Q2 2023 Ryder System Inc Earnings Call
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Good morning, and welcome to the Ryder system second quarter 2023 earnings release Conference call. 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'd now like to introduce your Killington dollar Vice President Investor Relations for Ryder.
You may begin.
Thank you good morning, and welcome to Ryder's second quarter 2023 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 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 John <unk>, Executive Vice President and Chief Financial Officer.
Additionally, Tom Hayden President of Fleet management solutions, and Steve sensing President of supply chain solutions and dedicated transportation solutions are on the call today and 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.
Very proud of the strong second quarter results delivered by our team despite challenging freight conditions.
As many of you know several years ago, we adopted a balanced growth strategy and have since been focused on its execution.
As we'll discuss on today's call. The transformative changes we've made to Derisk, our business model enhanced returns and free cash flow and drive long term profitable growth has significantly increased the earnings and return profile of the company.
Even in the market conditions, we're currently seeing.
For the quarter were above our forecast, reflecting better than expected performance in all three business segments.
I'll begin today's call by providing you with a strategic update.
John will then take you through our second quarter results will then discuss our outlook, let's begin on slide four our strong year to date performance and increased forecast provide clear evidence that our balanced growth strategy is working.
We've executed transformative changes that have increased the earnings and return profile of the business.
Our updated model is proving to be more resilient than prior cycles, we see incremental opportunity ahead from our initiatives as well as the secular trends that continue to favor transportation and logistics outsourcing.
We remain focused on enhancing returns above target Roe of 24% for the trailing 12 month period reflects elevated market conditions in Fms during the second half of 2022 as well as the benefits from our initiatives.
These initiatives include pricing and cost recovery actions, which benefited returns in all segments.
Our outlook for oral we remained strong and we expect to end 2023 in line with our high teens target despite weak freight conditions.
All three business segments achieved target EBT margins during the quarter and our enhanced asset management playbook has enabled us to generate higher earnings in each phase of the cycle.
Recently announced a 15% increase in our quarterly dividends.
Which demonstrates our confidence in the long term earnings generation of the model.
Our strong balance sheet and solid investment grade credit rating continue to provide us with ample capacity to pursue targeted acquisitions and investments as well as return capital to shareholders.
We repurchased one 1 million shares during the quarter under our repurchase programs since.
Since the beginning of 2021 we've repurchased approximately 15% of our outstanding shares.
We're encouraged to see the accelerated timing of OEM deliveries, because it's allowing us to fulfill lease contracts sooner our capital expenditures have increased as a result of these earlier deliveries, which in turn has lowered our expected free cash flow for the year.
In 2018 prior to the implementation of our balanced growth strategy, we generated comparable earnings per share of $5.95 and return on equity of 13%.
This was during peak freight cycle conditions at that time, the majority of our $8 $4 billion of revenue was from F. M S.
Supply chain revenue had a three year growth rate of 16%.
Operating cash flow was $1 7 billion.
Now, let's look at Ryder today in 2020 three during a freight cycle downturn.
Our updated model is expected to generate meaningfully higher earnings and returns than it did during the 2018 rate cycle peak comparable earnings per share is expected to be $12.20 to $12.70 compared to $5.95 in 2018 and return on equity is expected to be.
And our high teens target range, well above the 13% generated in 2018.
Our revenue mix has shifted towards supply chain and dedicated with 55% of 2023 revenue expected from these asset light businesses compared to 44% in 2018.
Supply chain growth rate is expected to increase to 24%.
As a result of profitable growth in our contractual lease supply chain and dedicated businesses operating cash flow is expected to increase to 2.5 billion. This year.
As illustrated here the business is outperforming prior cycles, even when comparing prior peak to current downturn conditions.
I'm proud of and encouraged by the results of our transformation, thus far and I'm confident that there will be incremental benefits beyond 2023.
Slide six highlights key areas of focus for our balanced growth strategy and the actions we've taken to transform the business.
Reducing the reliance on used vehicle proceeds needed to achieve choice lease returns has been a key initiative to derisk our business model.
Our pricing residuals today are approximately 40% lower than they were in 2017, resulting in higher cash flows coming from more stable and predictable lease payments rather than more cyclical used vehicle proceeds this.
This has been a key driver of higher lease performance, we've optimized our Fms business mix by exiting or sub performing U K and lease liability insurance businesses.
Returns on our choice lease portfolio have been enhanced by expanding pricing spreads that have resulted in better aligning price with customer segmentation.
We continue to expect incremental benefit from our overall lease pricing initiative is approximately 70% of our lease portfolio has been priced.
Under our updated model and an additional 10% is under contract and are waiting vehicle delivery.
This initiative is expected to be fully implemented by 2025 with an estimated total annual benefit of 125 million.
Results are also benefiting from our multiyear maintenance cost savings initiatives, which have generated over $100 million in annual savings today compared to 2018.
Moderate lease growth at higher returns has increased our expected free cash flow with positive free cash flow expected in most years and over the cycle higher lease fleet growth targets and related capital expenditures prior to the balanced growth strategy pressured historical free cash flow.
A key component of our balanced growth strategy has been to accelerate growth in our higher return asset light supply chain and dedicated businesses.
As a result of several strategic acquisitions investments in technology, and new product development as well as secular trends that favor logistics outsourcing, 55% of our 'twenty to 'twenty three revenue is expected to come from our asset light supply chain and dedicated businesses as mentioned earlier.
Our three year revenue growth rate for supply chain has increased from 16% in 2018% to 24% today.
Overall, the transformative changes we've made to the business are improving returns and positioning our business for long term profitable growth.
I'll turn the call over to John to review, our second quarter performance.
Thanks, Robert total company results for the second quarter on page seven.
Operating revenue of $2 3 billion in the second quarter up 1% from the prior year, primarily reflects revenue growth in supply chain and dedicated partially offset by the Fms UK exit.
Comparable earnings per share from continuing operations were $3 61 in the second quarter down from a record $4 43 in the prior year.
Selecting expected weaker market conditions in used vehicle sales and rental.
As we discussed on our prior calls GAAP EPS in the second quarter was impacted by onetime noncash cumulative currency translation charge related to the exit of our U K business.
Return on equity our primary financial metric was 24% and remained above our high teens target.
Reflecting elevated used vehicle sales and rental market conditions in the second half of 2022.
As well as our returns initiatives.
Year to date free cash flow decreased to $16 million from 551 million in the prior year due to increased capital expenditures and lower used vehicle sales proceeds.
Turning to Fms results on page eight.
Fleet management solutions operating revenue decreased 4% as a result of exiting the U K.
Operating revenue in North America was unchanged as higher select and choice sleep offset lower rental demand.
Pre tax earnings in fleet management, we're $180 million and down year over year. Its anticipated prior year results reflect record pre tax earnings complete management, largely due to elevated market conditions in used vehicle sales and rent.
Lower used vehicle pricing in the quarter was partially offset by higher sales volumes.
Rental utilization on the power fleet of 75% was in our mid to high Seventy's range, but down from prior year record levels of 85%.
Lower utilization was partially offset by 2% increase in power fleet pricing.
Despite a weak or used vehicle sales and rental environment fleet management EBT as a percent of operating revenue remained strong at 14, 4% in the second quarter.
The segment's long term target of low double digits.
The trailing 12 month period. It was also above target at 17, 2%.
Page nine highlights used vehicle sales results in North America for the quarter.
As anticipated market conditions for used vehicle sales continue to normalize from elevated levels in the prior year.
Compared with prior year used tractor proceeds declined 41% and used truck proceeds declined 34%, reflecting weaker freight conditions.
On a sequential basis proceeds for tractors decreased 15%.
Proceeds for trucks decreased 14% well generally in line with expectations.
During the quarter, we sold 5500 used vehicles up sequentially and versus prior year.
Used vehicle inventory increased to 7000 vehicles at quarter end and is in line with our target inventory levels of seven to 9000 units.
Increased sales volumes and inventory levels to reflect higher lease replacement and rental de fleeting activity.
Although used vehicle pricing decline proceeds remain above residual value estimates used for depreciation purposes.
Slide 20 in the appendix provides historical sales proceeds and car residual value estimates for used tractors and trucks for your information.
Turning to supply chain on page 10.
Operating revenue increased 8%, reflecting new business higher volumes and increased pricing.
Double digit revenue increases in automotive CPG and industrial verticals more than offset softer volumes in omni channel retail.
Supply chain, EBT increased 23%, reflecting revenue growth and lower incentive based compensation costs as well as prior year customer accommodation charges.
Which also benefited earnings comparisons.
These items were partially offset by lower volumes in the omni channel retail vertical.
Supply chain E B T. As a percent of operating revenue was eight 7% in the border returning to the segment's high single digit target range as profitable growth more than offset lower omnichannel walliams.
Moving to dedicated on page 11.
Operating revenue increased 7%, reflecting inflationary pricing and higher volumes.
Dedicated EBT increased 43%.
Primarily due to operating revenue growth and improved labor productivity, we continue to see improvement in the number of open positions and tied to fill for our professional drivers.
Dedicated EBT as a percent of operating revenue of 10, 3% was above the segment high single digit target.
During the quarter, we saw slower contract sales activity in dedicated.
System with a softer freight environment.
We discussed last quarter, we expect dedicated sales activity to moderate for the remainder of the year and expect segment revenue growth to be below our high single digit target range.
Dedicate it remains on track to achieve its high single digit target for segment pre tax earnings.
Turning to slide 12.
Year to date lease capital spending of $1 4 billion was up from prior year, reflecting increased lease replacement and growth activity as.
As well as the accelerated timing of OEM deliveries in the quarter.
Year to date rental capital spending of 310 million was below prior year's plant.
Our 20th twenty-three forecast for lease capital spending of $2 6 billion.
It reflects higher lease replacement and growth capital versus prior year.
Although we now expect the ending lease fleet to be up seven to 8000 vehicles versus prior year due to the accelerated timing of OEM deliveries.
Ending active fleet is expected to be up by approximately 4000 vehicles.
In rental R&D fleet is now expected to be down, 11% or 4600 vehicles, reflecting higher rental redeployment activity.
Our average fleet is anticipated to be down slightly from 'twenty to 'twenty two.
Our full year 2023 capital expenditures forecast increased to approximately $3 2 billion due to the accelerated timing of OEM deliveries.
We continue to expect proceeds from the sale of used vehicles were approximately $800 million in 2020 three below prior year, which included 400 million of proceeds related to the UK exit.
Full year 2023, net capital expenditures are now expected to be approximately $2 4 billion.
Turning to slide 13, we've decreased our 2023 forecast for free cash flow by approximately 100 million to reflect the accelerated timing of OEM deliveries.
And the corresponding increase to lease capital expenditures.
The forecast for operating cash flow increased to $2 5 billion.
As shown the trajectory of our cash flow continues to improve over time, reflecting growth in our contractual supply chain dedicated and lease businesses, which comprised approximately 85% of Rogers operating revenue.
Our free cash flow profile has changed significantly since the implementation of our balanced growth strategy.
Hence twenty-twenty lower targeted lease growth as well as COVID-19 effects and OEM delays.
Salted and lower capital spending and higher free cash flow.
Proceeds from the exit of the UK Fms business also benefited free cash flow in 2022.
The summary on the right side of the slide illustrates the strong free cash flow generated by the business prior to investing in fleet growth.
2023 we expect to generate approximately 100 million of free cash flow and prior to investing in growth capital. This number is expected to be approximately 500 million.
Our capital allocation priorities continue to support our strategy to drive long term profitable growth.
Our top priority is to continue to invest in organic growth.
We will continue to pursue targeted acquisitions, which have been a key contributor to accelerate growth from supply chain.
Acquisitions have helped transform our supply chain business, both in terms of expanding capabilities as well as rebalancing our vertical mix.
Balance sheet leverage of 211% was below our 250% to 300% target.
It provides ample capacity to fund organic growth and targeted acquisitions as well as to return capital to shareholders through share repurchases.
And dividend.
With that I'll turn the call back over to Robert to discuss our enhanced asset management playbook and outlook.
Thanks, John Page 14 provides key highlights from our enhanced asset management playbook, which is focused on optimizing returns over the cycle from our transactional used vehicle sales and rental businesses.
In response to weakening used vehicle and rental demand, we're redeploying underutilized rental vehicles to fulfill lease dedicated and supply chain contracts in.
In 2020 three we expect to redeploy between three and 4000 units to align our rental fleet with demand conditions.
This elevated level of redeployment activity is enabling us to fulfill lease contracts sooner and is also contributing to higher lease fleet growth.
Rental utilization for the full year 2023 is expected to be within the target range of mid to high seventies.
In used vehicle sales, we're leveraging our expanded retail sales network.
Since 2019, we've increased our retail sales capacity by approximately 50% by adding physical locations and increasing our inside sales team to capture digital sales opportunities.
Increasing retail sales volumes benefits results as wholesale proceeds have historically been at a 30% discount to retail proceeds.
And finally, we continue to shift our vehicle mix and rental towards trucks, where we see stronger demand trends that have historically been more resilient than those of tractors.
By year end 2023 we expect that trucks will be approximately 60% of the north American rental fleet up from 49% in 2018.
Although earnings are impacted by the freight environment successful execution of our enhanced asset management playbook is generating higher earnings in each phase of the cycle.
Turning to page 15, we're raising our full year 'twenty twenty-three comparable EPS forecast range to $12.20 to $12.70.
From the prior range of $11 30 to $12.05.
Our increased forecast reflects better than expected year to date results in used vehicle sales.
Ongoing maintenance cost improvements and supply chain automotive performance, partially offset by softer conditions in omnichannel retail.
Full year 2023, GAAP EPS forecast includes approximately $3.96 from the cumulative currency translation that was recorded in this quarter.
We're also providing third quarter comparable EPS forecast of $3 to $3.25 versus a prior year of $4.45.
Our 2023 return on equity forecast is increased to 17% to 19% from 16% to 18% in line with our long term high teens target.
We expect strong earnings in 2020 three although down from the prior year as market conditions in used vehicle sales and rental declined from elevated levels in 2022.
Turning to page 16, we believe Ryder is well positioned to increase shareholder value, we see significant opportunity for profitable growth supported by secular trends, our operational expertise and ongoing momentum for our multi year initiatives.
We've made transformative changes to our business model and continue to demonstrate strong execution of our balanced growth strategy, which has positioned us to achieve our long term targets increased business model resiliency and outperform prior cycles.
We remain committed to investing in products capabilities and technologies that will deliver value to our customers and our shareholders.
That concludes our prepared remarks. Please note that we expect to file our 10-Q later today.
We had a lot of material to cover today. So 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 as we can at this point I'll turn it over to the operator.
Yeah.
Thank you if you'd like to ask a question.
Please signal by pressing star one on your telephone keypad, you are joining us today using a speaker phone. Please make sure your mute function or turned off to allow your signal.
To reach our equipment again that is the second follow up I think that you wanted to ask your question, we'll pause for a moment to allow everyone an opportunity to signal for questions.
And again that isn't Starkey, followed by the digit one we will take your first question from.
Jordan Elicker from Gordon Goldman Sachs.
Yeah, Hi, good morning.
Yeah. The supply chain margin you had a really really nice pick up sequentially and year over year can you I know you touched on a little bit can you maybe delve into a little bit more.
The keys to success in that ramp in and really what the key few points are is to sustain margins at your target levels, especially given presumably over the next year or two you know the pipeline should be pretty robust so I imagine.
It's sort of a trade off or we're basically trying to assess how much business is take on how to price it the margin et cetera. So.
Since that's sort of been a key focal point for you guys. This asset light shift or some color on that would be great. Thanks.
Yes, Thanks Jordan.
Just to remind everybody our target for.
Profitability.
On supply chain is that high single digits.
So we were really pleased to be there this quarter and certainly expect to be there for the balance of the year.
And that's really as a result of not just the pricing of new business, but also the work we've done over the last year to make sure that we had.
Pass through the cost increases that we needed to especially in our automotive business. So.
This quarter was really more of a story about automotive getting back to where it needed to be we still have some headwinds in our omnichannel.
Our retail business.
Which which.
We expect to over time as we work through that and we continue to see growth in that area.
That will pick up also so we feel good about the opportunity.
Our ability to continue to grow the top line and supply chain.
Through acquisitions and went back continue to grow the bottom line.
Thank you.
Okay.
Do you find that your question has been answered you may remove yourself from the queue by pressing the star key followed by the Q.
We'll move next to us.
<unk> group from Wolfe Research. Please go ahead.
Hey, Thanks, good morning.
Robert I know, it's probably a bit early but how do you think about the puts and takes for earnings next year I don't know any thoughts on <unk>.
<unk> depreciation any anything else ultimately I guess I'm trying to figure out like is your view of normalized earnings that you've given us in the past is that view changing at all and then just maybe bigger picture like obviously the stocks at a pretty low valuation I'm just wondering what the things that you and the board or are discussing an and.
Thoughts of creating more shareholder value.
Yeah, So Scott as we as you look at next year I mean, we're good.
I would say.
The year with strong earnings and revenue growth, obviously down year over year, primarily because of used vehicles and rental growth.
Growth in really the contractual parts of the business as.
As we go into next year I would expect lease will be a bigger contributor to the earnings next year because this year, it's really been more towards the tail end of the year that we're going to ramp up the growth in lease.
As a result of the OEM delivery delays.
Supply chain and dedicated again continuing to sell into next year, we expect earnings to grow along with with revenue as far as used vehicle and redwood depends on what happens with the cycle right. So right now probably R. R.
Our best view is that you're going to see.
Probably a trough somewhere in the first half of next year, and then probably begin to pick up in the second half. So what that means for the full year is still to be determined.
But I think hopefully you see that with this quarter and.
What we're doing with the full year forecast.
I think we're showing that even in a pretty significantly difficult freight environment.
We've had we have higher earnings we have less risk in the business higher earnings and higher returns profile and the business model and that's really been a result of all the actions we've taken in the last almost four years now that we've been working on this balanced growth strategy.
We feel really good about that I think the way to think about the business going forward is we've got a model that is going to have higher highs and higher lows.
Higher earnings.
Power for this business.
An example of that is if you look at our return on equity.
Storage peak return on equity has been in the mid teens.
Now, we're calling for that to be our trough return on equity and our peak return on equity to really be in the low twenties.
A different model now because of the changes that we made that we outlined those some of the big ones. There on slide six of the presentation.
As you go into next year, you should expect again core earnings to continue to grow youre going to have some movement in used trucks and rail depending on what that.
But again, our return on equity and our ability to hit.
Our strong returns in our businesses, we feel really good about.
As far as as far as the valuation and where we're trading clearly weak. We're currently trading well below our historical multiples, even though we believe that given the changes that we've made our business has less risk and better returns today than it did than it did in the past.
Our year to date results and our updated forecast.
I think it is a significant proof point that demonstrates the improved earnings power of the company even in a slowing freight environment.
So I expect.
That as we continue to perform over the freight cycle that that will be reflected in the valuation.
Okay. Thank you guys.
Right.
Well hear next from Jeff Kauffman from vertical research partners.
Thank you very much hey, everybody well first of all congratulations and boy a lot of moving pieces this quarter.
You answered my fleet utilization question, because I thought that 75 is a little closer to the lower end of what you are comfortable with so you're saying average kind of mid to high 70% range for the year. So that would imply it gets better in the second half of the year am I understanding that right.
Yes.
Okay, and then just a quick question on the Capex so deliveries of has accelerated.
As a result, capex up about 200 million a lot of other fleets I talked to say look any catch up that we need to do is being done at the end of <unk>.
Where do you stand on getting caught up on Capex and is this extra 200 million catching up from last year or is this stuff that we're not gonna have to spend next year, how should I think about this 200 million change because of faster supplier deliveries.
Yeah, It's really if you remember we were sold out for most of this year already.
So some of this is units that probably would've come in in 2024 that are now being delivered in 2023.
So we still have a.
Deals that have been signed that were still waiting for the vehicles to come in.
Certainly through the balance of this year and then even some going into next year now we no longer have a 12 month.
Our lead time is we did a year ago. So today, we're looking more probably like a nine month lead times. So that's been some improvement there overall also but the good news is that we've got pretty good visibility to ongoing.
Business in the lease business that is going to continue to come in over the next year.
Year call. It the next 12 months at least or a year and a half.
Yes.
And that will contribute to earnings as we go into 2024.
Okay and last question.
You know a lot of companies that are looking to try battery electrics or zero emission vehicles are going to lease them through rider at least initially.
What are you seeing on the customer demand side. We're hearing some fleets were gung ho to get into that now they're kind of pulling back a little bit on you know whether it was charging infrastructure just understanding the vehicles better but can you talk a little bit about some of the new vehicle technologies and what some of your customers are doing with respect to plowing into that area.
Yeah, I'll, let Tom give you a little bit more color, but as a general statement I would tell you that we're very involved in this and I think right now where we're seeing more interest and demand is probably on the light duty delivery vans.
And charging infrastructure is not as significant and investment as it is on the heavier medium duty cost also is an issue on the vehicle.
It causes an issue on the heavy and medium. So we're focused more right now with our customer which is where our customers are interested is more on the light duty delivery vans, Tom you want to give a little more color.
Thank you yeah. So Ravi thank you and good morning, Jeff.
Good morning.
Robert Good morning.
Robert said the the light duty there was more of a clear path to the total cost of ownership and with the infrastructure as well so.
Take more of the activity, we're seeing now from our customers is on the on the light duty side I think there are customers interested in testing and continuing to try out more of the medium duty and heavier duty equipment Oh.
We have relationships as you know well.
With most of the OE suppliers.
That are going to be playing in that game, but still the the total cost of ownership and the infrastructure challenges along with that we're.
It's still a pretty big hurdle.
We do have vehicles in our fleet to test, which customers are strong, but they still haven't yet kind of cross the line.
And stepped in in a big way.
See over time, how that how that changes in progressive.
<unk>.
The other area there is still.
A little bit of uncertainty in terms of our regulations and incentives, particularly in the state of California.
And getting clarity on those regs and regulations over the next.
You know even six months here is going to help the industry makes some of those long term decisions.
Okay, great. Thank you very much that's all I have.
Thanks, Joe.
Well hear next from Brian I'll come back from JP Morgan.
Yeah.
Hey, good morning, Thanks for taking the questions.
I just wanted to see if you could offer some comments on the pipelines and the conversations around E. T. S and S. Yesterday, you mentioned, whether the slowdown, but how has that trended more recently and are there any verticals or end markets that you're more or less excited about or seeing more demand from.
Sure Let me, let me hand that over to Steve to give you some color there.
Alright, Brian Thank you good morning.
Uh huh.
Supply chain I think you look at it quarter over quarter the pipeline remains very.
Very healthy.
Yeah.
We continue as we sign business, we continued to sign new names.
35% of our new sales. So that's a that's continues to be a good sign and then the remaining balance is expanding to new services and capabilities with our existing customers. So on the supply chain said remains very strong we're on track to our target.
Midyear on dedicated as Robert said earlier, seeing a little softness really due to the freight market is.
Customers are delaying decisions and really taken advantage of a low.
<unk> market rate right now so they're really trading service for cost.
We expect that to bounce back.
Hopefully by the end of the year, but more than likely first part of 'twenty four once the spot market hits the bottom so the pipeline remains slightly down on dedicated but.
We're still focused.
Focused on the balance of the year.
And any verticals within I guess S, yes that or.
More or less exciting for me from the pipeline conversations.
Well no. They are all up as I look at each one of the pipelines are E. Com remains up year over year last miles up about 15% Cpg's up so we've got our team focused on these industry verticals as our teams are structured that way and are excited about the pipelines really across the board.
Okay, and then just Paul a few Robert if you can just give some thoughts on the direction expectations for used vehicle pricing probably more so focused on tractors, but what do you have expected through the rest of the year well the OEM increase in deliveries would actually have an impact.
On on used vehicle pricing, one way or the other and I guess ultimately should we still expect some level of gains into 2024, just based on where residuals are and just the normal churn in the lease fleet.
So yeah, our I guess, our view for used truck.
Market hasn't changed much since the beginning of the year, we assumed it was going to decline throughout the year.
It has declined a little.
Slower clip I guess through the first half of the year than we expected, but we are assuming it to continue to.
The decline.
For the balance of the year so yeah.
Normally if you look at normalized historical cycles that should mean that its bottoming out sometime in the first quarter.
Of next year, we'll see every cycle is a little bit different.
And your second question on should we expect gains next year, Yeah, I mean without knowing exactly what's going to happen. The answer the answer is yes, I would expect gains next year, given where our residual values are.
You've got trucks and drivers we have that one chart that we show in the appendix of the earnings deck, where you can see where prices ended in the in the second quarter and where our residuals are there still significant amount.
The amount of space between those.
Okay.
Okay. Thanks for the time appreciate it.
Thank you.
Allison <unk> from Wells Fargo has her next question.
Hi, good morning.
Just wanted to turn back to the SCS. You know you did talk about the lower volumes impacting margin is there any way to help us quantify that to understand sort of what that impact was and you know how we should think about that you know everything incrementals.
Obviously, when we're coming out of that inflection. Thanks.
Yeah look I would tell you that the lower bonds were really primarily around our omni channel retail sector.
And within that it was really a ryder last mile. So if you look at.
Our big and bulky delivery business that was down about the bonds were down about 20% there so that impacted the business around e-commerce volumes through E Commerce business.
Our our down some.
The throughput.
Plus we've added some infrastructure, we now have to make sure we fill up that infrastructure. So to me that's a matter of timing.
E Commerce deliveries and even the Ryder last mile last mile Big and bulky delivery had really gone up post COVID-19.
Pretty significantly and were seeing those things come back down now to levels, where you would expect them to be.
Based on.
The trajectory was headed pre COVID-19.
So we think that's a matter of time as we continue to fill up those facilities and we get those volumes back we.
We feel good about where that is now on the flip side of that I would tell you we still see we saw strong volumes.
Volumes in automotive and industrial C. P. G. All of those verticals are really.
See you know good returns good volumes and that's really why you see supply chain, even with the headwinds and the Omnichannel vertical we're still.
Getting good returns and it's because it's offset by the returns on these other businesses.
Got it thank you.
Thank you.
Well hear next from Justin long from Stephens.
Yeah.
Thanks, and sorry, if I missed it but I was wondering if you could share the monthly trends that you saw in the rental business during the quarter and Theres a lot of discussion right now around yellow, but in the event. The yellow does go bankrupt any thoughts around the potential impact.
That could have to the broader rental market and that used equipment market as well.
Yeah, I'll, let Tom give you the.
Rental a month to month for the quarter, but I'll tell you that.
The yellow bankruptcy, if that did happen certainly would be a.
Would be a pickup in rental as other companies in that space look for equipment in order to pick up the the businesses being let go so net that would certainly be a benefit to our rental and to a certain extent used trucks as owner operators jump in and are doing some of that business, but I think you'd see it really on the <unk>.
It'll side, which right now given where we are with utilization and where the market is.
We have the equipment to be able to meet some of that need, but Tom you want to give them the rental utilization through the quarter.
Yes, we as we as we went through the quarter we saw.
The fleet decline, where we finish the finished the quarter down 5% on fleet sequentially.
Sequentially and as we were bringing down the fleet, we saw the utilization tick up a little bit. So we ended up in June obviously at a higher utilization than what we saw in <unk>.
In April .
And we got to that kind of mid to upper <unk>.
70, <unk> utilization target here at the end of June so we.
We feel like we've got the the.
Lee correct, given the current utilization so kind of right sizing of that rental fleet here by the.
By the end of the second quarter as.
As we look out for the third and the fourth we are expecting to continue to bring.
The rental fleet down to kind of match that demand expectation.
But not at the levels of nearly 2000 units that we saw in the second quarter.
Like like Robert said, if we do see something with with yellow plate yellow freight we might see that utilization pop and maybe hold off on a few trucks that we were planning to move out of the fleet. So we'll track that closely as we as we move through Q3 here not just the fleet accordingly.
Yeah.
Great that's helpful. Thanks.
Thanks, Jonathan.
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 thanks, everyone. Thanks for getting on the call and your interest in the company.
Have a safe day.
Yeah.
Does conclude today's teleconference. We thank you all for your participation.
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