Ryder Reports Fourth Quarter 2021 Results and Provides 2022 Outlook

Fourth Quarter 2021

• GAAP EPS from continuing operations of $3.36 versus $0.48 in prior year, reflecting significantly improved results in Fleet Management Solutions (FMS)
• Comparable EPS (non-GAAP) from continuing operations of $3.52 versus $0.83 in prior year
• Total revenue of $2.6 billion and operating revenue (non-GAAP) of $2.1 billion up 17% and 14%, respectively, reflecting revenue growth in all business segments
• Record adjusted return on equity (ROE) of 20.9% reflecting strong FMS results
• Full-year 2021 net cash provided by operating activities from continuing operations of $2.2 billion and free cash flow (non-GAAP) of $1.1 billion

2022 Outlook

• GAAP EPS forecast of $10.40 - $11.40, up 7% - 18% from 2021; comparable EPS (non-GAAP) forecast of $11.00 - $12.00, up 15% - 25% from 2021
• ROE forecast of 20% - 22%; ROE target over the cycle increased from 15% to high teens range
• Net cash provided by operating activities from continuing operations forecast of $2.3 billion; free cash flow (non-GAAP) forecast of $200 million - $300 million
• Total revenue and operating revenue (non-GAAP) expected to increase by approximately 10%
• Strong balance sheet provides flexibility for potential acquisitions and share repurchases; intend to enter into a $300 million accelerated share repurchase program

Ryder System, Inc. (NYSE: R), a leader in supply chain, dedicated transportation, and commercial fleet management solutions, reported results for the three months ended December 31 as follows:

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Ryder is a leader in supply chain, dedicated transportation, and fleet management solutions. (Photo: Business Wire)

Total and operating revenue for the three months ended December 31 were as follows:

CEO Comment

Commenting on the company's results and outlook, Ryder Chairman and CEO Robert Sanchez says, "I am very pleased with record fourth-quarter and full-year comparable earnings driven by strong FMS results. For the full year, we generated record ROE of 21%, reflecting strong demand and pricing in used vehicle sales and rental, as well as benefits from our multi-year lease pricing and maintenance cost-savings initiatives. We also generated operating cash flow of $2.2 billion and free cash flow of $1.1 billion, our second consecutive year of very strong free cash flow.

"We made significant progress on our strategy to create long-term shareholder value by improving returns in fleet management and accelerating growth in supply chain and dedicated. Tight truck capacity fueled an exceptionally strong rental and used vehicle sales market. We have repriced approximately 40% of the lease fleet at higher return spreads and lower residual value assumptions; raising and de-risking portfolio returns. We expect incremental benefits in the coming years as we re-price the remaining leases upon renewal. We have now delivered $90 million of the $100 million multi-year annual maintenance cost savings initiative we established in 2019 and expect to surpass that goal in 2022.

"In supply chain and dedicated, we achieved record new contract wins that are expected to generate profitable growth in 2022 and beyond. We also recently completed two acquisitions that provide us enhanced capabilities in the fast-growing e-commerce and omnichannel fulfillment segment, as well as in multi-client warehousing. Although earnings in these segments were negatively impacted by labor shortages and wage increases as well as automotive supply chain disruptions, we are making progress with our customers to implement related price adjustments.

"We expect a strong used vehicle sales and rental environment to continue in 2022, slowly moderating in the second half of the year. We plan to continue to benefit from our lease pricing initiative. We also expect our supply chain and dedicated businesses to achieve their high single-digit earnings targets in the second half of the year. This reflects the benefits of growth from new contract signings and pricing adjustments addressing labor and supply chain disruptions.

"Our capital allocation strategy and improved returns have strengthened our balance sheet. Based on our outlook, and consistent with our capital allocation strategy, we intend to enter into a $300 million accelerated share repurchase program. After completing this program, we still expect to have capacity for acquisitions and the existing share repurchase programs.

"Lastly, based on the results from our return improvement actions to-date, as well as planned initiatives and our outlook, we have raised our ROE target over the cycle from 15% to a high-teens range, driven by an improved long-term outlook for FMS returns."

Outlook

Fourth Quarter Business Segment Operating Results

Fleet Management Solutions: Higher Earnings Reflect Strong Used Vehicle Sales, Rental, and Lease Results

FMS total and operating revenue increased primarily due to higher rental revenue driven by strong demand and higher pricing. Total revenue also increased from higher fuel pricing.

FMS EBT increased by $195 million from improved used vehicle sales, rental, and lease performance, reflecting benefits from tight truck capacity and initiatives to improve returns. Higher gains on used vehicles sold and a declining impact of depreciation expense from prior vehicle residual value estimate changes contributed $123 million in higher year-over-year earnings. Used vehicle pricing approximately doubled from the prior year and ending inventory levels declined to 2,500 vehicles, which is significantly below the company's long-term target range of 7,000 - 9,000 vehicles. Rental results benefited from record utilization and a 10% increase in power fleet pricing. Rental power fleet utilization increased to 85% (up from 79% in the prior year) on a 16% larger average power fleet. Lease results benefited from higher pricing with revenue per average active vehicle up 4%, partially offset by a 2% smaller average active lease fleet, reflecting OEM vehicle delivery delays. FMS EBT as a percentage of FMS operating revenue is above the company's long-term target of high single-digits for the fourth quarter and full year 2021.

Supply Chain Solutions: Earnings from Revenue Growth More Than Offset by Lower Automotive Results, Strategic Investments, and Medical Costs

SCS total revenue increased due to strong revenue growth in all industry verticals. SCS operating revenue increased primarily due to new business, increased volumes, and the Midwest Warehouse & Distribution System acquisition; however, it was partially offset by the impact from supply chain disruptions in the automotive vertical.

SCS EBT declined primarily due to lower earnings in the automotive vertical as a result of supply chain disruptions and labor challenges. Earnings from increased pricing and new business were offset by strategic investments and medical costs. SCS EBT as a percentage of SCS operating revenue is below the company's long-term target of high single-digits for the fourth quarter and full year 2021.

Dedicated Transportation Solutions: Earnings from Revenue Growth More Than Offset by Higher Labor and Insurance Costs

DTS total and operating revenue increased due to new business, higher volumes, and increased pricing. Revenue growth from new business was driven by wins from competitors and private fleet conversions.

DTS EBT decreased primarily due to increased labor and insurance costs, partially offset by earnings from increased pricing and new business. DTS EBT as a percentage of DTS operating revenue is below the company's long-term target of high single-digits for the fourth quarter and full year 2021.

Corporate Financial Information

Unallocated Central Support Services (CSS)

Unallocated CSS costs were $15 million as compared to $49 million in the prior year, primarily reflecting a one-time expense of $28 million in the prior year for a bonus paid to frontline workers.

Income Taxes

Our effective income tax rate from continuing operations was 22.8% as compared to a benefit of 10.6% in the prior year. The prior-year tax rate was impacted by a reduction in earnings due to depreciation charges.

Capital Expenditures, Cash Flow, and Leverage

Full-year capital expenditures increased to $2.0 billion in 2021 compared to $1.1 billion in 2020 due to higher planned investments in the rental and lease fleets, partially offset by approximately $400 million due to OEM vehicle delivery delays.

Full-year net cash provided by operating activities from continuing operations remained at $2.2 billion, reflecting higher earnings, offset by higher working capital needs. Free cash flow (a non-GAAP measure) was $1.1 billion, down from $1.6 billion in 2020 due to an increase in capital expenditures, partially offset by higher proceeds from the sale of revenue-earning equipment.

Debt-to-equity as of December 31, 2021 declined to 235% from 293% at year-end 2020 and is below the company's long-term target of 250% - 300%. The decrease in debt-to-equity from year-end 2020 reflects increased earnings.

Fleet Management Solutions UK Business Update

As part of our strategy to improve returns in FMS, we intend to exit the lower return UK business over the next 12 to 18 months, subject to consultation obligations under UK law.

Business Description

Ryder System, Inc. is a leading supply chain, dedicated transportation, and fleet management solutions company. Ryder’s stock (NYSE: R) is a component of the Dow Jones Transportation Average and the S&P MidCap 400^® index. The company’s financial performance is reported in the following three, inter-related business segments:

• Supply Chain Solutions – Ryder’s SCS business segment optimizes logistics networks to make them more responsive and able to be leveraged as a competitive advantage. Globally-recognized brands in the automotive, consumer goods, food and beverage, healthcare, industrial, oil and gas, technology, and retail industries rely on Ryder’s leading-edge technologies and world-class logistics engineers to help them deliver the goods that consumers use every day.
• Dedicated Transportation Solutions – Ryder’s DTS business segment combines the best of Ryder’s leasing and maintenance capability with the safest and most professional drivers in the industry. With a dedicated transportation solution, Ryder helps customers increase their competitive position, reduce risk, and integrate their transportation needs with their overall supply chain.
• Fleet Management Solutions – Ryder’s FMS business segment provides a broad range of services to help businesses of all sizes, across virtually every industry, deliver for their customers. From leasing, maintenance, and fueling, to rental and used vehicle sales, customers rely on Ryder’s expertise to help them lower their costs, redirect capital to other parts of their business, and focus on what they do best – so they can grow.
  
  
  
  For more information on Ryder System, Inc., visit investors.ryder.com and ryder.com.

Note: Regarding Forward-Looking Statements

Certain statements and information included in this news release are “forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995, including our forecast, expectations regarding market trends and economic environment; impact of COVID-19 effects, including supply chain and labor shortage challenges, on market conditions, e-commerce trends, freight environment, earnings, depreciation, commercial rental demand and utilization, and used vehicle sales volume and pricing; expected benefits from our strategic investments and initiatives, including our recent supply chain acquisitions; expected benefits of lease pricing initiatives; our intent to execute an accelerated share repurchase program and any expected benefits in relation thereto; our intent to exit from the UK market, including expectations with respect to timing and expected benefits; our ability to execute our strategy of focusing our capital on higher returning businesses; our asset management strategy; performance, including sales and revenue growth, in our product lines and segments; residual values and depreciation expense; used vehicle inventory; earnings; free cash flow; operating cash flow; capital expenditures; fleet growth; and expected benefits from new contracts and pricing initiatives in our supply chain and dedicated business divisions. Our forward-looking statements also include our estimates of the impact of our changes to residual value estimates on earnings and depreciation expense. The expected impact of the change in residual value estimates is based on our current assessment of the residual values and useful lives of revenue-earning equipment based on multi-year trends and our outlook for the expected near- and long-term used vehicle market. A variety of factors, many of which are outside of our control, could cause residual value estimates to differ from actual used vehicle sales pricing, such as changes in supply and demand of used vehicles; volatility in market conditions; changes in vehicle technology; competitor pricing; regulatory requirements; driver shortages; customer requirements and preferences; and changes in underlying assumption factors.

All of our forward-looking statements should be evaluated by considering the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Important factors that could cause such differences include, the effect of the COVID-19 pandemic; our ability to adapt to changing market conditions, lower than expected contractual sales, decreases in commercial rental demand or utilization or poor acceptance of rental pricing, declining market demand for or excess supply of used vehicles impacting current or estimated pricing and our anticipated proportion of retail versus wholesale sales; declining customer demand for our services; higher than expected maintenance costs; lower than expected benefits from our cost-savings initiatives; lower than expected benefits from our sales, marketing and new product initiatives; higher than expected costs related to our ERP implementation; setbacks in the economic market or in our ability to retain profitable customer accounts; impact of changing laws and regulations; difficulty in obtaining adequate profit margins for our services; inability to maintain current pricing levels due to soft economic conditions, business interruptions or expenditures due to labor disputes, severe weather or natural occurrences; competition from other service providers and new entrants; driver and technician shortages resulting in higher procurement costs and turnover rates; impact of worldwide semiconductor shortage, higher than expected bad debt reserves or write-offs; decrease in credit ratings; increased debt costs; adequacy of accounting estimates; higher than expected reserves and accruals particularly with respect to pension, taxes, insurance and revenue; impact of changes in our residual value estimates and accounting policies, including our depreciation policy; unanticipated changes in fuel prices; unanticipated currency exchange rate fluctuations; our ability to manage our cost structure; and the risks described in our filings with the Securities and Exchange Commission (SEC). The risks included here are not exhaustive. New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risks on our business. Accordingly, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Note: Regarding Non-GAAP Financial Measures

This news release includes certain non-GAAP financial measures as defined under SEC rules. Refer to Appendix - Non-GAAP Financial Measure Reconciliations at the end of the tables following this press release for reconciliations of the non-GAAP financial measures contained in this release to the nearest GAAP measure and why management believes that presentation of each measure provides useful information to investors. Additional information regarding non-GAAP financial measures as required by Regulation G and Item 10(e) of Regulation S-K can be found in our most recent Form 10-K, Form 10-Q and our Form 8-K filed as of the date of this release with the SEC, which are available at http://investors.ryder.com.

CONFERENCE CALL AND WEBCAST INFORMATION

Ryder’s earnings conference call and webcast is scheduled for February 16, 2022 at 11:00 a.m. ET. To join, click here.

LIVE AUDIO VIA PHONE

Toll Free Number: 888-352-6803

USA Toll Number: 323-701-0225

Audio Passcode: Ryder

Conference Leader: Bob Brunn

AUDIO REPLAY VIA PHONE

An audio replay of the call will be available one hour after call ends for 30 days.

Toll Free Number: 888-203-1112

USA Toll Number: 719-457-0820

Replay Passcode: 1420126

AUDIO REPLAY VIA MP3 DOWNLOAD

A podcast will be available within 24 hours after the end of the call. Click here then select Financials/Quarterly Reports and the date.

AUDIO & SLIDE REPLAY VIA INTERNET

An audio replay including the slide presentation will be available within two hours following the call. Click here then select Financials/Quarterly Reports and the date.

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