Ryder System, Inc. (R)

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Ryder System (R)

Q1 2011 Earnings Call

April 26, 2011 11:00 am ET

Executives

Robert Brunn - Vice President of Investor Relations & Public Affairs

John Williford - President of Global Supply Chain Solutions

Art Garcia - Chief Financial Officer and Executive Vice President

Robert Sanchez - President of Global Fleet Management Solutions Business

Gregory Swienton - Executive Chairman and Chief Executive Officer

Analysts

John Barnes - RBC Capital Markets, LLC

David Ross

Arthur Hatfield - Morgan Keegan & Company, Inc.

Jeffrey Kauffman - Sterne Agee & Leach Inc.

George Pickral - Stephens Inc.

H. Nesvold - Jefferies & Company, Inc.

David Campbell - Thompson Davis & Co

Anthony Gallo - Wells Fargo Securities, LLC

Kevin Sterling - BB&T Capital Markets

Benjamin Hartford

Edward Wolfe - Bear Stearns

Matthew Brooklier - Piper Jaffray Companies

Alexander Brand - SunTrust Robinson Humphrey, Inc.

Presentation

Operator

Good morning and welcome to Ryder System,, Inc. First Quarter 2011 Earnings Release Conference Call [Operator Instructions] Today's call is being recorded. [Operator Instructions] I now would like to introduce Mr. Bob Brunn, Vice President of Investor Relation and Public Affairs for Ryder. Mr. Brunn, you may begin.

Robert Brunn

Thanks very much. Good morning and welcome to Ryder's First Quarter 2011 Earnings Conference Call. I'd like to remind you that during this presentation you'll hear some forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. These statements are based on management current expectations 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 Financial Officer and Art Garcia Executive Vice President and Chief Financial Officer. Additionally, Robert Sanchez, 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

Well, thank you, Bob. And good morning, everyone. Today, we'll recap our first quarter 2011 results, review the asset management areas and discuss our current outlook for the business. And after our initial remarks, we'll open up the call for questions. So let me get right into an overview of our first quarter results.

And on Page 4 for those following on the PowerPoint. Net earnings per diluted share from continuing operations were $0.50 for the first quarter 2011 up from $0.24 in the prior-year period. The first quarter this year included a $0.01 charge for acquisition-related items. Therefore, excluding this charge, comparable EPS was $0.51 in the first quarter 2011 up from $0.24 in the prior year. First quarter EPS was also above our forecast range of $0.40 to $0.44. Total revenue grew 17% from the prior year reflecting recently closed acquisitions, higher fuel services revenue and organic revenue growth. Operating revenue, which excludes FMS fuel and all subcontracted transportation revenue increased 14% due to acquisitions, higher Commercial Rental activity and improved Supply Chain Solutions volumes.

On Page 5, in Fleet Management, total revenue grew 11% versus the prior year. Total FMS revenue includes a 26% increase in fuel services revenue reflecting higher fuel cost pass-throughs. FMS operating revenue, which excludes fuel grew 6% mainly due to higher Commercial Rental revenue. Contractual revenue, which includes both Full Service Lease and contract maintenance was up slightly. Full Service Lease revenue increased 1%, however, this growth was largely offset by lower contract maintenance revenue. Commercial Rental revenue grew 34%. Rental revenue benefited from improving global demand, higher pricing and an increase in the fleet size. Net before tax earnings in Fleet Management were up 78%. Fleet Management earnings, as a percentage of operating revenue, increased by 220 basis points to 5.4% -- in this, the seasonally lightest first quarter.

FMS earnings were driven primarily by a stronger Commercial Rental performance and better Used Vehicle results. FMS also realized a gain of $2.4 million on a facility sale and a small benefit due to acquisitions. These improvements were partially offset by higher maintenance costs on an older leased fleet, increased compensation expense and investments in sales and information technology initiatives.

On Page 6, turning to Supply Chain Solutions segment, both total and operating revenues were up 36% due to the Total Logistic Control acquisition in December and increased trade volumes. SCS net before tax earnings were up by 72%. Supply Chain's net before tax earnings as a percent of operating revenue increased by 80 basis points to 3.7%. Higher SCS earnings resulted from the TLC acquisition, the improved operating performance and higher volumes. In Dedicated Contract Carriage, total revenue was up by 16%, and operating revenue was up by 15%, reflecting the Scully acquisition and higher fuel costs pass-throughs. DCC's net before tax earnings were unchanged while earnings as a percent of operating revenue were down 80 basis points to 5.8%. The earnings benefits from the Scully acquisition were offset by lower operating performance due to unusually high shutdown costs on closed locations and higher driver expenses.

Page 7 highlights key financial statistics for the first quarter. I already discussed our quarterly revenue results, so let me start with EPS. Comparable EPS from continuing operations were $0.51 in the current quarter up by $0.27 or 113% from $0.24 in the prior year. The average number of diluted shares outstanding for the quarter declined by 1.7 million shares to 51 million. During the first quarter, we purchased 250,000 shares at an average price of $47.97 under our 2 million share anti-dilutive program. This program remains active with approximately 1.2 million shares available at quarter end. As of March 31, there were 51.3 million shares outstanding of which 51 million are currently included in the diluted share calculation. The first quarter 2011 tax rate was 40.7%. The tax rate was negatively impacted by $1.2 million due to a tax law change in Illinois. The negative EPS impact from this item of $0.02 was included in both our reported and comparable earnings numbers. The first quarter 2010 tax rate was 42.8%, reflecting nondeductible items on lower relative earnings.

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