Ryder System Inc’s (R) first quarter earnings of 24 cents per share were ahead of the Zacks Consensus Estimate of 20 cents. The company reported earnings of 30 cents per share in the year-ago quarter. Earnings exceeded the top range of management’s earnings expectations of 17 cents to 22 cents on the back of higher total revenues.
In total revenue, Ryder reported an increase of 4.0% year-over-year to $1.22 billion, aided by higher fuel prices and favorable foreign exchange rate movements, though partially offset by lower fuel volumes.
Total expenses went up 4.0% year-over-year, led by higher operating expenses, higher equipment rental and higher expense on subcontracted transportation, partially offset by a reduced interest expense.
Segment Results
Fleet Management Solutions: Operating revenue (excluding fuel) was $677.40 million, down 2% year-over-year. Customer fleet downsizing led to a 3% year-over-year decline in contractual revenue to $519.2 million. This trend is expected for the next several quarters.
Commercial rental revenue reported a modest increase of 2% year-over-year, reflecting improving customer demand due to the recovering economy. As a result of the company’s actions to align the fleet size and mix with market demand, rental fleet utilization in the quarter improved over the prior-year period. Improved utilization and pricing should support margin improvement in the segment in 2010.
Supply Chain Solutions: Operating revenue (excluding subcontracted transportation) was $238.2 million, up 4% compared with $228.4 million in the comparable period a year ago. The improvement came on the back of higher automotive and other freight volumes, coupled with favorable foreign exchange rate movements.
Dedicated Contract Carriage: Operating revenue (excluding subcontracted transportation) was $112.0 million, down 1% year-over-year due to the non-renewal of contracts and reduced freight volumes.
Management expects second quarter earnings in the range of 45 cents to 50 cents and full-year 2010 earnings in the range of $1.85 to $1.95 per share on the back of improved demand and higher pricing.
Ryder stands solid from the balance sheet perspective with a free cash flow of $136 million and a reduced debt equity ratio.
We expect the company to benefit from leasing growth opportunity, improved organizational productivity and share buyback, offset by a potentially smaller rental fleet. However, the cyclical nature of the business — Ryder’s business is dependent on freight volumes, which in turn depends on domestic economy growth — will be a drag on profitability throughout 2010.
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