In a quarter that one analyst on the company’s earnings call described as “fantastic,” Ryder saw one key number drop: the price of used vehicles.
While the used vehicle numbers for the third quarter were higher than they were a year ago, sequentially, they were down from the second quarter of 2022.
For the third quarter, Ryder (NYSE: R) said its used truck prices were down 11% from the second quarter of 2022; the drop was 22% on tractors.
“As you saw, truck pricing was down,” Chairman and CEO Robert Sanchez said on the call with analysts. “We’re expecting kind of that trend to continue, maybe at a little bit slower clip, but we’re expecting that to continue.”
That projection of continued lower used truck prices could be seen in the company’s forecast for earnings. After an earnings-per-share performance in the third quarter of $4.82 on a GAAP basis and $4.45 on a non-GAAP basis, with fuel the key difference between the two, Ryder sees a fourth quarter pair of EPS forecasts at $3.53-$3.73 for GAAP accounting and $3.18-$3.38 for non-GAAP accounting.
The “fantastic” description of the quarter came from the fact that the $4.45 non-GAAP number beat forecasts by 79 cents, according to SeekingAlpha. Revenue of $30.4 billion topped targets by $80 million.
Wall Street thought the numbers were fantastic too. Ryder’s stock just before the close was up slightly less than 10%, to $82.07. It was on target to close near its highs of the day.
Meanwhile, the used truck market was still good enough to be a major contributor to a strong performance at the Fleet Management Solutions segment of Ryder. That segment is a little less than 50% of company revenues, and it saw its total revenue grow 10% and its operating revenue — which excludes fuel and certain insurance costs — rise 4%.
Earnings before taxes were up $79 million at FMS, an increase of 42%, and the tight truck market was the key reason. In its prepared earnings statement, Ryder said the increase was “primarily from higher used vehicle sales and rental results reflecting benefits from tight truck capacity and initiatives to improve returns in those areas.”
Of that $79 million, $55 million was as a result of both higher gains on vehicle sales and a declining impact from significant depreciation the company took on its inventory of vehicles in 2020. As the actual prices come in better than the estimates in the depreciation, it has a positive impact on earnings.
The earnings before taxes figure as a percentage of FMS operating revenue “is well above the company’s long-term target of low double-digits for the third quarter and for the trailing 12-month period.” That number on a GAAP basis was 16.8% in the quarter, up 380 basis points from a year ago, while on a non-GAAP basis it was up 20.4%, an increase of 550 bps.
The company’s supply of used vehicles to sell remains tight. It was up from the second quarter, rising to 4,700 vehicles, and the inventory is below the long-term target range of 7,000 to 9,000 vehicles.
Truck rental revenue benefited from a 7% year-on-year increase in power-fleet pricing, and utilization of that fleet that reached 83%.
In earlier calls with analysts, Ryder management has said it has difficulties keeping up with the needs for more vehicles in its fleet due to delays in deliveries from OEMs.
But in its prepared statement with the earnings, Ryder said the fleet “returned to growth at the end of the quarter.
“We continue to expect our year-end lease fleet to be up by approximately 2,000 vehicles, which will contribute primarily to earnings in 2023,” the company said.
Ryder management has often said it is seeking to build up its Supply Chain Solutions (SCS) segment, as well as its Dedicated Transportation Solutions segment.
SCS can be described as a contract logistics operation. In the quarter, it showed increases in performance that were boosted in part by acquisitions. Ryder bought Whiplash, a last-mile provider, in December and put it in the SMS segment.
In part as a result, total revenue and operating revenue at SMS were up 50% and 49%, respectively. Organic revenue was up 23% year over year.
Earnings before tax at the Dedicated Transportation Solutions segment were up 149% on non-GAAP operating revenue growth of 17%. DTS operates as dedicated operations at truckload carriers generally do: by being contracted to provide a full suite of transportation services for a client.
Ryder said growth at DTS was “primarily due to higher pricing as well as new business.”
Ryder has been the subject of takeover speculation twice this year. In May, the activist shareholder group HG Vora made an unsolicited offer to acquire the company. It was rejected. There was no further public action by HG Vora.
Late in the quarter, Bloomberg reported that Apollo Management (NYSE: APO) was interested in acquiring Ryder, but no public offer was ever tendered.
Sanchez, responding to an analyst question, was brief. “As a matter of policy, we don’t comment on rumors and speculation,” he said. “As you know, on the HG Vora letter, we determined that the price was not indicative of the value of the company. And that’s really all I have to say on that.”
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