Ryder System Inc. (R - Analyst Report), the world's largest provider of integrated logistics and transportation solutions, has expanded its fleet services to Hollywood by deploying new fleet of rental studio trucks in Los Angeles. The trucks would be available in two categories: the 16-foot Super Cube trucks and the 26-foot Five Ton trucks. The trucks are designed with the sole purpose of fulfilling the need of the entertainment industry.
Ryder currently operates 34 studio trucks, of which 10 trucks are 16 feet long and 24 are 26 footers. The company operates in 500 locations across the U.S. and Canada and has a total fleet of approximately 30,000 vehicles.
Strong demand with tighter transportation markets, particularly for trucks, has enabled the company to realize higher pricing in the truck fleet category. We expect the company’s strong organic growth to continue on the back of increased demand for commercial rental vehicles alongside higher used vehicle sales.
In addition to introducing customized vehicles for industry specific requirements, Ryder is also targeting emerging markets for fuel efficient vehicles under projects like SANBAG (San Bernardino Associated Governments). The company also has alliance with U.S. based publishing and logistics company Source Interlink to provide natural gas vehicles.
Moreover, the company is looking forward to cost restructuring with optimum fleet management. Ryder has already adjusted its rental fleet size to the current demand levels and plans to dispose of additional used vehicles to optimize the demand and supply requirements.
To support these strategic developments, Ryder continues to invest in commercial rental and leased vehicles. In addition, the company also invests in maintenance technology as well as sales and information technology. For 2012, Ryder expects total capital expenditure to be between $2.1 billion and $2.2 billion. We believe these investments would propel revenue and earnings growth going forward.
However, we remain concerned about the challenging economic environment surrounding its operations. Further, heavy capital expenditures, a distressed cash position, lower demand on tighter truckload market and competition from the likes of Trinity Industries Inc. (TRN - Snapshot Report) are expected to create significant headwinds for the company.
We, currently, have a long-term Neutral recommendation on Ryder System. For the short term (1–3 months), the stock retains a Zacks #4 Rank (Sell).