Ryder’s Q3 revenues up 17% and company increases full-year earnings forecast
Ryder System, Inc. (NYSE:R) saw a record Q3 revenue of $2.2 Billion and record Q3 operating revenue of $1.7 Billion, up 13%
Total revenue and operating revenue grew across all three business segments reflecting new business and higher volumes. Additionally, Supply Chain Solutions (SCS) revenue growth benefited from the second-quarter acquisition of MXD Group, Inc. (MXD). Total revenue also grew due to higher fuel costs passed through to customers.
Commenting on the Company’s third quarter results, Ryder Chairman and CEO Robert Sanchez said, "We are pleased to again deliver year-over-year pretax earnings growth, which was at the high end of our expectations. This quarter's comparable pre-tax earnings improvement was driven by revenue growth in all segments and the benefit of cost actions taken earlier in the year. Third quarter pre-tax earnings grew by 6% despite used vehicle sales and depreciation headwinds of $18 million (17% of prior-year pre-tax earnings), and higher maintenance costs on certain older-model-year vehicles. During the quarter, used vehicle prices were stable, while our inventories remained at the bottom end of our target range.
"We delivered double-digit revenue growth with strong increases in all three business segments, benefiting from new outsourcing wins and a favorable freight environment. Ryder's largest product line, ChoiceLease, grew organically by 5,600 vehicles year-to-date. We continue to successfully penetrate non-outsourced markets and are also seeing expansions with current customers. We are on track for another record sales year in 2018, driven by ChoiceLease and Dedicated Transportation Solutions, positioning us well for accelerating contractual revenue growth.
"We are pleased with the integration and performance of our recent MXD acquisition, positioning Ryder as a leading last-mile provider for big-and-bulky goods. Ryder's last-mile network now includes 136 facilities covering 95% of the U.S. and Canada within a two-day timeframe and provides us with a solid platform for growth in the e-commerce space.
"Additionally, we continue to invest in innovative, customer-facing technology. The second release of RyderGyde™, our mobile fleet-management app which already has more than 4,000 users, now allows customers to rent vehicles from their mobile devices, as well as browse Ryder's used vehicle inventory."
Third Quarter Business Segment Operating Results
Fleet Management Solutions
In the Fleet Management Solutions (FMS) business segment, total revenue was $1.34 billion, up 12% compared with $1.20 billion in the year-earlier period. FMS operating revenue (a non-GAAP measure excluding fuel) was $1.12 billion, up 9% from the year-earlier period. Ryder ChoiceLeaseTM (lease) revenue increased 6% reflecting a larger average-fleet size and higher prices on replacement vehicles. The ending lease fleet increased organically by 5,600 vehicles year-to-date. Commercial rental revenue increased 19% from the year-earlier period due to higher demand and pricing. Fuel services revenue increased 26%, primarily reflecting higher fuel costs passed through to customers.
FMS earnings before tax were $95.2 million, down 6% compared with $100.8 million in the same period of 2017. Higher commercial rental and ChoiceLease performance was more than offset by higher depreciation of $12.7 million due to vehicle residual-value changes and accelerated depreciation, as well as lower used vehicle sales results. Used vehicle results primarily reflect lower units sold and higher inventory valuation adjustments due to more challenging prior year comparisons. Commercial rental performance improved due to increased utilization reflecting stronger demand as well as higher pricing. Rental power fleet utilization was 80.4% for the third quarter, up 240 basis points from the year-earlier period. Lease results benefited from fleet growth but were partially offset by higher maintenance costs on certain older model year vehicles. FMS earnings before tax as a%age of FMS total revenue and FMS operating revenue (a non-GAAP measure) were 7.1% and 8.5%, respectively, both down 130 basis points from the prior year.
Dedicated Transportation Solutions
In the Dedicated Transportation Solutions (DTS) business segment, total revenue was up 25% to $341 million and DTS operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) was up 12% to $222 million compared with the year-earlier period. DTS total and operating revenue growth reflects new business and increased volumes.
DTS earnings before tax of $13.9 million increased 1% compared with $13.7 million in 2017, due to revenue growth, largely offset by higher startup costs on a new customer account. DTS earnings before tax as a%age of DTS total revenue and DTS operating revenue (a non-GAAP measure) were 4.1% and 6.3%, respectively, down 90 and 60 basis points from the year-earlier period.
Supply Chain Solutions
In the Supply Chain Solutions (SCS) business segment, total revenue was up 29% to $629 million and SCS operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) was up 23% to $463 million compared with the year-earlier period. SCS operating revenue growth largely reflects increased volumes and new business. Total and operating revenue growth also reflects the acquisition of MXD during the second quarter.
SCS earnings before tax of $37.4 million increased 69% in the third quarter of 2018 compared with $22.1 million in 2017, driven by revenue growth and better operating results across all industry verticals, including improved performance on a prior-year startup account. SCS earnings before tax as a%age of SCS total revenue and SCS operating revenue (a non-GAAP measure) were 5.9% and 8.1%, respectively, up 140 basis points and up 220 basis points from the prior year.
2018 Earnings Forecast
Commenting on the Company’s outlook, Mr. Sanchez said, "Our overall earnings outlook for the fourth quarter remains on track with our prior expectations. We anticipate year-over-year earnings growth in Fleet Management Solutions driven by strong operating performance and a lower impact from used vehicle sales and depreciation headwinds. Based on robust year-to-date lease sales activity, our outlook for ChoiceLease fleet growth remains at a record 8,500 vehicles for the full year. We expect a continued strong rental demand environment and favorable year-over-year results, although to a lesser extent, due to more challenging prior-year comparisons. We anticipate Ryder's used vehicle inventory to remain near the low end of our target range. Our outlook for used vehicle sales pricing remains stable at recent levels. Dedicated Transportation Solutions is anticipated to deliver continued double-digit revenue growth and improved earnings performance as compared to the third quarter. We expect strong year-over-year improvement in Supply Chain Solutions results consistent with year-to-date performance."
In light of these factors, Ryder is revising its full-year 2018 GAAP EPS forecast to a range of $4.88 to $4.98, as compared to the prior forecast of $4.71 to $4.91. In 2017, full-year GAAP EPS was $14.90 and included a benefit from Tax Reform. The Company is also narrowing its forecast for full-year 2018 comparable EPS from continuing operations to $5.72 to $5.82, from the prior forecast of $5.62 to $5.82, and compared with $4.53 in 2017.
Ryder is establishing a fourth quarter 2018 GAAP EPS forecast of $1.73 to $1.83, compared with $12.08 in the fourth quarter 2017. The Company is also establishing a fourth quarter 2018 forecast for comparable EPS from continuing operations of $1.75 to $1.85, compared with $1.36 in the fourth quarter 2017.