A year ago, Ryder (NYSE: R) was entering a scary time, with the pandemic in full force and uncertainty about what it would mean for the company’s primary business of leasing trucks to a variety of users. The result: Ryder lost $1.41 per share in the second quarter of 2020 after a loss of more than $2 per share in the first quarter, though that red ink was mostly caused by changing valuations of its used vehicle fleet. But that second-quarter figure also included a sequential decline in revenue of about $300 million.
Also in the second quarter, like a lot of other companies, it withdrew its guidance on earnings.
A year later, Ryder has increased that guidance for 2021 by a significant amount, and it posted adjusted earnings that were almost double Wall Street estimates for the first quarter.
Ryder’s first-quarter adjusted per-share earnings were $1.09, which according to SeekingAlpha was 51 cents per share better than the Wall Street consensus earnings forecast of 58 cents per share. On a generally accepted accounting principles basis, the earnings-per-share figure was closer to double the forecast, coming in at 97 cents versus a forecast of 49 cents per share. The 48-cent “beat” almost doubled the forecasts.
The comparisons between 2020 and 2021 are those of a company recently riding a strong freight market and one in 2020 which was starting to feel the pains of the pandemic and was taking writedowns on the value of its fleet.
Revenue in the first quarter of 2020, when the pandemic was just beginning, was down only 1% from the first quarter of 2019, so the impact of the shutdowns had not hit yet. But Ryder saw a big sequential decline in the second quarter from the first quarter, and the company lost money again, though the impact of changes in residual values played the most prominent role in both the first and second quarters of last year.
But in 2021, the first-quarter earnings for Ryder were solid, helping to lead the company to increase its reinstated guidance. Ryder is now projecting non-GAAP earnings of $5.50 to $5.90 per share, up from its earlier guidance of $4.15 to $4.65. The adjusted earnings forecast is now at $5.65 to $6.05 from $4.18 from $4.68.
Ryder’s earnings are significant to the trucking industry in several ways, including as a barometer of the strength of the used truck market. Sales of used vehicle, which are usually registered as a cost on the company’s quarterly earnings, were a “negative cost” of $28.9 million for the quarter.
In its prepared statement, Ryder said the company’s results in its Fleet Management Services “were significantly better than expected in lease and rental, as well as used vehicle sales.”
Ryder is in the middle of a lengthy period in which its earnings were impacted by the significant writedowns in the value of its used vehicle fleet. Those writedowns impacted earnings in 2020. How the actual sales revenue ends up against the reduced value of the used vehicles can impact earnings, and Ryder officials have indicated in the past that the sales numbers were coming in better than what was assumed in the writedowns.
Scott Parker, the company’s COO, said on the company’s earnings call that year over year, Ryder realized a 25% increase in its revenue from the sale of used tractors. The sequential increase was 11%.
It sold 6,600 used vehicles in the quarter, he said. Used vehicle inventory was at 6,200 at the end of the quarter, and that was below the target range of 7,500. The inventory level was down 5,400 vehicles from a year ago and 1,500 sequentially. The inventory numbers are way down from the end of the second quarter of last year.
John J. Diez, the president of Ryder’s Fleet Management Solutions division, said on the call that Ryder’s used vehicle sales were boosted by improvements to its retail operations. But he also said that Ryder is seeing “new buyers coming in, many of which are new to trucking. They’re looking to engage in e-commerce so we are seeing good activity in straight trucks and tractors.”
CEO Robert Sanchez, on the earnings call, said the semiconductor squeeze might impact the rate of deliveries for new vehicles into Ryder this year. But he added that by restricting the supply of new trucks to the broader market, it will help boost the values of the used trucks that Ryder is selling into the market.
The writedown in the used vehicle values hitting the bottom line last year is one of the reasons why the company recorded sharply higher earnings compared to last year’s first quarter. For example, total revenue in Ryder’s flagship FMS division was down by a minimal amount while operating revenue was up just 1%. But without the impact of the writedowns, earnings before tax for the segment turned into a positive $63 million from a $115 million loss.
For Ryder as a whole, revenue mostly held steady. Total revenue was up just 3%, to $2.222 billion. Operating revenue also was up 3%, to $1.817 billion.
Revenue in the Supply Chain Solutions segment rose 12% to $707 million. Earnings before tax rose to $33 million from $31 million. Revenue in the Dedicated division was down 4%, to $321 million, while earnings before tax rose 7% to $13 million.
In the prepared statement accompanying the earnings, Sanchez said the Supply Chain Solutions segment had record first-quarter sales. “Increased focus on supply chain resiliency is driving a robust sales pipeline as companies seek strategic partnerships that can provide end-to-end solutions with flexibility and scale,” Sanchez said.
FMS at Ryder provides the traditional vehicle leasing that Ryder is mostly known for. Supply Chain Solutions offers what the segment says in its name: services to companies trying to maximize the returns on their supply chain spend. The Dedicated division provides actual trucking services, including drivers, to its clients, all the way out to maintenance and used vehicle sales.