Ryder Grows Revenue But Records Loss On Lower Used Truck Prices

Ryder System R reported its financial results for the third quarter of 2019 on October. 29. Revenue grew 3% to $2.2 billion, but the company reported a non-GAAP loss of $78.1 million, or $1.49 per share. The loss was primarily due to a non-cash depreciation charge related to a markdown of residual vehicle values – softening used truck prices reduced the value of Ryder's fleet. In the third quarter of 2018, Ryder generated after-tax earnings of $88.2 million.

Management had warned analysts about the deteriorating used commercial vehicle market in the company's second quarter earnings call.

"As we discussed last quarter, despite market prices for used tractors showing stabilization and improvement in 2018 and early 2019, we began to see a softening in the used tractor market in June," said chief executive officer Robert Sanchez in a statement. "In the third quarter, market conditions continued to worsen for tractors, and we now expect further market declines in the near-term. As a result, we lowered our near- and long-term residual value estimates for tractors to better align with recent and expected market conditions. We also adjusted our truck residual estimates for modestly softer conditions."

(Table: Ryder)

Ryder divides its business into three segments: Fleet Management Solutions (FMS), which leases trucks and performs maintenance services; Dedicated Transportation Solutions (DTS), a fleet that moves freight for dedicated customers; and Supply Chain Solutions (SCS), Ryder's third-party logistics provider.

All of Ryder's business units grew revenue on a year-over-year basis except Supply Chain Solutions, whose revenues were down 2% on previously announced lost business. 

Fleet Management Solutions (FMS) revenue was up 4% year-over-year to $1.4 billion; leasing revenue grew 9% on larger average fleet sizes and higher leasing prices for new vehicles. The lease fleet itself grew by 2,900 vehicles during the quarter compared to the previous quarter. FMS is where Ryder's loss occurred, as the unit posted a $108.6 million loss before tax compared to earnings before tax of $97.8 million in the third quarter of 2018. 

(Chart: FreightWaves SONAR)

That loss "reflect[ed] $169 million of higher depreciation expense resulting from lower estimated vehicle residual values on all power vehicles and $8 million of increased valuation adjustments on a larger inventory of assets held for sale," Ryder said in a statement.

Supply Chain Solutions' total revenue was down 2% to $618 million and its earnings before tax decreased 5% to $34.6 million; another $4 million loss in residual vehicle value was attributed to this segment.

Dedicated Transportation Solutions grew total revenues by 5% to $359 million and earnings before taxes jumped 33% to $18.5 million.

Ryder issued fairly negative guidance for the fourth quarter and first half of 2020. Sanchez said in a statement that Ryder expects supply chain revenue to continue declining through mid-year 2020 and dedicated revenue growth to slow in the fourth quarter.

"In the next 18-24 months, we expect earnings benefits as the negative impact from the residual value estimate changes decline, under-performing vintages of lease contracts exit the fleet, and we continue to add new profitable business," Sanchez said. "We will intensify our focus on improving return on capital by accelerating our significant cost savings initiatives, pruning lower return accounts and assets, and accelerating growth in our higher-return supply chain and dedicated businesses. The demand for our core services remains strong as we continue to operate in large, attractive markets with favorable long-term secular outsourcing trends."

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