Ryder System, Inc. (R)

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Ryder System (R)

Q2 2011 Earnings Call

July 27, 2011 11:00 am ET

Executives

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

Robert Brunn - Vice President of Corporate Strategy & Investor Relations

Gregory Swienton - Executive Chairman and Chief Executive Officer

Analysts

David Ross - Stifel, Nicolaus & Co., Inc.

John Barnes - RBC Capital Markets, LLC

Kanchana Pinapureddy

Todd Fowler - KeyBanc Capital Markets Inc.

H. Nesvold - Jefferies & Company, Inc.

Anthony Gallo - Wells Fargo Securities, LLC

Kevin Sterling - BB&T Capital Markets

Edward Wolfe - Bear Stearns

Benjamin Hartford

Matthew Brooklier - Piper Jaffray Companies

Alexander Brand - SunTrust Robinson Humphrey, Inc.

Presentation

Operator

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

Robert Brunn

Thanks very much. Good morning, and welcome to Ryder's Second 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 the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in the 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 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

Thank you, Bob, and good morning, everyone. Today we'll recap our second quarter 2011 results. We'll review the asset management area and discuss our current outlook for the business. And after our initial remarks, we'll open up the call for questions. So let me begin with the overview of our second quarter results. And for those of you following on the PowerPoint, we're on Page 4.

Net earnings per diluted share from continuing operations were $0.79 for the second quarter 2011, up from $0.58 in the prior year period. The second quarter of this year included a $0.10 charge from a tax law change in Michigan and a $0.03 charge for transaction costs related to our recent acquisition of Hill Hire in the U.K. Excluding these charges, comparable EPS was $0.92 in the second quarter 2011, up from $0.58 in the prior year.

Second quarter EPS was also above our forecast range of $0.72 to $0.77. The second quarter outperformance was driven by better Commercial Rental and Used Vehicle sales results. The Japan disaster impacted the quarter negatively by $0.02. However, this impact was less than our forecasted estimate of $0.04 to $0.05. The Hill Hire acquisition also contributed $0.02 to EPS in the quarter.

Total revenue grew 18% from the prior year. Operating revenue, which excludes FMS fuel and all subcontracted transportation revenue increased 15%. The growth in revenue reflects both the benefit of our recent acquisitions and organic revenue growth. On Page 5, in Fleet Management, total revenue grew 14% versus the prior year. Total FMS revenue includes a 29% increase in fuel services revenue, reflecting higher fuel cost pass-throughs. FMS operating revenue, which excludes the fuel, grew 10%, mainly due to higher Commercial Rental revenue and acquisitions.

Contractual revenue, which includes both Full Service Lease and Contract Maintenance, was up by 2%. Full Service Lease revenue increased 3%, while Contract Maintenance revenue declined 2%. Commercial Rental revenue grew 38%. 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 46%. Fleet Management earnings as a percent of operating revenue increased by 220 basis points to 8.7% in the second quarter.

FMS earnings were driven primarily by stronger Commercial Rental performance, improved Used Vehicle results and the benefit of 4 FMS acquisitions closed in 2011. These improvements were partially offset by higher maintenance costs on an older fleet, increased compensation expense and planned spending on growth initiatives.

Turning to the Supply Chain Solutions segment on Page 6. Both total and operating revenues were up 26% due to the Total Logistic Control acquisition in December, higher volumes and new business. SCS net before tax earnings are up by 37%. Supply Chain's net before tax earnings as a percent of operating revenue increased by 50 basis points to 5.5%. Higher SCS earnings resulted from the TLC acquisition, higher volumes, new business and favorable insurance claims development. These improvements were partially offset by impacts from the disasters in Japan.

In Dedicated Contract Carriage, total revenue was up 22% and operating revenue was up by 19%. This growth reflects the Scully acquisition and higher fuel costs pass-throughs. DCC's Net Before Tax earnings increased 16%. The earnings benefits from the Scully acquisition and lower insurance costs were partially offset by some lower operating performance. DCC's earnings a percent of operating revenue were down by 20 basis points to 6.9%, due to the inclusion of fuel cost in the operating margin calculation for the Dedicated segment. Excluding fuel costs, Dedicated margins would be up by 30 basis points.

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