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Lower used truck prices will hit Ryder profitability in ’23

Decline in prices expected to be ‘significant,’ CEO Sanchez says, but more ‘normalized’ market returning

Ryder sees the value of used trucks declining in the coming year. (Photo: Jim Allen/FreightWaves)

After a blowout 2022, Ryder System is projecting more moderate profitability in 2023, with a decline in used vehicle sales revenue as the primary reason.

Ryder posted net earnings of $17.04 per share for all of 2022, and non-GAAP earnings of $16.37 per share. Those were increases of 76% and 71%, respectively. But its forecast for the coming year is for non-GAAP earnings of $11.05-$12.05.

Asked by an analyst for a number that would indicate just how much Ryder (NYSE: R) sees used vehicle prices dropping this year, CEO Robert Sanchez said the company “doesn’t like to give that out, because we don’t like to lead the market. … But we are assuming it is a pretty significant drop from where we ended the year.”

The actual number of vehicles sold is not expected to change. But in a presentation to analysts on its earnings call, Ryder executives presented a chart that said of the decline in projected non-GAAP earnings per share to the high end of the range of $12.05 from $16.37, $3.85 is expected to come from lower profits from used vehicle sales.

The term that Sanchez and other Ryder executives used during the call with analysts was that what the company saw occurring in 2023 was a return to normalcy after two years during which used vehicle sales were highly profitable, contributing to record earnings and revenues.

“We are expecting a normalized environment for used trucks,” Sanchez said, according to a transcript. He also offered the “normalized” forecast for rentals as well as used vehicle sales out of the company’s Fleet Management Services segment.

And it isn’t a surprise, he added. “This is how we expected it to play out,” he said. “We expected the outsized earnings from used vehicle sales to come down, and we expected the core earnings to stabilize.”

CFO John Diez said on the conference call that Ryder sold 6,800 vehicles during the quarter, but 2,000 of those came with its exit from Ryder’s U.K. business. Inventories of used vehicles for sale stood at 4,300 at the end of the quarter, Diez said, less than its target of 7,000 to 9,000.

The impact on the Ryder bottom line as a result of the sales has been magnified during the recent bull market for used vehicles by the fact that Ryder took a significant writedown on their value in 2020.

Despite a forecast of significantly decreased earnings this year, Ryder stock reacted positively Wednesday, potentially boosted by the company’s announcement that it was launching a discretionary stock buyback program that would enable it to acquire up to 2 million Ryder shares through February 2025.

Ryder’s stock Wednesday hit a 52-week high of $102.36, and it has risen more than 33% in the past 12 months. It fell later in the day to close at $99.89, up 3.17%.

Sanchez said on the call that Ryder returned $680 million to shareholders in 2022 either through three repurchase programs or dividends. Ryder’s yield Monday, according to Barchart, was 2.56%, a healthy return for a logistics company.

In other news from the earnings report, Ryder made steady progress in the fourth quarter, and in all of 2022, in its quest to have less of its revenue come from its well-known truck leasing business.

Its acquisitions have been in its last-mile operations that are part of the Supply Chain Solutions (SCS) or the Dedicated Transportation Solutions (DTS) segments of the company, such as Whiplash and Baton. And both those segments saw increases in their revenue and earnings before taxes as a percentage of the overall company.

For example, fourth-quarter revenue at SCS rose 44%, as did its operating revenue. Earnings before taxes climbed to $35 million, a 67% increase from the fourth quarter of 2021.

Meanwhile, at DTS, total revenue was up 13% to $456 million, operating revenue was up 10% to $320 million, and EBT climbed 150% to $30 million.

In the prepared statement accompanying the release of the earnings, Sanchez said the earnings in those two segments were higher, “reflecting pricing actions and growth in these higher-return contractual businesses.”

Meanwhile, the better-known Fleet Management Solutions (FMS) segment at Ryder saw total revenue rise just 6%, to just under $1.7 billion, operating revenue rise 2% to $1.32 million, and earnings before taxes stay flat at $255 million. The impact of declining prices for used vehicle sales would show up in the financial report for FMS.

Ryder has long talked about diversifying its business so that FMS is less a percentage of the entire company. And in terms of revenue, it’s getting there: Fourth-quarter combined revenue for SMS and DTS was $1.7 billion, while FMS was about $1.6 billion. But profitability as measured by earnings before taxes still shows a significant mismatch, with the $255 million at FMS far outrunning the combined $65 million at SMS and DTS.

According to a transcript of the earnings call, Sanchez said the company “expects secular trends to continue to favor transportation and logistics outsourcing.”

In other highlights from the earnings call:

  • Ryder executives said the company expects “production restraints” at OEMs to continue, and that it would impact both revenue and earnings from new leases at FMS that already have been signed. The current lease sales background is 11 months, according to Diez. Most leases signed as of today won’t be put into place until 2024 given that backlog, he said.
  • Ryder’s acquisition of last-mile company Whiplash in late 2021 is “generally performing to plan,” Sanchez said. “I will tell you that in the first half of last year, it did really well, but now we’re kind of seeing this thing through the cycle.” But December volumes did not grow as much as would have been expected if seasonality was normal instead of the “no peak season” that the freight market tends to agree prevailed in the fourth quarter. “We’re a little cautious in how we’re forecasting it,” Sanchez said. “We want to see it perform over the cycle but we’re very excited about the growth opportunities.” Whiplash is part of SCS.
  • Diez said on the earnings call that Ryder will “continue to pursue targeted acquisitions, which have been a key contributor to our accelerated growth in supply chain.” Ryder exited the year with $267 million in cash, up from $234 million a year earlier.

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.