Growth expected for Ryder

The transportation company expects good results from strong commercial rentals and used-vehicle sales.

By Zacks.com Feb 2, 2012 5:19PM

Image: Moving van (© Digital Vision/Getty Images/Getty Images)By: Zacks Equity Research


Transportation company Ryder System (R) reported fourth-quarter adjusted earnings of 97 cents -- in line with the Zacks Consensus Estimate and up 49% from 65 cents a year earlier.


The year-over-year growth reflected accelerated organic growth in the company's commercial rental and supply chain businesses alongside acquisitions gains, improved asset use and higher used-vehicle sales. Adjusted earnings exclude a negative impact of 5 cents related to post-acquisition restructuring costs.


Adjusted earnings for 2011 increased 57% year over year to $3.49 per share. Adjusted earnings for the year excluded 18 cents per share related to special items such as acquisition costs, restructuring charges and tax benefits.


Revenue rose 17% to $1.541 billion in the fourth quarter, outpacing the Zacks Consensus Estimate of $1.535 billion. The passing of higher fuel costs to customers and increased commercial rentals led to the robust growth.


Operating revenue (total revenue less fleet fuel and all subcontracted transportation) increased 16% year over year to $1.2 billion, driven by acquisitions and organic growth. Revenue for the full year grew 18% to $6.1 billion, while operating revenue climbed 16% to $4.8 billion.


Operating expense for the quarter rose 16.2% to $1.5 billion. For all of 2011, operating expenses increased 16.6% from 2010 to $5.8 billion.


Segment results

 

Fleet management solutions: Total revenue climbed 13% year over year to $1.1 billion on higher commercial rental and fuel services revenue that increased 38% and 18%, respectively. The growth in commercial rental was backed by higher global demand and pricing.


Fuel services revenue increased as higher fuel prices passed through to customers. On a year-over-year basis, contract related maintenance revenue grew 24%. Other revenue dropped 2% while full service lease revenue increased 5%, due mainly to acquisitions. Contractual revenue climbed up 4%. Operating revenue for the segment (excluding fuel) increased 12% year over year to $813.3 million.


Supply chain solutions: Total revenue climbed 26% to $408.7 million in the fourth quarter from $325.1 million. Operating revenue (excluding subcontracted transportation) also nudged up 26% to $324.7 million. The improvement was driven by higher freight volumes, new business wins and the acquisition of Total Logistic Control.


Dedicated contract carriage: Total revenue and operating revenue (excluding subcontracted transportation) increased 29% and 23% to $156.6 million and $147.1 million, respectively, from the year-ago quarter. Higher revenues were aided by the acquisition of Scully Companies, higher fuel recoveries and improved operating performance that largely offset higher compensation-related and legal expenses.


Liquidity and cash flow

 

Ryder ended the year with cash and cash equivalents of $1.04 billion, barely up from $1.03 billion at the end of 2010. Cash from operations was $1.4 billion against $1.3 billion a year earlier. Heavy investments in vehicles pushed free cash flow into a negative $256.8 million from a positive $257.6 million in the year ago.


Total debt at the end of fiscal 2011 was $3.08 billion versus $2.5 billion at the end of 2010 due to acquisitions and investments in vehicles. Debt-to-equity ratio was 257% compared with 196% at year-end 2010. 


Guidance

 

For the first quarter of 2012, management expects earnings in the range of 55 cents to 58 cents per diluted share.


Management expects fiscal 2012 earnings in the range of $4 to $4.10 per diluted share, excluding the impact of 2 cents per share related to estimated restructuring costs in the first quarter.


Total revenue for 2012 is estimated to grow approximately 4% year over year to $6.3 billion. Operating revenue is estimated to be approximately $5.1 billion, up 6% year over year.


Recommendation

 

Despite a modest economic outlook for 2012, Ryder expects to deliver solid revenue and earnings growth backed by strong commercial rentals and used-vehicle sales in a favorable lease rate environment. Further, the company remains well positioned for lease fleet expansion in 2012. These continued investments in fleets and technology will fuel earnings growth in future ahead despite high maintenance cost. Further, the company aims at expand its footprint via acquisitions that will facilitate more market share gains and edge over other competitors like Con-Way. (CNW).


We are currently maintaining our long-term "outperform" recommendation supported by a Zacks No. 2 ("buy") rank.


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