Ryder System (NYSE: R) was set to have a significantly better second quarter in 2021 than 2020, when it posted a big loss on the back of a drop in revenue because of COVID-19 and writedowns connected to the value of its used truck fleet.

But the company blew away projections with a non-GAAP Q2 earnings-per-share figure of $2.40 that was better than consensus estimates by $1.02 per share, according to SeekingAlpha. The company’s revenue of $2.38 billion was up 25.3% from the second quarter of 2020 and topped revenue consensus by $130 million.

Throughout the company’s earnings statement and a transcript of the call with analysts supplied by SeekingAlpha are numerous references to the benefits the company is reaping, not just from a strong freight market but also the fact that companies seeking capacity are having difficulties acquiring new equipment because of delays in deliveries from OEMs, driven in part by the tight market for semiconductors.

Numbers cited by CFO John Diez, who had been president of Fleet Management Services before a recent promotion, spell out how much Ryder has benefited from the strong market in its Fleet Management Services division, the sector that rents and leases equipment ranging from delivery vans up to full tractors.

Proceeds from the sale of used vehicles were up 73% for tractors and 72% for trucks compared to the second quarter of 2021, Diez said. Comparisons to a year ago always run into the reality of the depths of the pandemic in the second quarter of 2020. But sequentially, the improvement was significant as well, with tractor proceeds rising 22% from the first quarter and truck sales up 27%. 

Early in 2020, Ryder made the decision to take accelerated depreciation on the value of its used vehicle fleet, given the resale market that was expected at that time. How the resales actually play out relative to the values the company realizes in the market has a significant impact on the company’s bottom line. With the strong resale market, it’s going well for the company. 

“Strong used vehicle market conditions are expected to continue in 2021 and we’re capitalizing on those trends through pricing actions and our expanded retail sales channel,” CEO Robert Sanchez said, reiterating that Ryder has attempted to sell more of its used vehicles through retail outlets where the returns are generally higher rather than through wholesale markets. He added that given the higher prices the company is getting, Ryder expects “the earnings benefit from the declining depreciation impact to continue.”

There also has been a focus on getting the inventory levels of used vehicles down, an initiative that continues to be successful. Ryder said its used vehicles held for sale was 4,300 at the end of the quarter, well below its target range of 7,000 to 9,000 vehicles. It was also down 1,900 vehicles from the first quarter. 

Rentals in the company’s power fleet were 80% of utilization, compared to 56% a year ago, when the market was being seriously impacted by COVID. 

“The rental demand is very hot right now,” Sanchez said. “There’s a shortage of capacity in the freight market plus e-commerce [is] really continuing to ramp up. So there’s just not enough trucks to handle all the demand that’s out there. So it’s kind of a great environment for rental.” 

Ryder is also impacted directly by the delivery delays from OEMs in another way: It isn’t getting new equipment in at the schedule it had planned. In his prepared remarks to the analysts, Sanchez said the semiconductor squeeze will delay deliveries of an unspecified number of vehicles into the Fleet Management Services division of Ryder, the segment that leases vehicles from delivery vans all the way up to Class 8 tractors. 

But whatever impact Ryder sees from a failure of some deliveries into FMS, Sanchez said, it can be offset to some degree. “We expect the impact of delivery delays to be offset by higher lease sales activity in the first half of the year as well as higher rental utilization and pricing,” he said. 

There is another impact from the delivery delays: It means the company will generate more free cash flow. Sanchez said the company is increasing its full-year free cash flow estimate to between $650 million and $700 million, up from $400 million, in part reflecting cash that won’t need to be laid out for equipment because of the delivery delays. 

As a result of that greater free cash flow estimate, Ryder may be in the market to get bigger. “Our balance sheet remains strong and leverage is near the bottom end of our target range, providing opportunity for future strategic acquisitions and/or share repurchases,” it said in its earnings statement. 

That balance sheet showed that Ryder’s cash and equivalents stood at $268 million at the end of the second quarter. At the close of 2020, it was $151.3 million. 

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