Q3 2024 Ryder System Inc Earnings Call
We standby good.
Speaker Change: Morning, and welcome to the Ryder system third quarter 'twenty 'twenty four 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.
Speaker Change: I'd now like to introduce MS. Caitlin Candela, Vice President Investor Relations for Ryder Ms. Candela, you may begin.
Speaker Change: Okay.
Caitlin Candela: Thank you good morning, and welcome to Ryder's third quarter 2024 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.
Caitlin Candela: These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.
Caitlin Candela: Actual results may differ materially from these expectations due to changes in economic business competitive market political and regulatory factors or.
Caitlin Candela: 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.
Speaker Change: Presenting on today's call are Robert Sanchez, Chairman, and Chief Executive Officer, and John <unk>, Executive Vice President and Chief Financial Officer.
Speaker Change: Italy, 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.
Speaker Change: At this time I'll turn the call over to Robert.
Robert Sanchez: Good morning, everyone and thanks for joining us.
Robert Sanchez: <unk> team delivered another quarter of solid results, despite an ongoing freight recession and market conditions in used vehicle sales and rental that remain weak.
Robert Sanchez: A key driver of our outperformance relative to prior cycles continues to be earnings growth in our contractual lease dedicated and supply chain businesses, which continues to demonstrate the effectiveness of our balanced growth strategy.
Robert Sanchez: I'll begin today's call by providing you with these strategic updates.
Speaker Change: John will then take you through our third quarter results, which were in line with our forecast.
I'll, then review our outlook and discuss how we are well positioned to benefit from the cycle upturn.
Speaker Change: Let's begin on slide four.
Turning to slide four contractual earnings growth, resulting from our business model transformation and execution on our balanced growth strategy continues to drive outperformance.
Speaker Change: Across all phases of the current rate cycle, our earnings and return profile has been higher than prior cycles.
Speaker Change: Secular trends that favor outsourcing large addressable markets.
Speaker Change: That our solutions bring to our customers continue to support long term growth opportunities in all three of our business segments.
Speaker Change: Our initiatives are focused on further enhancing returns over the cycle.
Speaker Change: Adjusted ROIC of 16% over the trailing 12 month period is in line with our expectations, given where we are in the freight cycle.
Speaker Change: Our contractual businesses continue to perform well demonstrating the enhanced quality of our portfolio and increased resilience.
Speaker Change: The current phase of our balanced growth strategy is focused on creating compelling value through operational excellence.
Speaker Change: Best thing and customer centric innovation.
Speaker Change: Further improving full cycle returns and generating profitable growth.
Speaker Change: We remain confident that continuing to execute our strategy, while positioning ourselves for the cycle upturn will result in further enhanced full cycle returns.
Speaker Change: The earnings power of our contractual portfolio is providing us with increased capital deployment capacity, which we expect to use to support profitable growth and return capital to shareholders.
Speaker Change: Our board recently authorized a new discretionary 2 million share repurchase program, which replaced the prior 2 million share program that we completed in September.
Speaker Change: Year to date, we have returned $382 million in cash to shareholders through our share repurchases and dividends.
Speaker Change: Our full year 2024 forecast for free cash flow is unchanged at positive $150 million to $250 million.
Speaker Change: We're encouraged by our solid performance in the third quarter and year to date and believe that executing on our balanced growth strategy will continue to deliver higher highs and higher lows over the cycle.
Speaker Change: Slide five is one that you are likely familiar with have you been following our business model transformation.
Speaker Change: Clearly shows how our key financial and operating metrics have improved since 2018, reflecting the execution of our strategy.
Speaker Change: In 2018 prior to the implementation of our balanced growth strategy, we generated comparable EPS of $5 95, and ROE of 13%.
Speaker Change: This was during peak freight cycle conditions.
Speaker Change: At that time, the majority of our $8 4 billion of revenue was from Fms.
Speaker Change: Supply chain revenue had a three year growth rate of 16% and operating cash flow of $1 7 billion.
Speaker Change: Now, let's look at what we're expecting from Ryder today.
Speaker Change: In 2024, a year that should represent trough conditions for used vehicle sales and rental.
Speaker Change: We expect our transformed business model to generate meaningfully higher earnings and returns that it did during the 2018 peak.
Speaker Change: Our 2024 comparable EPS is expected to be 11, 90, 212, 10 double 2018 comparable EPS of $5 95.
Speaker Change: ROE is expected to be up 300 to 350 basis points to a range of 16 to 16, 5% above the 13% generated during the prior cycle peak when market conditions were strong in rental and used vehicle sales.
Speaker Change: Through organic growth strategic acquisitions and innovative technology.
Speaker Change: We have shifted our revenue mix towards supply chain and dedicated with approximately 60% of our 'twenty 'twenty four revenue expected to come from these asset light businesses compared to 44% in 2018.
Speaker Change: Supply chain three year growth rate is also expected to increase to approximately 20%.
Speaker Change: As a result of profitable growth in our contractual lease supply chain and dedicated businesses.
Speaker Change: Operating cash flow is expected to be $2 4 billion in 2024, 40% higher than it was in 2018.
Speaker Change: As shown here the business is outperforming prior cycles, even when comparing prior peak so unexpected trough.
Speaker Change: We are proud of the results of our transformation, thus far and we are confident that continued execution and momentum from our multi year initiatives positions us well for 2025 and beyond.
Speaker Change: I'll now turn the call over to John to review, our third quarter performance.
John: Thanks, Robert total company results for the third quarter on page six.
John: Operating revenue of $2 6 billion in the third quarter up 9% from the prior year.
Speaker Change: <unk> of our recent acquisitions of Cardinal in ISS.
Speaker Change: Comparable earnings per share from continuing operations were $3.44 in the third quarter down.
Down from $3 58 in the prior year.
Speaker Change: The earnings decline reflects weaker market conditions in used vehicle sales and rental.
Speaker Change: Partially offset by higher contractual earnings.
Speaker Change: Order, we realized double digit percentage growth from our contractual Fms dedicated and supply chain businesses.
Speaker Change: Return on equity our primary financial metric was 16% the year over year decline reflects weaker used vehicle sales and rental market conditions.
Speaker Change: Year to date free cash flow increased to $218 million from $32 million in the prior year.
Speaker Change: Primarily due to lower capital expenditures, partially offset by lower proceeds from the sale of used vehicles.
Speaker Change: Turning to fleet management results on page seven.
Speaker Change: Fleet management solutions operating revenue increased 1% due to higher choice lease revenue, partially offset by lower rental demand.
Speaker Change: This lease revenue grew 7% with about a third coming from organic lease revenue growth and the remainder from intersegment lease revenue from Cardinal vehicles by bringing in our dedicated segment.
Speaker Change: Pre tax earnings and fleet management were $132 million and down year over year as anticipated.
Speaker Change: Rental results continue to reflect weak market conditions.
Speaker Change: Although we saw some seasonal improvement in rental demand from the second quarter to the third quarter.
Speaker Change: Sequential increase was below typical patterns.
Speaker Change: Utilization on the power fleet was 71% compared to 75% in the prior year.
This level of utilization on our fleet size that is smaller than historical levels reflects ongoing weakness in the freight environment and conditions that continue to bounce along the bottom.
Speaker Change: Our fleet pricing declined slightly by 1% due to a shift to more demand coming from our light duty trucks versus tractors.
Speaker Change: Results also reflect lower used vehicle gains compared to elevated levels in the prior year due to lower volumes and pricing.
Speaker Change: Higher choice lease results and benefits from our maintenance cost savings initiatives, partially offset the earnings impact from weaker market conditions in used vehicle sales and route.
Speaker Change: <unk> management EBT as a percentage of operating revenue was 10, 3% in the third quarter and is expected to remain at low double digits for full year 2024 in line with our expectations, given where we are in the freight cycle and below our recently increased long term target.
Speaker Change: Low teens.
Speaker Change: Page eight highlights used vehicle sales results for the quarter.
Speaker Change: Compared with prior year used tractor proceeds declined 22% and used truck proceeds declined 19%.
Speaker Change: On a sequential basis proceeds from used tractors decreased 12%.
Speaker Change: I need due to sales of newer equipment in the prior quarter and to a lesser extent lower retail sales mix in the current quarter.
Speaker Change: Proceeds for trucks increased 4%.
Speaker Change: During the quarter, we sold 4700 used vehicles.
Speaker Change: Sequentially and versus prior year.
Speaker Change: Our used vehicle inventory of 9100 vehicles at quarter end declined sequentially and is expected to decline further in the fourth quarter as fewer rental units are expected to be up service.
Speaker Change: Used vehicle inventory remained slightly above our target inventory range.
Speaker Change: Our used vehicle inventory mix has shifted towards trucks, which are experiencing more favorable pricing trends and tractors trucks.
Speaker Change: Trucks comprised 43% of current inventory up from 26% in the prior year.
Tractor inventory was 48% down from 62% in the prior year.
Speaker Change: Although used vehicle pricing decline proceeds remain above residual value estimates used for depreciation purposes.
Speaker Change: Slide 21 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks.
Speaker Change: Turning to supply chain on page nine.
Speaker Change: Operating revenue increased 10% driven by IMS and Cardinal acquisitions.
Speaker Change: Supply chain earnings increased 14% or 12 million from prior year, primarily reflecting stronger omnichannel retail performance and lower overhead spending.
Speaker Change: Supply chain EBT as a percent of operating revenue was nine 3% in the quarter and is expected to remain in line with the segment's long term target of high single digits for the full year 2024.
Speaker Change: Moving to dedicated on page 10.
Speaker Change: Operating revenue increased 49%, reflecting the acquisition of Cardinal logistics.
Speaker Change: Dedicated EBT increased 31% or 8 million from prior year, reflecting improved operating performance and the acquisition benefits.
Speaker Change: Our legacy dedicated business continues to perform well demonstrating its resilience over the cycle and the integration of the corner acquisition remains on track.
Speaker Change: <unk> continued to benefit from favorable conditions in the professional driver market as the number of open positions and times to fill continue to improve.
Speaker Change: Dedicated EBT as a percent of operating revenue was 75% in the quarter and in line with the segment's long term high single digit target.
Speaker Change: Turning to slide 11 year to date these capital spending of one and a half billion was below prior year, reflecting lower lease sales activity.
Speaker Change: Year to date rental capital spending of $401 million was consistent with prior year are limited to replacement spending.
Speaker Change: Our full year 2024 lease capital spending forecast remains unchanged at $2 2 billion.
Speaker Change: Down from prior year due to lower lease sales activity, reflecting delayed decisions and economic uncertainty as well as increased redeployment activity. Our year end lease fleet is expected to increase moderately from third quarter levels.
Speaker Change: Our forecast for rental capital spending is unchanged from our prior forecast and our 2020 for yearend rental fleet is expected to be down by approximately 2% year over year.
Speaker Change: In rental we continue to shift capital spending towards trucks versus tractors as trucks have benefited from relatively stable demand and pricing trends.
Our full year 2020 for capital expenditures forecast remains at approximately $2 9 billion and below prior year.
Speaker Change: We expect approximately 600 million in proceeds from the sale of used vehicles for the full year 2024.
Speaker Change: As a result for year 2024, net capital expenditures are expected to be approximately $2 3 billion.
Speaker Change: Turning to page 12.
Speaker Change: In addition to increasing the earnings and return profile of the business.
Speaker Change: Our transform contractual portfolio is also generating significantly higher operating cash flow.
Speaker Change: Improving the overall cash generation profile of the business is one of the essential elements of our balanced growth strategy.
Speaker Change: Better earnings performance is driving higher cash flow generation and in turn is delevering, our balance sheet at a more rapid pace.
Speaker Change: This momentum is creating incremental debt capacity, given our target leverage range of between two and a half and three times.
Speaker Change: As shown on the slide which is similar to the slide from passenger day between 'twenty 'twenty four and 2026, we expect to generate approximately 10 billion from out of operating cash flow and used vehicle sales proceeds. This creates approximately $3 5 billion of incremental debt capacity, resulting in total capital deployment capacity.
Speaker Change: $13 5 billion for.
Speaker Change: For the same period, we estimate approximately $8 8 billion will be deployed for the replacement of lease and rental vehicles and approximately 400 million for dividends, leaving around $4 3 billion of capital available for flexible deployment to support growth and return capital to shareholders.
Speaker Change: We estimate about half of this capacity will be used for growth capex.
And the remainder to be available for discretionary share repurchases and strategic acquisitions and investments.
Speaker Change: Our capital allocation priorities remain unchanged and are focused on supporting our strategy to drive long term profitable growth and return capital to our shareholders.
Speaker Change: Our top priority is to invest in organic growth.
Speaker Change: As we mentioned earlier, our board recently approved a new 2 million discretionary share repurchase program.
Speaker Change: Since 2022 we have deployed approximately 900 million for discretionary share repurchases, reducing our share count by 19%.
Speaker Change: In addition, we've invested approximately $1 1 billion and strategic M&A.
Speaker Change: Our balance sheet remains strong with leverage of 249% at the end of the quarter just below the low end of our target range and continues to provide ample capacity to fund our capital allocation priorities.
Speaker Change: Turning to slide 13, our 'twenty 'twenty four full year forecast for operating cash flow is unchanged at $2 4 billion and our forecast for free cash flow remains in the range of positive $150 million to $215 million.
As show operating cash flow remains strong driven by growth in our contractual lease dedicated and supply chain businesses, which comprise approximately 90% of writers operating revenue.
Speaker Change: Our free cash flow profile has improved significantly since the implementation of our balanced growth strategy in late 2019.
Speaker Change: The summary on the right side of the slide illustrates the free cash flow generated by the business prior to investing in fleet growth.
Speaker Change: In 'twenty 'twenty four since we do not expect organic fleet growth given market conditions, our free cash flow forecast of a positive $200 million at the midpoint of our range is the same as our forecast for free cash flow prior to growth.
Speaker Change: With that I'll turn the call back over to Robert to discuss our 2024.
Robert Sanchez: Turning to our outlook on page 14 and.
Robert Sanchez: In the fourth quarter, we expect year over year earnings growth for the first time since the fourth quarter of 2022 is.
Robert Sanchez: As higher contractual earnings offset the.
Robert Sanchez: Pack from continued weak market conditions in used vehicle sales and rental.
Robert Sanchez: Our outlook does not assume freight conditions improve in 2024.
Robert Sanchez: The top end of our forecast range assumes a typical seasonal uptick in rental demand, whereas the lower end does not.
Robert Sanchez: Our fourth quarter comparable EPS forecast is $3 32 to $3 52.
Robert Sanchez: Up from the prior year of $2 95.
Robert Sanchez: Our full year 'twenty 'twenty four comparable EPS forecast is updated to a range of 11, 9% to 12 10 from the prior forecast of 11 $90 to $12 40.
Robert Sanchez: Our 2024 ROE forecast is unchanged at 16 to 16, 5% and in line with our expectations, given where we are in the freight cycle.
Robert Sanchez: The extended break downturn in economic uncertainty have been causing some customers and prospects and lease dedicated and supply chain to delay decisions and downside their fleets.
Robert Sanchez: These near term contractual sales headwinds are consistent with the current economic environment.
Robert Sanchez: We remain confident in the long term secular growth trends in all of our businesses.
Robert Sanchez: Believe the transformative changes that we've made will continue to drive outperformance relative to prior cycles and that all segments are well positioned to benefit from the cycle upturn.
Robert Sanchez: Turning to slide 15 in addition to managing through the downturn. We are also focused on ensuring that the business is well positioned to benefit from the cycle upturn.
Robert Sanchez: As we outlined at our Investor Day in June we expect an annual pretax earnings benefit of approximately 200 million by the next cycle peak.
Robert Sanchez: Although the majority of our revenue is supported by long term contracts that generate relatively stable and predictable operating cash flows over the cycle.
Robert Sanchez: Each business segment still has an opportunity to benefit from the cycle upturn.
Robert Sanchez: We expect the lion's share of the 200 million benefit to come from the cyclical recovery of used vehicle sales and rental in Fms.
Robert Sanchez: And dedicated improved driver availability and lower recruiting and turnover costs are benefiting earnings but had been a headwind for new sales and revenue growth.
Robert Sanchez: As freight capacity tightens and driver availability becomes more challenging we expect to see incremental sales opportunities and improved revenue growth in dedicated.
Robert Sanchez: Private fleets seek solutions to address this pain point.
Robert Sanchez: And supply chain.
Robert Sanchez: Our volumes and our Omnichannel retail vertical have been a headwind to revenue and earnings.
Robert Sanchez: We expect supply chain results to benefit as volumes for these services recover and our warehouse footprint is leveraged.
Robert Sanchez: We've been pleased by the business is outperformance over the cycle and believe we have appropriately positioned all three segments to benefit from the cycle upturn.
Robert Sanchez: Turning to page 16 and.
Robert Sanchez: In addition to the benefits we expect from the cycle upturn. We also expect incremental benefits of approximately $150 million in annual pre tax earnings.
Robert Sanchez: Profitable contractual growth and our multi year strategic initiatives. The key drivers of achieving our long term ROE target of low twenty's over the cycle.
Robert Sanchez: And Fms, we expect to realize the full annual benefit of $125 million from our lease pricing initiative in 2025.
Robert Sanchez: This benefit is relative to our 2018 run rate with an incremental impact of approximately $20 million estimated for 2025 as lease renewals are priced under the new model. We also expect to realize benefits from the 50 million dollar multi year maintenance cost savings initiative announced earlier this year.
Robert Sanchez: Okay.
Robert Sanchez: In dedicated we expect to realize 40 to 60 million in annual synergies from the Cardinal acquisition at full implementation.
Robert Sanchez: The integration is on track with good line of sight to the majority of expected synergies, which are related to maintenance efficiencies and replacing third party operating leases with the benefits of Ryder ownership and asset management.
In supply chain, we continue to optimize our omnichannel retail network to better align our warehouse footprint with the demand environment.
Robert Sanchez: During the third quarter, we began to see improved productivity in this vertical as a result of these actions and expect incremental benefits going forward.
Robert Sanchez: We are confident that ongoing execution of our strategy will continue to lift our returns profile.
Turning to page 17, Ryder is delivering value to our shareholders with more to come.
Since implementing our balanced growth strategy, we have generated higher highs and higher lows over the cycle.
Robert Sanchez: This outperformance and increased resiliency reflects strategy execution and the transformative changes to the business model.
Robert Sanchez: We continue to see significant opportunity for profitable growth supported by secular trends, our operational expertise and ongoing momentum from multi year initiatives.
Robert Sanchez: We remain committed to investing in capabilities and customer centric innovation that will deliver value to customers and keep us well positioned to benefit from the cycle upturn.
Robert Sanchez: That concludes our prepared remarks.
Robert Sanchez: Please note that we expect to file our 10-Q later today.
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.
Robert Sanchez: At this time I will turn it over to the operator.
Speaker Change: Thank you if you are dialed in via the telephone and wed like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to lighter signal chocolate and that again press star one to ask a question. If you are an event via the web interface.
Speaker Change: I would like to ask a question simply type your question in the ask a question box and click send.
Speaker Change: We will go first to Jordan <unk> with Goldman Sachs.
Speaker Change: Yeah, Hi morning.
Speaker Change: Question.
Speaker Change: Okay.
Jordan <unk>: I know you sort of expect to hit the full run rate on the lease repricing in 2025, but I am curious given the ongoing freight slowness out there you may be talk to your lease renewal experience broadly both on new business, you might be bringing in new customers versus renewals and then.
Jordan <unk>: And I think this private fleet I guess.
Jordan <unk>: I don't know if it's the same question, but we've heard that.
Jordan <unk>: Private fleets have been increasing at the expense of for hire fleets.
Jordan <unk>: I'm wondering if that works to the benefit of leasing company like yourself or these retailers who might be expanding their own capacity to sort of speak leasing versus owning what do you think it could that be some tailwind. Thank you.
Speaker Change: Thanks, Jordon, Yeah, I think so.
Speaker Change: First question around pricing and the pricing benefits, we do expect to get the full.
Speaker Change: Complete the full benefit of the price of the repricing of 125 million remember looking at next year, probably the final $20 million of.
Speaker Change: All of that initiative.
Speaker Change: As it relates to renewals and new customers, Yes, I think I'll, let Tom give you a little bit more color, but we are seeing our base customers, which are primarily private fleets now not growing their fleets as much as we had seen over the last several years I think that is a reflection of maybe what youre hearing what youre hearing the privates.
Speaker Change: It's really grew their fleets now that the vehicles have come in theres less of a need to add more and maybe even some downsizing that we're seeing with existing customers as they rightsize their their fleets, but long term as private fleets continue to grow.
Speaker Change: Should see some benefits and I'll, let Tom give you more color on what we're seeing.
Speaker Change: Currently with with renewals the majority of work of our lease.
Speaker Change: Customers just to be clear, our private fleets as opposed to four higher.
Speaker Change: Thank you Heather Robert the what we're seeing it's been relatively slow sales year as you as you might expect.
Speaker Change: When we get to the renewal stage of the leases we have seen some customers downsize their fleets so let's say.
Speaker Change: They're renewing 10 units they might only renew nine.
Speaker Change: Something like that.
Speaker Change: And then on the on the new business front I would say from a pricing perspective, I'll just reiterate some point that we've made in the past is that.
Speaker Change: We have a compelling value prop when you compare to its ownership still.
Speaker Change: Particularly in this high inflation environment that most customers have had experienced.
Speaker Change: We're well positioned to deal with those inflationary pressures and have a compelling value prop versus ownership. So we have to sell that sometimes on a renewal and we also saw that obviously, when we're quoting new business as well.
Speaker Change: Got it thanks, and then just just real quick follow up.
Speaker Change: I know the expectation is rental at least in our forecast is to stay weak but.
Speaker Change: Is there any signs or thoughts that.
Speaker Change: It feels like we should be at a bottom I don't know if you agree with that or any sort of color or commentary around that and you know is there any any signs that there may be some recovery there at some point in 2025.
Speaker Change: Yeah, I think your comment about bottoming is kind of what we're seeing we're seeing what we saw in Q3 was a seasonal pickup.
Speaker Change: Certainly not any type of larger pick up that would indicate the market is coming back. So it was seasonal but a seasonal pick up is better than a decline. So we will take it.
Speaker Change: But nothing yet in terms of a pickup in the freight market I mean, the freight market is now I guess work.
Speaker Change: Nine quarters into this downturn. So we are certainly going to be closer to the end than the beginning.
Speaker Change: And I think it's reasonable to expect there will be an upturn sometime in 'twenty five, but we are not calling for that to happen in the fourth quarter other than just continuing to bottom.
Speaker Change: Thank you.
Speaker Change: If you find that your question has been answered you may remove or.
Speaker Change: You saw from the queue by pressing the star key followed by the digit too.
We'll go next to Christine Garvey with Morgan Stanley.
Christine Garvey: Great. Thanks, good morning, everyone.
Christine Garvey: One is a follow up on that conversation.
Christine Garvey: Can you talk a little bit I know, it's early days here for fourth quarter, but what in terms of seasonality you guys have been seeing so far.
Christine Garvey: If any and kind of how that plays into delivering that essentially higher end does that change.
Christine Garvey: Frank.
Speaker Change: The seasonality in rental that we're seeing Tom do you want to give some color so far in the month.
Tom Hayden: Yes, so like like Robert mentioned in Q3.
Speaker Change: We did see an uptick in demand.
Tom Hayden: But that uptick in demand was when you compare to previous years just seasonality in fact, it was on the lower end of our seasonality uptick from Q3 two.
Speaker Change: The Q I'm, sorry from Q2 to Q3.
Speaker Change: As we're sitting here a few weeks into the fourth quarter, we havent seen anything other than seasonal uptick there has been.
Speaker Change: No signs of recovery, yes here in the fourth quarter, and we're certainly not expecting that.
Speaker Change: To happen here in the fourth quarter other than the normal seasonal holiday.
Speaker Change: The increase that we would typically get from a demand perspective with Thanksgiving and Christmas. That's all we're expecting is that normal seasonality here in the fourth quarter.
Speaker Change: Great. Thank you.
Speaker Change: Thank you Christie.
Speaker Change: We'll go next to Jeff Kauffman with vertical research partners.
Jeff Kauffman: Thank you very much congratulations everybody.
Jeff Kauffman: To focus on the tail wagging the dog here I, just kind of have two questions.
Jeff Kauffman: I understand what's going on with choice lease and private fleets that part I get.
Jeff Kauffman: But select care vehicles have been dropping at about a 5% rate for a couple of quarters now and you know.
Jeff Kauffman: I always thought outsource maintenance was kind of part of the pitch to a lot of these fleets and while we're talking about select care.
Jeff Kauffman: In our rental fleet.
Speaker Change: Utilization still barely above 70% that would imply we want to reduce the fleet, but your ratio of rental fleet to full service lease vehicles is about 20% below normal right now so we not really take down the rental fleet. Despite the low utilization do we just kind of.
Speaker Change: Watch for that so select care and rental fleet those are my questions.
Speaker Change: So I'll, let I'll, let Tom.
Speaker Change: Tom will give you the color on select paying on the rental fleet, though I think it's a good point we have.
Tom Hayden: Well historically, we've really brought the rental fleet down pretty significantly and then we've been slow to get it back in I think in many ways have missed out on a lot of the rental upturn even have had customers on an upturn that we havent had vehicles for so we are hanging on to these vehicles.
Speaker Change: And allow utilization, maybe a few percentage points lower than it would otherwise be.
Speaker Change: As we as we wait for this upturn to come because we want to make sure. We have the vehicles to make that happen and it gives us an opportunity to really leverage and get more earnings as the upturn come so so you're making a good point on the.
Speaker Change: The utilization level, but again, that's part that's purposeful and really just a.
Speaker Change: Preparing us for the upturn.
Speaker Change: And.
Giving us an opportunity to really leverage those units in and and get some additional earnings as we come up and take care of more customers I'll I'll let.
Speaker Change: I'll give you some color on select here and maybe just one other point on the on the rental fleet.
Speaker Change: We are down 7000 units from the peak rental fleet from two years ago. So we have brought that fleet down.
Speaker Change: Quite a bit.
Speaker Change: But like Robert said, we do want to have fleet available for when that.
Speaker Change: Inflection point happens and the demand comes back so I want to take advantage of that obviously, hopefully that'll happen in 2025.
Speaker Change: Carefully.
Speaker Change: A question came up last quarter as well and I think we've seen this trend all year.
The first point I'll make is that margins are actually up sequentially and up year over year. So I wanted to make that point theres, a theres a subset of the select care fleet that is.
Speaker Change: Very low revenue very very low margin.
Speaker Change: And that's what we're seeing come out of the fleet, we've seen that for two quarters and I would tell you that.
Speaker Change: We're expecting that to happen again in Q4, so don't be surprised by that but I would just tell you that.
Speaker Change: The units that are coming out are.
Speaker Change: Very low impact low revenue low margin.
Speaker Change: Yeah.
Great. Thank you that's my question.
Speaker Change: Thanks, Jeff.
We'll go next to Scott Group with Wolfe Research.
Scott Group: Hey, Thanks, Good morning, So Robert you're talking about earnings inflicting back positive in Q4 and I'm wondering if.
Scott Group: And then if you could talk maybe about the puts and takes heading into 2025 rate I guess your guidance is mid teens kind of earnings growth. In Q4 is that I know, it's early but is that the right sort of framework to be thinking about for 25 or is there some thought that hey, where we are.
Scott Group: Exiting with less.
Scott Group: Contractual growth and so maybe that becomes a little harder in 'twenty five but help us think about the puts and takes.
Speaker Change: Yes, I think.
Speaker Change: Again, it's early so we're sitting here in <unk>.
Speaker Change: In October with a looming presidential election, a lot of uncertainty.
Speaker Change: And we're at the tail end of this long freight downturn. So we got those two things that we're kind of dealing with but but generally I would tell you that you should expect.
Speaker Change: Earnings growth from our contractual businesses as we as we had this year. We should have continued to have earnings growth from our contractual businesses.
Speaker Change: First and foremost from our initiatives right lease price and we already talked about maintenance cost initiatives. The acquisition synergies for Cardinal that integration is on track. So those are the three primary initiatives and it'll help earnings growth from the contractual business along with some growth.
Speaker Change: First part of the year organic growth in the contractual business may be a bit muted because of what we're seeing in sales right now uncertainty around customers wanting to sign anything and especially on the lease and dedicated side just a an oversupply of vehicles currently in the market versus the the freight that's moving so but.
Speaker Change: <unk> earnings should be up next year clearly.
Speaker Change: From a transactional standpoint.
And based on where we are in the freight cycle today I think it's reasonable to expect there will be a cycle upturn next year. The question is one.
Speaker Change: Happens early in the year I would expect the transactional businesses to create some meaningful tailwind.
Speaker Change: And earnings if it happens late in the year, probably still some tailwind.
Speaker Change: But not as impactful I would say a year over year also depends on the magnitude of the freight cycle recovery because that can vary also so.
Speaker Change: You should again expect earnings growth in the contractual businesses again.
Speaker Change: Transactional business as earnings growth most likely.
Speaker Change: The magnitude of which is dependent on when the.
Speaker Change: The earnings I'm, sorry, one of the freight cycle returns, but again this year we are.
Speaker Change: We are going to look we're looking at $12 a share and what was likely a trough freight market. So it shouldn't get put it in perspective, I think you'd look at this quarter.
We're generally in line with what we had said prior quarter, which was in a soft or no recovery scenario, we would be sort of towards the bottom end of the range and when you. When you adjust for tax that's kind of where we came in full year same thing we are actually coming in are actually coming in at the midpoint.
Speaker Change: What we said at the beginning of the year, even though there was no recovery and that was in light of rental even being a little bit tougher used vehicles came in a little better and then overhead we managed overhead cost more to get us more into that midpoint of the range. So we're really happy with.
Speaker Change: Where we are return on equities at 16, 16, 5%, which is exactly where we should be and based on our for our modeling in our forecast for this point in the freight cycle and again, we expect that to all start to come up as the freight environment improves and as we sit on at Investor day to get to that.
Speaker Change: Low twenties.
Speaker Change: Level over the cycle ROE from an R&D perspective.
Speaker Change: Okay. That's helpful. If I can just clarify one last thing.
Speaker Change: The slide with the tractor residual index, it's now sort of within the those two red bars, what is what should that mean for gains on sale going forward.
Speaker Change: So.
Speaker Change: It would have to come down on that on that slide would have to come down another 15%.
Speaker Change: Tractor prices to get to the bottom end, where he doesn't know gains if you will on on tractors.
Speaker Change: But again it what it means is that we still continue to have gains certainly through the middle of the year of next year.
Speaker Change: Based on that lower end of that residual value.
Speaker Change: Okay.
Speaker Change: Appreciate it thank you guys.
Speaker Change: Thank you.
Speaker Change: We'll go next to Brian <unk> with Jpmorgan.
Hey, good morning, Thanks for taking the question.
Speaker Change: Maybe you can just give us a rundown of what youre seeing in the competitive landscape.
Speaker Change: Across lease dedicated and SCS is a broad range, but.
Speaker Change: Some thoughts there would be helpful. Considering it is a lower for longer environment. So wanted to see if youre seeing any.
Speaker Change: Competition on the fringes that you wouldn't expect sort of at this part of the cycle.
Speaker Change: I'll, let each of the.
Speaker Change: Presidents' talk about their business I think generally remember its contractual businesses that we're dealing with here. So this is the incremental new opportunities that we're talking about but I'll let.
Speaker Change: Tom why don't you start with lease.
Tom Hayden: On the on the lease side I would say from a.
Tom Hayden: Petitor perspective, maybe the one thing that's a little bit different in a down environment.
Tom Hayden: <unk>.
Tom Hayden: Competing more with re deployable assets, if you will as opposed to the news so you see more competition.
Tom Hayden: Those are existing units, maybe a little bit of price pressure, there, but when we.
Tom Hayden: Ah competing its new and we're deploying new capital.
Tom Hayden:
Tom Hayden: No there's discipline around getting the returns on that on that new capital spend.
Tom Hayden: Other than that it's kind of what you would you might expect in a in a low environment like that so it's a tight competing on deal there's not as many deals on the table as you would you would normally see in a good environment.
Tom Hayden: Other than that Thats kind of what you would expect.
Tom Hayden: A reminder, at least we don't we'd have been a buy a truck until we have a signed lease.
Tom Hayden: So that discipline.
Sure and I think by most competitors really helps keep the pricing discipline I believe without having to move inventory that youre sitting on.
Speaker Change: Steve you want to talk about dedicated and supply chain, yes, Brian on supply chain, you're right I think it's the same set of competitors right is holding consistent so I think it's really a solution based opportunity. There. So I think we feel pretty good about supply chain and dedicated our biggest competition right now is the spot market.
Speaker Change: So is that.
Speaker Change: That bounces back in the driver market tightens as Robert John said earlier.
Speaker Change: That's going to yield benefits for us as we go forward and I think we you know our continued collaboration with Tom's team on the private fleet conversion that continues to be the majority of our sales and dedicated so I think we're positioned well.
Speaker Change: Okay.
Speaker Change: Okay. Thanks for that.
Speaker Change: One just quick follow up in terms of the hurricanes that.
Speaker Change: Disrupted the freight market and fortunate.
Speaker Change: Portrait caused damage are you seeing any impact on I guess current operations and maybe a potential pickup.
Speaker Change: Every efforts.
Speaker Change: Start to gain some traction here and towards the engineer would have any impact on I guess current operations and then potentially.
Speaker Change: Potentially in the fourth quarter for maybe some some rental.
Yeah. Unfortunately, it's becoming a core competency at Ryder and dealing with these hurricanes that being headquartered down here in Florida, but I.
Speaker Change: You know our team once again did a great job of responding.
Speaker Change: To these hurricanes and clearly our thoughts and prayers go out to all the folks that have been impacted.
Speaker Change: Our employees are all safe and accounted for number one number two all our operations are back up and running so we're taking care of our customers.
Speaker Change: And got those operations going in.
Speaker Change: In terms of <unk>.
Speaker Change: Impacts in Q4, I think Tom you want to give them a little bit on the <unk> side, and we're seeing anything regionally, yes. It would.
Speaker Change: I would just add it or as we prepare for hurricanes.
Speaker Change: Kind of setup.
Speaker Change: Fuel deliveries.
Speaker Change: And temporary power supply just outside of the corn, So we like Robert said.
Speaker Change: Unfortunately got very very good at this so we're up and running within 48 hours with fuel drops power all of our locations.
Speaker Change: Power Luckily, we had a relatively minimal damage at our at our locations.
Speaker Change: And I would say we did see a.
Speaker Change: From a rental utilization perspective, a small uptick in utilization in the couple of business units, and Florida, Georgia and the Carolinas.
Speaker Change: But I wouldn't say it had a meeting meaningful impact on utilization when you're looking at Holistically.
Speaker Change: Holistically just.
Speaker Change: Kind of isolated in those in those couple of markets as we support.
Speaker Change: Our customers in the relief efforts.
Speaker Change: To support those communities that were impacted by the storms.
Okay. Thanks very much.
Speaker Change: Thanks, Brian.
Speaker Change: We'll go next to Daniel <unk> with Stephens.
Speaker Change: Okay.
Speaker Change: Yeah, Hey, good morning, everybody.
Speaker Change: Maybe a follow up on the tractor price backdrop discussion you guys are having so it sounds like you should still have gained but maybe the gains are lower and I think the release noted lower volume and pricing headwinds in the quarter.
Speaker Change: Viewed inventories declining I guess, when we look forward would you expect the gains on those sales to continue to sequentially decline in the coming quarters, and then related to that the cash flow I don't think your free cash flow guidance changed and the proceeds from asset sales were maintained despite lower volume of sales and lower pricing on the sale can you just help US bridge the gap on the how free cash flow guidance stayed the same.
Speaker Change: Given that backdrop on the asset sales.
Speaker Change: Yeah, I think from a gain standpoint, you should see it you know kind of hover around where it's been it's been in that.
Speaker Change: It was $15 million this quarter is $20 million a couple of quarters ago somewhere in that range I think as we go into Q4, assuming pricing continues to sort of look for a bottom which is kind of what we've been what we've been saying, it's still down if you take out some of the anomalies, it's been down sequentially now single digit for the last three quarters.
Speaker Change: So looking for a bottom not quite there yet I think if you look at some of the forecasts from some of the groups that follow this they are expecting some type of an uptick as we get into 2025. Despite the measure of the amount of freight moving in a number of trucks on the road. So hopefully that's coming in early and we get that early but as you can.
Speaker Change: And to this quarter I think it's.
Speaker Change: More of what we've seen in the last couple of quarters.
Speaker Change: In terms of free cash flow yes.
Speaker Change: Daniel This is John just the free cash flow as you heard from Robert the movements sequentially actually truck pricing was a little bit better with the tractors come and then a little bit lower sequentially.
Speaker Change: We're a little bit softer that was probably more of the impact I would say this quarter on the cash flow but within.
The margin of our 100 million a range that we had given back in Q2.
Speaker Change: As a result, we didn't think we needed to adjust for that because we do see kind of market conditions kind of bouncing along the bottom at this point in time.
Speaker Change: Great I appreciate all the color thanks, guys.
Speaker Change: Thanks, David.
Speaker Change: 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 all for your interest and questions and we'll see on the road soon.
Speaker Change: This does concludes today's conference we thank you for your participation.
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