Ryder Outperforms on Solid Revenue

Ryder System Inc. (R - Analyst Report), the world's largest provider of integrated logistics and transportation solutions, has reported an outstanding second quarter of 2011. Adjusted earnings of 92 cents breezed past the Zacks Consensus Estimate of 77 cents.

The quarter’s earnings increased 59% from 58 cents in the year-ago quarter. Adjusted quarterly net income increased 56% year over year to $47.8 million from $30.6 million in the year-ago period.  

The year-over-year growth was attributable to higher volume and recent acquisition of Hill Hire Plc from Lloyds Banking Group (LYG - Snapshot Report).

The company registered revenue of $1,513.3 million in the second quarter, reflecting an 18% year-over-year increase. The quarter’s revenue also outpaced the Zacks Consensus Estimate of $1,472.0 million.

The pass-through of higher fuel costs to customers and increased commercial rental revenues led to the robust revenue. Operating revenue (total revenue less Fleet Management Solutions fuel and all subcontracted transportation) increased 15% year over year to $1,192.0 million driven by acquisitions and organic growth.

Segment Results

Fleet Management Solutions: Total revenue climbed 14% year over year to $1,064.5 million on higher Commercial Rental and Fuel Services revenues that increased 38% and 29%, respectively. The growth in Commercial Rental was backed by improved used vehicle sales and acquisitions. Fuels Services’ revenues increased on higher fuel prices passed through to customers.

On a year-over-year basis, Contract Related Maintenance revenue grew 19% and operating revenue (revenue excluding fuel) increased 10%. Other revenue registered a growth of 5% and Full service lease revenue increased 3% owing to acquisitions. Contractual revenue inched up 2%.

Supply Chain Solutions: Total revenue leaped 26% to $389.6 million in the second quarter from $310.1 million in the year-ago quarter. Operating revenue (excluding subcontracted transportation) also grew 26% year over year to $315.1 million from $249.9 million in the year-ago quarter. The improvement was driven by higher freight volumes and the acquisition of Total Logistic Control, a subsidiary of Supervalu Inc. (SVU - Analyst Report) last December.

Dedicated Contract Carriage: Total revenue and operating revenue (excluding subcontracted transportation) increased 22% and 19% to $150.4 million and $141.7 million, respectively, from the year-ago quarter. Higher revenues were aided by the acquisition of Scully Companies, Inc. in January this year and pass-through of higher fuel costs.

Liquidity and Cash Flow

Ryder System ended the quarter with cash and cash equivalents of $473 million compared with $531 million in the corresponding year-ago period.  Cash from operations was $646 million compared with $668 million in the year-ago quarter. Given heavy investments in vehicles, free cash flow was negative $172 million versus positive $123 million a year ago.

Total debt at the end of the second quarter was $2,947.9 million compared with $2,747.0 million at the end of fiscal 2010 due to acquisitions and investments in vehicles. Debt-to-equity ratio was 222% compared with 196% at year-end 2010.  

Guidance

Management projects full-year 2011 free cash flow to average negative $215 million versus the previous projection of negative $265 million.

Management expects total obligations to equity in 2011 of approximately 220%, below its target range of 250% to 300%.

Management expects third quarter earnings in the range of 98 cents to $1.03 per share. Fiscal 2011 earning estimates were raised to $3.33 to $3.43 per share from the previous estimate of $2.90 to $3.00.

Recommendation

Given solid organic growth in most of the business segments, we expect strong revenue and earnings performance over the remainder of 2011. Further, the company remains well positioned for lease fleet expansion in the second half of 2011.

These continued investments in fleets and technology will fuel earnings growth ahead despite high maintenance costs. Further, the company aims to expand its footprint via acquisitions that will facilitate market share gains and provide an edge over competitors like Con-Way Inc. (CNW - Snapshot Report).

We are currently maintaining our long-term Outperform recommendation supported by a Zacks #2 (Buy) Rank.

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