OREANDA-NEWS. Ryder System, Inc. (NYSE: R), a leader in commercial fleet management, dedicated transportation, and supply chain solutions, today reported record first quarter comparable earnings and revenue. Earnings and earnings per diluted share (EPS) from continuing operations for the three months ended March 31 were as follows:


               
(in millions)     Earnings       Diluted EPS
      2016   2015   Change       2016   2015   Change
GAAP     $56.2   $53.3   5%       $1.05   $1.00   5%
Non-operating pension costs     4.0   2.8           0.07   0.06    
Other items     -   1.2           -   0.02    
Comparable     $60.1   $57.3   5%       $1.12   $1.08   4%
                               

The Company reported record first quarter operating revenue (revenue excluding all fuel and subcontracted transportation), reflecting higher revenue across all business segments, partially offset by negative impacts from foreign exchange. Total first quarter revenue increased from the prior year, as higher operating revenue was partially offset by lower fuel costs passed through to customers. Operating and total revenue for the three months ended March 31 were as follows:

               
(in millions)     Operating Revenue       Total Revenue
      2016   2015   % Change  

% Change
excl. FX

       2016   2015   % Change
Total     $1,406.0   1,300.3   8%   9%       $1,629.7   1,567.2   4%
FMS     $962.3   899.2   7%   8%       $1,097.9   1,087.2   1%
DTS     $190.3   165.8   15%   15%       $244.8   212.7   15%
SCS     $322.4   295.4   9%   11%       $388.7   371.1   5%
                                   

Commenting on the Company’s first quarter performance, Ryder Chairman and CEO Robert Sanchez said, “Our strategy to profitably grow our contractual businesses helped us deliver another quarter of record revenue and earnings. The strong performance of our contractual businesses, as well as cost actions we took early in the year, enabled us to overcome a challenging used vehicle sales and rental environment. Although challenging, our used vehicle sales and rental product lines performed slightly better than expected. Rental fleet levels and used vehicle inventories tracked in line with our plans.

“We are pleased with the strong revenue growth generated across all contractual product lines. The full service lease fleet grew by 1,700 vehicles and the contract maintenance fleet grew by 2,800 vehicles during the quarter. In Dedicated Transportation Solutions, double-digit growth in both revenue and earnings included continued success with full service lease customers expanding their relationships to higher value dedicated solutions. Supply Chain Solutions showed strong operating revenue growth with a double-digit earnings increase, driven by new business, increased volumes, and higher pricing.

“We also continued to see strong new sales activity across all contractual product lines in the quarter, driven by secular outsourcing trends and Ryder sales and marketing initiatives. In our largest product line, full service lease, more than 40% of our fleet growth came from customers that were new to outsourcing.”

First Quarter Business Segment Operating Results

Fleet Management Solutions

In the FMS business segment, operating revenue (revenue excluding fuel) in the first quarter of 2016 was $962.3 million, up 7% (or 8% excluding foreign exchange) compared with the year-earlier period. Total revenue in the first quarter of 2016 was $1.1 billion, up 1% compared with the year-earlier period, as the operating revenue increase was largely offset by the impact of lower fuel costs passed through to customers. Full service lease revenue increased 8% (or 9% excluding foreign exchange) due to fleet growth and higher prices on replacement vehicles. The number of full service lease vehicles (excluding U.K. trailers) increased by 6,500 from the year-earlier period and grew by 1,700 vehicles sequentially from the fourth quarter of 2015. Commercial rental revenue was unchanged from the year-earlier period.

FMS earnings before tax were $82.9 million in the first quarter of 2016, down 8% compared with $89.7 million in the same period of 2015. Decreased earnings primarily reflect lower results in used vehicle sales and fuel, as well as increased insurance costs, partially offset by higher full service lease performance. Full service lease results benefited from fleet growth and lower depreciation associated with increased residual values. Commercial rental performance declined slightly as modestly higher demand was more than offset by lower fleet utilization. Rental power fleet utilization was 70.4% for the first quarter, down from 73.4% in the year-earlier period, on a 2% larger average fleet. Rental pricing was consistent with the prior year. Used vehicle sales declined due to lower tractor pricing, partially offset by higher pricing on trucks. FMS earnings before tax as a percentage of operating revenue were 8.6% in the first quarter of 2016, down 140 basis points from 10.0% in the same quarter a year ago, primarily reflecting lower used vehicle pricing.

Dedicated Transportation Solutions

In the DTS business segment, first quarter 2016 operating revenue (revenue excluding fuel and subcontracted transportation), was $190.3 million, up 15% compared with the year-earlier period. DTS operating revenue grew as a result of new business, increased volumes, and higher pricing. Total revenue in the first quarter of 2016 was $244.8 million, also up 15%.

DTS earnings before tax of $14.3 million increased 59% in the first quarter of 2016 compared with $9.0 million in 2015 due to operating revenue growth and lower insurance costs. DTS earnings before tax as a percentage of operating revenue were 7.5% in the first quarter of 2016, up 210 basis points from 5.4% in the year-earlier period.

Supply Chain Solutions

In the SCS business segment, first quarter 2016 operating revenue (revenue excluding fuel and subcontracted transportation) was $322.4 million, up 9% (or 11% excluding foreign exchange) compared with the year-earlier period. SCS operating revenue grew as a result of new business, increased volumes, and higher pricing. Total revenue was up 5% to $388.7 million, compared with $371.1 million, as increased operating revenue was partially offset by lower subcontracted transportation and reduced fuel costs passed through to customers.

SCS earnings before tax of $19.8 million increased 26% in the first quarter of 2016 compared with $15.7 million in 2015 due to higher pricing, increased volumes, and new business. SCS earnings before tax as a percentage of operating revenue were 6.1% in the first quarter of 2016, up 80 basis points from 5.3% in the prior year.

Corporate Financial Information

Central Support Services

Central Support Services (CSS) are overhead costs incurred to support all business segments and product lines. Most CSS costs are allocated to the business segments. In the first quarter of 2016, unallocated CSS costs were $9.7 million, down from $11.9 million in the year-earlier period, primarily driven by lower compensation-related expenses.

Items Excluded from Comparable Earnings

Non-operating components of pension costs are excluded from both comparable earnings and segment earnings before tax in order to more accurately reflect the operating performance of the business. Non-operating pension costs totaled $6.9 million ($4.0 million after tax) or $0.07 per diluted share in the first quarter of 2016, up from $4.9 million ($2.8 million after tax) or $0.06 per diluted share in the year-earlier period. This increase was due to lower expected asset returns.

In the first quarter of 2015, the Company recognized a pre-tax charge of $1.8 million ($1.2 million after tax) or $0.02 per diluted share from professional fees associated with cost saving initiatives.

Income Taxes

The Company’s effective and comparable income tax rates from continuing operations for the first quarter of 2016 were 36.7% and 37.1%, respectively, consistent with the year-earlier period.

Capital Expenditures

Capital expenditures decreased to $498 million for the first quarter of 2016, compared with $653 million in 2015. The decrease in capital expenditures primarily reflects lower planned investments in the commercial rental fleet. Higher proceeds from used vehicle sales of $121 million versus $97 million in 2015, reflects increased volumes, partially offset by lower tractor pricing. Net capital expenditures (including proceeds from the sale of assets) were $377 million in 2016, down from $556 million in 2015.

Cash Flow

Operating cash flow for the first quarter of 2016 was $365 million, up from $284 million in 2015 due to higher cash-based earnings and improved working capital. Total cash generated (including proceeds from used vehicle sales) was $511 million, compared with $397 million in 2015. Free cash flow was negative $64 million, compared with negative $156 million in 2015, reflecting increased cash from operations. The Company’s full-year 2016 free cash flow forecast remains at $100 million.

Leverage

As of March 31, 2016, debt increased by $97 million compared with year-end 2015, due primarily to investments in vehicles to fund growth. Debt to equity as of March 31, 2016 was 274% compared with 277% at year-end 2015, and within Ryder’s target range of 225% to 275%. Based on forecasted leverage, the Company anticipates resuming its previously announced two million share anti-dilutive share repurchase program in the second quarter.

2016 Earnings Forecast

Commenting on the Company’s 2016 outlook, Mr. Sanchez said, “Overall, for the balance of the year, we forecast Ryder’s contractual businesses to continue to grow in line with our prior expectations. We anticipate used vehicle sales results to be slightly better than our original forecast for the year. Although rental demand was somewhat better than expected in the first quarter, we expect the balance of the year to reflect more unfavorable comparisons with our original forecast, due to softening market conditions, particularly with tractors. We anticipate continued solid new sales activity across all contractual businesses and continued expansion of our lease fleet. We expect Supply Chain Solutions and Dedicated Transportation Solutions to perform consistent with our full-year plan, showing mid-single-digit and high-single-digit revenue growth, respectively. Lastly, we plan to begin anti-dilutive share repurchases in the second quarter, earlier than previously expected.”

Although Ryder modestly outperformed its forecast in the first quarter, in view of the uncertain rental and used vehicle sales environment, the Company is maintaining its full-year 2016 comparable earnings from continuing operations forecast of $6.10 to $6.30 per diluted share. The Company is also establishing a second quarter 2016 comparable earnings forecast of $1.50 to $1.55 per diluted share, reflecting unfavorable year-over-year comparisons in used vehicle sales and an increasingly challenging rental environment, partially offset by continued growth in our contractual product lines.