Ryder Beats Overall

Ryder System Inc. (R - Analyst Report), the world's largest provider of integrated logistics and transportation solutions, has reported an outstanding third quarter of 2011. Adjusted earnings of $1.09 was fairly ahead of the Zacks Consensus Estimate of $1.02 and up 43% from 76 cents in the year-ago quarter. Adjusted quarterly net income increased 56% year over year to $56.4 million from $39.7 million in the year-ago period.  

Despite the ongoing economic upheaval, the company achieved double-digit growth backed by higher commercial rental and used vehicle sales along with gains from acquisitions. 

The company registered revenue of $1,570.7 million in the third quarter, reflecting a 19% year-over-year increase. The quarter’s revenue also outpaced the Zacks Consensus Estimate of $1,555 million.

The pass-through of higher fuel costs to customers and increased commercial rental revenues led to the robust growth. Operating revenue (total revenue less Fleet Management Solutions fuel and all subcontracted transportation) increased 17% year over year to $1,256.5 million, driven by acquisitions and organic growth.

Segment Results

Fleet Management Solutions: Total revenue climbed 16% year over year to $1,099.0 million on higher Commercial Rental and Fuel Services revenues that increased 40% and 28%, respectively. The growth in Commercial Rental was backed by higher global demand and pricing. Fuels Services’ revenues increased on higher fuel prices passed through to customers.

On a year-over-year basis, Contract Related Maintenance revenue grew 25% and operating revenue (revenue excluding fuel) increased 12%. Other revenue registered a modest growth of 2% and Full Service Lease revenue increased 5% owing to acquisitions. Contractual revenue climbed up 4%.

Supply Chain Solutions: Total revenue leaped 26% to $406.1 million in the third quarter from $322.9 million in the year-ago quarter. Operating revenue (excluding subcontracted transportation) also grew 26% year over year to $326.8 million. The improvement was driven by higher freight volumes, new business wins 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 31% and 26% to $158.9 million and $149.5 million, respectively, from the year-ago quarter. Higher revenues were aided by the acquisition of Scully Companies, Inc. in January this year and improved operating performance that largely offset higher compensation-related and legal expenses.

Liquidity and Cash Flow

Ryder System ended the quarter with cash and cash equivalents of $115.8 million compared with $213.1 million in the year-end 2010. Cash from operations was $782 million compared with $804 million in the year-ago quarter. Given heavy investments in vehicles, free cash flow was a negative $113 million versus a positive $153 million a year ago.

Total debt at the end of the third quarter was $2,943.2 million compared with $2,326.9 million at the end of fiscal 2010 due to acquisitions and investments in vehicles. Debt-to-equity ratio was 220% compared with 196% at year-end 2010.  

Guidance

Management expects fiscal 2011 earning in the range of $3.44 to $3.49 per share, up from its previous expectation of $3.33 to $3.43

Recommendation

Ryder continues to deliver strong revenue and earnings performance backed by strong commercial rental and used vehicle sales in a favorable lease rate environment. Further, strategic acquisitions and increased investments in vehicles will aid the company’s earning going forward.

However, we remain concerned about the company’s high fleet maintenance costs and capital investments given the current economic slowdown. Competition from peers like Con-Way Inc. (CNW - Snapshot Report), regulatory issues and the adverse effects of the March 2011 tsunami on Supply Chain Solutions also keep us wary on the stock.

We are currently maintaining our long-term Neutral recommendation supported by a Zacks #3 Rank (Hold).

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