Ryder System, Inc. (R)

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Ryder System (R)

Q4 2011 Earnings Call

February 02, 2012 11:00 am ET

Executives

Robert S. Brunn - Vice President of Corporate Strategy & Investor Relations

Gregory T. Swienton - Executive Chairman and Chief Executive Officer

Art A. Garcia - Chief Financial Officer and Executive Vice President

John H. Williford - President of Global Supply Chain Solutions

Robert E. Sanchez - President of Global Fleet Management Solutions Business

Analysts

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Kevin W. Sterling - BB&T Capital Markets, Research Division

Peter Nesvold

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

Arthur W. Hatfield - Morgan Keegan & Company, Inc., Research Division

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Alexander V. Brand - SunTrust Robinson Humphrey, Inc., Research Division

Edward M. Wolfe - Wolfe Trahan & Co.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Salvatore Vitale - Sterne Agee & Leach Inc., Research Division

A. Brad Delco - Stephens Inc., Research Division

Dan Moore

Presentation

Operator

Good morning, and welcome to the Ryder System, Inc. Fourth Quarter 2011 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objection, please disconnect at this time. I would like to introduce Mr. Bob Brunn, Vice President, Corporate Strategy for Investor Relations for Ryder. Mr. Brunn, you may begin.

Robert S. Brunn

Thanks very much. Good morning, and welcome to Ryder's fourth quarter 2011 earnings and 2012 forecast 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 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 T. Swienton

Thanks, Bob, and good morning, everyone. Today, we'll recap fourth quarter 2011 results, review the asset management area and discuss our current outlook and the forecast for 2012. And as always after the initial remarks, we'll open up the call for questions. So let me begin with an overview of the fourth quarter results.

Beginning on Page 4, net earnings per diluted share from continuing operations were $0.92 for the fourth quarter 2011, up from $0.80 in the prior year period. The fourth quarter results include a $0.05 charge for restructuring costs related to the Hill Hire acquisition. Excluding this charge, comparable EPS was $0.97 in the fourth quarter 2011, up from $0.65 in the prior year. This is an improvement of $0.32 or 49% over the prior year period. Fourth quarter EPS was at the top of our forecast range of $0.92 to $0.97. We achieved strong results in Fleet Management with significantly better Commercial Rental performance, accretive acquisitions and improved Used Vehicle sales results. Supply chain generated strong earnings improvement driven by the TLC acquisition, favorable insurance claims development and new business.

Our total revenue grew 17% from the prior year and our operating revenue, which excludes FMS fuel and all subcontracted transportation revenue, increased 16% with double-digit growth in all 3 segments. The increase in revenue reflects both the benefit of our recent acquisitions and organic growth.

Turning now to Page 5, which includes some additional financial statistics for the fourth quarter. The average number of diluted shares outstanding for the quarter declined by 300,000 shares to 50.7 million. During the fourth quarter, we repurchased approximately 153,000 shares at an average price of $50.21 under our 2 million share anti-dilutive program, which expired in December 2011. A new 2 million share anti-dilutive program has been approved with an expiration date of December 2013. There has been no activity to date under the new program.

As of December 31, there were 51.1 million shares outstanding, of which 50.7 million are currently included in the diluted share calculation. The fourth quarter 2011 tax rate was 34.8%. This compares to 16.4% in the prior year, which last year reflected a favorable tax settlement of prior tax years and an expired statute of limitations. Excluding these items in 2010, the comparable tax rate would have been 35.9% versus the 2011 comparable tax rate of 34.4%.

Page 6 highlights key financial statistics for the full year. Operating revenue was up by 16%. Comparable EPS from continuing operations were $3.49, up by 57% from $2.22 in the prior year. Adjusted return on capital was 5.7% versus 4.8% in the prior year, as growth in earnings outpaced growth in capital. And as anticipated, we now have a positive spread between adjusted return on capital and cost of capital of 20 basis points for the full year. And this represents an improvement in the spread of 150 basis points from the prior year.

I'd like to turn now to Page 7 to discuss some of the key trends we saw during the fourth quarter in each of the business segments. In Fleet Management, total revenue grew 13% versus the prior year. Total FMS revenue includes an 18% increase in fuel services revenue, reflecting higher fuel cost pass-throughs. FMS operating revenue, which excludes fuel, grew 12%, mainly due to higher Commercial Rental revenue and acquisitions.

Contractual revenue, which includes both Full Service Lease and Contract Maintenance, was up by 4%. Full Service Lease revenue grew 5% versus the prior year. The average lease fleet size increased 8% from the prior year's fourth quarter, largely due to acquisitions.

On an organic basis, excluding acquisitions, the global lease fleet increased sequentially from the third quarter by approximately 1,000 vehicles, reflecting both improved new lease sales activity and higher retention rates.

Miles driven per vehicle per day on U.S. lease power units were down 2.6% from the prior year, but were up slightly on a sequential basis from the third quarter. We've analyzed the small variance in mileage and do not see it as an indicator of softening lease demand. In fact, lease sales activity has remained strong.

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