pay dividends over time and Theres still a lot of.
Runway for us to continue to grow this business and add value for our shareholders.
The terrific strategic overview. Thank you.
Alright, Thank you Jeff.
Yeah.
At this time there are no additional questions I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks.
Okay, well. Thank you everyone certainly look forward to seeing it.
Most of you over during the quarter as we get out to some conferences and Roadshows stay safe.
And that does conclude today's conference. Thank you for your participation.
Yeah.
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