Ryder Reports First Quarter 2011 Results
- Q1 EPS from Continuing Operations Up 108% to $0.50
- Q1 Comparable EPS from Continuing Operations Up 113% to $0.51
- Q1 Total Revenue Up 17%; Operating Revenue Grows 14%
- Full-Year 2011 Comparable EPS Forecast Raised to $2.90 to $3.00
MIAMI–(BUSINESS WIRE)– Ryder System, Inc. (NYSE: R), a leader in transportation and supply chain management solutions, today reported earnings per diluted share from continuing operations for the three-month period ended March 31, 2011 were $0.50, compared with $0.24 in the year-earlier period. Earnings from continuing operations were $25.9 million, compared with $12.9 million in the year-earlier period. Earnings per diluted share and net earnings for the first quarter of 2011 included a restructuring charge of $0.01 and $0.5 million, respectively. Excluding this item, comparable earnings per diluted share from continuing operations for the first quarter of 2011 were $0.51, up 113% from $0.24 in the same period of 2010. Comparable earnings from continuing operations of $26.3 million for the first quarter of 2011 were up 104% from $12.9 million in the year-earlier period. The increase in comparable earnings primarily reflects better organic performance in commercial rental and used vehicle sales, acquisitions, and higher volumes in the Supply Chain Solutions (SCS) business segment.
Net earnings per diluted share (including discontinued operations) for the three-month period ended March 31, 2011 were $0.48 versus $0.23 in the year-earlier period. Earnings per diluted share from discontinued operations (previously announced in 2009) totaled a loss of $0.02 in the first quarter of 2011, compared with a loss of $0.01 in the same period of the prior year. Net earnings for the first quarter of 2011 were $25.1 million versus $12.4 million in the year-earlier period.
Total revenue for the first quarter of 2011 was $1.43 billion, up 17% from $1.22 billion in the same period last year. Operating revenue (revenue excluding Fleet Management Solutions fuel and all subcontracted transportation), was $1.13 billion, up 14% compared with $987.6 million in the year-earlier period, reflecting the benefit of acquisitions and organic growth. Fleet Management Solutions (FMS) business segment total revenue increased 11% due primarily to higher fuel services and commercial rental revenues. FMS operating revenue increased 6% due primarily to higher commercial rental revenue. SCS business segment total and operating revenue both increased 36% due to an acquisition and higher freight volumes. Dedicated Contract Carriage (DCC) business segment total revenue increased 16% and operating revenue increased 15%, reflecting an acquisition and the pass-through of higher fuel costs.
“Ryder performed significantly better than expected in the first quarter, with continuing strong organic results in our used vehicle sales and commercial truck rental product lines, and from acquisitions which contributed earlier and stronger than anticipated,” said Ryder Chairman and CEO Greg Swienton. “Our full service lease fleet expanded for the first time in eight quarters, with the positive impact of recent acquisitions. We also saw a number of key indicators that reflected stronger activity with our lease customers including increases in miles driven per unit and a significant reduction in early terminations of customer lease agreements. Our lease product line was, however, impacted by higher maintenance costs on an older fleet. Our supply chain management business also demonstrated continued earnings improvement with revenue growth in all of our four targeted industry sectors. In addition to delivering exceptionally strong results for the quarter, we also began to make strategic investments in technology and sales and marketing to benefit future years.”
First Quarter Business Segment Operating Results
Fleet Management Solutions (FMS)
In the FMS business segment, total revenue in the first quarter of 2011 was $980.1 million, up 11% compared with the year-earlier period. Fuel services revenue in the first quarter of 2011 increased 26% compared with the same period in 2010 due to higher fuel prices. Operating revenue (revenue excluding fuel) in the first quarter of 2011 was $719.0 million, up 6% compared with the year-earlier period. Full service lease revenue increased 1% in the first quarter of 2011 due to acquisitions and favorable foreign exchange rate movements. Commercial rental revenue increased 34% reflecting improving global market demand and higher pricing. Rental power fleet utilization improved approximately 400 basis points to 73% in the first quarter of 2011. FMS total revenue and operating revenue included a favorable foreign exchange impact of 1%.
The FMS business segment’s pre-tax earnings were $38.6 million in the first quarter of 2011, up 78% compared with $21.7 million in the same period of 2010. This increase primarily reflected significantly better commercial rental performance and improved used vehicle sales results. As expected, these items were partially offset by lower full service lease results and planned higher spending on initiatives. Commercial rental performance improved as a result of increasing market demand and higher pricing on an 11% larger average fleet. Used vehicle sales results were favorably impacted by higher pricing, as well as lower average quarterly inventory levels compared with the prior-year period. Full service lease results continued to be adversely impacted by higher maintenance costs on a comparatively older fleet. However, lease mileage comparisons improved, reflecting increased usage of existing customer leased fleets. Results were impacted by increased compensation-related expenses and higher planned spending on growth initiatives. FMS first quarter results also benefited from a gain of $2.4 million from the sale of a facility, as well as the acquisitions of The Scully Companies (Scully) and Carmenita Leasing Company. Business segment pre-tax earnings as a percentage of operating revenue was 5.4% in the first quarter of 2011, up 220 basis points compared with 3.2% in the same quarter a year ago.
Supply Chain Solutions (SCS)
In the SCS business segment, first quarter 2011 total revenue was $401.0 million, up 36% from the comparable period in 2010. First quarter 2011 operating revenue (revenue excluding subcontracted transportation) was $324.3 million, up 36% compared with the comparable period a year ago. SCS total revenue and operating revenue comparisons benefited from the acquisition of Total Logistic Control (TLC) in December of 2010 and higher freight volumes.
The SCS business segment’s pre-tax earnings in the first quarter of 2011 were $12.1 million, up 72% compared with $7.0 million in the same quarter of 2010, driven by the TLC acquisition, better operating performance, and higher volumes. First quarter 2011 pre-tax earnings for the business segment as a percentage of operating revenue were 3.7%, up 80 basis points compared with 2.9% in the same quarter of 2010.
Dedicated Contract Carriage (DCC)
In the DCC business segment, first quarter 2011 total revenue of $134.7 million was up 16% compared with the first quarter of 2010. Operating revenue (revenue excluding subcontracted transportation) in the first quarter of 2011 was $128.4 million, an increase of 15% from the year-earlier period. Total and operating revenue grew due to the acquisition of Scully in January 2011 and higher fuel cost pass-throughs.
The DCC business segment’s pre-tax earnings in the first quarter of 2011 were $7.4 million, unchanged from the first quarter of 2010. Business segment pre-tax earnings benefited from the Scully acquisition but were offset by unusually high costs incurred to close certain customer locations and increased driver costs. Business segment pre-tax earnings as a percentage of operating revenue were 5.8% in the first quarter of 2011, down 80 basis points compared with 6.6% in the year-earlier period.
Corporate Financial Information
Central Support Services
Central Support Services (CSS) are overhead costs incurred to support all business segments and product lines. Most CSS costs are allocated to the various business segments. In the first quarter of 2011, CSS costs were $45.5 million, up from $42.4 million in the year-earlier period reflecting planned strategic investments in information technology initiatives and higher compensation expense.
Restructuring and Other Items
Pre-tax restructuring charges totaled $0.8 million ($0.5 million after tax), or $0.01 per diluted share in the first quarter of 2011. These planned charges related to the acquisition of Scully, and included severance and employee-related costs, as well as the cancellation of certain non-essential equipment contracts.
Income Taxes
The Company’s effective income tax rate from continuing operations for the first quarter of 2011 was 40.7% of pre-tax earnings compared with 42.8% in the year-earlier period. The current period income tax rate was negatively impacted by a tax law change in Illinois of $1.2 million (2.8% of pre-tax earnings), reducing reported earnings by $0.02 per diluted share. The year-earlier period income tax rate was impacted by non-deductible items on lower earnings.
Capital Expenditures
Capital expenditures from continuing operations were $448 million for the first quarter of 2011, compared with $276 million in the same period of 2010. Net capital expenditures (including proceeds from the sale of assets) from continuing operations were $377 million, up 66% from $227 million in the same period of 2010. The increase reflects investments to refresh and grow the rental fleet.
Cash Flow
Operating cash flow from continuing operations through March 31, 2011 was $218 million, down from $271 million in the same period of 2010, due to increased working capital needs. Total cash generated (including proceeds from used vehicle sales) from continuing operations through March 31, 2011, was $304 million, compared with $336 million in the same period of 2010. Free cash flow from continuing operations through March 31, 2011 was negative $10 million, down from a positive $136 million for the same period of 2010, primarily due to increased vehicle investments.
Leverage
Balance sheet debt as of March 31, 2011 increased by $62 million compared with year-end 2010, due primarily to increased investments in vehicles and acquisition activity. The leverage ratio for balance sheet debt as of March 31, 2011 was 195%, compared with 196% at year-end 2010. Total obligations to equity as of March 31, 2011 were 202%, compared with 203% at year-end 2010.
2011 Outlook
“We expect continuing strong revenue and earnings performance from organic growth in many areas of our business and increasing contributions from recent acquisitions, including four announced since early December,” said Mr. Swienton, commenting on Ryder’s 2011 outlook. “Our Fleet Management Solutions business should continue to produce strong results from the commercial rental and used vehicles sales product lines and we remain on track to deliver organic expansion of lease fleet levels beginning in the second half of the year. The positive revenue trends in our Supply Chain Solutions business are expected to continue. SCS results, however, will be adversely affected by customer business impacts, especially announced automotive production cuts from one significant customer related to recent natural disasters in Japan. Our strong balance sheet continues to enable us to invest in acquisitions, implement more efficient technologies, develop product improvements and innovations, and expand sales and marketing capabilities. Taken together, our operational performance and strategic actions have Ryder well-aligned to deliver substantially improved results in the near term, while advancing our competitive position and ability to leverage higher earnings in future periods.”
He continued, “The second quarter and full-year forecast ranges assume the continued impact of automotive production cuts primarily with one significant customer related to the Japanese disasters. We estimate the downside impact to be $0.10 to $0.15 per share for the remainder of the year. Based on currently available information, we expect a ramp up of production levels in the second half of the year; however, these production levels are subject to change as conditions develop. Even with this anticipated negative impact, we are still raising our full-year 2011 earnings forecast to a range of $2.90 to $3.00 per share, up from a previous range of $2.80 to $2.90. Additionally, we have established a second quarter earnings forecast of $0.72 to $0.77 per share.”
About Ryder
Ryder System, Inc. is a FORTUNE 500® commercial transportation, logistics and supply chain management solutions company. Ryder’s stock (NYSE: R) is a component of the Dow Jones Transportation Average and the Standard & Poor’s 500 Index. The Company’s financial performance is reported in the following three, inter-related business segments:
- Fleet Management Solutions – The FMS business segment combines several capabilities into a comprehensive package that provides one-stop outsourcing of the acquisition, financing, maintenance, management, and disposal of vehicles. Ryder’s commercial rental service offers customers a method to expand their fleets in order to address short-term capacity needs.
- Supply Chain Solutions – The SCS business segment offers a broad range of innovative logistics management services that are designed to optimize a customer’s supply chain and address key customer business requirements. These solutions involve strategically designed processes that direct the movement of materials and related information from the acquisition of raw materials to the delivery of finished products to the end user.
- Dedicated Contract Carriage – The DCC business segment provides customers with vehicles, drivers, management, and administrative support, with the assets committed to a specific customer for a contractual term. DCC supports customers with both basic and sophisticated logistics and transportation needs, including routing and scheduling, specialized driver services, and logistics engineering support.
Pre-Tax Earnings: Ryder’s primary measurement of business segment financial performance, pre-tax earnings from continuing operations (pre-tax earnings), allocates Central Support Services to each business segment and excludes restructuring and other items.
Capital Expenditures: In Ryder’s business, capital expenditures are generally used to purchase revenue earning equipment (trucks, tractors, and trailers) primarily to support the full service lease product line and secondarily to support the commercial rental product line within Ryder’s FMS business segment. The level of capital required to support the full service lease product line varies directly with customer contract signings for replacement vehicles and growth. These contracts are long-term agreements that result in ongoing revenues and cash flows to Ryder, typically over a three- to ten-year term. The commercial rental product line utilizes capital for the purchase of vehicles to replenish and expand the Company’s fleet available for shorter-term use by contractual or occasional customers.
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