For the ongoing second quarter and beyond, we maintain our Outperform recommendation on Ryder System Inc. (R). Our reiteration is based on the company’s solid financial performance in the previous quarter.
Outstanding results were noticed across most of Ryder’s business segments. At the same time, the company remains well positioned for lease fleet expansion in the second half of 2011.
We believe Ryder’s continued investments in fleet and technology upgrades will fuel earnings growth despite high maintenance costs and the negative impact of the disaster in Japan in the near term.
Additionally, the strong balance sheet encourages the company to expand its footprint via acquisitions and assure its position as the world's largest provider of integrated logistics and transportation solutions through more market share, outpacing competitors like Con-Way Inc. (CNW).
We expect the company to grow on favorable trends across all its business categories. The Fleet Management Solutions segment will likely benefit from increased commercial rental and used vehicle sales, higher pricing, improving customer retention levels and expansion of commercial rental and leased vehicles fleet.
In Supply Chain Solutions, we expect strong performance to continue on the favorable impact of the acquisition of Total Logistic Control, a subsidiary of Supervalu Inc. (SVU). The acquisition resulted in enhanced SCS activities and increased market opportunities in the field of packaging and warehousing.
Further, Dedicated Contract Carriage is expected to grow on benefits form recently acquired businesses from Scully Companies and higher fuel costs pass-through to customers. Going forward, pricing is expected to remain strong on an improving economy, and is set to drive demand growth in a lower inventory market for trucks and other related vehicles.
Ryder’s businesses remain significantly benefited from business takeover as it has expanded and tapped new opportunities by acquiring several companies like Carmenita Leasing, Inc. and Scully Companies Inc in early 2011. The company spent approximately $84 million on buying these two companies and further expects expenditures of $20 million related to these acquisitions later in 2011.
Ryder continues to invest strategically in commercial rental and lease vehicles, maintenance technology, sales and information technology initiatives. These investments are expected to propel revenue and earnings growth going forward. For 2011, Ryder plans to invest a total of $1.75 billion in both lease and rental fleets.
Thus, we reaffirm our long-term Outperform recommendation on Ryder, supported by a Zacks #2 Rank (Buy).
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