Q4 2021 Ryder System Inc Earnings Call
Good morning, and welcome to the Ryder system fourth quarter 2021 earnings release conference call all.
All lines are in a listen only mode until after the presentation. Today's call is being recorded if you have.
Any objections. Please disconnect at this time.
I would now like to introduce Mr. Brian <unk> Senior Vice President Investor Relations corporate strategy and new products.
Strategy for Ryder Mr.
Mr. Brian you may begin.
Thanks, very much good morning, and welcome to Ryder's fourth quarter 2021.
I'd like to remind you that during this presentation, you'll hear some forward looking statements within the meaning private Securities Litigation Reform Act.
Hi.
These statements are based on management's current expectations and are subject to uncertainty and changes in circuits.
Actual results may differ materially from these expectations due to changes in economic business competitive market political and regulatory factors.
Detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure.
And 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 John <unk>, Executive Vice President and Chief Financial Officer.
Additionally, Tom Hayden President of Global Fleet management solutions, and Steve sensing President of global supply chain solutions, and dedicated transportation or on the call today and available for questions. Following the presentation with that I'll turn it over to Robert.
Good morning, everyone and thanks for joining us I'm very.
We are proud of the results that we generated in 2021 and I'm excited to share the significant progress we've made as well as the opportunities ahead of us.
I'll begin the call by providing you with a strategic update John will then take you through our strong fourth quarter results, which exceeded our expectations again this quarter.
Well, then shift our focus to our outlook, including the increases that we've made to our long term Roe.
Returns targets.
We'll also review our 2022 forecasts, let's begin on slide four.
We recently completed two acquisitions consistent with our capital allocation strategy to drive growth in supply chain.
On January the first 2022.
We completed the acquisition of Whiplash, which is expected to add approximately 480 million to 2022 supply chain total revenue.
This acquisition expands our fulfillment network with scalable E Commerce, and Omnichannel fulfillment solutions supported by proven operating and technology platforms.
On November one 2021, we completed the acquisition of Midwest warehouse and distribution system, which is expected to add approximately $135 million in supply chain total annual revenue.
And we will expand our offering and multi client warehousing.
Both acquisitions are expected to be accretive to 2022 earnings.
Unprecedented challenges impacting labor supply chain and truck production are providing us with additional growth opportunities because they helped drive companies to make long term outsourcing decisions.
In 2021, we had record new contract wins in supply chain and dedicated which we expect will contribute to long term profitable growth.
If a message is also benefiting as companies are looking to source truck capacity in this extremely tight market.
We generated record ROE of 21% in 2021, reflecting strong demand and pricing and used vehicle sales and rental as well as benefits from our multiyear lease pricing and maintenance cost savings initiatives, we continue to implement price increases in supply chain and dedicated to address.
Labor and supply chain challenges and customers have generally been amenable to these adjustments.
2021 free cash flow was strong at $1 1 billion.
Capital expenditures were partially offset by $400 million and capital spending that was deferred due to OEM delivery delays free.
Free cash flow also reflects higher used vehicle sales proceeds.
Strong operating results and cash flow generation further strengthened our balance sheet, resulting in leverage being below target.
Based on our outlook and consistent with our capital allocation strategy, we intend to enter into a new 300 million dollar accelerated share repurchase program.
After completing this program, we still expect to have capacity for acquisitions and the existing share repurchase programs I'll turn the call over to John now to cover our fourth quarter results.
Thanks, Robert total company results for the fourth quarter on page five.
Operating revenue of $2 1 billion in the fourth quarter increased 14% from the prior year, reflecting revenue growth in all three business segments.
Comparable earnings per share from continuing operations was $3.52 in the fourth quarter.
As compared to 83 cents in the prior year.
Higher earnings reflect improved performance and AD formats from higher used vehicle sales rental and lease results.
As well as the decline in depreciation expense impact related to prior residual value estimate changes.
Return on equity our primary financial metric reached a record 29% for 2021 reflecting improved <unk> results.
2021 free cash flow was strong at 1.1 billion, although down from the prior year, one capital expenditures were unusually low due to COVID-19 .
Turning to Fms results on page six.
Fleet management solutions operating revenue increased 9%, reflecting 35% higher rental revenue driven by strong demand and higher pricing.
Rental pricing increased 10%, primarily due to higher rates across all vehicle class.
Fms realized pre tax earnings of 255 million.
195 million from the prior year.
$123 million. This improvement is from higher gains on used vehicles sold and.
And a lower depreciation expense impact related to prior residual value estimate changes.
Improved rental and lease results also significantly contributed to increased Stefan mess Arnie.
Rental utilization on the power fleet was a record 85% in the quarter and above prior year of 79%.
Results also benefited from ongoing momentum from these pricing initiatives.
Partially offset by a 2% smaller average active fleet sleep we.
We expect to see incremental benefits going forward from this initiative at least continues to be repriced leases continue to be repriced upon renewal.
Fms EBT as a percentage of operating revenue was 19, 6% in the fourth quarter and 13, 4% for the full year, surpassing the segment's long term target of high single digits.
Okay.
Page seven highlights globe global used vehicle sales results for the quarter.
Used vehicle market conditions remain robust through the strong freight activity in truck production constraints, creating tight apart.
Higher sales proceeds reflect significantly improved market pricing.
Globally year over year proceeds approximately doubled for both tractors and trucks.
Sequentially tractor proceeds were up 19% and truck proceeds were up 14% versus the third quarter 2021.
During the quarter, we sold 5400 used vehicles down 23% versus the prior year due to lower inventory levels sales.
Sales were up 10% sequentially and included a large retail transactions.
Used vehicle inventory ended at taught with 2500 vehicles below our target range of 77000 to 9000 feet.
Average used vehicle pricing is well above our residual value estimates used for depreciation purposes, as such we're comfortable with our residual values.
Turning to supply chain on page eight.
Operating revenue versus the prior year increased 21% due to new business higher volumes in the Midwest acquisition.
Growth was partially offset by the impact of supply chain disruptions on automotive production activity.
S E T S E T as a percent of operating revenue of three 5% was below target.
This reflects lower automotive Ernie higher strategic investments the medical cost pause.
The offset by positive earnings from new business.
We anticipate S E S E T per cent to improve in 2022 due to growth automotive pricing and volume recovery.
Moving to dedicated on page nine.
Operating revenue increased 26% due to new business higher volumes and increased pricing.
E T S E T as a percent of operating revenue was below target at 4%.
This reflects increased labor and insurance costs, partially offset by positive earnings from new business.
We're confident that new sales activity and pricing adjustment will improve D. T S EBT percent in 2020 two.
Now I'll turn the call back over to Robert to discuss our outlook.
Slide 10 highlights key aspects of our 2022 outlook.
In terms of market assumptions, we expect robust outsourcing trends to continue supported by increased awareness and focus on supply chain resiliency.
We expect the trucking environment to remain tight in 2022 with some moderation in the second half.
Labor and supply chain disruptions are expected to continue through at least the first half of the year.
We're expecting to recover costs for market labor shortages and wage increases to contract pricing adjustments and dedicated and our supply chain automotive business in.
In terms of our financial forecast for 2022 operating revenue is expected to grow approximately 10%.
Comparable EPS is forecast to be between 11 and $12 15.
It's a 25% over the prior year.
<unk> is expected to remain near record levels somewhere between 20 and 22% free.
Free cash flow is expected to be between 200 and $300 million as we are forecasting lease growth of around 4000 vehicles by year end, which is on the high end of our typical expected lease growth range.
Slide 11 highlights the key assumptions in our forecast.
Fms operating revenue growth is expected to be in the low single digits as OEM delivery delays will constrain lease revenue growth.
Fms EBT as a percent of operating revenue is expected to be above the segments low double digit target range, reflecting strong used vehicle sales and rental results and the benefits for a multiyear lease pricing and maintenance initiatives.
We expect to used vehicle sales and rental environment to remain strong in 2020 to slowly moderating in the second half.
Fms EBT percent, excluding gains is expected to be low double digits in 2022, demonstrating the earnings power of the base business.
Operating revenue growth in supply chain is expected to be above 30% driven by acquisitions and record new contract wins in 2021.
EBT percent is expected to improve throughout 2022, reflecting a recovery in automotive and reach high single digits in the second half.
Operating revenue growth in dedicated is expected to be low double digits.
Above this segment's high single digit target range and driven by record new contract wins in 2021.
<unk> as a percent of operating revenue is expected to improve throughout 2022, reflecting price increases in.
Reached high single digits in the second half.
In addition, we expect to continue to make strategic investments in innovative technology, and new product development, primarily to accelerate profitable growth in our supply chain and dedicated business.
Our forecast also assumes execution of the $300 million accelerated share repurchase program in the first half of the year.
Slide 12 provides a chart outlining the changes from 2021 to reach the high end of our 2022 comparable EPS forecast.
The largest contributor to EPS growth as supply chain and dedicated results, which are expected to generate $1 35 of incremental EPS.
These results reflect acquisitions and growth as well as recovery of costs related to the labor shortages in dedicated and auto recovery and supply chain.
The net impact from depreciation change in used vehicle sales results is expected to contribute 65 cents and EPS growth.
Depreciation expense impact from prior residual value estimate changes is expected to more than offset a modest decline in gains on used vehicles sold.
<unk> benefits from a decline in depreciation expense impacts are expected to continue beyond 2022. These benefits are not expected to be as meaningful going forward.
Fms contractual which reflects choice Lisa select care is expected to contribute 40 cents of EPS, primarily reflecting higher lease pricing.
Rental is expected to provide 40 cents of EPS growth due to higher demand and pricing on a larger average fleet. These.
These benefits are expected to be partially offset by lower utilization.
Both Fms contractual and rental results also reflect benefits from our multiyear maintenance cost savings initiative.
The net benefit from a reduced share count related to the new accelerated share repurchase program, partially offset by a higher tax rate is expected to add 25 cents to EPS.
The earnings decline related to the intended exit of our U K business, which we will cover in a few minutes and higher overheads are expected to reduce EPS by <unk> 30.
This decline does not include any expected gain from the sale of U K assets and the exit related exit related costs in the U K, which would be excluded from comparable EPS results.
Increased strategic investments in innovative technology, and new product development are expected to reduce EPS by <unk> 33 cents.
This brings the high end of our comparable EPS forecast to $12 with a range of 11% to $12 for the year.
Turn the call back over to John to discuss capital expenditures cash flow and ROE.
Thanks, Robert turning to slide 13.
2021 lease capital spending of $1 2 billion was up year over year due to increased lease sales activity, partially offset by 400 million impact from OEM deliveries delayed.
Our 2022 forecast of $2 1 billion reflects higher lease replacement and growth capital.
In North America, we expect the average choice lease fleet size to be unchanged year over year.
Year end fleet is expected to be up approximately 4000 vehicles as vehicles are delivered.
Later in the year, which will provide incremental incremental earnings growth for 2023.
2021 rental capital spending of $651 million increased significantly year over year.
Collecting a higher planned rental investment in a tight market environment and after a period of significant downsizing during COVID-19 .
In 2022 rental spending is expected to decline to 500 million with our average fleet expected to grow by 9%.
In addition, we are increasing our capital spending on trucks versus tractors and trucks continue to benefit from strong demand and pricing trends.
Supported by E Commerce growth and also tend to be less volatile during a downturn.
Our full year 'twenty two forecast for gross capital expenditures, it's $2 7 billion to $2 8 billion.
Turning to slide 14.
2021 free cash flow was $1 1 billion and includes the cash flow benefit of $400 million from OEM delays in retro proceeds from used vehicles sold.
2022 free cash flow is forecast at 200 million 300 million down.
Down from 2021, reflecting higher lease capital expenditures.
Balance sheet leverage is expected to remain below our target range in 2022.
2022 our OE is expected to be between 20% and 22%.
Reflecting the benefits from continued strength in SMS and a recovery of SCS and Dts returns in the second half of 2020 two.
I'll turn the call back over to Robert to provide our EPS forecast for the first quarter and full year 'twenty two.
And also discuss our long term targets and the actions, we're taking to cheat them over the cycle.
Thanks, John .
Turning to page 15, we're forecasting comparable EPS of 11 to $12 versus 958 in 2021.
We're also providing a first quarter comparable EPS forecast of $2 20 to $2 35 versus a prior year of $1 nine.
Our January results provide us with confidence in our outlook and demonstrates the continuing momentum in Fms market conditions and benefits from initiatives to increase returns.
Turning to slide 16, and late 2019, we shared several multiyear initiatives intended to better position the business to achieve our long term targets over the cycle and create value for shareholders. These.
These initiatives are focused on elevating the return profile of the business through accelerated growth in our higher return supply chain and dedicated businesses and moderate growth and improved returns and our Fms business, while generating higher free cash flow.
These actions have already contributed meaningfully to higher returns and we expect incremental benefits going forward.
In supply chain, we're very excited about the expanded capacity and growth, resulting from both organic and M&A activity.
From an M&A perspective, we recently closed our largest supply chain deal with whiplash, which takes us further into the high growth E Commerce area organically.
Organically 2021 was a record sales year for supply chain and dedicated.
In addition, we continued to invest in innovative technology solutions, such as Ryder share our real time flight freight visibility and collaboration tool, which has been a key differentiator in winning many of these new contracts.
We were excited to announce earlier this week that Ryder sure visibility has now been extended into the warehouse.
<unk> is now the only three PL offering a technology platform with real time visibility collaboration and exception management across the end to end supply chain.
In Fms the team has done an excellent job of leveraging favorable pricing trends and used vehicle sales and rental resulting an outperformance in both these areas.
In addition, our lease pricing initiatives have resulted in improved portfolio returns and revenue on lunar new leased vehicles.
Increasing year over year by mid single digits in 2021.
With approximately 40% of the lease portfolio now repriced with both higher return spreads and lower residual assumptions, we expect additional benefits going forward as the remaining 60% of the leases are renewed and re priced with these terms.
Our multiyear maintenance cost savings initiatives.
Initiative delivered a greater than expected $40 million of incremental annual benefits.
During 2021 with program to date savings, reaching 90 million, we now expect to exceed our initial 100 million dollar savings target.
As part of our strategy to improve Aframax returns, we intend to exit the lower return Fms business in the U K over the next 12 to 18 months subject to consultation obligations under U K law.
Our 2022 free cash flow forecast does not reflect the potential exit of our U K business, which if we complete we expect would benefit cash flow over the estimated 18 month period.
We have also taken actions to mitigate the impact of cyclical downturns on earnings.
Vehicle residual value estimates for the entire fleet are near historically low levels.
In addition last year, we incorporated the impact of a potential downturn into our residual value assumptions, resulting in a modest reduction in residual value estimates for certain tractors used vehicle pricing will continue to fluctuate based on market conditions, which will impact the gains that we realize however.
Maintaining residual residuals at these low levels. Our goal is to realize used vehicle gains or the vast majority of the time with a reduced probability of losses or need for additional depreciation.
We're also continuing to shift our revenue mix towards supply chain and dedicated by accelerating growth in these higher return businesses that are less susceptible than Fms the cyclical downturns.
Finally, we're maintaining balance sheet flexibility through moderate lease growth.
This enables us to invest in higher return opportunities that include organic growth targeted acquisitions and investments as well as returning capital to shareholders.
Based on the results from actions to increase returns our planned initiatives and our outlook, we are raising our long term Roe target over the cycle.
Slide 16 highlights our primary long term financial target ROE and key components to driving returns higher.
We're increasing our long term average ROE target over the summer from 15% to a range of upper teens, primarily to reflect higher expected returns in Fms.
This means that in a favorable rental and used vehicle market like we are in today, we should be in the low twenties and in a down rental and UBS market, we should be in the mid <unk> in the mid teens.
We also increased our target for Fms EBT as a percent of operating revenue from high single digits to low double digits, reflecting the benefits from our lease pricing of maintenance cost initiatives as well as getting past the depreciation impact related to prior residual value estimate changes.
Long term operating revenue growth targets are unchanged and EBT percent targets for supply chain and dedicated remain at high single digits or.
Our leverage target also remains at $2 50 to 300.
That concludes our prepared remarks. This morning before we go to questions I'd like to announce that we're planning an investor day for June the third to be held in New York City subject to health conditions. So please mark your calendars more details will be forthcoming regarding the event and required free registration.
So please note that we expect to file our 10-K tomorrow.
We had a lot of material to cover today. So please limit yourself to one question each.
You have additional questions you're welcome to get back in the queue and we'll take as many as we can at this time I'll turn it back over to the operator.
Thank you.
Like to ask a question please signal by pressing star one on your telephone keypad.
Speaker phone. Please make sure your mute function is turned off.
Sorry equipment.
Again press Star one to ask a question.
Well pause for just a moment to allow everyone an opportunity to signal for a question.
We will now take our first question from.
Any more with less.
Hi, good afternoon, and congrats on a great quarter.
Hi, Thanks, Stephanie.
I wanted to touch on on the Fms segment, I'm really fantastic work, a repricing and working on the returns that the lease the leases within that segment. If you could talk a little bit about that customer acceptance of these price increases that and really its the customer profile, whether it's size or industry has changed.
For the last several years.
As you kind of focus more so on returns and pricing and kind of how we should think about repricing in the success of repricing that incremental 60% are in the years ahead. Thank you.
Yeah, I'll I'll, just make a couple of comments and hand, it over to Tom look I think we've been.
We've certainly been encouraged by what we've seen with the acceptance of pricing is as you think about what drove our increase was really.
The lower residual expectation going forward, which is not a unique rider challenge I think anybody who owns their own trucks can I have the same issue and then the ongoing volatility that we would expect which increases the risk. So what we're finding is the market is recognizing that and certainly.
Oh amenable to increase to putting that in the rates. So we feel we feel confident in our ability I guess to continue to see that but Tom you can give a little more color also around the segments also that we are targeting now.
Yeah, I'd, probably just make one more comment too is we are if you go back a few years. The market also realize the struggles of maintenance costs on some of the new engine technologies. So they understood you know some.
Some of those cost increases that were incurred in their business, which.
I made it a little bit more as Robert mentioned kind of understood what was going on with the with the with the pricing of the leasing in terms of in terms of the customer base look we sell to a broad range.
Rod range of customers.
And we've been working on this for about three years now and there's been a slight change in the mix of business from some.
Some of the transports would.
It would be the the industry that has declined slightly and our our lease portfolio and then some of the other industries.
Have picked that up.
Just one other point on the lease book like we mentioned in the call notes, there's Oh about 40% of the book has is already been sold at the new pricing.
And.
We were selling now almost almost a year out.
Based on the OEM supply disruptions and delays in delivery so.
We've already priced another almost a year's worth of leases at the new pricing at this point. So we feel really good about the when these when the deliveries show up over the next 12 months that will be in a really good place with the lease book going forward.
Great and just a quick follow up on that comment. So would you say there's been a kind of an effort to target maybe some higher growth potential customers, whether that's in consumer or other avenues that you could have maybe a steadier growth profile or higher growth profile.
Just wanted to follow up on.
I think the one I'd point out would be e-commerce would be the area.
We mentioned that certainly with the supply chain teams on what Theyre doing but were also focusing in that segment as well.
S M S.
Yeah.
Great. Thank you so much.
Yeah.
Thank you Stephanie.
Do you find that your question has been answered.
Move yourself from the queue by pressing the star key followed by the digit.
No.
Well now take our next question from Jordan.
With Goldman Sachs.
Yeah, Hi, good morning, obviously dedicated and supply chain are a big part of the earnings step up in 'twenty 'twenty. Two so I'm wondering if you could provide a little bit more color around the drivers that are going to take that E. B T margin.
Yeah. The biggest factor is that that you expect to take those EBT margins back up to sort of the targeted range over over the over the back half of the year. Thanks, So much.
Yes, Jordan listen to two big areas. One is growth. So all of the new business, we had a record new contract wins this year, so as those come in.
Certainly expecting a lift in earnings from that and then the second piece is really around recovery of in our pricing of the wage earner.
Increases in and we've Ah theres been in the market along with the recovery of supply chain disruption in automotive, but well, let me I'll I'll hand, it over to Steve. So he can give you a little bit more color.
Yeah, Thanks, Robert Jordan.
I'll break it into the into the two buckets two divisions.
In dedicated we are seeing record new sales pipeline remains strong I'll tell you the new business that's coming in is that our our target returns are the team has really gone through.
Our book of business and and had discussions with many different customers. So if you think about half of our business. There was minimal impact to the increase in the driver wages last year.
And turnover so the team really focused on the remaining 50%.
Say, a 25% of that AR balance has been discussed with our customers.
And the new rate structure and we're in the process of filling those seats are the remaining balance is half of that is in discussion and the other half has been agreed to and its a matter of getting it in depth and drivers in the seats. So we are off to a good position and expect to see those returns come back in in Q2.
On the SCS side about a half of our business is cost plus so those are kind of easy discussions are easier discussion. The remaining balance we're down to just a few customers within the automotive in tech verticals and we expect to have those closed up.
And in Q2, so I think we're in good spot there and as Robert said, it's really about the automotive semiconductor shortage and how that rebounds in the second half.
Great. Thank you so much.
Thanks Jordan.
Well now take our next question from Allison <unk> with Wells Fargo.
Hi, good morning.
Just wanted to follow up on Jordan's question, a little bit more with Ses and should we be thinking I know you just mentioned sort of more of a second half there, but is there going to be more of a linear cadence at some of those get repriced than any next benefit that you're getting from some of the newer contracts that youre, bringing in there. Thanks.
Yeah, well I would tell you in terms of a linear cadence I'd say on the on the dedicated side youre going to see you're going to see some of that.
More linear in the first half on the supply chain side, there's a significant.
A couple of contracts that we're looking to.
Renew or really reprice here beginning in the second quarter and we should begin to see the benefits then and then really kicked in in the fourth quarter. So Steve I don't know if you wanted to add something else to it.
Just the only thing I'd add too with the acquisitions that we brought on that Robert talked about earlier are you know automotive is will be a smaller still significant you know about 30% of our business.
But certainly the CPG and retail world is now about half of our portfolio. So we liked that diversity as well.
Great. Thank you.
Our next question will come from Todd Fowler with Keybanc capital markets.
Hey, great Thanks, and good morning.
Robert on the updated take good morning on the updated financial targets. It really looks like the the move on to get to the higher ROI is driven by taking up your expectations for Athamas operating margins can you give us an idea of how you're thinking about what kind of a normalized level of gains.
As would be within Napa mass I don't know if you want to talk about it from like an absolute dollar basis or as a percent of revenue, but just trying to get a sense within the the guidance targets how games play into that and then just as a follow up to that if you could share it sounds like youre expecting gains to come down in 'twenty. Two if you can give us idea of what you're embedding for units sold and price.
I think that would be helpful. Thanks.
Yeah.
Yeah, I would tell you on the in terms of.
More normalized gains obviously, we came off this year, where we're at about $270 million of games, where we're expecting 22 to be modestly down from that.
Primarily as a result of the residual values.
That would come up we expect pricing to be to be slightly up.
But in terms of what more normalized gains I think is what everybody is trying to figure out. The tools you have Andy. If you have you have you think about normalized gains that we think normalized games could be somewhere around $75 million to $100 million.
So so that we think based on where we have residuals today, we think that's a that can be a more normalized view. So when you. When you take that and you you also assume rental rental could come down to we think in a more normalized environment.
Earnings could be down to $2 50 to three bucks a share.
Probably a good range. If you said I'm going to do away with all of the extraordinary gains that I'm seeing in in all of the and all the extraordinary rental that we're seeing.
So that still puts you I would tell you in a really a much higher return.
Environment than we've seen historically and that's really a reflection of all the important work that's been done around lease pricing around maintenance cost.
What we envision also the continued move towards supply chain and dedicated where you will have higher returns as we get our pricing back. So all those things put together really what's.
What's giving us confidence in the base business the base business itself.
It's going to improve over the cycle, we'll be at a higher return than what we've seen in the past.
Robert that was great and that was I really appreciate the granularity there and what we've kind of come up with some similar numbers just one follow up to that would we have to adjust anything for you do you still have some elevated depreciation right now what would that be one thing that would net against the numbers that you just gave for gains in rental.
Yeah, no going forward look this year, we're still going to have some a little bit of an depreciation I would call a headwind, but as you go into next year. It really starts to become much less of an issue.
Very much smaller number so I don't think we'd be talking about that anymore. I think you know going forward.
One of the things that gave us confidence to US we've had a few years here a really outsized depreciation and we're really getting now the point, where as we go into next year, certainly we're not going to see that same level of outsized depreciation more normalized therefore, giving us opportunity for better earnings.
Got it very helpful. Thank you.
Thank you Todd.
Well now take our next question from Jeff Kauffman with vertical research partners.
Hey, everyone. Thank you.
Yeah.
I'd like see a normalized EBITDA multiple on those normalized earnings as well.
So I'm thinking about growth you talked about 30% growth.
Operating revenue in the dedicated business because the new contract signings, how much do you need to increase the fleet on average to support that.
No Jeff 30% was on the supply chain.
Supply chain, Okay. Thank you.
Right and that's because.
That's because of the good chunk is the acquisition. We also had new contract signings are probably without the acquisitions, we're probably looking at about 10% growth in supply chain.
Mhm.
Okay got you and then low double digit revenue growth is what you were looking for in Dts. So net net between that and the rental and the lease you're bringing in is it 6000 are closer to the 7000 or 7500 vehicles and in 2022.
Right.
Well, bringing in 4000, we're studying 4000 leased now those are going to come in in the back end of the year second half of the year benefit of the earnings, but it'll be in 2020 three and rental I'm not sure. We gave the number in rental you said, 9% R&R growth yeah.
So so figure.
40000 vehicles ish.
That's three to 4000 vehicles right.
No no no because that that includes pricing increases too.
Okay I got you Alright, and then just one go ahead Ken.
No I, so I think you've got it right. The knife percent was kind of ball on.
It wasn't reflect revenue sleep, but we gave but we gave you the four for Capex, you've got an idea there.
Our capex for 2022 for rental.
Being in that $500 million range.
Okay. So I can play with those numbers and then one last follow up if I can.
A lot of businesses.
Reported fourth quarter, and given our <unk> outlook or talking about the impact of OMA crime.
And how it cause greater absenteeism and it affected customer use and then a lot of that and I think it was probably greater.
And then a lot of us anticipated in January and the early part of February .
Can you talk about how all micron did or did not affect your operations and then you know how that may or may not have affected your <unk> outlook.
Yes.
Yeah, I would tell you Jeff that we do we do we do see some of the same impacts that you're talking about in terms of absenteeism. We saw go up which impacted our really all of our businesses to a certain extent, but I think the what's different riders that we also are getting the offset of really still.
Continued extremely strong demand on the Fms side for rental and UBS and we're really helping that but we are you know the army crop thing I think it was more of a.
It's kind of getting behind US now I think we are seeing.
Those absentee rates come down and really the challenge that we have really been around driver and warehouse worker recruiting we're continuing to work through that.
Lot of the pricing changes, we're making with our customers, but also that that's still that issue is ongoing and we continue to you know our teams continue to work through that we've added a lot of new resources to recruiting.
I think we tripled our recruiting staff that we have in order to be able to bring in.
All of the drivers and warehouse workers that we need we like the progress, we're making but there's still a lot of work to be done there.
Well congratulations on a rock star ear, and we'll see in June thanks.
Thank you Jeff.
Well now take a question from C band.
Paul.
Hey, good morning, and congratulations on the quarter.
Thanks Kurt.
You guys highlighted your maintenance, there's just being ahead of schedule, which I guess may be surprising just given what we're seeing on the inflation side of things can you talk about why that is and then perhaps what your expectations are for inflation just across the different segments of your business.
Sure I'll tell Ya and I'll, let I'll, let Tom give you some more details on that but really our our maintenance.
Our initiatives are really more around process improvement now and really changing the process in our shops. So we've really just seen that providing more benefit than we expected originally and we're also moving quicker. So Tom if you can give them a little more color on that.
Yeah.
Yeah, maybe just try to directly address the question of C. P. I think that was that was more of your question, but just remember.
We.
We have CPI increases with our customers each each year as well that offset any maintenance cost increase so where we're seeing those two net out so.
You're really just talking about your underlying maintenance cost benefits like exclusive of CPI CPI is kind of handle.
You will so.
We're continuing to see improvements in our AR, our productivity gains as we continue to rollout. So those process improvements as Robert mentioned that we're going to continue to work on through next year, plus we have a couple of other.
Engine and exhaust system in parts of the opportunities that the teams are all going after next year as well.
To deliver even more benefit.
So that that makes sense on the on the maintenance side, but maybe just in the context of the different parts of your business, obviously inflation seems like it's impacting labor and in dedicated and supply chain do you see any impact from inflation just in the Fms leasing side of things or are you, saying that you're able to pass on some of those costs in your contracts.
Yeah, I think it's what what Tom just addressed as we have in our contracts and our lease contracts. There is a CPI clause.
That is tied to CPI and that there is a rate increase associated with whatever happens with CPI. So we are covered there.
In addition to that even some of the units that we're signing today that maybe you don't come in for another seven or eight or 10 months.
Any additional surcharges or inquiries is also get a pass through and included in the rate going forward. So we're pretty well covered I would say.
On the on the inflation side and so in Fms.
Thanks Robert.
Thank you Barry.
Well take our next question from Brian <unk> with J P. Morgan.
Hey, good morning, Thanks for taking the question.
Just wanted to go back to SCS and Dts.
Just to make sure I understood.
The mismatch or the delay in terms of passing through some of the costs.
I understand I think what Steve was saying about some of the contracts just werent weren't structured as such so is that really the primary issue where are you seeing pushback do you try to maybe accelerate some of these cost pass throughs I just wanted to make sure I understood what what's the real reason was.
So we can kind of.
Calibrate for that because when you look into the next year.
Steve you want to take that.
Yeah, I think Brian from a structural standpoint think about our business is that our contract is like typically a three to five year contracts on.
On the dedicated side there is a CPI clause, but its typically capped you know kind of at a historical average you know, let's say around 3% what we saw in the middle of the year with a huge spike in wages.
In many markets it was easily 10% increase in in some accounts and markets. It was as high as 30% to 40% believe it or not so what we've had to do is proactively go to all customers regardless of when that contract opens up for those discussions and really negotiate that that rate increase.
On the supply chain said kind of a same process, but as I said before half your business. There is cost plus so those are those are easier discussions and we're down to just a handful on the supply chain said did I answer your question.
Yeah, so it sounds like similar to Fms and lease.
Mark is a lot stronger youre able to take advantage of that maybe go through some of the negotiations are to get them I guess to be able to not have similar challenges in the future.
Do you think that affects growth at all in favor of people willing to pay up for for these new these.
These new cost pass throughs.
No everything that we sold in the back half of last year, and both dedicated and supply chain had new contract language, which opened those discussions up more frequently throughout the year. So we have not seen it slow down.
Cited about the pipeline it remains at historical levels, you know good quality deal with good sized deals in there so.
We're off and running on the sell side here in the in the first part of the year.
Yeah, Brian I think because these are really market cost increases that we're seeing so it's not a writer unique issue. So I think customers are certainly seeing that and I was I guess that would or I would just add to what Steve said about our contract says we've got a good chunk of them that are more of a cost plus are cost pass through but for those that were not we were re.
Some of those were really written to handle normal you know.
Wage increase that was call it 3%, 4%, but these spikes that Steve talked we're not contemplated the important thing is going forward now we are including those in and not only the new agreements, but as it comes time for renewal. We are working those in so that you know in the future. We don't we don't run into the same issue.
Got it and then Robert a follow up as he maybe talk more about.
The strategy and the initial.
Because performance poor whiplash in the Midwest, both still pretty early but you're taking some pretty big steps to expand into that area, maybe English certainly hear more at the Investor day, but maybe you can just give your initial impressions of the deal what you're trying to accomplish here strategically and you know to.
To the extent that you have any technology.
Gration here, that's going to help.
Of accelerate some of these platforms that are already in pretty strong growing segments. Thanks.
Yeah look I think Brian .
Key to our strategy was to really accelerate the growth in our supply chain and dedicated businesses over over time those are have been better return.
Businesses and really high growth area. So within supply chain, obviously E fulfillment E. Commerce is a really important fast growing part of that.
We're very excited about.
Both these acquisitions whiplash really are giving us a significant boost in our ecommerce fulfillment initiative.
Now, we'd become a meaningful player in that space not.
Not only do they bring you know.
Operational expertise doing ecommerce fulfillment, but also technology. So we are you know we are very excited about that opportunity. So far so good integration has gone well.
It really is becoming or equal filament platform and around mid west again. Another it was really a shot in the arm in our CPG space are also adding multi client warehousing, which is in there.
A product that we you know we didn't have a lot of presence here in the U S. A.
But the team does a great job.
In that area the Midwest team. So we're excited about also bringing.
Bringing them into the fold. So again these are both.
Investments that are consistent with our capital allocation strategy and really giving us a boost in supply chain and dedicated if you think about the revenue mix for the company historically, it's been about 60% Fms.
40% supply chain and dedicated these two acquisitions are not giving us much more to a 50 50, which ultimately is the way we expect the business to move more towards so I think overall you know good for the market good for the opportunities.
For our company and for Ryder and good for the shareholders.
Alright, Thank you Robert.
Thanks, Brian .
We will now take our next question from Justin long with Stephens.
Thanks, Robert I think you said earlier on that used truck pricing environment, you expected it to be up slightly for the full year, but it sounds like first half and second half assumptions are different. So I was wondering if you could give us some color on how you expect used truck pricing to progress.
You know as we move throughout the year and maybe what that kind of exit rate looks like versus where we are today and I guess similarly, as we think about that quarterly cadence of gains on sale is there any color you can give us there on what's baked into the guidance.
Yeah, and the Guy that's by the way, it's still very hard to tell you know when things are going to begin to soften because there's such a shortage of new trucks in the market.
OEM production continues to be constrained OEM truck production. So that is really I think are driving a significant boost for used truck prices. We think that's going to continue at least through the middle of the year as we get into the second half of the year, we expect it to begin to moderate some as some more new trucks or put it into the market.
And maybe a bit of a slowdown on the on the freight market side. So our assumption is continued strength in used vehicle pricing really in the first half and then and then coming down slowly in the second half maybe.
Maybe exiting the year down year over year, maybe 5% to 10%, but again, that's still really early in the in.
In the year and that could that could change as we get closer could you could end up being better than but we think we think right now where we're at is probably the best guess.
Okay. That's helpful. I appreciate the time.
Okay. Thank you Jeff.
Well now take a follow up from Stephanie more with trust.
Hi, Thank you just as a follow up.
Robert could you talk on the technology opportunities I know you mentioned the success Youre staying with Ryder sure, but if you could discuss maybe the other tech investments like smart Hot Coop and really any other new areas you would look to explore on the technology credit.
Sure. Thanks.
Yeah, you know Stephanie that's a great question.
Clearly technology is becoming a really important component to our offering especially on the supply chain side. So are.
We expect to continue to make investments in ridership rideshare, it's been a real home run for us.
Allowed us to win new business the customers that are using it are we're getting great feedback from them, giving them that visibility now we're expanding the visibility not only on the trucks, but also in the warehouse, so giving that end to end visibility, allowing customers to make smarter decisions.
That is important I think we're going to continue to invest in that type of technology.
Linking it more into the operations and.
And so the operational execution components over time.
So that's on the supply chain side, I think youre going to continue to see that on the.
On the Coop side, you mentioned Cooper.
We didn't talk about it on the call today, but we are you know our plan. This year is to really rollout coupe more broadly and nationally.
We're making we're seeing some nice.
Gains in that part of the business, where we do more customers are getting comfortable with lending their equipment and ramping their equipment to other so the peer to peer sharing along with we're also seeing investors who are willing to buy trucks used trucks and put them on coop.
To use them kind of you see on the auto side happens with.
Some of the companies that are that are doing some of that some are on the on the auto side. So we're very we're very encouraged by what we're seeing so far.
And we expect by the end of this year to really have a much better idea of the of the long term opportunity for our four coupe. So yes, I would expect us to continue to make.
Those types of investments and I think over time technology will continue to be in and become a bigger and bigger part of our story.
Great. Thank you.
Thanks, Stephanie.
Well now take our last question from Allison.
With Wells Fargo.
Hi, guys I just wanted to go back to U S. C S and the potential inorganic opportunities and you know certainly some nice acquisitions that broaden and strengthening exposure and in certain protocols.
How would you view I mean is it more organic sort of focus that you're looking at or are there still some inorganic opportunities out there that you're looking at to maybe sell some of those aren't part of another exposures.
Got it.
Yeah, Yeah, I think the the engine for growth as organic but clearly we still see opportunities to pick up new capabilities like we did with with whiplash.
We think theres some other potential areas that we would look to <unk> to look for capabilities, we've talked historically about health care, adding that vertical potentially.
Returns is another area that we would look at we've got some capability there, but maybe bolster that and then you know in some areas even if it makes sense to do some some tuck ins Steve I don't know if I missed anything there.
No I think you I think you're right on you know, we're always looking at our strategy and in trying to stay ahead of the game, let's say within.
Ryder last mile and E. Comm, you know, we're going to continue to add our footprint expand our footprint into new geographies. So you know it's key for us to continue to get closer and closer to the end consumer.
Perfect. Thank you.
Okay.
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, great well listen thank you.
For the for the questions. Thanks for the interest.
As I said at the beginning we're really proud of the results that we delivered in and are just as excited about what lies ahead for us now and in 2022 and beyond so thank you all for your interest.
That concludes today's conference we thank you all for your patience and your participation.
Uh huh.
Yes.
[music].
Yeah.
[music].
Yeah.
[music].
Yeah.
Uh huh.
Yeah.
Hum.
Okay.
[music].
Yeah.