Ryder Reports First Quarter 2020 Results; Solid Liquidity Position Enhanced with Recent Financing Transactions and Improved Free Cash Flow

First Quarter 2020

• Q1 total revenue of $2.2 billion, down 1%; Q1 operating revenue (non-GAAP) of $1.8 billion, up 1%
• Q1 GAAP EPS from continuing operations loss of $(2.09) versus a profit of $0.87 in prior year, reflects the impacts of previously announced change in residual value estimates and COVID-19
• Q1 comparable EPS (non-GAAP) from continuing operations loss of $(1.38) versus a profit of $1.11 in prior year
• Overall operating results were well ahead of management’s expectations through mid-March
• Estimated negative pre-tax earnings impact of COVID-19 in first quarter of approximately $70 million, primarily due to $48 million of additional depreciation resulting from an expected weaker used vehicle sales environment through year end 2020

Business Updates and Impacts of COVID-19

• Substantial liquidity of $1.7 billion as of April 28 available to support operations and fund $600 million in remaining 2020 debt maturities
• Dividend payment expected to continue
• Increased free cash flow expected due to reduced vehicle capital expenditures
• Significant negative impact to commercial rental demand in April
• Weaker market conditions in used vehicle sales expected through year end 2020, resulting in additional depreciation for vehicles expected to be sold through mid-2021
• Lower automotive supply chain volumes due to production shutdowns; start-up expected in May
• Effective tax rate was impacted by the reduction in earnings due to accelerated depreciation charges and the COVID-19 economic effects

MIAMI–(BUSINESS WIRE)–Ryder System, Inc. (NYSE: R), a leader in commercial fleet management, supply chain and dedicated transportation solutions, reported results for the three months ended March 31 as follows:

Total and operating revenue for the three months ended March 31 were as follows:

COVID-19 Impacts to Date and Outlook

Ryder enhanced its solid liquidity position in April by executing a $400 million syndicated term loan, completing a $400 million public bond offering, and renewing its $300 million receivable-backed financing facility. The company’s solid liquidity position as of April 28, 2020 includes approximately $1 billion in cash in the U.S., $565 million in available revolver borrowings, and $100 million in availability under its receivable-backed financing facility. The company is well positioned to support operations, fund $600 million of remaining 2020 debt maturities, and expects to continue paying its dividend.

Considered an essential business during the COVID-19 pandemic, Ryder continues to provide crucial supply chain and transportation services to its customers in the vast majority of its locations. The pandemic and measures taken to prevent its spread, however, negatively affected Ryder’s first quarter pre-tax earnings by an estimated $70 million, primarily due to estimated impacts from additional accelerated depreciation of $27 million and valuation adjustments of $21 million resulting from lower expected used vehicle pricing. Additional COVID-19 impacts late in the quarter included decreased commercial rental demand and an increase in bad debt reserves, each of which impacted earnings by an estimated $8 million. Additionally, there was a negative impact of $6 million to earnings in supply chain due to the automotive industry shutdown.

The company now expects lower used vehicle pricing in the second half of 2020 due to lower demand versus the prior expectation of a modest increase. As a result, the company increased accelerated depreciation on vehicles expected to be sold through mid-2021. In addition, the value of used vehicles in inventory at quarter end was written down to reflect lower expected pricing.

Demand for commercial rental vehicles has decreased significantly due to a substantial reduction in business activity. Rental utilization percentage on power vehicles is estimated to be in the low-50s in April, compared to historical levels in the low-70s. Every percentage point change in utilization is estimated to impact monthly pre-tax earnings by approximately $1 million until the rental fleet size can be aligned with market demand.

SCS automotive volumes have declined significantly due to production shutdowns. Our automotive customers generally expect to resume production throughout May; however, the timing and pace of the ramp up are subject to change. Continued full production shutdowns in North America would impact SCS earnings by approximately $15 million to $20 million per month including fixed costs required to maintain production readiness.

ChoiceLease revenue has not been substantially impacted through April. However, Ryder has established additional bad debt reserves of $8 million, primarily in FMS, due to slower COVID-19 related payment activity with certain customers.

Assuming ongoing impacts from the pandemic, the company expects lower lease sales in 2020 which will result in significantly lower capital expenditures. Actions including the cancellation and deferral of lease and rental vehicle orders and the redeployment of rental equipment to fulfill lease contracts will further reduce capital spending. Capital expenditures are now expected to be between $1.0 billion to $1.4 billion for the full year, resulting in 2020 free cash flow above management’s prior expectations and above the prior record of $600 million.

Ryder took significant actions in early April to reduce discretionary spending and overhead costs by a total of $20 million in the second quarter, including employee furloughs.

Due to the uncertainty relating to the magnitude and duration of COVID-19 crisis, Ryder has suspended providing earnings guidance.

CEO Commentary

Commenting on the company’s response to the challenges of COVID-19 and current outlook, Ryder Chairman and CEO Robert Sanchez said, “I couldn’t be more proud of the courage and commitment of the nearly 40,000 Ryder employees. While much of the world sheltered in place, Ryder employees reported to the front lines to ensure the safe delivery of essential food, healthcare goods, and other critical supplies, while adhering to new hygiene and social distancing procedures. Ryder employees are the most critical component in our company’s success and never more so than during this unprecedented time.

“Through mid-March, first quarter results were well ahead of our prior expectations; however, the COVID-19 pandemic negatively impacted performance for the quarter. Although we cannot predict the depth and duration of the economic impact from COVID-19, we are focused on actions to mitigate the negative effect on our operations while continuing to serve our customers and position the company to achieve our long-term goals.

“In early April, we solidified our liquidity position and now have $1.7 billion of available liquidity. In addition, given the slowdown expected from the pandemic and the counter-cyclical cash flow nature of our model, we now anticipate generating record levels of free cash flow this year. I am pleased that we are well positioned to support operations and fund $600 million of remaining 2020 debt maturities. We also expect to continue to pay our dividend.

“While these unparalleled challenges present a setback to earnings in the near term, we remain focused on our strategic initiatives to achieve our long-term target ROE of 15%. These initiatives include increasing lease prices, executing on our multi-year maintenance cost-savings initiative, and reducing capital investment in lower performing accounts and geographies. In addition, as we move past higher levels of depreciation from residual value estimates changes, we expect to recognize significantly improved returns.

“This pandemic has heightened awareness of the importance of a reliable and efficient supply chain. New trends and opportunities will emerge as a result, including an increase in near-shoring and growth in e-commerce and last-mile services. We expect increased demand for the sophisticated North American logistics operations provided by our supply chain and dedicated businesses, as well as elevated levels of visibility, transparency, and collaboration across the supply chain provided by our RyderShare visibility and collaboration tool.

“Make no mistake, the months ahead will remain challenging. In the transportation and logistics industry, we talk about new challenges and disruption all the time. At Ryder, it’s our job to overcome these obstacles. Time and again, I have witnessed the men and women of Ryder demonstrate a phenomenal capacity to come together and get the job done. I am confident in our ability to all come together now in support of our customers, our shareholders, our communities, and each other. We will get through this together and emerge a stronger company with many new opportunities to provide even greater levels of products and services in a post COVID-19 environment.”

First Quarter Business Segment Operating Results

Fleet Management Solutions

In the Fleet Management Solutions (FMS) business segment, total revenue was $1.3 billion, down 1% from the year-earlier period. FMS operating revenue (a non-GAAP measure excluding fuel and lease liability insurance revenue) was $1.2 billion, up 2% from the year-earlier period. Ryder ChoiceLease^TM (lease) revenue increased 7%, reflecting a larger average fleet size as well as higher prices on new vehicles. The lease fleet increased by 5,300 vehicles or 3% compared to the prior year. Commercial rental revenue decreased 13% from the year-earlier period due to lower demand, partially offset by higher pricing.

FMS loss before tax was $(115) million compared with earnings before tax of $61 million in 2019, including $80 million of higher depreciation expense resulting from the vehicle residual value estimate change effective July 1, 2019. Earnings were also negatively impacted by an estimated impact from COVID-19 of $60 million, as well as lower commercial rental performance. These impacts were partially offset by higher ChoiceLease results which benefited from fleet growth and higher pricing. Lower rental performance was driven by decreased demand, partially offset by increased pricing. Rental power fleet utilization was 64.4% in the first quarter, down from 74.9% in the year-earlier period, partially due to the impact of lower demand late in the quarter due to COVID-19. In second half of 2019, the company began reducing the size of the rental fleet in order to align with expected demand conditions, resulting in a 5% sequential decline in fleet size. The COVID-19 impacts of approximately $60 million included additional depreciation and valuation adjustments reflecting lower used vehicle pricing expected for vehicles to be sold through mid-2021, incrementally lower rental demand, and higher bad debt reserves reflecting slower customer payment activity. FMS loss before tax as a percentage of FMS total revenue and FMS operating revenue (a non-GAAP measure) were (8.5)% and (9.9)%, respectively.

Supply Chain Solutions

In the Supply Chain Solutions (SCS) business segment, total revenue was down 1% to $628 million and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) was down 2% to $467 million compared with the year-earlier period. The decline in SCS total revenue and operating revenue primarily reflects previously announced lost business and COVID-19 related volume reductions in the automotive sector, partially offset by increased pricing and higher volumes with non-automotive customers.

SCS earnings before tax of $31 million decreased 4% in the first quarter of 2020 compared with $32 million in 2019. This decrease reflects COVID-19 related automotive industry production shutdowns and currency valuation charges which together total approximately $10 million, as well as additional impacts from prior-year insurance rebates and increased medical expenses. These impacts were mostly offset by higher pricing and increased volumes with non-automotive customers. SCS earnings before tax as a percentage of SCS total revenue and SCS operating revenue (a non-GAAP measure) were 4.9% and 6.6%, respectively, both down 20 basis points from the prior year.

Dedicated Transportation Solutions

In the Dedicated Transportation Solutions (DTS) business segment, total revenue was down 4% to $335 million and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) slightly increased to $237 million compared with the year-earlier period. The decline in DTS total revenue reflects lower subcontracted transportation revenue and lower fuel costs passed through to customers. DTS operating revenue growth reflects higher volumes and pricing, partially offset by lost business.

DTS earnings before tax of $12 million decreased 30% compared with $17 million in 2019 due to a $4 million change in residual value estimates on vehicles used in this segment (which is eliminated in consolidation), prior year insurance rebates, increased medical expenses, and bad debt reserves. These impacts were partially offset by higher pricing and volumes. DTS earnings before tax as a percentage of DTS total revenue and DTS operating revenue (a non-GAAP measure) were 3.6% and 5.1%, respectively, down 140 and 230 basis points from the year-earlier period.

Corporate Financial Information

Central Support Services

In the first quarter of 2020, unallocated CSS costs decreased to $9 million from $13 million in the prior year.

Income Taxes

Our effective income tax rate from continuing operations for the first quarter of 2020 was a benefit of 4.0% as compared to an expense of 32.7% in the prior year. The tax rate was impacted by the reduction in earnings due to the accelerated depreciation charges and the COVID-19 economic effects in addition to a $13 million valuation allowance recorded on the UK’s net deferred tax assets. The comparable effective income tax rate (a non-GAAP measure) from continuing operations for the first quarter of 2020 was a benefit of 20.6% as compared to an expense of 27.6% in the prior year.

Capital Expenditures

Year-to-date capital expenditures decreased to $392 million in 2020 compared with $1.1 billion in 2019. The decrease in capital expenditures reflects lower planned investments to grow and refresh the lease and rental fleets. The company now expects full year 2020 gross capital expenditures of $1.0 billion to $1.4 billion, below the $2.1 billion expected prior to the COVID-19 pandemic and below prior year of $3.6 billion. Lower capital spending is expected to result in higher free cash flow. Proceeds of $103 million were in line with prior year as higher volumes were offset by lower pricing. Net capital expenditures were $289 million in 2020 down from $1.0 billion in 2019.

Cash Flow and Leverage

Year-to-date operating cash flow was $439 million in 2020, down from $485 million in 2019. Total cash generated (a non-GAAP measure that includes proceeds from used vehicle sales) was $542 million compared with $589 million in 2019. Free cash flow (a non-GAAP measure) was positive $111 million, compared with negative $(438) million in 2019, reflecting decreased capital spending.

Total debt as of March 31, 2020 was $8.2 billion up from $7.9 billion in 2019. Debt-to-equity as of March 31, 2020 was 364% compared with 320% at year-end 2019, above the company’s long-term target of 250-300%. The increase in debt-to-equity reflects the reduction in equity related to higher non-cash depreciation expense from the previously announced vehicle residual value estimate change. Debt-to-equity also reflects a higher than normal cash balance which increased debt-to-equity by an estimated 15 percentage points.

Supplemental Company Information

First Quarter Net Earnings

Business Description

Ryder System, Inc. is a FORTUNE 500^® commercial fleet management, supply chain, and dedicated transportation solutions company. Ryder’s stock (NYSE: R) is a component of the Dow Jones Transportation Average and the S&P MidCap 400^® index. The company’s financial performance is reported in the following three, inter-related business segments:

• Fleet Management Solutions – Ryder’s FMS business segment provides a broad range of services to help businesses of all sizes, across virtually every industry, deliver for their customers. From leasing, maintenance, and fueling, to commercial rental and used vehicle sales, customers rely on Ryder’s expertise to help them lower their costs, redirect capital to other parts of their business, and focus on what they do best – so they can grow.
• Supply Chain Solutions – Ryder’s SCS business segment optimizes logistics networks to make them more responsive and able to be leveraged as a competitive advantage. Globally-recognized brands in the automotive, consumer goods, food and beverage, healthcare, industrial, oil and gas, technology, and retail industries rely on Ryder’s leading-edge technologies and world-class logistics engineers to help them deliver the goods that consumers use every day.
• Dedicated Transportation Solutions – Ryder’s DTS business segment combines the best of Ryder’s leasing and maintenance capability with the safest and most professional drivers in the industry. With a dedicated transportation solution, Ryder helps customers increase their competitive position, reduce risk, and integrate their transportation needs with their overall supply chain.

For more information on Ryder System, Inc., visit http://investors.ryder.com/.

Note Regarding Forward-Looking Statements:

Certain statements and information included in this news release are “forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995, including our forecast, outlook, expectations regarding market trends and economic environment; impact of the COVID-19 pandemic on earnings, depreciation, commercial rental demand, used vehicle pricing, timing for making adjustments to rental fleet size, automotive supply chain volumes, our effective tax rate, and sales for ChoiceLease and other products and services; the adequacy of steps we have taken to mitigate the negative impacts of COVID-19 on our operations; impact of continued automotive production shutdowns on earnings; expected benefits from our strategic initiatives; our ability to implement our asset management strategy to right size our fleet; our financial condition; performance in our product lines and segments; demand, sales and pricing in used vehicle sales; residual values and depreciation expense; free cash flow; liquidity; capital expenditures; and our ability to obtain our projected benefits from our RyderShare visibility and collaboration tool.

All of our forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Important factors that could cause such differences include, among others, the duration and severity of the COVID-19 pandemic and governmental responses thereto; our ability to adapt to changing market conditions, lower than expected contractual sales, decreases in commercial rental demand or utilization or poor acceptance of rental pricing, worsening of market demand for or excess supply of used vehicles impacting current and/or estimated pricing and our anticipated proportion of retail versus wholesale sales, lack of customer demand for our services, higher than expected maintenance costs, lower than expected benefits from our cost-savings initiatives, lower than expected benefits from our sales, marketing and new product initiatives, higher than expected costs related to our ERP implementation, setbacks or uncertainty in the economic market or in our ability to grow and retain profitable customer accounts, implementation or enforcement of regulations, decreases in freight demand or volumes, used vehicle inventory levels, poor operational execution including with respect to new accounts and product launches, our difficulty in obtaining adequate profit margins for our services, our inability to maintain current pricing levels due to soft economic conditions, business interruptions or expenditures due to labor disputes, severe weather or natural occurrences, competition from other service providers and new entrants, lower than anticipated customer retention levels, loss of key customers, driver and technician shortages resulting in higher procurement costs and turnover rates, higher than expected bad debt reserves or write-offs, changes in customers’ business environments that will limit their ability to commit to long-term vehicle leases, a decrease in credit ratings, increased debt costs, adequacy of accounting estimates, higher than expected reserves and accruals particularly with respect to pension, taxes, depreciation, insurance and revenue, impact of changes in our residual value estimates and accounting policies, including our depreciation policy, the sudden or unusual changes in fuel prices, unanticipated currency exchange rate fluctuations, our ability to manage our cost structure, and the risks described in our filings with the Securities and Exchange Commission (SEC). The risks included here are not exhaustive. New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risks on our business. Accordingly, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Note Regarding Non-GAAP Financial Measures: This news release includes certain non-GAAP financial measures as defined under SEC rules. Refer to Appendix – Non-GAAP Financial Measure Reconciliations at the end of the tables following this press release for reconciliations of the non-GAAP financial measures contained in this release to the nearest GAAP measure and why management believes that presentation of each measure provides useful information to investors. Additional information regarding non-GAAP financial measures as required by Regulation G and

Contacts

Media:
Amy Federman

(305) 500-4989

Investor Relations:
Bob Brunn

(305) 500-4053

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