A summary of Ryder’s financial performance can be found here.
With freight markets not providing much of a boost to Ryder System’s operations in 2024 – a trend projected to continue into 2025 – the company’s fourth-quarter earnings call focused heavily on Ryder’s transformation to a more diversified operating model with less emphasis on truck rentals.
The fourth-quarter performance at Ryder (NYSE: R) was not particularly bad. Operating revenue rose to $2.6 billion from $2.4 billion a year earlier, earnings per share climbed 17% to $3.45 from $2.95, and free cash flow went to a positive $133 million from negative $54 million a year ago.
But the overall numbers told a story of a company that saw most of its revenue growth come from the February acquisition of Cardinal Logistics, which slotted into the Dedicated Transport Services (DTS) division of Ryder.
Revenue at its benchmark Fleet Management Solutions (FMS) sector was flat at $1.3 billion; it was up just 4% at Supply Chain Solutions (SCS), a contract logistics provider, to just over $1 billion. But revenue was up to $472 million from $324 million a year ago at DTS, mostly from the Cardinal acquisition.
CEO Robert Sanchez has spoken on other earnings calls about changes at Ryder aimed at making the company less reliant on FMS. And on the Wednesday call to discuss the fourth quarter, it was one of the first things he discussed.
Backed by a slide, he rattled off the comparisons, using 2018 as a base year for “pre-transformation.” Earnings per share in 2018 were $5.95 for the year; in 2024, they were $12. Return on equity was 13% in 2018 compared to 16% in 2024. Earnings before taxes at FMS were $516 million last year, versus $340 million in 2018. And the combined EBT at SCS and DTS rose last year to $457 million from $191 million.
The other key number: Growth of the SCS and DTS businesses resulted in those two segments providing 61% of Ryder’s revenue last year, compared to 44% in the 2018 base year.
Management on the analyst call spent much of its time talking about the long term and the impact of the transformation. As Sanchez said, the company generated a return on equity of 16% in the quarter “during an extended freight cycle downturn [that] reflects the benefits of our initiatives focused on enhancing returns.”
Sanchez referred several times to Ryder’s growing reliance on contractual business, which he said had “strength … that continued to demonstrate the enhanced quality of the portfolio and increased resilience of our business model.”
Looking ahead to 2025, Sanchez said Ryder expects “a muted growth environment, reflecting freight market conditions.” The projected growth in revenue this year of only about 2% and the 8% to 17% projected growth in EPS ”assumes continued contractual earnings growth and a very modest improvement in rental demand later in the year,” Sanchez said.
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Ryder’s assumption of a continuing weak freight market with minor improvements means organic growth plays only a small role in the company’s getting from $12 per share in 2024 to at least $14 this year, which is what the company forecasts as its minimum earnings per share range in the first financial outlook it has provided for 2025.
A chart provided by Ryder sees $1-per-share gains out of FMS’ contractual business, with most of that attributed to earlier-discussed initiatives in the company’s lease business and maintenance rather than organic growth.
The company also estimates 85 cents per share out of SCS and DTS, with that growth heavily dependent on synergies from the Cardinal acquisition rather than new revenue. Ryder also sees gains in what it calls its omnichannel solutions offering at SCS. On its website, Ryder describes the omnichannel solution as featuring “warehouse & distribution management, managed transportation solutions, e-commerce fulfillment, and last mile delivery.”
The growth or efficiency initiatives that Sanchez spoke of as fueling higher profitability in 2025 – since the company doesn’t expect a stronger freight market to contribute much – were described by the CEO as “representing structural changes we’re making in our business and are not depending on cycle upturns.”
In response to an analyst’s question, Sanchez summed up Ryder’s view of the freight market as “flattish” – a term other Ryder executives had used during the call.
“We’re not seeing an upturn yet,” he said, with the market moving “sideways, rental moving seasonally but not a significant upturn.” Miles racked up by vehicles on lease are also “flattish,” he said, “and then on the used vehicle side, we’re still talking about single-digit declines in pricing.”
Rental patterns will be seasonal for most of 2025, Sanchez said, with “slightly better than seasonal trends” later in the year.
With used vehicle sales down sharply between the fourth quarter of 2023 and 2024, and prices falling too, that is not seen as a driver of growth in 2025. “Gains from the sale of used vehicles are expected to be below 2024 levels,” Sanchez said. Prices are expected to be “in line” with this year, but stronger than residual values that are assumed for depreciation, a relationship that does boost the company’s bottom line.
Part of Ryder’s optimistic outlook is based on its belief that the outsourcing of logistics activities by companies is locked in as a “secular trend,” as Sanchez referred to it. But at present, driver availability that is less of an issue than it was a few years ago has slowed that trend.
Steve Sensing, the president of SCS and DTS, which would be on the front line of hiring drivers and participating in the spot market for freight, said rates are “continuing to bounce on the bottom,” which slows companies looking to outsource their logistics needs to a company like Ryder.
“Those customers in the past traded service for cost,” he said. But if the driver market tightens and freight markets strengthen, he said, “we expect there to be opportunities for growth in DTS.”
Or as Sanchez said in his prepared remarks, “As freight capacity tightens and driver availability becomes more challenging, we expect to see incremental sales opportunities and improved revenue growth in DTS as private fleets seek solutions to address this pain point.”
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