Ryder System, Inc.
) has raised its dividend to 31 cents per share from 29 cents,
reflecting a 7% hike in its quarterly dividend payments. The
increased dividend will be paid on September 21 to shareholders of
record on August 20.
Ryder has remained committed to its shareholders for the past 36
years through dividend payments. The recent payment marks the
company's 144th successive quarterly cash dividend.
We believe that the increased shareholder return highlights
Ryder's strong financial performance over the years backed by solid
volume, revenue and earnings growth. The company remains focused on
generating stellar results by expanding its footprint through
organic growth and key acquisitions.
However, despite its consistent earnings performance, Ryder
slashed its earnings per share (EPS) guidance for the second
quarter as well as for full fiscal 2012, primarily based on lower
demand for commercial rental rates for trucks.
Ryder expects its EPS for the second quarter of 2012 to remain
in the range of 90 to 95 cents down from its previous outlook of
$1.07 to $1.12. Similarly, the company expects EPS for full fiscal
2012 to remain in the range of $3.65 to $3.85, much lower than its
earlier mentioned guidance of $4.02 to $4.12.
The company remains cautious regarding its growth prospects for
fiscal 2012, primarily due to the sluggish demand in the trucking
industry. This is also expected to persist till the end of the
Further, Ryder's significant investments, particularly in fleet
and technology upgrades will remain detrimental to its cost
structure in the prevailing uncertain economic environment. The
company is currently increasing investment in fleet management
solutions, which is weighing on its liquidity position. As a
result, the company's balance sheet position is expected to remain
distressed by estimated negative cash flows in the range of
$400-$460 million for the year.
The company's obligation to equity also increased to 267% at the
end of the first quarter from 261% at the end of 2011 due to
acquisitions and higher capital expenditures on vehicles. For the
second quarter, the company estimates its leverage ratio to
increase given the seasonal purchase of rental vehicles. Moreover,
stiff competition from peers like
) could limit the near-term growth for Ryder.
We recommend our long-term Underperform rating on Ryder System.
For the short-term the stock has a Zacks #4 Rank (Sell).
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