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Ryder System, Inc. (R - Analyst Report) has raised its dividend to 31 cents per share from 29 cents, reflecting a 7% hike in its quarterly dividend payments. The increased dividend will be paid on September 21 to shareholders of record on August 20.

Ryder has remained committed to its shareholders for the past 36 years through dividend payments. The recent payment marks the company’s 144th successive quarterly cash dividend.

We believe that the increased shareholder return highlights Ryder’s strong financial performance over the years backed by solid volume, revenue and earnings growth. The company remains focused on generating stellar results by expanding its footprint through organic growth and key acquisitions. 

However, despite its consistent earnings performance, Ryder slashed its earnings per share (EPS) guidance for the second quarter as well as for full fiscal 2012, primarily based on lower demand for commercial rental rates for trucks.

Ryder expects its EPS for the second quarter of 2012 to remain in the range of 90 to 95 cents down from its previous outlook of $1.07 to $1.12. Similarly, the company expects EPS for full fiscal 2012 to remain in the range of $3.65 to $3.85, much lower than its earlier mentioned guidance of $4.02 to $4.12. 

The company remains cautious regarding its growth prospects for fiscal 2012, primarily due to the sluggish demand in the trucking industry. This is also expected to persist till the end of the year.

Further, Ryder’s significant investments, particularly in fleet and technology upgrades will remain detrimental to its cost structure in the prevailing uncertain economic environment. The company is currently increasing investment in fleet management solutions, which is weighing on its liquidity position. As a result, the company’s balance sheet position is expected to remain distressed by estimated negative cash flows in the range of $400–$460 million for the year.  

The company’s obligation to equity also increased to 267% at the end of the first quarter from 261% at the end of 2011 due to acquisitions and higher capital expenditures on vehicles. For the second quarter, the company estimates its leverage ratio to increase given the seasonal purchase of rental vehicles. Moreover, stiff competition from peers like Con-Way Inc. (CNW - Snapshot Report) could limit the near-term growth for Ryder.

We recommend our long-term Underperform rating on Ryder System.  For the short-term the stock has a Zacks #4 Rank (Sell).

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