Ryder System Inc. (R), the world's largest provider of integrated logistics and transportation solutions, reported outstanding first quarter 2011 results. Adjusted earnings of 51 cents breezed past the Zacks Consensus Estimate of 44 cents.
The quarter’s earnings reached a record high, growing 112.5% from 24 cents in the year-ago quarter. Adjusted quarterly net income increased 104% year over year to $26.4 million from $12.9 million in the year-ago period.
The superlative earnings growth was in the light of organic development in commercial rental and used vehicle sales, acquisitions and higher volumes in Supply Chain Solutions.
The company registered revenue of $1,425.4 million in the first quarter, reflecting a 16.8% year over year increase. The quarter’s revenue also outpaced the Zacks Consensus Estimate of $1,331.0 million.
The pass-through of higher fuel costs to customers and increased commercial rental revenues led to the robust revenues during the quarter. Operating revenue (total revenue less Fleet Management Solutions fuel and all subcontracted transportation) increased 14.3% year over year to $1,129.1 million driven by acquisitions and organic growth.
Segment Results
Fleet Management Solutions: Total revenue climbed 11% year over year to $980.1 million on higher fuel services and commercial rental revenues that increased 26% and 34%, respectively. Higher fuel services and commercial rental revenues were driven by increased fuel prices, growth in global market demand and higher pricing.
Operating revenue (excluding fuel) grew 6% year over year to $719.0 million. Contractual revenue remained flat year over year, while contract related maintenance revenue dipped 4%. Other revenue increased 5% year over year.
Supply Chain Solutions: Total revenue leaped 36% to $401.0 million in the first quarter from $294.2 million in the year-ago quarter. Operating revenue (excluding subcontracted transportation) also grew 36% year over year to $324.3 million from $238.2 million in the year-ago quarter.
The improvement was driven by higher freight volumes and the acquisition of Total Logistic Control, a subsidiary of Supervalu Inc. (SVU) in December last year.
Dedicated Contract Carriage: Total revenue and operating revenue (excluding subcontracted transportation) increased 16% and 15% to $134.7 million and $128.4 million, respectively, from the year-ago quarter. Higher revenues were aided by the acquisition of Scully Companies Inc. in January this year and pass-through of higher fuel costs.
Liquidity and Cash Flow
Ryder System ended the quarter with cash and cash equivalents of $155.6 million at the compared with $213.1 million at the end of fiscal 2010. Cash from operations was $217.6 million compared to $271.5 million in the year-ago period. The company’s free cash flow was negative $10 million from a versus positive $136 million in the same period comparable quarter last year due to heavy investments in vehicles.
Total debt at the end of the first quarter was $2,809.1 million compared with $2,747.0 million at the end of fiscal 2010. Debt-to-equity ratio at the end of the first quarter was up 100 bps at 195%.
Guidance
Management expects second quarter earnings to be in the range of 72 cents to 77 cents per share. Fiscal 2011 earnings estimate was raised to $2.90 to $3.00 per share from the previous estimate of $2.80 to $2.90.
Recommendation
Given the solid organic growth in most of the business segments, we expect strong revenue and earnings performance in the remainder of 2011. Further, the company remains well positioned for lease fleet expansion in the second half of 2011. These continued investments in fleets and technology will fuel earnings growth in future ahead despite high maintenance cost.
The strong balance sheet encourages the company to expand its footprint via acquisitions. It also helps in gaining more market share than competitors like Con-Way Inc. (CNW).
We are currently maintaining our long-term Outperform recommendation supported by a Zacks #2 (Buy) Rank.
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