Q1 2024 Ryder System Inc Earnings Call
Good morning, and welcome to the Ryder system first quarter 2024 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.
Please disconnect at this time.
I would now like to introduce Mr. Kaylene Candela, Vice President Investor Relations for Ryder Ms. Kendall you may begin. Thank you good morning, and welcome to Ryder's first quarter 2024 earnings conference call I'd like to remind you that during this presentation, you'll hear some forward looking statements within the meeting 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 D. S 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.
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 I'm.
I'm extremely proud of our team for delivering solid results again this quarter despite freight conditions that remained challenging.
<unk> performance continues to demonstrate.
Transformative changes, we've made to Derisk, our business model enhanced returns and drive long term profitable growth.
Significantly increase the earnings and return profile of the business versus prior cycles I'll begin today's call by providing you with key strategic updates as well as an update on the integration of Cardinal logistics.
John will then take you through our first quarter results, which exceeded our expectations, reflecting better than expected used vehicle sales results and benefits from our maintenance cost savings initiative.
I'll, then review our outlook and discuss how we have positioned the business to benefit from the cycle upturn.
Let's begin on slide four.
Turning to slide four executing on our balanced growth strategy continues to drive outperformance relative to prior cycles.
Cross all phases of the current freight cycle, our earnings and return profile have been higher than prior cycles, demonstrating the effectiveness of our strategy.
The integration of our recent acquisitions of Cardinal logistics and impact fulfillment services Ryan first is on track.
As you May recall, we completed the acquisition of Carr to logistics on February 1st.
Enabling growth and further strengthening our position as a leading provider of customized dedicated transportation solutions.
I'll provide some additional information on this integration shortly.
November 1st of last year, we completed the acquisition of <unk>, which added co packaging and co manufacturing capabilities and supply chain, primarily supporting our CPG business.
We continue to see long term growth opportunities in all three of our business segments.
Courted by secular trends that favor outsourcing decisions large addressable markets and the value our solutions bring to our customers our.
Our initiatives remain focused on enhancing returns.
Adjusted ROE of 17% for the trailing 12 month period.
In line with our long term target and reflects our expectations given where we are in the cycle.
The impact on ROE from weakening market conditions in used vehicle sales and rental has been partially offset by our initiatives.
These initiatives include pricing and cost recovery actions, which benefited returns in all segments.
That's a mess with Ses are expected to achieve their target EBT margins for the full year 2024.
Afflicting, our initiatives as well as execution and our enhanced asset management playbook in Fms.
We continue to expect Dts EBT margins to be just below the segment's long term target in 2024, reflecting acquisition integration and other related costs.
Our strong balance sheet and solid investment grade credit rating.
Can you provide us with capacity to pursue targeted acquisitions and investments as well as return capital to shareholders.
Meeting under these programs since 2021 we have repurchased approximately 16% of our shares outstanding.
We also increased our dividend by 15% in mid 2023.
Our full year 2024 forecast for free cash flow is negative 175.
The $275 million.
Higher than our prior forecast of negative $275 million to $375 million, primarily due to lower rental capital expenditures.
We're encouraged by our solid performance in the first quarter and believe that executing on our balanced growth strategy will continue to enable us to deliver higher highs and higher lows over the cycle.
Slide five shows a comparison of key financial and operating metrics for 2018 and for our 'twenty 'twenty four forecast.
In 2018 prior to the implementation of our balanced growth strategy, we generated comparable EPS 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 Fms.
Supply chain revenue had a three year growth rate of 16% and.
And operating cash flow was $1 7 billion.
Now, let's look at what we're expecting from Ryder today.
In 2024, a year that we expect will represent trough conditions in used vehicle sales and rental we expect our transformed business model to generate meaningfully higher earnings and returns.
It did during the 2018 peak.
'twenty 'twenty four comparable EPS is expected to be $11 75 to 12 50 compared to $5 95 in 2018, and ROE is expected to be 15, 5% 16, 5% well above the 13% generated in 2018.
Through organic growth strategic acquisitions, and innovative technology, we have shifted our revenue mix towards SCS and Dts.
With 60% of 2020 for revenue.
Did that come from these asset light businesses compared to 44% in 2018.
Supply chain three year growth rate is also expected to increase to 20%.
As a result of profitable growth in our contractual lease supply chain and dedicated businesses.
Operating cash flow is expected to grow from $1 7 billion in 2018 to $2 4 billion. This year as shown here the business is outperforming prior cycles, even when comparing prior peak to expected trough conditions.
I'm encouraged by the results of our transformation, thus far and I am confident that the solid execution and momentum from multiyear initiatives position us well for 2024 and beyond.
Moving to slide six on February 1st Ryder completed the acquisition of cargo logistics.
This acquisition further advances our balanced growth strategy by accelerating profitable growth in our dedicated business.
<unk> continues to be an important part of rider strategy to create shareholder value.
Secular trends, including the driver shortage and demand for business intelligence and freight visibility technology, such as Ryder sure.
Can you do to drive private fleets to pursue an outsource dedicated transportation solutions.
Our dedicated business has demonstrated a resilient earnings profile over the cycle as shown during the current freight downturn as well as during prior cycles.
Finally, our dedicated business benefits from sales and operational synergies with Fms.
Upselling Fms pipeline and lease customers to dedicated has been the largest driver of new sales activity for D. T. S for some time.
<unk> also benefits from access to equipment asset management and maintenance services from F. M S.
Enabling DTF to deliver increased value to that.
Our customers and drive incremental cost savings.
As we reach all integration in your three we expect net synergies realized to be between 40 and $60 million.
The expected synergies largely belong in three categories.
The first category is related to vehicle maintenance costs.
Prior to the acquisition Cardinal procured maintenance services from various third party providers.
Solid dating maintenance and asset management activities with Ryder is expected to generate significant cost savings and efficiencies going forward. The second category is cost savings related to vehicles financed under third party operating leases.
One third of Cardinal split is financed through operating leases with various banks financing companies.
These leases mature vehicles will be replaced with Ryder own vehicles, which will benefit from riders lower vehicle acquisition cost and financing.
Majority of synergies are expected from these maintenance and equipment cost savings. In addition, we expect to benefit from operating efficiencies as we integrate the business into our existing operations and leverage management and overheads. We expect these synergies to begin in the second half of 2020 or with benefits.
Celebrating in 2025.
Our integration of the car dealer acquisition is on track.
24 integration costs are estimated to be approximately 10 million and represent the majority of total expected integration costs in 'twenty 'twenty four we expect D. T S EBT percent to be mid single digits, reflecting integration and other related costs are.
Our legacy Dcs portfolio is expected to operate at the segment high single digit target EBT percent.
In 2024.
By 2025.
Elevation of Cardinal synergies is expected to drive the DTF EBT percent back to the segments high single digit target.
On an annualized basis. The transaction is expected to add approximately $1 billion of total revenue and approximately 800 million in operating revenue, which excludes fuel and subcontracted transportation.
As a reminder, approximately 85% of operating revenue will be reflected in Etfs, approximately 15% and supply chain and Fms will include intersegment revenue from equipment leases and maintenance.
ETS fleet count at quarter end.
Flex the inclusion of 2900 powered vehicles and 6900 trailers from the acquisition.
We continue to expect the transaction to be marginally accretive in 'twenty 'twenty, four and more meaningfully accretive in 'twenty 'twenty five after achieving synergies and completing integration efforts.
We're very excited about the opportunities ahead and believe that dedicated will continue to be an important driver of value creation for Ryder.
The team is focused on a successful integration and realizing the synergies and benefits. We are confident are achievable.
I'll now turn the call over to John to review, our first quarter performance.
Thanks Robert.
Company results for the first quarter on page seven.
Operating revenue was two and a half billing in the first quarter up 6% from the prior year, primarily reflects recent acquisitions that contractual growth.
She offset by lower rental revenue.
Comparable earnings per share from continuing operations were $2.14 in the first quarter down from $2.81 in the prior year.
The earnings decline reflects weaker market conditions in used vehicle sales and rental partially offset by higher supply chain and choice lease results.
Return on equity our primary financial metric was 17% and in line with our high teens target over the cycle.
The year over year decline reflects weakening used vehicle sales and rental market conditions.
Free cash flow for the first quarter decreased to $13 million from $101 million in 2023, primarily due to lower proceeds from property and used vehicle sales.
Turning to fleet management results on page eight.
Fleet management solutions operating revenue decreased 1% due to lower rental demand, partially offset by higher choice lease revenue.
Choice lease revenue grew 9% with about half coming from organic lease growth and the remainder from intersegment lease revenue carnal vehicles operating our dedicated segment.
Pre tax earnings in fleet management, we're $100 million and down year over year, it's anticipated results reflect lower used vehicle pricing compared to elevated levels in the prior year as well as weaker rental demand.
The impact from lower used vehicle pricing in the quarter was partially offset by higher used vehicle volumes.
Rental utilization on the power fleet was 66% down from 75% in the prior year.
Rental results for the quarter reflect market conditions remained weak. In addition to the sequential decline of Retroactivity will you typically see in the first quarter.
Our fleet pricing declined 1%, reflecting a rental fleet mix with more trucks and fewer tractors.
During the quarter higher choice lease results and benefits from our maintenance cost saving initiatives, partially offset the earnings impact from weaker market conditions.
Used vehicle sales and rental businesses.
Fleet management E T. As a percent of operating revenue was 8% in the first quarter and is expected to be in line with the segment's long term target of low double digits for full year 2024.
Page nine highlights used vehicles sales group results for the quarter.
As anticipated market conditions for used vehicles sales continue to weaken from elevated levels in the prior year.
Compared with prior year used tractor proceeds declined 34% and used truck proceeds declined 30%.
On a sequential basis proceeds for tractors decreased 4%.
Proceeds for trucks decreased 3% slightly better than our expectations.
During the quarter, we sold 6500 used vehicles down sequentially and up versus prior year.
Used vehicle inventory increased to 8900 vehicles at quarter end and remains in line with our target inventory levels.
Both sales volumes and inventory levels to reflect higher lease replacement and rental de fleeting activity.
Although used vehicle pricing declined.
<unk> remained above residual value estimates used for depreciation purposes slide 21 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information.
Turning to supply chain on page 10.
Operating revenue increased 11%, primarily driven by the Iff's and Cardinal acquisitions.
Revenue growth in our automotive consumer packaged goods and industrial verticals more than offset softer volumes in our omnichannel retail world.
Supply chain earnings increased by $47 million from prior year year over year comparisons benefited from a 30 million asset impairment charge in the prior year.
Stronger automotive performance and recent acquisitions also benefited earnings in the quarter.
Supply chain EBT as a percent of operating revenue was six 6% in the quarter and is expected to be in line with the segment's long term target of high single digits for the full year 2024.
Moving to dedicated on page 11.
Operating revenue increased 33%, reflecting the acquisition of Cardinal logistics.
Dedicated EBT declined from prior year, reflecting acquisition integration and other related costs as well as higher insurance cost in the quarter.
<unk> continued to benefit from favorable driver conditions as the number of open positions and types of sofar professional drivers to improve.
Dedicated EBT as a percent of operating revenue was four 2% in the quarter and below the segment high single digit target, primarily reflecting acquisition integration and related costs.
Turning to slide 12, first quarter lease capital spending of $582 million was slightly above prior year, reflecting planned lease replacement activity and the timing of OEM deliveries for the first quarter rental capital spending of 79 million was below prior year, reflecting lower planned.
Investments in the quarter.
For full year 'twenty 'twenty four we're forecasting lease spending of two and a half billion down from prior year.
We have reduced our 'twenty 'twenty four rental capital expenditure forecast by approximately $100 million.
To align with our revised outlook for more modest rental upturn than initially expected.
'twenty 'twenty four rental spending is now expected to be approximately $450 million.
Our 'twenty 'twenty four average rental fleet is expected to be down 8%.
In rental we continue to increase capital spending on trucks versus tractors.
As trucks have benefited from relatively stable demand and pricing trends.
At year end 2023 trucks represented approximately 60% of our rental fleet up from 49% in 2018.
Our full year 2020 for capital expenditures forecast of approximately $3 2 billion is just below prior year.
We expect approximately $600 million of proceeds from the sale of used vehicles in 2024 down approximately 200 million from prior year elevated pricing levels.
Full year 2024, net capital expenditures are expected to be approximately $2 7 billion.
Turning to slide 13, 2020 or full year forecast for operating cash flow is unchanged at $2 4 billion and our forecast range for free cash flow has increased to negative 175 to 275 million.
As shown operating cash flow remains strong driven by growth in our contractual lease dedicated and supply chain businesses, which comprised approximately 85% of writers operating revenue our free cash flow profile has changed significantly since the implementation of our balanced growth strategy in late.
2019, lower targeted lease growth as well as COVID-19 effects and OEM delays.
Sold that at a lower capital spending and higher free cash flow.
Those seats 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 free cash flow generated by the business prior to investing in fleet growth in 2024, although free cash flow is expected to be negative $225 million at the midpoint of our range free cash flow prior to investing in growth capital is expected to be positive approximately $400 million.
Our capital allocation priorities remain unchanged and are focused on supporting our strategy to drive long term profitable growth and return capital to shareholders. Our top priority is to continue to invest in organic growth strategic acquisitions have been a key contributor to accelerated growth in supply chain and dedicated app.
Acquisitions have helped transform our supply chain business in terms of expanding capabilities to strengthen our core contractual businesses as well as rebalancing our vertical mix balance.
Balance sheet leverage of 246% and year end 2023 was below our 250% to 300% target.
And continues to provide ample capacity to fund organic growth strategic investments as well as to return capital to shareholders through share repurchases and dividends.
With that I'll turn the call back over to Robert to discuss our 'twenty 'twenty four outwards.
Turning to page 14, we are raising the low end of our full year 2024 comparable EPS forecast to 11 75 to $12 50 from our prior forecast of 11, 50% to 12 15.
This increase reflects first quarter outperformance from used vehicle sales in our maintenance cost initiatives, partially offset by weaker than expected market conditions in rental for the balance of the year.
We've also increased our 2024 return on equity forecast of 15, 5% to 16, 5%, which is in line with our stated range of mid teens during trough market conditions and low twenty's during peak conditions freight market conditions remain challenging.
We continue to believe that 'twenty 'twenty four will reflect trough market conditions in used vehicle sales and rental and our forecast assumes a gradual pickup in the second half of 2024.
Uncertain macro conditions are causing some customers and prospects and SCS are delaying decisions, but we remain confident in the long term secular growth trends in this segment. We continue to believe that the transformative changes that we've made to the business will continue to drive outperformance relative to prior cycles and that all segments are well positioned.
Benefits from a cycle upturn, we're also providing a second quarter comparable EPS forecast of $2 75 to 295 versus the prior year Av 361.
Turning to slide 15 in addition to managing through the down cycle. We are also focused on ensuring that the business is well positioned to benefit from the cycle upturn a.
The majority of our revenue is supported by long term contracts that generate relatively stable and predictable operating cash flows over the cycle and each business segment has opportunities to benefit from the cycle upturn.
Most of our cyclical exposure resides in fleet management, and rental and used vehicle sales improve.
Improved freight conditions should increase demand for these businesses and.
In rental we intend to grow the fleet as we approach a cyclical upturn to capture the incremental revenue and margin opportunity.
Used vehicle sales will continue to leverage our expanded retail sales network in order to maximize proceeds with the potential to generate used vehicle gains above normalized levels and additional opportunity on the horizon for Fms is the anticipated pre buy activity ahead of the 2027 EPA engine.
Allergy changes the industry is generally expecting some level of pre buy activity given the expected impact on upfront cost and maintenance cost implications.
Based on what we see today pre buy activity could begin as soon as late 'twenty 'twenty five as we have historically seen higher levels of fleet growth. A couple of years ahead of a change.
We also would expect used vehicle pricing to be supported by demand for the old emission technology.
Increased engine complexity and costs generally favor the outsourcing decision, which would benefit the sales activity.
In dedicated improved driver availability and lower recruiting and turnover costs are benefiting earnings but have been a headwind for new sales and revenue growth as the freight cycle strengthens and driver availability becomes more challenging we expect to see incremental sales opportunities and improved revenue growth in <unk>.
T S as private fleets seek solutions to address this pain point.
And supply chain weaker volumes in our Omnichannel retail vertical have been headwinds to revenue and earnings. We continue to believe in the long term growth prospects for our ecommerce fulfillment and last mile delivery are big and bulky goods and have expanded our footprint to support this business we expect.
Supply chain results to benefit as volumes for these services recover and the incremental footprint is leveraged.
We've been pleased by the overall business is outperformance during this down cycle and have appropriately positioned all three business segments to benefit from the cycle upturn.
Turning to page 16, Ryder is delivering value to our shareholders with more to come.
Since implementing our balanced growth strategy, we have generated strong returns during each phase of the cycle and the resulting diversification of the business mix has demonstrated the resiliency of the transform model.
We achieved higher highs during the 2022 up cycle and generated significantly higher returns during the 2023 down cycle relative to prior downturns.
In 'twenty 'twenty four we continue to expect Rowena outperformed prior cycles, despite expected trough conditions in used vehicle sales and rental.
We continue to see significant opportunity for profitable growth supported by secular trends, our operational expertise and ongoing momentum from multi year initiatives.
We remain committed to investing in products capabilities and technology that will deliver value to our customers and our shareholders.
Before we go to questions I'd like to remind everyone that we're planning an investor day on June 13th in New York City. So please mark your calendars.
We're planning a half day event that will feature presentations from our business leaders and will conclude with a leadership luncheon and a solutions showcase where in person attendees can learn more about our expanded supply chain capabilities innovative technologies, such as Ryder share and the freight optimization platform.
Hello, I'm, a buyer baton team as well as innovative technologies and services that are driving riders profitable growth.
Advanced registration is required and is now open.
More information can be found on our Investor Relations website.
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.
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 will turn it over to the operator.
Thank you.
To ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for a question.
And we'll take our first question from Jordan <unk> with Goldman Sachs.
Yeah, Hi, good morning.
Just sort of question on used trucks in the rental market I'm just curious if you have any.
Updated thoughts on on the recovery I know the expectation bottoming at some point.
Move toward mid point of the year and then on the rental.
Yes.
With a little bit lower than I thought and I know you've mentioned.
That it was coming in weaker it from your perspective to better group team. When do you think it stabilized at these utilizations now and we just sort of wait for the inflection.
Yeah, Hey, Jordan.
I guess as far as the cycle for rental and used trucks.
We're looking at this thing it's the longest downturn we've had in a long time, where I think over almost two years now so we should be getting closer to the end of this and certainly than the beginning we are we look at spot rates and spot rates seem to be bumping along the bottom you see in class eight production come down so the balance of Av freight and and.
Vehicles to move that freight should be getting beginning to get more in valves, that's usually where you start to see things start to improve.
Another data point was really our used truck pricing sequentially from Q4 to Q1.
Climbed 3% to 4% so it was a.
An improvement if you will in that decline level. The prior quarter I think we're in double digits.
So we are seeing some beginnings of maybe some stabilization there and rental as you mentioned, we're not as confident yet.
I think we're not you know what we saw in the first quarter was certainly less of them.
Less demand than we expected we did bring down our demand.
Spectation for the balance of the year.
We're expecting more of a modest more modest recovery in rental.
In the second half I think a lot of that is driven by not only that obviously demand hasnt come back the way, we'd like but there is an oversupply of rental trucks in the market right now.
That I think the industry has done a pretty good job over time to rightsize. These fleets, but this one may take a little bit longer. So we're pushing out if you will that that.
That increase so that that's gone into the calculus for our balance of year.
<unk> forecast.
Thank you.
Speaker Change: Thanks Jordan.
And if you find that your question has been answered you may remove yourself from the queue by pressing the star key followed by the digit two will now take our next question from Scott Group with Wolfe Research.
Hey, Thanks morning, So just wanted to follow up on the used side. So the used inventory is the highest now in a few years. So.
Are you still as it's not clear or are you still assuming a recovery in used price in the back half and if we don't end up getting that maybe can you just talk about the Cushing, where you stand relative to our residual assumptions right now.
Yeah, well as you said, we've been in the first quarter and we're not assuming that be for the balance of the year. We what the balance of the year has is really I would call it kind of hitting a bottom here in the second and third quarter and then some uptick in the.
In the fourth quarter, it's hard to tell exactly when that's going to happen. That's why we've kind of pointed out at the last call I repeat that again this call that that pickup doesn't happen.
You then you would see us that between that and rental with more likely be on the bottom end right around the bottom end of the range that we've given.
So that's kind of the as you asked about the cushion that's sort of where the way we're seeing obviously depends on how the rest of the business does but you know what we feel really good about the contractual parts of the business you know the forecast for that part of the business is really intact. The movement and the forecast is just been.
More related to the UBS and rental.
So actually I just wanted to follow up there because if you look at the.
The leasing fleet had some really good sequential growth.
At the end of Q1, and yet extensions are coming down and terminations are coming up so any color there and how we should think about the the leasing fleet from here.
Yeah.
I mean organically because you've got the Cardinal fleet in there too.
Which is going to increase that number but if you think organically we are seeing some early terminations, but if you look on that page are also seeing a lot of redeployment. So we do redeploy those vehicles into other customers. That's not unusual for where we are in the cycle to have a bit of a pickup there I remember in all of the other thing I'd remind you is last year we were.
We were at historically low levels of terminations really we still had a lot of tightness.
In the market. So so yeah I would look at the.
Organic fleet growth that we were expecting at the beginning of the year was on the high end of our two to 4000, we're probably more in the low to mid <unk>.
Point of that growth rate, so think about two to two to 3000 now so we are getting a little bit of pressure on the growth but still.
I would tell you choice leases, a significant or a meaningful contributor to our year over year improvement because it's not only the growth that we're seeing but also the improvements from the lease pricing initiatives and the improvements in maintenance maintenance costs have.
I've been.
A beat in the first quarter and we're expecting some of that to continue into the balance of year.
Thank you.
Thanks Scott.
We will now take our next question from Brian <unk> with J P. Morgan.
Yeah. Thanks, Good morning, Robert just to follow up on the maintenance cost obviously, a big line item you've been focused on that.
In the past is this more continuation of things that are structural improvements you know pre cardinal and integrating that and getting leverage off of that or is this more of kind of like a cyclical.
Speaker Change: More work.
Or more capacity in the system and so it's a little bit easier and costs are coming down. It's just deflation in general how would you characterize that.
Yeah, I think it's a it's certainly the initiatives that we've been working on for multiple years. We've talked about every year. We have you know we had the $100 million initial multiyear initiative and then since then every year we got.
Call, It 2000 and $30 million of initiatives.
We're outperforming on some of those plus we're getting some some disinflation or less inflation as you mentioned around.
Some of those costs and that's also helping us. So those are I think those are structural those are likely to continue.
Certainly through the balance of the year.
Okay. That's helpful. And then just for the rest of the year, maybe you can talk a little bit through.
<unk> and just how that's coming through right now you mentioned overcapacity.
A bit on the rental side utilization was a bit lower.
How do you see the market in terms of staying disciplined and rational even though it hasnt quite recovered from a spot rate perspective, leading indicators side and then just same thing on leasing would be helpful. If people are pushing those out to where youre finding still solutions for people, who want to add or grow their lease book in this market.
Thanks.
Yeah. That's a good question on rent were kind of flattish on rental pricing.
So there's there's certainly some pressure out there with all the excess equipment and we've kind of we've been able to.
To manage that pretty well in previous cycles that we're still holding up pretty well here.
Around lease.
Certainly sir.
A little bit more hesitation Ah cost.
I was wondering whether they're not adding adding as much fleet certainly as they were a year or two ago.
So a little see it a little bit of softness there, but as I mentioned I expect still to have.
Within our target growth of two to 4000 and the pricing.
The good thing about leases that at the end of the day you don't buy a truck until you have a signed lease so we still were able to maintain our pricing discipline and staying within that.
Target.
Hum.
Fred range that we've talked about of the 100 150 basis points.
Alright, Thank you Robert.
Alright, Thanks, Brian.
We will now take our next question from Jeff Kauffman with vertical research partners.
Okay.
Thank you very much.
Not to beat a dead horse, but I'm trying to figure out how to think about a year and a fleet numbers and rental and lease I guess based on what I've heard down about 8% in rentals, so somewhere between 33 34000 units.
You know lease right now of 147000 units, but that does include Cardinal and if I take your 2000 to 4000, where does that kind of leaves us at the end of the year on the lease fleet and then just kind of attached to that as we're deemphasizing tractors and were focusing a little bit more on trucks and on.
Trailers is that creating a negative mix shift in the reported <unk>.
Well, let me let me just touch on the on the lease side, Yeah, I think you've got that right, where we were originally about 13000, including the 9300. If you will from Cardinal. So you added the 4000 that got us to the 13000, we're gonna be we should be lighter that we're probably going.
Being that 11 to 12000 range.
It's a little early and I think it's still a lot could happen for the balance of the year. So we could we could beat that but right now that's kind of what we were assuming for the balance of the year forecast in terms of.
In terms of the pricing.
What was the second half of your question.
Second he was.
Yeah, it looks like the lease or <unk> was actually pretty decent I would've expected a little bit more of a negative mix drag just based on how the components changing so you kind of help me see through that.
Yes, some of that is that certainly the newer equipment coming in remember the big shift to trucks, though is in rental nuts as much in lease.
So where we've been making the shift to more straight trucks versus tractors, it's been on the rental fleet less so on the <unk>.
So on the lease fleet.
Alright, and just to clarify your comments so I should think of the lease fleet is being around this level for the remainder of the year in terms of total units.
Well, it's going to it's going to it's going to move up from this level right. So we've added.
We've added the car.
<unk> 90, and then we're expecting it we're expecting it to be up call. It two to 3000 units from there. So it would be about 150.
Okay beautiful thank you.
Alright.
Yep.
Speaker Change: Well take our next question.
Speaker Change: And we'll take our next question from Justin long with Stephens.
Yeah.
Thanks, I wanted to ask about the recent trend in both the dedicated and supply chain backlogs just curious how the pipeline of activity has trended year to date relative to what you were seeing last year, Robert you've made the point about secular tailwind, but you also have cyclical headwind so I'm just.
Curious, how that's netting out in terms of the pipeline for those businesses.
Yeah, I'll, let I'll, let Steve give you some updates on the pipeline just sorry, yeah in rental and dedicated as we mentioned.
And our.
Earlier forecast, we are expecting it to be flattish, we're seeing some certainly some cyclical headwinds.
Headwinds from just a lot.
Spot rates are pretty attractive youre seeing customers trying to take advantage of those availability of drivers is pretty soft.
Soft. So so you were able to cut companies aren't struggling as they were just a couple of years ago to find drivers. So but that is not unusual happens during the cycle. We feel confident that will come back around supply chain I think it's been more around the uncertainty in the economy, we're seeing customers delaying decisions.
So I'll, let you know and again I think that's also economically cyclical and youll see some of that coming back but.
Steve why don't you give some color around it.
Justin I'll start with supply chain and I think if you look at pipeline year over year were relatively flat.
As Robert said just continued delays in decisions typically it was about six months now we're seeing that extend nine months plus.
Lately, we have seen more delayed decisions so either postponing our holding opportunities right now so I really think it's a it's an economic.
Outlook for the year for.
For these customers, maybe making a network change later in the year and then on dedicated we did get a pop in the pipeline year over year. Some of that comes from the Cardinal acquisition.
The other balance is from our marketing campaign initiatives.
At the same kind of story there delayed decisions people taken advantage of.
Price over service right now in the on the dedicated side.
Okay got it thank you.
Thanks, Jeff.
We will now take a follow up from Scott Graham with Wolfe Research.
Hey, thanks for the follow up so.
<unk> talk about the pre buy coming in maybe at some point next year.
Where do you expect to benefit as that is it more leasing fleet growth is there any benefit to rental.
Is it is it used pricing and gains where where do you ultimately see the biggest benefit has been a long time since we've had a big pre buy.
Yeah, I think the answer is yes to all of those if you go back to it.
Going to date myself, we go back to 2006, so 20 years ago.
Oh, seven technology changes the kind of similar to this one and that there was just a lot of cost increases with less operational benefits.
We did see that level of pre buy sort of a level of pre buy in <unk>, five and <unk> six and it impacted first of all lease because it allows it basically you have a lot more at bats, you got.
Companies, making decisions on I've got to replace my fleet what.
What do I do I buy or at least it gives our lease sales opportunity to.
To win some additional market.
It helps our rental business because customers as they are.
As they are waiting for new vehicles, they're going to they're going to rent and also the the attractiveness of those vehicles that are 300 sevens that are in rental goes up certainly is an opportunity for rental to lease in the out years.
And then on the used vehicle side, certainly the the that and that will stretch out for multiple years, the residual not the residual but the sales price of those use of those pre owes 27 vehicles when they come into the used truck market should be should.
It should be helped significantly by the fact that they are pre 2027, if I go back to the vehicles that we sold.
That were 2006, we sold those vehicles for a significant significantly above our residual values at the time back in 2014 and 15, So I would expect some of that to happen again through this cycle.
That's helpful. Robert and maybe just your other bigger picture perspective, Youre right. There is this <unk>.
Huge gap in fundamentals between with the trucking companies are saying and reporting and what the truck makers are saying and reporting.
Maybe your thoughts on this disconnect in and what do you think it means for new truck pricing going forward.
Yes, I think it boils down to 10 again, we're not in the truckload business, but I think it boils down to the spot rates right, we manage a pretty significant book of.
Our truckload business for our customers that are in our supply chain and transportation management business and truckload rates or spot rates have not recovered. They are bumping along the bottom still very painful for significant especially the larger.
Truckload carriers.
I think that just because we haven't had enough.
Our supply of probably the smaller owner operators getting out yet, but you know this is a cycle that part of the business is cyclical.
It will come back up it's usually I don't know if it's darkest before the dawn, but you know I think we're getting there. It's just a matter of when that happens now in the meantime, the Oems come off of a pretty significant.
Period of a large backlog I think that the backlog has definitely come down we're seeing lead times for for vehicles all have come in from.
From where they work.
And I think the Oems are kind of managing that.
Production now through this part of the cycle.
I feel pretty good about it so they are seeing and I'm sure. They're all looking at the significant increased efficiency in late 'twenty five 'twenty six for pre buy and I think are looking that as you know it was.
It is good for their for their industry and certainly for our in our business.
Yeah.
Makes sense. Thank you Robert.
Thanks Scott.
Well now take a follow up from Brian <unk> with J P. Morgan.
Yeah. Thanks, just wanted to get your comments on some of the end markets and the trends Youre seeing.
Particularly N S C S. But if you wanted to broaden out that.
That would be helpful as well in the past you've talked about omni channel.
Being a bit slow perhaps for the first quarter first half maybe a rebound in the second half so.
Oh, it was pretty strong what about the rest of the verticals as you see them ramping up or not in terms of activity into the back half and into next year. Thanks.
And again I'll, let Steve give you some color there, but certainly on the E Commerce Omni channel.
Theres two things going on is right and we're looking for for an improvement in the demand there is still pretty soft, but we're also trying to rightsize the business, where we can and adjusted the cost structure as best we can so where else. We're certainly looking for that to have some benefit in the second half.
But the other parts of the business. If you looked at the results for the quarter was.
Still growing pretty strong but.
Steve wanted to give them a little more Brian we're seeing seeing continued volume in the automotive sector and industrial so I think pretty decent outlooks, there CPG with the you know.
The acquisition of <unk>, certainly that's an area that we need to cross sell and upsell to our our core CPG customers.
I think as Robert said in Omni channel, it's really a volume play.
Think about.
You know the E com business in the last mile business. So when the economy turns background, where we're ready to.
To go sell that business.
Okay. That's helpful. Thank you.
Thank you Brian.
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. Thank you well just as a final reminder, June 13th in New York as our Investor Day. So I certainly hope to see all of you there and look forward to giving you.
A more thorough review of all the good things going on at Ryder and and what our outlook is not just for this year, but going forward.
And once again that does conclude today's conference. We thank you all for your participation you may now disconnect.
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