Q4 2024 Ryder System Inc Earnings Call
Please standby.
Speaker Change: Good morning, and welcome to the Ryder system fourth 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.
Speaker Change: If you have any objections. Please disconnect at this time.
Speaker Change: I'd now like to introduce Ms.
Candela: Hello, Vice President Investor Relations for Ryder lets Candela you may begin.
Candela: Thank you good morning, and welcome to Ryder's fourth quarter 'twenty 'twenty four 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 90 to 95.
Candela: These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.
Candela: Actual results may differ materially from these expectations due to changes in economic business competitive market political and regulatory factors.
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.
Candela: And 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, John Diaz, President and Chief operating Officer, and Kristy Gallo at Keno.
Candela: Executive Vice President and Chief Financial Officer.
Candela: 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.
Robert Sanchez: At this time I'll turn the call over to Robert.
Candela: Good morning, everyone and thanks for joining us.
Candela: Before we begin I'd like to recognize John Diaz, who is joining this morning's call in his new role as President and Chief operating officer.
Candela: Most of you already know John.
Candela: He was riders EVP and CFO from 2020, one through 'twenty 'twenty four.
Speaker Change: Placing John its Chief Financial Officer, Christy Gallo Aquino Chris.
Speaker Change: Christy has a 20 year rider veteran most recently, serving as SVP and controller and prior to that as Chief financial Officer for Fms.
Speaker Change: A writer we're committed to developing talent at all levels of the organization and I'm extremely pleased that we have such qualified internal candidates to fill these critical leadership roles.
Speaker Change: So with that said I'll begin today's call by sharing some key highlights from 2024, and providing you with a strategic update Chris.
Speaker Change: Jim will then take you through our fourth quarter results, which were in line with our forecast and up versus prior year.
Speaker Change: We are pleased to report that this quarter is the first quarter in the last eight with year over year comparable earnings growth driven by double digit earnings growth in each of our business segments.
Speaker Change: John will then review capital expenditures and our increasing capital deployment capacity.
Speaker Change: I'll then review, our 2025 outlook and discuss how we expect to build on the momentum of our transformed and cycle tested business model.
Speaker Change: Let's begin with some key highlights from 'twenty 'twenty four on slide four.
Speaker Change: I'm extremely proud of our team for delivering solid results throughout 2024, despite challenging freight market conditions.
Speaker Change: The business continues to outperform prior cycles, driven by our high quality contractual portfolio and reflecting the actions we've taken under our balanced growth strategy.
Speaker Change: De risk the business.
Speaker Change: Increase the return profile and accelerate growth in our asset light SCS and Dts businesses.
Speaker Change: During 2020 for the business generated comparable earnings per share of $12, which is in line with our initial forecast and significantly above the 595 of comparable earnings per share generated in 2018 prior to our business transformation.
Speaker Change: The business also delivered adjusted return on equity of 16%, which is in line with our expectations for an extended freight cycle downturn and continues to demonstrate the resilience of our transformed business model.
Speaker Change: Operating revenue grew 8%.
Speaker Change: The cargo in Iff's acquisitions.
Speaker Change: We're encouraged by the strong performance of our transformed business model 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 provide key updates on the ongoing progress of our balanced growth strategy.
Speaker Change: Our transport business model continues to drive outperformance relative to prior cycles.
Speaker Change: The integration of our recent acquisitions is on track as you May recall, we completed the acquisition of Cardinal logistics on February one 2024.
Speaker Change: Enabling growth and further strengthening our position as a leading provider of customized dedicated transportation solutions.
Speaker Change: On November one of 2023 we completed the acquisition of <unk>.
Speaker Change: Added co packaging and co manufacturing capabilities in SCS, primarily supporting our CPG business.
Speaker Change: We continue to see long term growth opportunities in all three of our business segments supported by secular trends that favor outsourcing decisions large addressable markets and the value of our solutions.
Speaker Change: Generating Roe of 16% during an extended freight cycle downturn reflects the benefits of our initiatives.
Speaker Change: Just on enhancing returns.
Speaker Change: The strength of our contractual businesses continues to demonstrate the enhanced quality of the portfolio and increased resilience of our business model. The current phase of our balanced growth strategy is focused on creating compelling value through operational excellence.
Speaker Change: Resting and customer centric innovation.
Speaker Change: Either 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 continues to provide us with increased capital deployment capacity, which we expect to use to support profitable growth and return capital to shareholders.
Speaker Change: During 2024.
Speaker Change: We returned $456 million in cash to shareholders through share repurchases and dividends.
Speaker Change: We repurchased two and a half million shares and increased our dividend by 14%.
Speaker Change: Since 2021 we have repurchased approximately 19% of our shares outstanding and increase the average dividend growth rate to 12%.
Speaker Change: Slide six illustrates 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. The majority of our $8 4 billion of revenue was from F. M S.
Speaker Change: Ryder generated comparable earnings per share of $5 95, a return on equity of 13%.
Speaker Change: Fms generated pretax earnings of $340 million.
Speaker Change: In SCS and Dts combined generated 191 million in pre tax earnings.
Speaker Change: Operating cash flow was $1 7 billion.
Speaker Change: This was during peak freight cycle conditions.
Speaker Change: 2020 for a year, we believe will represent trough freight cycle conditions, our transport business model generated meaningfully higher earnings and returns, but it did during the 2018 peak.
Speaker Change: Through organic growth strategic acquisitions and innovative technology.
Speaker Change: We have shifted our revenue mix towards supply chain and dedicated with 61% of 'twenty 'twenty four revenue coming from these asset light businesses compared to 44% in 2018.
Speaker Change: 'twenty 'twenty four comparable earnings per share were $12 more than double 2018 comparable earnings per share of $5 95.
Speaker Change: Our ROE was 16% above the 13% generated during the prior cycle peak.
Speaker Change: Fms pre tax earnings in 'twenty, 'twenty, four or one five times higher than in 2018.
Speaker Change: And the SCS and Dts earnings were two four times higher reflecting growth at our returns focus.
Speaker Change: As a result of profitable growth in our contractual lease dedicated and supply chain businesses.
Speaker Change: Operating cash flow has increased 32% from $1 7 billion in 2018 to $2 3 billion in 2024.
Speaker Change: As shown here the business is outperforming prior cycles, even when comparing prior peak two 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 multi year initiatives positions us well for 2025 and beyond.
Speaker Change: I'll now turn the call over to Christie to review, our fourth quarter performance.
Christie: Thanks Robert.
Christie: Total company results for the fourth quarter are on page seven.
Christie: Operating revenue of $2 6 billion in the fourth quarter up 7% from the prior year primarily reflects acquisitions.
Christie: Comparable earnings per share from continuing operations were $3.45 in the fourth quarter.
Christie: From $2 95 in the prior year.
Christie: The increase reflects double digit earnings growth in all business segments.
Christie: Turn on equity our primary financial metric was 16% as previously discussed.
Christie: Free cash flow increased to positive $133 million from negative 54 million in the prior year, reflecting lower capital expenditures, partially offset by lower proceeds from the sale of used vehicles and lower cash from operating activities.
Christie: Turning to fleet management results on page eight.
Christie: Fleet management solutions operating revenue increased 3% due to higher choice lease revenue.
Christie: Partially offset by lower rental demand.
Christie: Twice lease revenue grew 8% with about 40% coming from organic lease revenue growth and the remainder from inter segment lease revenue from Cardinal vehicles operating in our dedicated segment.
Christie: Pretax earnings and Fms were $152 million up year over year, primarily reflecting higher choice lease performance, partially offset by lower rental demand.
Christie: Rental utilization on the powered fleet was 73% down from 75% in the prior year.
Christie: Our results for the quarter continued to reflect market conditions that remain weak. Although we did see a typical seasonal improvement in rental demand from Q3 to Q4.
Christie: Power fleet pricing was down 3%.
Christie: Fleet management EBT as a percent of operating revenue was a solid 11, 6% in the fourth quarter as choice lease earnings growth more than offset the impact from weak conditions in rental and used vehicle sales.
Christie: For full year 2024, EBT as a percent of operating revenue was 10, 1%.
Christie: In line with our expectations, given where we are in the freight cycle, but below our recently increased long term targets of low teens.
Christie: Page nine highlights used vehicle sales results for the quarter.
Christie: Year over year pricing declines continued to narrow in the fourth quarter.
Christie: Used tractor proceeds declined 13% and used truck proceeds declined 12%.
Christie: On a sequential basis proceeds for tractors decreased 2% and proceeds for trucks decreased 3%.
Christie: During the quarter, we sold 4700 used vehicles unchanged sequentially and down versus prior year.
Christie: Used vehicle inventory decreased to 9000 vehicles at year end and was in line with our targeted inventory range.
Christie: Although used vehicle pricing declined proceeds remain above residual value estimates used for depreciation purposes.
Christie: Slide 24 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 4% driven by the I S S and cardinal acquisitions, partially offset by lower sales activity, reflecting freight cycle conditions and economic uncertainty.
Christie: Supply chain earnings increased 58% from prior year, primarily reflecting stronger omnichannel retail performance driven by higher customer volumes and improved productivity goals.
Christie: Supply chain EBT as a percent of operating revenue was a strong eight 9% in the quarter and was eight 4% for full year 2024.
Christie: In line with the segment's long term target of high single digits.
Christie: Moving to dedicated on page 11.
Christie: Operating revenue increased 46%, reflecting the acquisition of Cardinal logistics.
Christie: Dedicated EBT increased 10% from prior year, reflecting the acquisition.
P. P. S results also continued to benefit from strong performance of our legacy dedicated business.
Christie: Collecting pricing discipline as well as favorable market conditions for our recruiting and retaining professional drivers.
Christie: Dedicated EBT as a percent of operating revenue was seven 1% in the quarter.
Christie: For the full year. It was six 7% below the segment's long term high single digit target.
Christie: <unk> acquisition integration costs.
Christie: I'll now turn the call over to John to review capital spending and capital deployment capacity.
Turning to slide 12.
Christie: 'twenty 'twenty four lease capital spending of $2 billion was below prior year, reflecting lower sales activity.
Christie: 2025, we're forecasting lease spending to increase to $2 2 billion, reflecting higher replacement activity.
Christie: We expect the ending lease fleet to remain level year over year reflective of the freight cycle.
Christie: 'twenty 'twenty four rental capital spending of 525 million was above prior year's plant.
Christie: Selecting higher replacement activity.
Christie: In 2025, we're forecasting lower rental capital spending of $375 million.
Christie: Selecting lower planned replacement activity.
Christie: Our ending rental fleet is expected to decrease 6% during 2025 and our average rental fleet is expected to be down 4%.
Christie: Rental fleet remains well below peak levels as we manage through an extended market slowdown.
Christie: In rental we continue to shift capital spending two trucks versus tractors as trucks have benefited from relatively stable demand and pricing trends.
Christie: At year end 'twenty 'twenty four trucks represented approximately 60% of our rental fleet.
Christie: Our full year 2025 capital expenditures forecast of approximately $2 7 billion is in line with prior years we.
Christie: We expect approximately $500 million in proceeds from the sale of used vehicles in 2025.
Christie: As we do not anticipate a meaningful recovery in market conditions.
Full year 2025, net capital expenditures are expected to be approximately $2 2 billion.
Christie: Turning to page 13.
Christie: In addition to increasing the earnings and return profile of the business are transformed contractual portfolio is also generating significant operating cash flow.
Improving the overall cash generation profile of the business is one of the essential elements of our balanced growth strategy.
Christie: Better earnings performance is driving higher cash flow generation and in turn is delevering, our balance sheet at a more rapid pace.
Christie: This momentum is creating incremental debt capacity, given our target leverage range of between two and a half and three times.
Christie: As shown on the slide over a three year period, we expect to generate approximately 10 billion from operating cash flow and used vehicle sales proceeds.
Christie: This creates approximately three and a half billion of incremental debt capacity, resulting in $13 5 billion available for capital deployment.
Christie: Over the same three year period, we estimate approximately $9 2 billion will be deployed for the replacement of lease and rental vehicles have for dividends, leaving around $4 3 billion of capital available for flexible deployment to support growth and return capital to shareholders.
Christie: We estimate about half of this capacity will be used for growth capex and the remaining to be available for discretionary share repurchases and strategic acquisitions and investments.
Christie: Our capital allocation priorities remain unchanged and are focused on supporting our strategy to drive long term profitable growth and return capital to shareholders or.
Christie: Our top priority is to invest in organic growth.
Christie: We have taken a balanced approach to investing and since 2021 and have invested approximately $1 1 billion in strategic M&A and that.
Christie: Floyd approximately $950 million for discretionary share repurchases, reducing our share count by 19%.
Christie: Our balance sheet remains strong with leverage of 250% at year end at the bottom end of our target range and continues to provide ample capacity to fund our capital allocation priorities.
Robert Sanchez: With that I'll turn the call back over to Robert to discuss our 2025 outlook.
Robert Sanchez: Slide 14 highlights key aspects of our 2025 outlook.
Robert Sanchez: In terms of market assumptions, we're expecting a muted growth environment in 2025, reflecting freight market conditions.
The top end of our 2025 forecast range assumes continued contractual earnings growth at a very modest improvement in rental demand later in the year.
Robert Sanchez: We expect to see typical seasonal patterns and rental most of the year and slightly better than seasonal trends later in the year, reflecting anticipated slow freight recovery.
Robert Sanchez: We also expect rental utilization to improve modestly from the prior year on a 4% smaller average fleet.
Robert Sanchez: We remain confident that secular trends continue to favor transportation and logistics outsourcing and that our operational expertise and strategic investments will continue to enable us to deliver increased value to our customers and our shareholders.
Robert Sanchez: We are assuming a slight increase of 1%.
Robert Sanchez: U S class eight tractor production in 2025.
Robert Sanchez: What are your 25 gains from the sale of used vehicles are expected to be below 2024 levels.
Robert Sanchez: Our full year forecast assumes used vehicle prices remained generally in line with 'twenty 'twenty four and above the residual value estimates used for depreciation purposes.
Robert Sanchez: In terms of our financial forecast for 2025 operating revenue is expected to grow approximately 2% due to near term revenue growth headwinds reflective of the freight cycle.
Robert Sanchez: 125 comparable earnings per share is expected to increase by 17% at the high end of our 13 to $14 forecast range as the ongoing structural changes to the business deliver solid contractual earnings growth and a muted market environment.
Robert Sanchez: ROE is expected to increase to a range of 17% to 18%, reflecting contractual earnings rose.
Robert Sanchez: Free cash flow is expected to be between positive 300, and 400 million.
Robert Sanchez: Up from the prior year, primarily reflecting lower vehicle capex and higher operating cash flow.
Robert Sanchez: Overall, we expect to deliver earnings growth and increased returns at 2025.
Robert Sanchez: Reflecting the strength and durability of our transformed and cycle tested business model.
Slide 15 provides outlook highlights for each of our segments.
Robert Sanchez: In Fms.
Robert Sanchez: Operating revenue growth is expected to be in line with the segment's mid single digit target, reflecting pricing benefits from our initiatives as well as inflationary increases.
Robert Sanchez: Fms EBT as a percent of operating revenue is expected to be up year over year, but below the segment's low teens target reflective of freight cycle timing.
Robert Sanchez: We are confident in our ability to reach our long term EBT target and F. M. S overtime based on the demonstrated earnings power of our contractual choice lease business and strategic initiatives, coupled with the benefits, we expect when the market conditions and rental and used vehicle sales recover.
SCS operating revenue growth is expected to be below the segment's low double digit target range due to near term sales headwinds reflective of the freight cycle and economic uncertainty.
Robert Sanchez: SCS EBT percent is expected to be at the segments high single digit target range, primarily due to incremental operating efficiencies and our Omnichannel retail network.
Robert Sanchez: And D. T S. Operating revenue growth is expected to be below its high single digit target due to near term sales headwinds.
Robert Sanchez: <unk> of the freight cycle.
Robert Sanchez: <unk> as a percent of operating revenue is expected to return to the segment's high single digit target range in 2020 five.
Robert Sanchez: Collecting incremental acquisition synergies and continued strong performance in our legacy business.
Robert Sanchez: We expect to continue share repurchase activity and we'll continue to manage discretionary spending by leveraging our zero based budgeting process.
Robert Sanchez: Overall, we expect the momentum in our contractual businesses to continue into 2025 and drive earnings growth.
Robert Sanchez: We also expect a near term revenue growth headwinds, we are experiencing to begin to dissipate as freight conditions gradually improve.
Robert Sanchez: Slide 16 outlines the key changes from 'twenty to 'twenty four to reach the high end of our 2025 comparable earnings per share forecast.
Robert Sanchez: As previously noted contractual earnings growth is the key driver of increased comparable earnings per share.
Robert Sanchez: Fms contractual businesses are expected to contribute one dollar and incremental earnings per share, reflecting benefits from our lease pricing and maintenance cost savings initiative.
Robert Sanchez: SCS and Dts are expected to contribute 85 cents and incremental earnings per share, reflecting synergies from the Cardinal acquisition and improved performance in Omnichannel retail.
Robert Sanchez: In Fms or transactional used vehicle sales and rental businesses are expected to be a 25 cent net earnings per share benefit as the impacts from a very modest rental recovery later in the year is partially offset by lower year over year used vehicle gains.
Robert Sanchez: A 10 cent EPS headwind is expected as a higher tax rate and increased employee compensation costs are partially offset by the benefit of a reduced share count from share repurchase activity.
Robert Sanchez: That brings the high end of our 2025 comparable earnings per share forecast to $14 with a range of 13 to $14.
Robert Sanchez: Transformative changes that we've made in the business model continued to deliver strong results. The earnings power of our contractual businesses is more than offsetting near term headwinds in the transactional parts of our business.
Robert Sanchez: Turning to page 17.
Robert Sanchez: A key driver of expected earnings growth in 2025 is incremental benefits from multi year strategic initiatives already underway and related to our contractual lease dedicated and supply chain businesses.
Robert Sanchez: We have good visibility to these initiatives a represent structural changes, we're making in our business and are not dependent on cycle upturns.
Robert Sanchez: Upon completion, we expect these initiatives to generate annual pre tax earnings benefits of approximately 150 million, which will be a key component to achieving our long term ROE target of low twenty's over the cycle.
Robert Sanchez: In Fms, we expect to realize approximately $20 million in incremental annual benefits from our lease pricing initiative in 2025.
Robert Sanchez: This results in a total of 125 million benefit relative to our 2018 run rate, reflecting portfolio pricing under the new model.
Robert Sanchez: We expect $50 million of benefits from the multiyear maintenance cost savings initiative.
Robert Sanchez: It's the mid 'twenty 'twenty four.
Robert Sanchez: In Dts, we expect to realize $40 million to $60 million in annual synergies from the Cardinal acquisition at full implementation.
Robert Sanchez: 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.
Robert Sanchez: In SCS, we are focused on optimizing our omnichannel retail warehouse network through continuous improvement efforts driving operational efficiencies and better aligning our footprint with the demand environment.
Robert Sanchez: During the second half of 'twenty 'twenty four we began to see improved productivity in this vertical as a result of these actions and expect incremental benefits going forward.
Robert Sanchez: Slide 2025, we expect to realized benefits of approximately $100 million.
These collective initiatives Approx.
Approximately $70 million of these benefits are incremental to 2024.
Robert Sanchez: We are confident that the strength of our contractual portfolio and ongoing execution of these initiatives will provide incremental benefits in 2025 and beyond.
Robert Sanchez: Turning to slide 18.
Robert Sanchez: In addition to continuing to increase the return profile of our contractual businesses. We're also focused on ensuring the business is well positioned to benefit from the cycle upturn.
Robert Sanchez: As we outlined on the prior earnings call and at our Investor Day in June we expect annual pre tax earnings benefits 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 has meaningful opportunities to benefit from the cycle upturn.
Robert Sanchez: We expect the majority of the $200 million benefit to come from the cyclical recovery of rental and used vehicle sales in F. M S.
Robert Sanchez: And dedicated <unk>.
Robert Sanchez: Driver availability and lower recruiting and turnover costs are benefiting earnings but have been headwinds 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 improve revenue growth in dts as private fleets seek solutions to address this pain point.
Robert Sanchez: And supply chain weaker volumes in our Omnichannel retail vertical have been a headwind to revenue and earnings we expect supply chain results to benefit as volumes for these services recover and our optimized warehouse footprint is leveraged.
Robert Sanchez: The high end of our 2025 comparable forecast range.
Robert Sanchez: <unk> minimal expected freight cycle upturn benefits of approximately $15 million.
Robert Sanchez: We've been pleased by the businesses performance during the down cycle and are confident that each of our three business segments is appropriately positioned to benefit from the cycle upturn.
Robert Sanchez: Turning to page 19.
Robert Sanchez: We're forecasting comparable earnings per share of <unk> 13 to $14 versus $12 in 2024.
Robert Sanchez: We're also providing a first quarter comparable earnings per share forecast of $2 30 to $2 55 versus a prior year of 2014.
Robert Sanchez: As a reminder.
Robert Sanchez: First quarter has historically been our lowest earnings quarter.
Robert Sanchez: And our forecast reflects normal seasonality.
Robert Sanchez: We remain.
Robert Sanchez: Focused on our initiatives to increase the return profile of our contractual portfolio and are confident that our transform business model is capable of performing across a range of business environments.
Robert Sanchez: Turning to page 20.
Robert Sanchez: Ryder is delivering value to our shareholders with more to come.
Robert Sanchez: Since implementing our balanced growth strategy, we have generated strong returns during each phase of the cycle.
Robert Sanchez: We achieved higher highs during the 2022 upcycle and generate significantly higher returns during the extended downturn in 'twenty, three and 'twenty four relative to prior down cycles.
Robert Sanchez: We continue to see significant opportunity for profitable growth supported.
Robert Sanchez: Supported by secular trends, our operational expertise and ongoing momentum for our multi year initiatives.
Robert Sanchez: We remain committed to investing in products capabilities and technologies that will deliver value to our customers and our shareholders.
Robert Sanchez: That concludes our prepared remarks. Please note that we expect to file our 10-K later today.
Speaker Change: And a lot of material to cover today. So please limit yourself to one question each.
Speaker Change: You have additional questions you're welcome to get back in the queue and we'll take as many as we can.
Speaker Change: At this time I will turn it over to the operator.
Speaker Change: Thank you if you'd 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 Larry signatory to our equipment. Once again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Speaker Change: We'll go first to Christine Mccarthy with Morgan Stanley.
Christine Mccarthy: Hey, Thanks for taking my question good morning Nathan.
Maybe just starting on the revenue growth guidance I know you guys called out sort of muted growth environment here, but would love to just parse out the moving parts. There are you expecting a decent amount of churn or downsizing versus maybe just slower pipeline conversion just would love a little bit more on the moving parts that get you to two two.
Christine Mccarthy: At this time.
Christine Mccarthy: Yeah. Thanks for staying look well as we said we expect on the on the Fms side, we expect to be within our target range of mid single digits, not a lot of lease fleet growth yet.
Christine Mccarthy: Probably flat and that's primarily because we're not expecting a whole lot of help from the freight market. So we're expecting continued softness or muted freight market through the year that could change, but as we put together our plan that was kind of our best guess and that would also create you know ongoing growth headwinds in the supply chain that.
Christine Mccarthy: <unk> businesses. So we're not expecting a lot from those businesses as you can see though we do have pretty meaningful earnings growth and I would just.
Christine Mccarthy: Point to the fact that it's primarily an initiatives based earnings growth story, it's really those things that we know we can control and continue to execute on those initiatives is really what gives us confidence around the earnings year over year earnings growth that we're out money.
Christine Mccarthy: Great appreciate the color.
Christine Mccarthy: Thank you.
Speaker Change: 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 too.
Speaker Change: We'll go next to Jeff Kauffman with vertical research partners.
Jeff Kauffman: Thank you very much and congratulations John and Kristi and look forward to working with you both in your new roles.
Speaker Change: I want to.
Speaker Change: Focus a little bit on the dynamics going on in Fms.
Speaker Change: You know on one hand people are talking about freight market churn and as the market tightening up on the other hand you.
Speaker Change: Your redeployments are a pure extensions are down your early terminations are up.
Speaker Change: Doesn't look as if rental move forward in the fourth quarter. It looked like a move backward a little bit so.
Speaker Change: I'm your perspective, I know the lease side of the business looks great you know, even the outsourced maintenance product looked like a pretty sharp slowdown is it getting better is it getting worse is it the same kind of what's going on the way you see truck demand out there.
Speaker Change: Yeah, I'll I'll, let Tom give you a little more color, but I think it's I would just like the simple answer is we're not seeing an upturn yet we're still seeing kind of a anything moving sideways rental.
Speaker Change: Moving seasonally but not a significant upturn lease smiles that we've been watching closely or sort of flattish.
Speaker Change: Now I'm, not making a big turn and then on the used vehicle side again, we still talked about single digit.
Speaker Change:
Speaker Change: Declines in pricing, so I wonder if you give them a little more color.
Speaker Change: I think it's the same across the three main product lines or it's pretty flattish and any adjustments that we've seen are just normal normal seasonality.
Speaker Change: When you look at full service lease.
Speaker Change: Customer sentiment has been the same generally speaking.
Speaker Change: Pipelines remain about the same as we've moved from.
Speaker Change: From quarter to quarter.
Speaker Change: There's still some concern out there from the customer base on.
Speaker Change:
Speaker Change: One what are you seeing from tariffs and uncertainty around then and then still uncertainty in the general economic environment, which.
Speaker Change: <unk> is still continuing to cause delays in decisions.
Speaker Change: In rental we saw.
Speaker Change: Just a normal seasonal uptick in the in the fourth quarter as we rolled in here to January we expected.
Speaker Change: <unk> demand to fall sequentially like.
Speaker Change: Like it always does seasonally and we saw a normal seasonal adjustment in that.
Speaker Change: Into Q1.
Speaker Change: And then similarly in used vehicle sales are pricing down a little bit, but generally speaking just kind of bouncing along the bottom.
Speaker Change: And as we rolled in here to January.
Speaker Change: You saw the same thing.
Speaker Change: And to a large extent, where we're forecasting that kind of flattish environment through through most of the year with a little bit of an uptick in the back half.
Speaker Change: How do you interpret the select care part of the portfolio slowing down to I think 1% growth in the quarter that one had me scratching my head a little bit because I would think if people are delaying decisions.
Speaker Change: They still need to maintain their vehicles right. So is this part of the paralysis.
Speaker Change: Yes, I think Jeff spoke about it on the I'm sorry, Tom spoke about it on the last call. But go ahead. Tom you can talk about what you're seeing there. Yeah. We were we were a 1% up full year, but in the in the fourth quarter. We were the revenue was up 3% year over year and that's despite <unk>.
What you're seeing in the fleet I've mentioned this before but.
Speaker Change: We had.
Speaker Change: But really two large fleets won a very large trailer fleet debt.
Speaker Change: Downsize from Q.
Speaker Change: Q3 into Q4.
Speaker Change: Very low to no impact to the financials as you can see and then certainly the rest of the the unit count loss was very low very low impact.
Speaker Change: Both the revenue and margin so.
Speaker Change: And as we look to 2025, we are expecting that select carrier fleet to grow in that mid single digit target range that we've put out there.
Speaker Change: Okay, great. Thank you so much that's my question.
Speaker Change: Thanks, Joe.
Speaker Change: We'll go next to Jordan <unk> with Goldman Sachs.
Speaker Change: Yeah, I just wanted to come back to the to the revenue for a second and when you think it had in 2025 sort of the expectations because if you sort of.
Speaker Change: Yeah, just look at supply chain and dedicated wood.
Speaker Change: Would not imply much growth in those two segments is that based on your pipeline visibility now and can that prove out to be conservative I know you alluded to that much help from the freight markets, but you know what could get more growth there and then just.
Speaker Change: Along those lines, which has the bigger drag do you think going into the year is a dedicated or supply chain.
Speaker Change: I'll just say look I think this is the most important thing is the secular trends that we see around outsourcing and each of our businesses are still solid.
Speaker Change: What we're seeing is the impact of the freight market slowdown thats hurting lease starting dedicated and to a certain extent hurting some of supply chain and then also the uncertainty in the economic environment.
Speaker Change: Just gives customers pause before they signed a long term contract, which is what all these businesses are but John why don't you give him a little bit more colors, how we see that yeah, Jordan just picking up on dedicated first.
You heard from Tom earlier about what he's seeing in lease that spills over with fleet.
Speaker Change: Into our dedicated business as well.
Speaker Change: <unk> seen kind of a sideways market and we haven't seen much sales activity here as we navigate the bottom of the cycle so that I.
Speaker Change: That will continue for us both on dedicated and supply chain. The lead times are generally about six to nine months. So once the market starts picking up then you would see kind of our contractual growths in both dedicated and supply chain to start picking up as far as the health of the pipeline the pipelines are.
Speaker Change: <unk> up.
Speaker Change: And one that we're we're pretty excited about I think people are just waiting for decisions to be made as they look at the policy uncertainty with the administration of tariffs.
Speaker Change: In particular, but.
Speaker Change: But we do expect as we get to the latter part of the year, we're going to see some movement in and sales activities and sales wins as we close out the year.
Speaker Change: Thanks, and just just sort of along those lines I guess to make sure I understand on the supply chain side.
Speaker Change: In terms of the pipeline are you seeing any shifts in demands from a vertical demand perspective, like maybe industrial picking up auto I'm, just sort of curious within supply chain, where the most interest expense. Thanks.
Speaker Change: Sure let me see.
Speaker Change: Steve is on the line sensors, you want to take that.
Yep sure will Jordan, Yeah, I think as you look at the pipeline as John said, where we're slightly up here year over year in the in the quarter, we've seen a nice uptick in industrial.
Speaker Change: Around 25%, there tech and health similar retail is up.
Speaker Change: And also in our transactional business. So I'd say, it's spread across the majority of those not seeing a huge uptick in automotive at this point.
Speaker Change: But all in all I think we're in pretty good shape.
Speaker Change: Thanks, so much.
Jordan: Thanks Jordan.
Speaker Change: We will take our next question from Daniel <unk> with Stephens.
Speaker Change: Hey, good morning, guys. Thanks for taking my questions.
Speaker Change: Maybe to follow up on the dedicated revenue kind of outlook. I think you mentioned were flattish here in the quarter as navigate the down cycle, but the dedicated revenue per truck decelerated a bit sequentially. It actually decelerated a little more.
Speaker Change: Other dedicated carriers did so can you talk about why that revenue per truck is flowing at the macro feels like it's at least stable and then understanding that the pipeline is growing.
Speaker Change: Curious, how we think about revenue per truck per week. If you think about 25 got it and what that margin recovery it looks like within DDS. Thanks.
Speaker Change: Yeah, I mean, I don't I don't have the exact numbers around that versus the the market but.
Speaker Change: It really has to do with sequentially seasonal slowdowns in the fourth quarter.
Speaker Change: And also it's the mix of customer base that we have where we have customized dedicated transportation. So these are not your typical drive answer depending on what's going on in those industries youre going to have some adjustments to our revenue in the quarter. So that I mean, that's the only explanation I could I could think of for that Jonathan does anything else yes.
Speaker Change: What youre looking at there is looking at gross revenue.
Speaker Change: As a as a factor to our unit count, but if you look at our operating revenue that normalizes for what's happening with fuel prices.
Speaker Change: Debt indicators actually performing quite well and sequentially was.
Speaker Change: Kind of in line with what we would expect.
Speaker Change: Yes.
Speaker Change: Got it and on the margin recovery that the religious pricing is the biggest lever to get us back towards that historical kind of target range.
Speaker Change: Yes, it's really finishing the integration of of our Cardinal acquisition.
Speaker Change: So we feel really good about the progress we've made so far and have good line of sight in 2025. So that is one of the I would say one of the meaningful drivers to our earnings growth Tory story in 2025 in which we.
Speaker Change: That would get us.
Speaker Change: Dedicated.
Speaker Change: <unk> as a percent of revenue back to our target level.
Speaker Change: Of high single digits.
Speaker Change: Right.
Speaker Change: Thanks for all the color. Thank you.
Speaker Change: Thank you.
Speaker Change: We will go next to Harrison Bauer with Susquehanna.
Harrison Bauer: Great. Thanks for taking my question, just coming out of sort of bigger picture with regards to tariffs and U S. Trade policy, how is that impacting your business. So far and maybe you can discuss kind of the more explicit cross border effect that you might have with some of your business in Canada, and Mexico, and then broadly how might like euro.
Harrison Bauer: C S or other businesses be indirect indirectly affected by some of this tariff and trade policy. Thank you.
Speaker Change: Okay. Thanks, Harrison well first of all right now the only effect that I see right now is primarily around just creating uncertainty which creates some headwinds for customers, who we want to sign long term contracts, whether they be three year six seven year contracts for our contractual businesses. So that is clearly critical.
Harrison Bauer: Some additional uncertainty.
Speaker Change: So further on.
Speaker Change: As it relates to additional tariffs that may or may not be put in place here I guess, the first thing I would tell you that 93% of our revenues are in the United States in the U S. So we're primarily U S and we also have operations in Mexico and Canada.
Speaker Change: There's been a lot of uncertainty around the timing and the final policy with any tariffs that would be implemented as part of the North America.
Speaker Change: S MCA agreement.
Speaker Change: Adjustments, but I guess, one thing that we do feel pretty confident is our ability to certainly as it relates to trucks to pass those through.
Speaker Change: To our customers.
Speaker Change: Both contractually and historically, we've been able to do that.
Speaker Change: And then I think as a leader in transportation and supply chain services, we're really well positioned to help our customers navigate through some additional I would say uncertainty and need for resilience and flexibility. So we feel good about that so I guess near term trading sort of uncertainty which could really.
Speaker Change: Just slow things down on the sales side.
Speaker Change: And there's just really hard to tell in terms of what the that the terrorists if any will be between U S, Mexico, and Canada, and what the impact of that could be.
Speaker Change: Thanks, and maybe a quick follow up actually on dedicated are you still seeing some pressure from smaller fleets may be undercutting.
Speaker Change: On pricing and what kind of sort of contractual rate pricing from truckload rates do you need to see to maybe get shippers to convert can your platform as the year progresses.
Speaker Change: Yeah, I'll, let I'll, let Steve give you a little more color there, but but generally what's happening is when when spot rates are so low.
Speaker Change: Where companies maybe have added some dedicated.
Speaker Change: Fleet in order to move their products are in times, where there wasn't a whole lot of capacity during COVID-19 on the on the truckload side, we're seeing on the margin those moving some of those moving back but.
Speaker Change: But Steve you want to give them a little bit of color on where you think that could turn.
Steve Sensing: Yes, I think it's similar to where you know as Tom was saying, we continue to bounce on the bottom as far as the spot rate and we're starting to see some tightening on the contract rates, which is a positive side.
So is as those customers now in the past really traded service for cost.
Steve Sensing: With those secular trends are the driver tightening market coming back freight market coming back we expect that the yield as Robert said in his prepared remarks.
Steve Sensing: Opportunities for growth in dedicated.
Steve Sensing: I guess, what I would add at Harrison too is what helps US. There also is the majority of our customers are customized type dedicated so not as easy to transfer all of that freight to truckload. There is some that's the stuff we're seeing.
Steve Sensing: On the margin roll off.
Great. Thanks for the color.
Christine Mccarthy: We'll go next to Christine Mccarthy with Morgan Stanley.
Christine Mccarthy: Thank God for my second question here.
Christine Mccarthy: One.
Christine Mccarthy: On bonus depreciation can you frame up a if there is any sort of policy change there what that could mean for Ryder.
Christine Mccarthy: Hey, Christopher Yep, Hi, Christine Yeah. So basically if there is a change there what we're expecting you know it depends on what it looks like and what comes out of it but a combination of the.
Christine Mccarthy: The bonus depreciation and interest deductibility could present us with an opportunity to lower cash taxes by about $200 million.
Christine Mccarthy: So it all it's going to depend on when it goes into effect and if its retro or perspective, but are closely monitoring that and I think that it'll benefit us from a cash tax perspective.
Christine Mccarthy: Appreciate it thank you.
Christine Mccarthy: Thank you Christie.
Robert Sanchez: At this time there are no further questions I'd like to turn the call back to Robert for any additional or closing remarks.
Robert Sanchez: Okay. Thank you all thanks for your interest in Ryder, we're really proud of the team's performance another strong quarter.
Robert Sanchez: During this extended downturn and it's our first quarter with year over year earnings that we expect to now become a.
Robert Sanchez: Trend as long as things continue the way that we are we are seeing them and.
Robert Sanchez: And I think it's another proof point of the resiliency and durability of our transformed business model. So excited about that and looking forward to seeing all of you as we get out on the road.
Speaker Change: This does conclude today's conference we thank you for your participation.
Robert Sanchez: Yeah.
Robert Sanchez: [music].
Robert Sanchez: Yes.
Robert Sanchez: [music].