MIAMI--(BUSINESS WIRE)--

Ryder System, Inc. (NYSE: R), a leader in commercial , , and solutions, reports total and operating revenue in the third quarter. Revenue grew in Fleet Management Solutions and Dedicated Transportation Solutions reflecting new business and higher volumes. Third quarter GAAP EPS was a loss of $(1.75) as compared to $1.73 in the prior year, reflecting an increase in non-cash depreciation expense primarily related to the change in vehicle residual value estimates. Comparable EPS was a loss of $(1.49) as compared to $1.67 in the prior year. Losses primarily results from an increase in non-cash depreciation expense of $3.01, due to a change in vehicle residual value estimates of all power vehicles.

Results for the three months ended September 30 were as follows:

Total and operating revenue for the three months ended September 30 were as follows:

Commenting on the company’s third quarter results, Ryder Chairman and CEO Robert Sanchez says, "As we discussed last quarter, despite market prices for used tractors showing stabilization and improvement in 2018 and early 2019, we began to see a softening in the used tractor market in June. In the third quarter, market conditions continued to worsen for tractors, and we now expect further market declines in the near term. As a result, we lowered our near- and long-term residual value estimates for tractors to better align with recent and expected market conditions. We also adjusted our truck residual estimates for modestly softer conditions.

"Although these changes in estimates significantly affect earnings in 2019 and 2020 — with the largest negative effect reflected in the third quarter of 2019 — we expect this impact to decline each quarter going forward. Additionally, returns are expected to organically improve as the lease portfolio turns over and underperforming leases signed prior to 2014 exit the fleet.

"Overall third quarter revenue and operating results were largely in line with our expectations, except for used vehicle sales results and the impact of related residual value estimate changes. Comparable EBITDA grew by 12% in the quarter, reflecting earnings from contractual growth and cost-savings initiatives.

"We delivered strong year-to-date lease fleet growth, reflecting ongoing outsourcing trends and our sales and marketing activities, with approximately 40% of growth coming from customers new to outsourcing. As a reminder, we expect solid returns from these new leases signed which incorporate our lowered expectations for the used vehicle sales market. Additionally, we filled more lease contracts with used versus new equipment as part of our asset management playbook.

"While commercial rental pricing was up modestly for the quarter, demand was below our prior expectations which negatively impacted utilization in the quarter. We are executing on our plan to right-size our tractor rental fleet and expect to have it aligned with market conditions by early 2020.

"Supply chain revenue was impacted by previously disclosed lost business; however, this benefited earnings for the quarter. In dedicated, we also saw improved operating performance as well as solid revenue growth driven by new business.

"We continue to return capital to our shareholders and earlier this month announced a $0.56 per share dividend. This marks the 173^rd consecutive quarterly cash dividend, marking more than 43 years of uninterrupted dividend payments.

"Turning to our longer-term strategic initiatives, we are tracking ahead of expectations to achieve our multi-year $75 million maintenance cost-savings initiative. Additionally, we are gaining momentum with , which is aimed at digitizing the supply chain and creating real-time visibility and collaboration for our customers. We have rolled out the product to some key customers across our dedicated business and are on track to deliver expanded capabilities early next year. We also continue to see growing adoption of our product — the first-ever peer-to-peer commercial truck sharing platform — in the Florida and Georgia markets, and we recently launched the COOP mobile app, giving more users easy access to our available inventory."

Third Quarter Business Segment Operating Results

Fleet Management Solutions

In the Fleet Management Solutions (FMS) business segment, total revenue was $1.40 billion, up 4% compared with $1.34 billion in the year-earlier period. FMS operating revenue (a non-GAAP measure excluding fuel) was $1.20 billion, up 7% from the year-earlier period. Ryder ChoiceLease^TM (lease) revenue increased 9% reflecting a larger average fleet size as well as higher prices on new vehicles. The lease fleet grew sequentially by 2,900 vehicles during the quarter. Commercial rental revenue increased 2% due to higher pricing.

FMS loss before tax was $108.6 million compared with earnings before tax of $97.8 million in 2018, reflecting $169 million of higher depreciation expense resulting from lower estimated vehicle residual values on all power vehicles and $8 million of increased valuation adjustments on a larger inventory of assets held for sale. Earnings in lease benefited from fleet growth, reflecting strong outsourcing trends and our sales and marketing activities, as well as lower maintenance costs. Commercial rental performance was negatively impacted by lower utilization, partially offset by higher pricing. Rental power fleet utilization was 74.0% for the third quarter, down from an unusually high 80.4% in the year-earlier period, primarily driven by lower tractor utilization. FMS loss before tax as a percentage of FMS total revenue and FMS operating revenue (a non-GAAP measure) were (7.8)% and (9.1)%, respectively.

Supply Chain Solutions

In the Supply Chain Solutions (SCS) business segment, total revenue and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) were down 2% to $618 million and $454 million, respectively, compared with the year-earlier period. The decline in SCS total revenue and operating revenue primarily reflects previously announced lost business.

SCS earnings before tax decreased 5% to $34.6 million in the third quarter of 2019 compared with $36.5 million in 2018. Earnings were negatively impacted by $4 million due to the change in residual value estimates on vehicles used in this segment (which is eliminated in consolidation). This decline was partially offset by improved operating performance. SCS earnings before tax as a percentage of SCS total revenue and SCS operating revenue (a non-GAAP measure) were 5.6% and 7.6%, down 20 and 30 basis points, respectively, from the year-earlier period.

Dedicated Transportation Solutions

In the Dedicated Transportation Solutions (DTS) business segment, total revenue was up 5% to $359 million and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) was up 11% to $248 million, compared with the year-earlier period. DTS total and operating revenue growth reflects new business.

DTS earnings before tax increased 33% to $18.5 million compared with $13.9 million in 2018, due to revenue growth and improved operating performance. Earnings improvement was partially offset by $7 million due to the change in residual value estimates on vehicles used in this segment (which is eliminated in consolidation). DTS earnings before tax as a percentage of DTS total revenue and DTS operating revenue (a non-GAAP measure) were 5.1% and 7.5%, up 100 and 120 basis points, respectively, from the year-earlier period.

Corporate Financial Information

Central Support Services

In the third quarter of 2019, Central Support Services costs not allocated to the business segments were $11 million, down $1 million from a year ago.

Changes in Vehicle Residual Value Estimates

Under our accounting policy for depreciating revenue earning equipment, we periodically review and adjust, as appropriate, the residual values of revenue earning equipment taking into account, among other factors, historical market prices, current and expected future market price trends, expected lives of vehicles, and expected sales in the wholesale and retail markets. At the end of the second quarter of 2019, we began to see softening market conditions for used tractors which intensified during the third quarter. In addition, we recently started seeing modestly softer conditions for used trucks. As a result, the company is utilizing and expects to continue to utilize the wholesale sales channel to a greater extent. Due to these dynamics, management concluded that our residual value estimates likely exceeded the expected future values that would be realized upon the sale of power vehicles in our fleet. In the third quarter of 2019, we updated our outlook on residual values and lowered the estimates of our vehicle residual values for all power vehicles to reflect more recent multi-year trends and our outlook for the expected near-term used vehicle market. This will be reflected as an increase in our depreciation expense over the remaining life of these assets. The estimated depreciation expense impact, which for 2019 and 2020 also includes accelerated depreciation for vehicles nearing the end of their useful lives, declines sequentially in each quarter and is as follows:

This change is intended to better align vehicle residual value estimates with our current view and outlook for the used vehicle market environment.

These estimates are based on management’s view of market conditions and reflect the impact of this current change on residual values on the current fleet of power vehicles. Management reviews our residual values periodically based on current and expected market conditions and, if management’s view of market conditions change, we may adjust, positively or negatively, our residual value estimates for the fleet at such time.

Income Taxes

Tax rates in the third quarter were impacted by the residual value estimate changes referenced above. Our effective income tax rate from continuing operations for the third quarter of 2019 decreased from 22.9% to (0.3)%. The comparable effective income tax rate (a non-GAAP measure) from continuing operations for the third quarter of 2019 decreased from 26.2% to (7.0)%.

Capital Expenditures

Year-to-date capital expenditures increased to $3.0 billion in 2019, compared with $2.3 billion in 2018. The increase in capital expenditures reflects higher planned investments to grow and refresh the lease fleet. Proceeds of $403 million were up $112 million from the prior year and include $43 million from the sale of property in the second quarter of 2019. Net capital expenditures (including proceeds from the sale of assets) were $2.6 billion in 2019, up from $2.0 billion in 2018.

Cash Flow and Leverage

Year-to-date operating cash flow was $1.59 billion in 2019, up from $1.28 billion in 2018. Total cash generated (a non-GAAP measure that includes proceeds from used vehicle sales) was $2.0 billion, compared with $1.6 billion in 2018. Free cash flow (a non-GAAP measure) was negative $965 million, compared with negative $633 million in 2018, reflecting increased net capital spending.

Total debt as of September 30, 2019 was $7.7 billion, up from $6.6 billion in 2018. Debt to equity for the third quarter of 2019 was 313% compared with 262% at year-end 2018. The increase in debt-to-equity reflects the impacts from capital spending on vehicles and a reduction in equity related to higher non-cash depreciation expense from the residual value estimate change. Debt-to-equity at year end is expected to be approximately 330%, above the company's long-term target of 250-300% reflecting these items. We plan to reduce leverage over time as the company moves past the near-term impact of the residual value change.

2019 Earnings Forecast

Commenting on the company’s outlook, Mr. Sanchez says, "We expect strong full-year sales activity in our contractual lease, dedicated, and supply chain businesses, although at lower levels than our record year in 2018. We continue to benefit from long-term outsourcing trends in transportation and logistics, as well as our sales and marketing initiatives. We expect the slowdown in our transactional commercial rental and used vehicle sales businesses that we experienced in the third quarter to continue, primarily driven by the softer freight environment. Although the negative impact from the change in residual value estimates is anticipated to be significant in the fourth quarter, the severity of the impact will be less than in the third quarter and is expected to continue to decline in subsequent quarters.

"Supply chain revenue is forecast to decline through mid-year 2020, reflecting previously announced lost business, and then return to target growth levels in the second half of 2020 as new business sold ramps up. Segment earnings are expected to be negatively impacted by the recently ended labor strike at a large Ryder customer and the impact of residual value estimate changes on vehicles used in this segment, partially offset by improved operating performance.

"Dedicated revenue growth is expected to decelerate in the fourth quarter, following a record sales year in 2018. Dedicated earnings are expected to be negatively impacted by residual value estimate changes on vehicles used in this segment, largely offset by improved operating performance. On a full year basis, revenue growth in the segment is expected to come in above target, and earnings are expected to come in within the target range.

"In fleet management, we're seeing the earnings benefits from year-to-date lease fleet growth; however, earnings in the fourth quarter are expected to be negatively impacted as we prepare for sale a large number of vehicles coming off lease contracts. In commercial rental, we're anticipating weaker demand to continue particularly for tractors, and we expect to right-size the fleet by early 2020 to better align with market conditions. Expected headwinds from used vehicle sales are largely reflected in the change in residual value estimates and related depreciation expense. We anticipate that the actions we're taking will better position us for 2020.

"Looking ahead to next year, we plan to continue redeploying used equipment into new lease contracts. We also expect less lease growth next year, reflecting lower levels of OEM vehicle production. As a result, we expect lower capital spending and improved free cash flow in 2020.

"In the next 18-24 months, we expect earnings benefits as the negative impact from the residual value estimate changes decline, under-performing vintages of lease contracts exit the fleet, and we continue to add new profitable business. We will intensify our focus on improving return on capital by accelerating our significant cost savings initiatives, pruning lower return accounts and assets, and accelerating growth in our higher-return supply chain and dedicated businesses. The demand for our core services remains strong as we continue to operate in large, attractive markets with favorable long-term secular outsourcing trends.

"With our solid foundation as an industry leader, we expect to benefit from long-term transportation outsourcing trends and are confident in our ability to execute on our initiatives to achieve increasing capital returns to our shareholders."

Ryder is revising its full-year 2019 GAAP EPS forecast to a range of $0.20 to $0.30. In 2018, full-year GAAP EPS was $5.44. The company is also revising its forecast for full-year 2019 comparable EPS from continuing operations to $1.00 to $1.10. In 2018, full-year comparable EPS was $5.97. Full year GAAP and comparable EPS forecasts include $3.95 impact from change in residual value estimates.

Ryder is establishing a fourth quarter 2019 GAAP EPS forecast of ($0.36) to ($0.26). The company is also establishing a fourth quarter 2019 forecast for comparable EPS from continuing operations of ($0.03) to $0.07. Fourth quarter GAAP and comparable EPS forecasts include $0.95 impact from change in residual value estimates. The EPS forecast for the fourth quarter of 2019 includes an expected negative impact of between $0.08 and $0.13 associated with the adoption of the new lease accounting standard compared to a benefit of $0.08 in the year earlier period. The lease accounting impact in the fourth quarter reflects an expected decline in the fleet age.

Supplemental Company Information

For more information on Ryder System, Inc., visit .

CONFERENCE CALL & WEBCAST:

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Note Regarding Forward-Looking Statements:

Certain statements and information included in this news release are “forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995, including our forecast, outlook, expectations regarding market trends and economic environment; our financial condition; our fleet growth; performance in our product lines and segments; the strength of our contractual sales pipeline; projections related to customer retention; demand, utilization and pricing in our commercial rental business; demand, sales and pricing in used vehicle sales; used vehicle inventory levels; residual values and depreciation expense; our ability to meet our expectations of wholesale and retail sales mix; return on capital spread; operating cash flow; free cash flow; capital expenditures; leverage; our ability to make investments in and obtain our projected benefits from sales, marketing, IT, e-commerce and new product initiatives; costs of implementing our ERP system; the impact and adequacy of steps we have taken to address our cost structure; our ability to implement our asset management strategy to right size the rental fleet; our ability to successfully implement our maintenance cost-savings initiatives; our ability to gain market acceptance of our new products and services; and the impact of adoption of the lease accounting standard on our earnings, financial position, cash flow, leverage and the demand for our products and services. Our forward-looking statements also include our estimates of the impact of our changes to residual value estimates on earnings and depreciation expense. The expected impact of the change in residual value estimates is based on our current assessment of the residual values and useful lives of revenue-earning equipment based on multi-year trends and our outlook for the expected near-term used vehicle market. Our assessment is subject to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. Factors that could cause actual results related to vehicle residual values to materially differ from estimates include, but are not limited to, changes in supply and demand, competitor pricing, regulatory requirements, driver shortages, requirements and preferences, as well as changes in underlying assumption factors.

All of our forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Important factors that could cause such differences include, among others, our ability to adapt to changing market conditions, lower than expected contractual sales, decreases in commercial rental demand or utilization or poor acceptance of rental pricing, worsening of market demand for or excess supply of used vehicles impacting current and/or estimated pricing and our anticipated proportion of retail versus wholesale sales, lack of customer demand for our services, higher than expected maintenance costs, lower than expected benefits from our cost-savings initiatives, lower than expected benefits from our sales, marketing and new product initiatives, higher than expected costs related to our ERP implementation, setbacks or uncertainty in the economic market or in our ability to grow and retain profitable customer accounts, implementation or enforcement of regulations, decreases in freight demand or volumes, poor operational execution including with respect to new accounts and product launches, our difficulty in obtaining adequate profit margins for our services, our inability to maintain current pricing levels due to soft economic conditions, business interruptions or expenditures due to labor disputes, severe weather or natural occurrences, competition from other service providers and new entrants, lower than anticipated customer retention levels, loss of key customers, driver and technician shortages resulting in higher procurement costs and turnover rates, higher than expected bad debt reserves or write-offs, changes in customers' business environments that will limit their ability to commit to long-term vehicle leases, a decrease in credit ratings, increased debt costs, adequacy of accounting estimates, higher than expected reserves and accruals particularly with respect to pension, taxes, depreciation, insurance and revenue, impact of changes in our residual value estimates and accounting policies, including our depreciation policy, the sudden or unusual changes in fuel prices, unanticipated currency exchange rate fluctuations, our ability to manage our cost structure, and the risks described in our filings with the Securities and Exchange Commission (SEC). The risks included here are not exhaustive. New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risks on our business. Accordingly, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Note Regarding Non-GAAP Financial Measures: This news release includes certain non-GAAP financial measures as defined under SEC rules, including:

Comparable Earnings Measures, including comparable earnings from continuing operations, comparable earnings per share from continuing operations, comparable earnings before income tax, comparable earnings before interest, income tax, depreciation and amortization, and comparable effective income tax rate. Additionally, our adjusted return on average capital (ROC) and adjusted return on capital spread (ROC spread) measures are calculated based on comparable earnings items. Our comparable earnings typically exclude non-operating pension costs and certain other items that are not representative of our business operations, which in this quarter include:

• ERP implementation costs includes charges related to the implementation of an Enterprise Resource Planning system.
• Restructuring and other, net includes charges related to cost savings initiatives and the pursuit of a commercial claim for the three months ended September 30, 2019. For the three months ended September 30, 2018, this primarily relates to cost savings initiatives, transaction costs related to the acquisitions of MXD and Metro, and restructuring charges offset by restructuring credits related to gains on the sale of certain U.K. facilities that were closed as part of our December 2017 restructuring activities and income from our Singapore operations that were shut down during the second quarter of 2019.

Operating Revenue Measures, including operating revenue for Ryder and its business segments, and segment EBT as a percentage of operating revenue.

Cash Flow Measures, including total cash generated, and free cash flow.

Refer to Appendix - Non-GAAP Financial Measure Reconciliations at the end of the tables following this press release for reconciliations of the non-GAAP financial measures contained in this release to the nearest GAAP measure. Additional information regarding non-GAAP financial measures as required by Regulation G and Item 10(e) of Regulation S-K can be found in our most recent Form 10-K, Form 10-Q and our Form 8-K filed as of the date of this release with the SEC, which are available at .