RYDER SYSTEM INC: Your Annual Performance Snapshot

Considering an investment in Ryder? This summary offers a clear, jargon-free look at the company's performance over the past year. We'll explore what Ryder does, review its financial health, and discuss what lies ahead.

1. What Ryder Does and How They Performed This Year

Ryder is a leading provider in the logistics and transportation sector, helping businesses manage their vehicle fleets and supply chains. The company operates across the U.S., Canada, Mexico, and the UK, demonstrating a broad operational footprint.

For the fiscal year ending December 31, 2023, Ryder reported total revenue of $12.0 billion. This represented a slight decrease of 3% from the previous year, primarily due to softer used vehicle sales and lower rental demand. Despite this, net earnings reached $750 million, translating to diluted earnings per share (EPS) of $14.50. This performance reflects efficient cost management and strong results in specific segments.

Ryder's business is structured into three main areas:

• Fleet Management Solutions (FMS): Ryder helps companies manage their vehicle fleets. Services include ChoiceLease (long-term truck and trailer leases), Commercial Rental (short-term truck and trailer rentals), and SelectCare and Other services (such as maintenance and fuel). While FMS revenue saw a modest dip, it remains a core segment. Ryder manages a vast fleet of over 280,000 vehicles, including various types of trucks, tractors, and trailers.
• Supply Chain Solutions (SCS): Ryder assists businesses in managing their entire supply chain, from sourcing raw materials to delivering finished products. This segment demonstrated resilience, growing by 5% in 2023. Ryder partners with diverse industries, including Omnichannel Retail, the Automotive Industry, Consumer Packaged Goods, and other Industrial sectors.
• Dedicated Transportation Solutions (DTS): This service provides businesses with a private fleet experience without the operational complexities. Ryder supplies vehicles, drivers, and management tailored to a customer's specific transportation needs. DTS performed strongly, growing by 8% in 2023, driven by new customer contracts and increased service volumes.

2. Financial Performance: Revenue, Profit, and Growth

Building on the overview, Ryder's financial performance in 2023 included total revenue of $12.0 billion (down 3% year-over-year), net earnings of $750 million, and diluted EPS of $14.50. Free cash flow stood at $600 million, reflecting disciplined capital allocation.

A significant future growth driver is the acquisition of Cardinal Logistics in February 2024 for approximately $450 million. This strategic move is expected to add over $1.1 billion in annual revenue and substantially expand Ryder's footprint in the Dedicated Transportation Solutions segment, positioning it as the second-largest player in this market. This acquisition is projected to be accretive to earnings per share in 2025.

3. Major Achievements and Challenges This Year

A key achievement for Ryder was the acquisition of Cardinal Logistics, which significantly strengthens its market position. Other accomplishments include successful cost management initiatives that helped maintain strong profitability despite revenue headwinds, and the expansion of key customer contracts in the SCS and DTS segments.

However, the company faced several challenges. Ryder recorded an impairment charge of $75 million related to "unfavorable lease assets." This primarily involved older vehicles in its rental fleet that experienced lower-than-expected resale values due to market conditions. The company also increased its "reserve for self-insurance accruals" by $40 million due to higher claims frequency and severity, particularly in workers' compensation and auto liability, reflecting broader industry trends. Softer demand in the used vehicle market and a slight downturn in commercial rental activity also impacted the FMS segment's revenue, while persistent inflationary pressures on labor and maintenance costs continued to be a challenge.

4. Financial Health: Cash, Debt, and Liquidity

Ryder ended the year with cash and cash equivalents of $250 million. Total debt stood at $8.5 billion, comprising $1.2 billion in current debt (due within one year) and $7.3 billion in long-term debt and capital lease obligations. The company maintains a strong liquidity position with $1.5 billion available under its revolving credit facilities.

Ryder has issued various types of unsecured notes totaling $3.5 billion, with a weighted average interest rate of 4.8%. Significant maturities include $800 million due in 2025 and $1.1 billion in 2027. The company also utilizes a trade receivables financing program, which provides up to $500 million in additional liquidity by selling customer invoices, helping manage working capital.

Key financial ratios indicate a healthy but leveraged position: Debt-to-EBITDA of 2.8x and an Interest Coverage Ratio of 5.5x, suggesting Ryder can comfortably cover its interest payments.

5. Key Risks That Could Affect Stock Price

• Debt Load and Interest Rate Sensitivity: With $8.5 billion in total debt, Ryder is sensitive to interest rate fluctuations. A 1% increase in borrowing costs could impact annual interest expense by approximately $85 million.
• Valuation Allowances for Deferred Tax Assets: The $120 million valuation allowance for deferred tax assets signals uncertainty about utilizing certain tax benefits in the future, potentially impacting future reported earnings if these benefits expire unused.
• Economic Downturns: As a logistics provider, Ryder's performance is closely tied to the overall economy. A significant economic slowdown could reduce demand for fleet services, transportation, and supply chain solutions.
• Fuel Price Volatility: Volatile fuel prices directly impact operating costs, especially in FMS and DTS, which can be challenging to pass on entirely to customers.
• Labor Shortages: Ongoing shortages of qualified commercial drivers and skilled technicians continue to drive up labor costs and could affect service delivery.
• Used Vehicle Market Fluctuations: Changes in the used vehicle market can impact the residual value of Ryder's leased assets, affecting profitability when vehicles are sold.
• Regulatory Changes: Evolving environmental regulations (e.g., emissions standards for commercial vehicles) and changes in transportation laws could require significant capital investments.

6. Competitive Positioning

Ryder's comprehensive service portfolio across FMS, SCS, and DTS, serving a diverse range of industries (retail, automotive, consumer goods, industrial) and geographies (US, Canada, Mexico, UK), provides a strong competitive advantage. The Cardinal Logistics acquisition significantly bolsters its DTS segment, making Ryder a top-tier player in that market. Ownership of a vast fleet of over 280,000 vehicles and extensive material handling equipment provides significant operational scale and purchasing power. Ryder differentiates itself through technology investments in fleet telematics, supply chain visibility platforms, and predictive maintenance, offering advanced solutions to customers and fostering strong, long-term relationships.

7. Leadership and Strategy Changes

Beyond the Cardinal Logistics acquisition, which is a cornerstone of its growth strategy in DTS, Ryder is also investing heavily in technology and sustainability initiatives. The company is expanding its electric vehicle (EV) fleet offerings and charging infrastructure, aiming to meet growing customer demand for greener logistics solutions. Ryder continues to focus on operational efficiency improvements and selective divestitures of non-core assets to optimize its portfolio. The company reported no significant changes in executive leadership, indicating stable management.

8. Future Outlook

Management projects total revenue growth of 6-8% for fiscal year 2024, largely driven by the Cardinal Logistics acquisition and continued strength in SCS and DTS. They anticipate diluted EPS in the range of $15.00 - $16.50 for 2024. The $600 million in operating lease commitments for leases not yet commenced indicates planned expansion of Ryder's fleet and facilities, supporting future growth. Ryder expects continued investment in technology and sustainable solutions to drive long-term value and enhance customer offerings.

9. Market Trends and Regulatory Changes Affecting Ryder

• E-commerce Growth: The booming e-commerce sector continues to fuel demand for Ryder's SCS and DTS services, particularly in last-mile delivery and fulfillment.
• Nearshoring/Reshoring: Increased manufacturing and supply chain activities within North America are creating new opportunities for Ryder's integrated logistics services.
• Sustainability Demands: Growing pressure from customers and regulators for greener logistics solutions is driving Ryder's investments in alternative fuel vehicles and optimized routing technologies.
• Regulatory Environment: Upcoming emissions standards (e.g., California's Advanced Clean Fleets rule) and evolving driver safety regulations will require ongoing adaptation and investment in compliant vehicles and training. Ryder actively participates in industry discussions and pilots new technologies to stay ahead of these trends.