Ryder System Inc. Q4 2009 Earnings Call Transcript

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Ryder System Inc. (R)

Q4 2009 Earnings Call

February 3, 2010 11:00 am ET

Executives

Robert Brunn - Vice President of Investor Relations and Public Affairs

Gregory T. Swienton - Chairman and Chief Executive Officer

Robert E. Sanchez - Executive Vice President and Chief Financial Officer

Anthony G. Tegnelia - President of Global Fleet Management Solutions

John H. Williford - President of Global Supply Chain Solutions

Analysts

Jon Langenfeld - Baird

Art Hatfield – Morgan Keegan

Ed Wolfe - Wolfe Securities

Kevin Sterling - BB&T Capital Markets

Todd Fowler - KeyBanc Capital Markets

John Barnes – RBC Capital Markets

Alex Brand - Stephens

Matt Brooklier – Piper Jaffray

David Roth - Stifel Nicolaus

David Campbell - Thompson, Davis & Company

Analyst for Jeff Kaufman – Sterne Agee

Presentation

Operator

Welcome to Ryder System Inc. fourth quarter 2009 earnings release call. All lines are in a listen-only mode until after the presentation. (Operator Instructions) I would like to introduce Mr. Bob Brunn, Vice President of Investor Relations and Public Affairs for Ryder. Mr. Brunn, you may begin.

Robert Brunn

Thanks very much. Good morning and welcome to Ryder's fourth quarter 2009 earnings and 2010 forecast conference call.

I would like to begin with a reminder that in this presentation you will hear some forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectation and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors. More detailed information about these factors is contained in this morning's earnings release and in Ryder's filings with the Securities and Exchange Commission.

Presenting on today's call are Greg Swienton, Chairman and Chief Executive Officer and Robert Sanchez, Executive Vice President and Chief Financial Officer. Additionally Tony Tegnelia, President of Global Fleet Management Solutions and John Williford President of Global Supply Chain Solutions are on the call today and available for questions following the presentation.

With that, let me turn it over to Greg.

Gregory Swienton

Thank you, Bob, and good morning everyone. Today we will recap our fourth quarter 2009 results and full year 2009 results, review the asset management area and discuss our outlook and forecast for 2010. After our initial remarks, we will open the call for questions, so let me get right into an overview of our fourth quarter results.

For those of you who are following online with the PowerPoint on page 4, net earnings per diluted share from continuing operations were $0.43 for the fourth quarter 2009 as compared to $0.91 in the prior-year period. The fourth quarter of 2009 included a net $0.02 benefit to EPS. This resulted from a $0.07 benefit related to Canadian income tax changes partially offset by a $0.05 charge primarily related to an international facility which is expected to be sold in the first quarter of 2010.

In 2008 the fourth quarter included a $0.19 net charge related to restructuring and other charges which were partially offset by benefits from a reversal of tax accruals. Excluding these items in each year comparable EPS from continuing operations was $0.41 as compared to $1.10 in 2008. During the fourth quarter we successfully closed the remaining part of our European supply chain businesses in accordance with our previous announcements. As such the results from our former South American and European supply chain businesses which have all been fully closed are reflected in discontinued operations in the financial statement.

On page five total revenue for the company was down 7% from the prior year. Total revenue reflects lower fuel services revenue and lower operating revenue partially offset by favorable foreign exchange rate movement. Operating revenue which excludes FMS fuel and also contracted transportation revenue declined by 6%. Operating revenue was negatively impacted by lower revenues in commercial rental, SCS and DCC fuel pass throughs, SCS automotive volumes and FMS contractual revenues.

These items were partially offset by favorable foreign exchange rates. In fleet management total revenue decreased 8% versus the prior year. Total FMS revenue includes a 16% decrease in fuel services revenue primarily reflecting lower volumes. FMS operating revenue which excludes fuel declined by 5% due to both lower rental and contract revenues. Contractual revenue which includes both full service lease and contract maintenance was down 2% or down 4% excluding foreign exchange.

Commercial rental revenue decreased 14% reflecting continuing weakness in overall freight demand and modestly lower pricing. Net before-tax earnings in fleet management were lower by 63%. Fleet management earnings as a percent of operating revenue decreased by 710 basis points to 4.6%. FMS earnings were negatively impacted by lower full-service lease performance due to fewer vehicles in the fleet and higher maintenance costs on an older fleet. FMS earnings were also negatively impacted by higher pension expense, lower commercial rental results and lower used vehicle results. These negative impacts were partially offset by cost reduction initiatives.

Turning to the supply chain solutions segment on page six, total revenue was down 5%. Operating revenue which excludes sub-contracted transportation revenue was down by 9%. The revenue decline was due to lower automotive and other freight volumes partially offset by favorable foreign exchange rates. SCS was solidly profitable in the fourth quarter with earnings of $11.7 million although down 31% from last year but significantly up from the first half of 2009. Supply chain’s net before-tax earnings as a percent of operating revenue decreased by 160 basis points over 2008’s strong fourth quarter to 4.7%.

SCS earnings were negatively impacted by $4 million of higher self-insurance costs due to favorable comparisons in the prior year. Earnings were also impacted by $2 million related to the termination of certain North American automotive operations.

Dedicated contract carriage total revenue was down by 6% and operating revenue was down 8%. The revenue decline was related to contract non-renewals and lower freight volumes. Net before-tax earnings in DCC decreased by 46%. Earnings in the quarter were negatively impacted by $3 million of higher self-insurance costs due to favorable comparisons in the prior year as well revenue decline.

DCCs net before-tax earnings as a percent of operating revenue declined by 420 basis points to 6.1%. This decline reflects the higher self-insurance costs which are more heavily weighted in the fourth quarter. Given the timing of these costs it is appropriate to evaluate DCCs margin performance on a rolling four-quarter basis.

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