Q2 2025 Ryder System Inc Earnings Call
Good morning and welcome to the writer system. Second quarter 2025 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 would now like to introduce Miss kaen kendala. Vice president, investor relations, for writer miss kendala. You may begin
Speaker Change: Thank you. Good morning and welcome to writer's second quarter 2025 earnings conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meeting of the private Securities, litigation Reform, Act of 1995,
Speaker Change: These statements are based on Management's, current expectations, and our subject to uncertainty and changes in circumstances.
Speaker Change: Actual results May differ materially from these expectations due to changes in economic business competitive market. Political and Regulatory factors
Speaker Change: More detailed information about these factors and a Reconciliation of each non-gaap Financial measure to the nearest Gap measure is contained in this morning's earnings release earnings, call presentation and in writer's filings with the Securities and Exchange Commission which are available on writer's website.
Robert Sanchez: Presenting on today's call are Robert Sanchez. Chairman and chief executive officer. John Diaz president and Chief Operating Officer and Christy Gallow aino Executive Vice President and Chief Financial Officer.
Robert Sanchez: Additionally, Tom Havens president of Fleet Management Solutions and Steve sensing president of Supply Chain Solutions, and dedicated Transportation Solutions are on the call today and available for questions following the presentation. At this time, I'll turn the call over to Robert.
Robert Sanchez: Good morning everyone and thanks for joining us.
Robert Sanchez: I'm proud of the writer team for delivering our third consecutive quarter of double digit earnings per share growth.
Robert Sanchez: Second quarter results, were above our expectations driven by outperformance in our supply chain segments.
Robert Sanchez: This benefit was partially, offset by increased used vehicle, wholesale, volumes to manage aged inventory levels.
Robert Sanchez: The business continues to outperform Prior Cycles driven by our resilient contractual portfolio, that reflects the actions. We've taken under our balanced growth strategy to de-risk, the business increase the return profile, and accelerate growth in our asset light supply chain, and dedicated businesses.
Robert Sanchez: I'll begin today's call by providing you a strategic update.
Speaker Change: Christy will then take you through our second quarter results, and John will review Capital expenditures and our increase in capital deployment capacity.
Speaker Change: I'll then review our updated outlook for 2025 and discuss how we expect to leverage the momentum of our transformed business model.
Speaker Change: Let's begin on slide 4.
Speaker Change: Turning this light for the structurally, higher earnings, profile of our transformed business model, and execution on our strategic initiatives, continue to drive earnings growth.
Speaker Change: We remain on track to realize the benefits from the Strategic initiatives, outlined during the February earnings call.
Speaker Change: These benefits are the key drivers of the year-over-year earnings growth. We are expecting
Speaker Change: The value that our Solutions bring to our customers remains compelling.
Speaker Change: We are also well positioned to benefit from increased industrial Manufacturing in the US as 93% of our revenue is generated here.
Speaker Change: We delivered return on Equity of 17% for the trailing 12-month period which is in line with our expectations during a freight cycle, downturn and continues to demonstrate the resilience of our transformed business model.
Speaker Change: Earnings growth from our High Performance Construction. Portfolio, reflects our value proposition, as well as our pricing discipline.
Speaker Change: Over 90% of our operating revenue is generated by multi-year contracts.
Speaker Change: We expect our transformed and cycled tested business model to continue to outperform Prior Cycles.
Speaker Change: In addition to increasing the return profile of our business. 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: Earlier this month, we announced a 12% annualized, increase to our quarterly dividend reflecting higher profitability and improved returns over the cycle.
Speaker Change: In 2025, we returned 330 million to shareholders by repurchasing, approximately 1.7 million shares and paying our dividend.
Speaker Change: Since 2021, we have repurchased approximately 21% of our shares outstanding and increase the quarterly dividend by 57%.
Speaker Change: We increase our 2025 forecast for free cash, flow by approximately 500 million.
Speaker Change: To a range of 900 million to a billion, due to lower expected, Capital spending, and the estimated cash flow benefit of approximately 200 million from the permanent reinstatement of tax bonus depreciation.
Speaker Change: Flight 5 illustrates how key financial and operating metrics have improved since 2018.
Speaker Change: 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 FMS.
Speaker Change: Ryder generated comparable earnings per share of 5.95 with an Roe of 13%.
Speaker Change: Operating cash flow was 1.7 billion.
Speaker Change: This was during Peak Freight cycle conditions.
Speaker Change: Now, let's look at what we're expecting from Rider today.
Speaker Change: In 20125, a year in which Freight market conditions, are expected to remain near. Trough levels are transformed business models expected to generate meaningfully higher earnings and returns than it did during the 2018 Peak
Speaker Change: To organic growth. Strategic Acquisitions and Innovative technology. We have shifted our Revenue. Mix towards supply chain and dedicated with 60% of 2025 Revenue expected to come from these asset life businesses compared to 44% in 2018,
Speaker Change: 2025 comparable earnings per share is expected to be between 1285 and 1330. More than double 2018 comparable earnings per share of 5.95.
Speaker Change: Roe is expected to be approximately 17%.
Speaker Change: Up from 13% generated during the 2018 cycle Peak.
Speaker Change: As a result of profitable growth in our contractual lease dedicated and supply chain businesses.
Speaker Change: Operating cash flow is expected to increase at 2.8 billion.
Speaker Change: Up approximately 65% from 2018.
Speaker Change: As shown here in 2025, the business is expected to continue to outperform Prior Cycles. Even when comparing the pre-transaction,
We're proud of the strong performance of our transform 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: I'll now turn the call over to Christie to review our second quarter performance.
Christie: Thanks, Robert total company results for the second quarter are on Page 6.
Christie: Operating revenue of 2.6 billion in the second quarter of 2% from prior year, primarily reflects contractual Revenue growth in SCS and FMS.
Christie: Comparable earnings per share from continuing operations where $3.32 in the second quarter up 11% from $3. In the prior year, the increase reflects higher, contractual earnings and share repurchases.
Christie: Earnings.
Christie: The Roe benefit from share repurchases was offset by used vehicle sales and rental performance.
Christie: Year-to-date free cash flow. Increased to 461 million from 71 million in the prior year reflecting lower working capital needs and reduced Capital expenditures.
Christie: The benefit in working capital, reflects lower tax payments and the timing of vendor payments.
Turning to Fleet Management results on page 7.
Christie: Fleet Management Solutions operating Revenue increased. 1% driven by choice lease Revenue which was up 2%.
Christie: Pre-tax earnings in Fleet Management were 126 million down year-over-year, reflecting weaker, Freight market conditions.
Higher Choice, Leaf performance driven by pricing and maintenance cost savings initiatives. Partially offset lower used vehicle sales results.
Christie: We continue to see progress on our pricing and maintenance costs initiatives and remain on track to achieve the benefits targeted for this year.
Used vehicle sales results in the second quarter were negatively impacted by the decisions. We made to exit out of some aged inventory, by utilizing our wholesale channels,
We do not plan on executing this level of wholesale trades going forward and given that we are not expecting any significant change to market conditions for the second half. We expect used vehicle sales results to be in line. With first quarter levels for the next 2 quarters.
Rental results for the quarter. Reflect market conditions that remain weak.
Christie: The sequential increase in rental demand for the quarter was in line with prior year and Below historical Trends as contemplated in our prior forecast.
Christie: Rental utilization on the power fleet was 70% up from 69% in the prior year, on an average active power. Fleet that was 7% smaller.
Christie: Although utilization remains below our target range of mid-70s year-over-year comparisons improved for the first time since the third quarter of 2022.
Christie: Rental power. Fleet pricing was up 4% year-over-year.
Page 8 highlights used vehicle sales results for the quarter.
year-over-year used tractor and truck pricing both declined, 17%
On a sequential basis. Pricing for tractors increased. 3% and pricing for trucks decreased 10%.
Christie: Pricing in the second quarter, reflects increased, wholesale volumes to manage aged inventory.
Christie: Approximately 50% of our sales volume went through retail sales channels, this quarter compared to 65% in the prior year.
Pricing in our retail sales Channel, increased sequentially with tractor, retail pricing up, 10% and truck. Retail pricing up 4%.
Christie: During the quarter, we sold 6,200, used vehicles, up sequentially, and versus prior year.
Christie: used vehicle inventory of 9600 Vehicles was slightly above our targeted, inventory range,
Christie: Use vehicle pricing remained above residual, value estimates used for depreciation purposes.
Christie: Slide 19 in the appendix provides historical sales proceeds, and current residual value estimates for used tractors and trucks for your information.
Christie: Although used vehicle sales results were negatively impacted by higher wholesale, volumes lower levels of aged inventory. Position us to increase our use of the retail sales Channel, where we realize higher pricing.
Christie: As such, we expect a higher retail sales mix in the balance of a year compared to current levels.
Christie: Turning to supply chain on page 9.
Operating Revenue increased 3%, driven by new business as well as higher customer volumes and pricing.
supply chain earnings increased 16% from prior year, reflecting operating Revenue, growth and improved performance from our initiative to optimize our Omni Channel retail Network
Christie: Supply chain EBT as a percent of operating Revenue was 9.7% in the quarter at the high end of the segment's, long-term Target of high single digits.
Operating Revenue decreased 3%, due to lower Fleet, count reflecting the prolonged Freight downturn.
Christie: Dedicated EBT increased 1%, year-over-year reflecting acquisition synergies and prior year, integration costs that were partially offset by lower operating Revenue.
Christie: DTS results continued to benefit from strong performance of our Legacy dedicated business. Reflecting pricing discipline as well as favorable market conditions for recruiting and retaining professional drivers.
Christie: Dedicated EBT as a percent of operating Revenue was 7.9% in the quarter at the segments, long term, High single-digit Target.
I'll now turn the call over to John to review Capital spending and capital deployment capacity.
Turning to slide 11.
Christie: A year to date lease Capital spending of 832 million was below prior year.
Christie: Reflecting delayed OEM deliveries in the prior year.
Christie: Rental Capital spending of 268 million was also below prior year levels.
Christie: A full year 2025. Lee spending is now expected to be 1.8 billion down 300 million from our prior forecast reflecting lower lease sales activity.
Lease spending is expected to be down 200 million from prior year, reflecting delayed OEM deliveries in 2024.
Christie: We expect the ending lease Fleet to remain fairly consistent with current Levels by year end.
Christie: Forecasted Rental Capital spending remains at approximately 300 million down from prior year.
Christie: Our ending rental Fleet is expected to decrease, 12% by year, end, and our average rental Fleet is expected to be down 5%.
Christie: The rental Fleet remains well below Peak levels as we manage through an extended Market downturn.
Christie: In rental, we've continued to shift Capital spending to trucks versus tractors.
As of the second quarter trucks represented, approximately 60% of our rental Fleet.
Christie: Our full year 2025 gross, Capital expenditures, forecast of approximately 2.3 billion is below prior year.
We expect approximately 500 million in proceeds from the sale of used vehicles in 2025.
Christie: And full year, 2025, net capital expenditures are expected to be approximately 1.8 billion.
Christie: Turning to page 12.
In addition to increasing the earnings and return profile of the business.
Christie: Our transformed contractual portfolio is also generating significant operating cash flow.
Christie: Improving the overall cash Generation profile of business is 1 of these essential elements of our balanced growth strategy.
Christie: Better earnings performance is driving higher cash flow generation. And in turn is de-levering. Our balance sheet at a more rapid pace.
Christie: This momentum is creating incremental debt capacity, given our Target leverage range of between 2 and a half and 3 times.
As shown on the slide, over a 3-year period. We now, expect to generate approximately 10 and a half billion.
Christie: From operating cash flow and used vehicle sales proceeds.
Christie: Our operating cash flow will benefit from the permanent reinstatement of tax bonus, depreciation and improving, contractual earnings.
This creates approximately 3 and a half billion of incremental deck capacity resulting in 14 billion available for Capital deployment.
over the same 3-year period, we estimate approximately 9 billion will be deployed for the replacement of lease and rental vehicles and for dividends
Leaving around 5 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 purchases.
Christie: And strategic Acquisitions and Investments.
Our Capital allocation priorities remain unchanged and our focused on supporting our strategy to drive long-term profitable growth and return Capital to shareholders.
Christie: Our top priorities to invest in organic growth.
We've taken a balanced approach to investing and since 2021 have invested approximately 1.1 billion in strategic m&a, and have deployed approximately 1.1 billion for discretionary share repurchases, reducing our share, count by 21%.
Christie: 251% at quarter end.
At the low 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 Outlook.
Robert Sanchez: Turning to our outlook on page 13.
Our full year, 2025 comparable, EPS forecast is updated to a range of 1285 to 1330 above prior year of 12 as higher control earnings, and the benefits from our strategic initiatives. More than offset, the impact from market conditions, in rental and used vehicle sales.
Robert Sanchez: Our updated forecasts continues to reflect contractual earnings growth with a more muted second half recovery and used vehicle sales.
Robert Sanchez: All those sales pipelines, remain strong, the prolonged Freight downturn, and economic uncertainty continue to cause some customers and Prospects in lease and dedicated to delay decisions.
Robert Sanchez: These near-term contractual sales. Headwinds are consistent with current market conditions. We are however, encouraged by robust sales and pipeline activity in SCS.
Our 2025 Roe forecast is revised to 17% from a range of 16 1/2 to 17 and 1/2%.
Robert Sanchez: The revised forecast remains in line with our expectations given current market conditions.
Robert Sanchez: As mentioned earlier, we increase our free cash flow forecasts by 500 million to a range of 900 million to a billion to reflect lower Capital expenditures and the permanent reinstatement of tax bonus depreciation.
Robert Sanchez: Our third quarter comparable, EPS forecast range is 345 to 365 versus a prior year of 344.
Robert Sanchez: Turning to page 14.
Robert Sanchez: The key driver of expected earnings growth in 2025, is incremental benefits from multi-year strategic initiatives that are well, underway and related to our contractual lease dedicated and supply chain businesses.
We have good visibility to these initiatives. They represent structural changes that we're making to the business and are not dependent on a cycle. Upturn.
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 20s over the cycle.
Robert Sanchez: In FMS, we expect to realize an incremental annual benefit of approximately 20 million in 2025 from our lease pricing initiative.
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 in benefits over multiple years from our maintenance cost savings initiative announced in mid 2024,
Robert Sanchez: In DTS.
Robert Sanchez: We expect to realize 40 to 60 million in annual synergies from the Cardinal, acquisition at full implementation.
Robert Sanchez: The majority of these synergies are related to maintenance efficiencies and replacing third-party, operating leases with the benefits from Rider ownership and asset management.
In SCS we are focused on optimizing. Our Omni Channel retail Warehouse Network, through continuous improvements, driving operational, efficiencies and better aligning our footprint, with the demand environment,
Since the second half of 2024, we have seen improved productivity in this vertical as a result of these actions and expect incremental benefits throughout 2025.
By year, end 2025, we expect to realize approximately 100 million from these initiatives. Benefiting all 3 business segments,
Robert Sanchez: Approximately 70 million of. These benefits are incremental to 2024.
Robert Sanchez: In addition to continuing to increase the return profile of our contractual businesses. We are also focused on ensuring the business is well positioned to benefit from the eventual cycle. Upturn,
Robert Sanchez: as such we expect an annual pre-tax earnings benefit of approximately 200 million by the next cycle, Peak, and expect to begin to realize these benefits during the upturn,
Robert Sanchez: Although over 90% of our operating revenue is supported by long-term contracts that generate relatively stable and predictable operating cash flows over the cycle.
Each business segment has meaningful opportunities to benefit from the cycle, upturn?
Robert Sanchez: Dedicated improved driver availability and lower recruiting, and turnover costs are benefiting earnings but have been a headwind to new sales and revenue growth.
Robert Sanchez: As Freight capacity Titans 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: in supply chain muted volumes in our Omni Channel retail vertical have been a headwind to revenue and earnings
Robert Sanchez: We expect supply chain results to benefit as volumes from these Services recover and are optimized Warehouse footprint is leveraged.
We've been pleased by the business's resilience and performance during the prolonged Freight Market, downturn, and our confident. Each of our business segments is appropriately positioned to benefit from the cycle, upturn.
Robert Sanchez: Turning to page 15.
Robert Sanchez: Our transform business model continues to deliver value to our customers and our shareholders. We continue to outperform Prior cycles and our results are benefiting from consistent execution and the strength of our contractual portfolio.
Robert Sanchez: We continue to see significant opportunities for profitable growth supported by secular trends.
Robert Sanchez: Our operational expertise and ongoing momentum from multi-year, strategic initiatives.
Robert Sanchez: We remain committed to investing in products capabilities and technologies that will deliver value to our customers and our shareholders.
That concludes our prepared remarks, please note that we expect to file our 10q later today.
Speaker Change: At this time, I'll turn it over to the operator to open the call for questions.
Speaker Change: Thank you. And if you would like to ask a question, please signal by pressing star 1 on your telephone keypad, if you are using a speaker-phone, make sure you're a mute function, is turned off to allow your signal to reach our equipment.
Speaker Change: Again, press star 1 to ask a question.
And we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Speaker Change: Well now, take our first question from Ravi Shanker with Morgan Stanley.
Ravi Shanker: Uh, great thanks. Uh, good morning everyone. Uh, so, uh, great to see the dry powder on the balance sheet. Here, are you confident kind of, of of deploying that now? Or do you think you need to wait for the upcycle and maybe a little more clarity before we decide where we're there?
Ravi Shanker: Uh, hey Robbie. Yeah I look I think um
Robbie: Obviously, we feel really good about the dry powder. We've got, uh, repurchase programs in place already.
Uh, we are always looking for acquisition opportunities.
And uh and then obviously, as we get into the freight upcycle, we're going to be investing organically in vehicles not only for lease but for rentals. So we feel really good about where we're at. We think we've got a great balance as you saw in that page that John took us through. And uh, I really feel, we've got, uh, the the dry powder we need to do all of the things that we want to do uh, across each of those areas.
Speaker Change: Great. Thank you. Uh, if I can squeeze for quick follow up here, uh, noted on the retail versus wholesale mix in the back half. Uh, but how are you thinking about the different scenarios on residue, your truck values in the back off of the yard is given the uncertainty around the cycle.
Speaker Change: What we're thinking about on the pricing?
Speaker Change: Yes. Correct.
Yeah. Look, um, as we look at the back half, but we've seen and what probably many of you have seen is that tractor pricing has begun to move up.
Speaker Change: Um, our tractor pricing is as we showed even with the additional wholesaling activity. We did was still up 3%, if you look at retail only it was up 10%. So we would expect that Trend to continue. Uh, we did bring down the top end of our guidance primarily because we don't expect the the increase to be as significant as we originally did. So more muted increase but we would expect a steady, uh, increase especially in the fourth quarter as we get into the fourth quarter in terms of tracking. But we're very encouraged by what we're seeing uh in the used tractor Market.
Speaker Change: Very good. 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 2. We'll now take our next question. From Scott group with Wolfe research.
We've seen it, you know, in Flex so quickly in the past and then just maybe if that's alright though that we get this uplift from 20 cents or so of of of games, we typically see just the core earnings get a little bit better Q2 to Q3. So are there other offsets to think about in, in the, in the guide for Q3
Speaker Change: yeah, I think um, the
The reason we went to a loss was was really driven by the fact that we had this incremental wholesaling activity of aged inventory. We talked about it on the last call. We said we were going to do it. We did we actually did a little more than we had originally expected so that probably cost us about 10 million dollars in the quarter. Uh, there was about a thousand uh, units that we did there incremental to what we had done in the first quarter. So, uh, that's really why we know it's going forward. We still have some wholesaling to do, but we don't expect to do, uh, anywhere near that magnitude of it. And that's what would get us back to more of the gains levels that you saw in, in q1.
Speaker Change: Yeah, I don't, I don't know if you had other thoughts on like the the other part of the question. Just about, you know, if we get that
Speaker Change: 10 million or whatever uplift in in in used. Um, are there other offsets to think about in in the guidance?
Speaker Change: For Q3 know, I think we're expecting. If you if you think about towards the high end of our, our guidance, we said at the beginning of the year, we had about 70 million in, uh, earnings improvement from initiatives that comes out to like a buck 20.
Speaker Change: So we were at 12 bucks last year with the the initiatives that we have.
The that gets us to 1320, I guess it's pretty close to the high end. The the the incremental earnings are really coming from the contractual parts of the business. More than offsetting some incremental challenges that we have in rental and used vehicle sales, right? We we lowered our range uh, last quarter because of rental.
Speaker Change: Uh, we started a little bit and this year this quarter we're lowering a little bit because it used vehicle sales, so those transactional parts just haven't really come back. As you know, the market hasn't come back with all the uncertainty. Uh, I think this quarter is a little less uncertainty than there was a quarter ago, and hopefully next quarter, there's a little less uncertainty than this quarter and things continue to improve. Uh, but those are really it. I, I would tell the only other head 1 is just obviously contractual sales contractual sales with the uncertainty has been more muted, especially in our lease and dedicated businesses
So we need that business. We need customers to get to the point where they they're making decisions and we get that those sales back on track because that will create that does create some uh you know headwind in terms of of the growth of earnings uh as well as that comes back. We are pleased though. We have seen a pickup in uh sales on the on the supply chain side, got some larger customers that are making decisions, and we're very pleased with uh, what's going on there. But we haven't seen that yet on the dedicated and uh, leasing side
Speaker Change: And maybe just if I could ask 1 more just to that point, like I I get the cash flow benefit to you from the bill, but how do you think it changes customer behavior? Is there more buying instead of Leasing and did a risk to you? Is it, are you seeing because of the cash flow benefit? Maybe our our is there, is there any sort of reason why leasing activity would pick up? Just any any thoughts there?
Speaker Change: I I think historically, when you've seen, I feel like we've had bonus depreciation for a long time, but you go way back, when bonus appreciation would get turned on and off.
Speaker Change: Typically you would see an increase in overall business spending and that is good for us because that means there's more activity. In the marketplace, we get more, uh, opportunities to pitch our leases and, and our services. So yes, it does provide a free cash flow benefit for us going forward for at least for the next several years.
Speaker Change: But it also more importantly, stimulates the economy and gets our customers to feel better about making Investments, whether it's, uh, you know, buying additional equipment or Leasing and signing contracts for additional equipment.
Speaker Change: Thank you guys.
Speaker Change: Thanks Scott.
We'll now take our next question, from David Sula with Barkley's.
David Sula: Hey, thanks for having me on.
Speaker Change: Uh, I just we've talked a little bit about the, the 3 key portions of the guide, um, you know, given 3Q, and full year, we can back into what is going on in 42. Let me talk earlier assumptions on what you're expecting in 42, uh, you know, from
Speaker Change: So, so if you, if you look at the range of the guide on the on the top end of the range, um, it's primarily we're expecting, um, historical sequential Trends in rental.
Speaker Change: And then on the used vehicle side, we're expecting some increase or kind of flattish in in Q3 and then some increase mild, increase modest increase if you will use vehicle pricing in Q4.
On the low end of the range. However, we're expecting flat rental with no seasonal pickup and actually, continued decline declines in used vehicle pricing in Q3 and Q4. Um, so that gives you kind of an idea of the the goalposts that we've got out there, uh, in terms of what, what could happen the contractual businesses is, you know, more consistent. We're expecting that to continue to, to perform the way it it has been. And then obviously we we expect to continue to execute well on our uh on our initiatives. And we're we're certainly on track with achieving the the 70 million that we originally uh, targeted.
Thanks. And if I could just ask about, you know, OEM delays and some of the drivers behind the capex change, uh, are those things that you're expecting to kind of reverse in 2026?
Uh and yeah early do you expect an environment that would you know warrant uh increase Capital spending on your part in 206?
Speaker Change: Yeah, look I think the tax bill is certainly going to be helpful. Uh we need to Freight Market to finish correcting. Uh, I keep saying we're closer to the end of the beginning. I I still think we're way closer to the end in the beginning. After 3 years of this, uh, we are seeing an early sign just with what's happening with used tractor pricing. Uh, we're still seeing rental, those soft, uh, and kind of flattish.
Speaker Change: Uh and then we're the least miles per unit or kind of bumping along, you know, flattish too. So we still haven't seen the big pickup. I think there's there's still certainly lingering uncertainty around um, tariffs.
And hopefully, that gets resolved here in the next month or so, uh, mostly resolved and then, um, and then it's a matter of that Freight Market rebalancing and, and we're, we're Back Off to the Races. So, yeah, that could turn around. Certainly, uh, next year the capex, um,
Speaker Change: uh,
Speaker Change: Klein is primarily just not having the lease uh, and Rental capex that we would normally see as we start building the business back up. So yes, some of that just, you should start to see that, come back in 2026.
Speaker Change: Thanks so much.
Speaker Change: We'll now take our next question from Harrison Bower with Cisco, Hannah.
Great, thank you for taking my questions. Uh, maybe could you walk us through about how you're thinking about the margin Cadence, in the back, half of the year really across your different, uh, segments and for FMS maybe on an X game basis?
And then, as you take a step back, considering all your segments, margins, you know, including FMS X games are at or approaching their long-term, guys, in 2026 as you pivot to growth more. Do you think there might be some margin pressure? That comes with that.
Let me let me hand it over to Chris. As you can, give you a little color around the margin expectations. Uh and then we can talk about what what uh would happen as we start to grow.
Chris: Yeah, so on the high Harrison on the, on the margin side for the FMS business, we are expecting Q3 and Q4 to have growth um, in in those uh, periods also, because we're catching the tail on some of the deterioration that we saw last year from from rental, and now, with rental stabilizing, that should get better. But regardless of that, we're obviously benefiting from the initiative in FMS related to, uh, pricing and maintenance. So that is continuing to provide benefit in our, in our margins, for those periods on the supply chain side. Um, it's more of the same of what
You've seen, you know, we've we've had good uh growth there as well as our initiative around the Omni Channel retail Network. So we are also expecting uh margin growth in in those periods.
Speaker Change: I think you mentioned that the the segments Are all uh, at or near their target margins. Yeah. And you look at supply chain and dedicated are at their target. Margins FMS is not at the Target margins right now. They're they're at the high single digits, uh, low double digits. We want them to be in the low teens and that's going to be it's going to get to the low teens as as we start to see the market recover, as you start to get rental and used vehicle sales really contributing. That's how uh you start to see that come back. So hopefully that's happening already next year and we start to see that Improvement uh but that's really the missing piece if you will to the puzzle. The only other thing I would add to what Christie said is on the supply chain side. Um you will you as we go into the second half of the year, they've really been on a tear in terms of the growth and the and the consecutive quarters of earnings growth. We're going to expect we expect to see that in in 3 or 4. However you do catch the tail of some of the earnings Improvement that we had last year.
And then you also could have some, we we've got a lot of new business that has been signed, and you could have some lumpiness around when that starts to come in. But as we get into the fourth quarter, we expect to really start to see growth on the top line. Accelerate. And then the bottom line also begin to grow
Speaker Change: Great, thanks for all that color. And then maybe just a, you know, a quick follow-up on your trucks, your truck and tractor mix um as Ron alluded to in the rental business. But maybe could you update us on the differences? You're seeing um in demand in your lease and Rental um on tractors versus trucks. Thank you.
Speaker Change: Let me hand that over to Tom so I can I'll start with I'll start with lease. I know you can you can see that we've had some headwinds on the lease Fleet growth uh year-over-year. But when you um, strip that out and look at the different classes trucks are actually up year-over-year about 2,000 units.
Speaker Change: And the, uh, business headwinds are in the tractor trailer classes, which is where you might expect it to be with, um, you know, the transport challenges that we're we're seeing in the market, in general.
Speaker Change: Um so I think that's a, you know, generally good trend from a a truck perspective. Um and we expect tractor trailers to come back at at some point as, as Robert's mentioned, as the market improves.
Speaker Change: Uh, on rental, I think, John hid it in. His, in his opening comments, we have continued to invest in the truck fleets and it said sits at about 60% of the, uh,
Speaker Change: Uh, of the rental Fleet today. Um, we expect that to continue through through this year. Um, as the market does improve, I would expect that we would invest in some tractors, uh, in the rental Fleet, uh, probably in 2026 but we'll wait to see. Um, as the market improves before we before we do that and grow that tractor Fleet again.
Speaker Change: Thank you.
Speaker Change: We'll now take our next question.
Speaker Change: Gordon Olinger with Goldman Sachs.
Gordon Olinger: Yeah. Hi, I'm just sort of curious on on the used truck markets. Um, it's great. Um, you know, we're seeing the sequential increase you indicated. You expect that Trend to continue what underpins that is it is it more a function of new truck prices or higher orders are down. But people still need high quality trucks, or is it a function? Perhaps of maybe Supply getting a little firmer in the overall Trucking Market?
Speaker Change: Yeah, I I think that it's it's probably all of those things that you mentioned. Um, you know, we are getting to a point where, um, uh, this this Freight recession has been going on for a while and you're starting to see, you know, some, some other people I guess, uh, that are looking to replace vehicles that they have used vehicles and and the vehicles that that we have are are attracted to that. I don't know. Tom, if you want to give them the, the only thing I I might add is
You, you look at the sleeper classes in particular, is where you're seeing the most price uplift in, in used vehicle sales. And I think our inventory, um, probably mirrors the overall, General inventory of used vehicles. Um, our sleeper inventory is is actually relatively low.
Um, and I think that's what's, what's driving the the pricing. So it's, I think an indication that you're getting closer to equilibrium at least, on, on that class. Um, hopefully, the others will follow soon.
And these are, I mean these are high quality vehicles that are really the pricey. If you look at the Historical charts that we have, they're they've come down to pretty low levels. And that's where, you know, you start to see, uh, some folks coming in to replace units.
Speaker Change: and and then just as a follow,
Speaker Change: Growth being uh, operating Revenue growth below Target.
Speaker Change: Um, I mean, is that how it should work? Like, going forward? Um, you know, what? Underpins the strength in the margins despite perhaps the less than optimal Revenue growth?
Speaker Change: Yeah. Look I think it's it's an indication of the of the
The value prop of the work that we do in supply chain, but let me let me hit it over to Steve, so give a little more calling. Yeah, Jordan. I think, you know, first of all, I want to thank the team focusing on the business and, and our customers. Um, you know, there's 3 or 4 things that we've been focused on you remember, a few years ago, we focused on investing in our startup Effectiveness teams. Uh, we continue to do that. So as Robert said, as we bring on new business, we've got the right approach and, and execution on that teams also focused on continuous Improvement in the business.
Uh we've been very disciplined, I think on the uh you know overhead structure and our pricing on new contracts. And uh you know I think of diversification of the port the door capabilities and service offerings is is attractive to our customers. So uh you know as Robert said we're off to a good start. Uh, we should expect in as we execute 4 uh to be in that mid single digit range.
Speaker Change: Thank you. Yeah. The only other answer to that is that, as you as we get through this uncertainty, I think what was really holding up decisions in supply chain has been the uncertainty because it's not all just tied to the Freight Market and and uh, we're starting to see some of that loosen up now. But we're really encouraged about the opportunities to continue to grow that business especially as if you start to see more industrial manufacturing pick up in the US and more industrial manufacturing come to the US. I think we're really well positioned to uh to play in that space.
Thanks.
Speaker Change: Well, now, take our next question from Jeff Kaufmann with vertical research partners.
And hey everybody. Congratulations.
Um take a picture thought, question on on maintenance. Uh, you know, some years ago we thought Outsource maintenance was a strategic growth weapon. It it's been kind of stagnant for the last few years. You know, we can blame the environment and explain the complete, you know, maybe some of it has to do with the mix where you're focusing more on trucks versus tractors. But I just kind of wanted to think about maintenance because in, in theory, and in environment, like this, with nobody's buying trucks, maintenance should become really important in a lot of fleets are complaining to me. That their maintenance costs are are rising. Um, what's going on with maintenance? I mean, why hasn't it grown the last couple years is, is it a strategic decision? Is it a customer?
Speaker Change: Decision. Is it a mixed decision? And and where do we think the outlook for maintenance? Uh, Outsource maintenance is in the long run.
Speaker Change: Yeah, I I'll let Tom give you more of an answer there, but I'll tell you that we have, we haven't given up on it. I mean, we've got a an initiative, uh, around mobile maintenance that we're trying to grow, uh, with our Torq product where we're going out and doing retail mobile maintenance. I think the, the, the real opportunity may be there, uh, is is retail as opposed to these contractual
Speaker Change: Uh multi-year agreements uh for um kind of a guaranteed maintenance. We're finding as customers that don't want to do full service lease, many of them just want to do retail maintenance. They want to pay by the drink and they want to pay uh retail so that type along with the mobile service, seems to really have some good prospects. So we're we're focused on try on getting that.
Speaker Change: Uh uh Initiative off the ground and really getting growing it. Uh but no, we haven't given up. And by the way, any of those customers that you run into are having trouble with maintenance, make sure you send them all away. So let me give that over time. Yeah. Let me just make, let me make a a couple more comments on on torque and I I think Robert's right there's
um, we haven't had that product uh, historically uh in the past where it's a straight um kind of retail paid by the drink um, and pay as you go a product, our traditional, uh, maintenance offering is contractual and
Speaker Change: We do think that there's a good, um, market for that, um, out there today, uh, as you as you mentioned, Jeff.
um, but
Uh, because it's a new business for us. It's still a startup for us. I would call it. Um, the, the revenue is up about 75% year-over-year, which is good growth, but, you know, not meaningful for us yet.
Speaker Change: Um, but we're, we're certainly continue to invest in that. Uh, we've got about 200 texts doing that today, and we're expecting to grow that quite a bit. Um, we're looking in that space.
Speaker Change: um,
Speaker Change: and then on our our traditional, uh, Select Care Fleet. Um, you know, I know it's down quite a bit year over year, we've talked about that. Um, and previous earnings calls as to why that happened but sequentially here. We've seen um, some growth in that Fleet,
Speaker Change: Um, you can uh, you can see that in the numbers, our revenues up, our margins are up in in select here so we certainly have an abandoned it. And um, we expect growth in that Select Care Fleet for the balance of years as well. So I think that along with what we're doing with torque, um, we're trying to grow in that, um, maintenance space as you as you mentioned.
And just kind of following up on that and thank you. Um if I think about some of the projects you have going on in Rider Ventures, um what's going on there? And is this excess free cash flow and opportunity to to come in to markets that may be weak and and maybe look for strategic opportunities.
Speaker Change: Yeah, we uh remember if if you step back um, first of all, I want to buy companies that are well-run.
Uh, we're not looking for turnaround situations and we want to buy companies that are certainly within, uh, you know, our core businesses. So we're in the market always, you know, we did a several of them over the last few years. We did ifs and and Cardinal last year uh well we want to we're looking for the right ones. So we have P. We're patient.
We've got plenty of dry powder now to do them.
And we're going to, we're going to continue to look to we to we find the right ones around around right or Ventures. That's been more an Avenue for us to see what technology is coming to Market. That could help our customers. You know what technology is coming to Market that we may want to acquire as we did with with baton. But yeah, I don't see that being a huge draw of capital for US unless we find, you know, again the right acquisition candidates uh, of, uh, for us,
Speaker Change: Okay, that's my question. Thank you.
Jeff: Thanks Jeff.
Speaker Change: Well, now move to our next caller. Who is Brian Austin back with JP Morgan?
Hey, good morning. Thanks for taking the questions.
uh, so just on the
Residual slide. I know you talked about tractors starting to pick back up and you can kind of see that inflection going to the midpoint and then out of the range, but it looks like truck is getting closer. I don't know if that's anything you would expect to, uh, cross that line. You know, could you just give us an updated terms of what you do think? And, uh, what might happen if you if there are any actions, you sort of have to take, if you cross that, um, obviously, we, we watch these closely, but we haven't really seen the truck 1. Uh, come down to that level just yet.
Speaker Change: Yeah, so just as a reminder Brian uh the the this quarter's numbers and those end points of those lines include all the extra wholesaling that we did in the quarter. So uh that's why it's gone to where it is. I without that it would be it would be up certainly higher than it is now, but I'll let Kristy give you a little more color on that.
Yes, hi Brian. So basically on the trucks, what you're seeing there is the impact of the Aged inventory which was primarily in the truck space. Uh that is where we took those those actions. Uh so what you're seeing here is you know the trucks regardless uh
Speaker Change: If you look at retail activity, did have a sequential price increase. Uh, so as Robert had mentioned earlier we're we're still um,
Speaker Change: You know, happy to see that the retail pricing is is holding and and improving slightly. So with that said, on your question, you know, any anything that's happening in the market right now, is really, just as a result of this prolonged trade environment. And we wouldn't think that that would be something that would be an extent, you know, for an extended period of time. So there would be no impact or clearly, not a material impact, on our results. If, if that were to continue. So we're not concerned our residuals are, uh,
A reasonable at this time and and we don't have any concerns on that end.
Speaker Change: and Christy, even if it were to go,
Lower for whatever reason. Like it doesn't trigger anything, right? Like we've, we've seen the tractor go in that range before. Um but I don't know on the truck side if we were to go below that line, it doesn't really trigger anything. If that's my understanding is correct in terms of like adjustments sort of things you need to do.
Speaker Change: Is that correct?
Speaker Change: Lowest levels. We've seen in over 25 years and every time that that has hit these levels, we've seen a rebound. So we don't believe that this is, you know, permanent or longer term, and by any means, I mean Brian, this really highlights the benefit of having broader residuals down to where we have both from a pricing standpoint, and an accounting standpoint. Because uh, even in these low in these, uh, trough level uh, market conditions. We're still not at a point where we're, you know, uh, having to, to do anything else around uh, residual values. We feel that really comfortable with where they're at.
Speaker Change: understood, I just 1 quick follow up on the
Speaker Change: Bonus depreciation for uh, for Rider. Is that of is it the benefit for for this year? But does that
Speaker Change: Structurally improve the the free cash flow conversion. Um going forward is this is all just more of a catch-up that you're seeing now, I would assume it's it is permanent but just to clarify that
Yeah, Christie. Yes that's correct. We do expect it to continue to have that cash benefit for the next several years.
Okay. Thanks very much. Appreciate it.
Speaker Change: All right. Thanks Brian.
Well now, take our next question. From Daniel imbro with Steven zinc.
Yeah, thanks. Thanks for giving me guys and good morning.
Daniel Imbro: At the end of your prepared, remarks, you talked a little bit about the contractual sales, delays. I think in the dedicated side as well, I guess I'm curious did. Did those did that improve at all through the second quarter? I would have thought we started to queue at maybe Peak uncertainty and maybe that would have caused the delays, but it feels like we've gotten some more business certainty since then. So have you seen any of those initially delayed kind of dedicated contracts come back as the pace of delays gotten worse, just just what kind of happening as we look forward in the back half of the year and what are you assuming for conversions in the back half of the year on that side? Given the slower kind of business there.
Daniel Imbro: Yeah, you know, uh, to be honest, we have not seen it, we didn't see it improved, we, we did see the Improvement.
Daniel Imbro: In the change. Now, our supply chain customers are more the larger.
Daniel Imbro: call it the Fortune 500 type companies and we did see more decision making uh in that uh segment but around a smaller uh and mid-size customers that are most of our dedicated supply chain customers, still seeing more hesitation um that could change quickly if
Daniel Imbro: You start to, to get more clarity. Uh, again I think with the building pass you get that that helped clarify some, uh, but we still have I think a lot of uncertainty tied to still some of the tariffs. And I think once we get clarity on that, I I would expect we would begin to see
Daniel Imbro: some more decision making and start to see some, uh,
Uh some more points being put on the board in terms of sales. Now, the other thing I tell you is the pipelines are
Daniel Imbro: Really solid, um, our lease pipeline, I think, is at a record level, and that's just a reflection of the fact that we've got a lot of customers that are out there in the market, but haven't, you know, pulled the trigger event so that that could go very well when, you know, when the, uh, when this when uncertainty clears that we would expect to really start to see a lot of activity there.
And on the second part of that question, is there any improved? Uh, any Improvement in that baked into the back of the guide for the back half?
Not a lot. No, no. We haven't built in a lot of improvement there. We're kind of assuming that this continues, uh, obviously if it, if it doesn't prove
Daniel Imbro: Based on lead times, it's probably more likely to be a benefit as we get into 206, maybe a little bit in Q4, but more into 26. So, the top end of the range is really still assuming there's not much of a pickup
Speaker Change: That's helpful and then just to follow up on Scott's question earlier and a few around the Chuck pricing assumptions. You know, it sounds like you're embedding some gain in sales and I think Chris you've heard you right part of that's just mixed because you're going to wholesale Less in the back half of the year. But are you actually making a directional bet that truck pricing improves baked into that back half guidance?
Speaker Change: There's a flight Improvement primarily in the fourth quarter, uh, but it's a it's a, it's a small Improvement, not a in the market, not a, not a significant 1 really, more of the Improvement is just the fact we're going to wholesale less and you'll your retail percentage will go up.
Speaker Change: Okay, I appreciate the color.
Speaker Change: Thank you.
Speaker Change: At this time there are no additional questions and let's turn the call back over to Mr. Robert, Sanchez for closing remarks
Speaker Change: Okay. Thanks everyone. Thanks for your continued interest.
Thank you all for your participation. You may now disconnect