Ryder System Inc. (R), one of the world's largest providers of integrated logistics and transportation solutions, has reported second quarter 2012 adjusted earnings of $1.00, which surpassed the Zacks Consensus Estimate of 93 cents and increased 9% from 92 cents in the year-ago quarter.
The year-over-year growth was aided by higher retail and wholesale pricing on used vehicles, followed by lower maintenance and overhead expenses.
Adjusted earnings for the second quarter 2012 excluded the negative impacts of $0.09 or $7.1 million in special items related to restructuring and other charges.
The company registered revenue of $1,563.9 million in the second quarter, which came below the Zacks Consensus Estimate of $1,585 million but grew 3% year over year. Operating revenue (total revenue less Fleet Management Solutions fuel and all subcontracted transportation) increased 6% year over year to $1,266.6 million, driven by acquisitions and organic growth.
Segment Results
Fleet Management Solutions: Total revenue climbed 3% year over year to $1,100.9 million on higher contract-related maintenance and Commercial Rental revenues that increased 14% and 10%, respectively. The growth in Commercial Rental was backed by acquisition and higher pricing.
On a year-over-year basis, contractual revenue and full-service lease revenue increased 5% each, followed by contract maintenance revenue that grew 2% and fuel revenue that slid 5% due to lower shipment and lower fuel price recoveries from customers. Operating revenue for the segment increased 7% year over year to $830.9 million.
Supply Chain Solutions: The segment includes operational activities of the company’s Dedicated Contract Carriage business. Total revenue grew 6% year over year to $570.3 million in the second quarter. Operating revenue (excluding subcontracted transportation) also grew 6% year over year to $485.7 million. The year-over-year growth was primarily based on higher volumes in automotive and dedicated contract carriage.
Liquidity and Cash Flow
Ryder System ended the quarter with cash and cash equivalents of $72.6 million compared with $104.6 million at year-end 2011. Cash from operations was $472.0 million compared with $472.8 million in the year-ago quarter. Given heavy investments in vehicles, free cash flow was a negative $369.9 million versus a negative $171.8 million as of June 30, 2011.
Long-term debt at the end of the second quarter increased to $ 3,364.1 million from $3,107.8 million at the end of fiscal 2011 due to investments in vehicles. Debt-to-equity ratio was 271% compared with 257% at year-end 2011. Total obligations to equity were 284% compared with 261% at year-end 2011, and was within the company’s long-term target range of 250% to 300%.
Guidance
Management expects third quarter 2012 earnings in the range of $1.15–$1.22 per share, up 6–12% from $1.09 in the third quarter of fiscal 2011. For FY12, management expects earnings in the range of $3.75–$3.90 per share, up from the previous projection of $3.65–$3.85.
Recommendation
Despite the company’s strong performance in the second quarter and encouraging earning projections, we remain concerned about the challenging economic environment surrounding its operations. Further, heavy capital expenditures, a distressed cash position, lower demand on tighter truckload market and competition from company’s like AmeraMex International, Inc. (AMMX) are also expected to create significant headwinds for the company.
We, currently, have a long-term Underperfrom rating on Ryder System. For the short term (1–3 months), the stock retains a Zacks #4 Rank (Sell).
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