Ryder System Inc. (R), the world’s largest provider of integrated logistics and transportation solutions, reported excellent fourth quarter 2010 results. Quarterly GAAP net income was $41.5 million or 80 cents per share compared to a net income of $23.7 million of 43 cents per share in the year-ago quarter. Adjusted (excluding special items) EPS in the reported quarter was 65 cents beating the Zacks Consensus Estimate of 63 cents.
Stronger-than-expected earnings growth in the quarter was driven by robust performance of the Fleet Management Solutions segment attributable to better commercial rental businesses and higher used vehicle sales.
Quarterly total revenue was $1,313.4 million, up 5% year over year and also better than the Zacks Consensus Estimate of $1,308 million. The pass-through of higher fuel costs to customers led to the solid revenue growth during the quarter. Operating revenue (total revenue less FMS fuel and all subcontracted transportation) was $1,061.9 million, up 4% year over year.
Segment Results
Fleet Management Solutions: Total revenue increased 5% year over year to $948.1 million while operating revenue (excluding fuel) raised 4% to $726.3 million. Contractual revenue dipped 2% due to the trimming of customer fleet. Improved market demand and higher pricing led to a 31% increase in commercial rental revenue. Contract related maintenance revenue improved 6%. Other revenue increased 4%.
Supply Chain Solutions: Total revenue climbed 8% to $325.1 million from $302.1 million in the year-ago quarter. Operating revenue (excluding subcontracted transportation) was $258.3 million, up 4% compared with $247.6 million in the year-ago quarter. The improvement in revenue was driven by higher high-tech and automotive volumes and new businesses.
Dedicated Contract Carriage: Total revenue and operating revenue (excluding subcontracted transportation) increased 2% and 5% to $121.8 million and $119.3 million, respectively, from the year-ago quarter. This increase was attributable to the pass-through of higher fuel costs and new businesses.
Liquidity and Cash Flow
Ryder System had cash and cash equivalents of $213.1 million at the end of fiscal 2010 compared with $98.5 million at the end of fiscal 2009. Total debt at the end of fiscal 2010 was $2,747 million compared with $2,497.7 million at the end of fiscal 2009. Debt-to-equity ratio at the end of fiscal 2010 was 0.62 compared with 0.61 at the end of fiscal 2009.
During fiscal 2010, Rider System generated $1,028 million of cash from operations compared with $985 million during fiscal 2009. Free cash flow (total cash generated less capital expenditure) was $257.6 million in 2010 compared with $614.1 million in 2009.
Fiscal 2011 Financial Outlook
Management estimated that its fiscal 2011 total revenue will be $5.73 billion and operating revenue will be $4.63 billion. Fiscal 2011 adjusted EPS will be within the range of $2.80 – $2.90. First quarter 2011 adjusted EPS will be within the range of 40 cents to 44 cents.
Recommendation
We expect Ryder System to benefit from reviving market conditions, strong rental demand, higher pricing, strong balance sheet, leasing growth opportunity and a stable automotive environment. We are currently maintaining our long-term Neutral recommendation with the short-term Zacks #3 Rank (Hold).
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