Ryder System, Inc. (R)

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Ryder System (R)

Q3 2012 Earnings Call

October 23, 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

Robert E. Sanchez - President and Chief Operating Officer

John H. Williford - President of Global Supply Chain Solutions

Dennis C. Cooke - President of Global Fleet Management Solutions

Analysts

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

John R. Mims - FBR Capital Markets & Co., Research Division

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

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

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

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

Scott H. Group - Wolfe Trahan & Co.

Derek Rabe

H. Peter Nesvold - Jefferies & Company, Inc., Research Division

Matthew S. Brooklier - Longbow Research LLC

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

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

Justin Long - Stephens Inc., Research Division

David P. Campbell - Thompson, Davis & Company

Thomas Kim - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good morning, and welcome to the Ryder System, Inc. Third Quarter 2012 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time. I would like to introduce Mr. Bob Brunn, Vice President, Corporate Strategy and Investor Relations for Ryder. Mr. Brunn, you may begin.

Robert S. Brunn

Thanks very much. Good morning, and welcome to Ryder's third quarter 2012 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 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; Robert Sanchez, President and Chief Operating Officer; and Art Garcia, Executive Vice President and Chief Financial Officer. Additionally, Dennis Cooke, 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

Thank you, Bob, and good morning, everyone. This morning, we'll recap our third quarter 2012 results, review the asset management area and discuss our current outlook for the business. In addition, we'll introduce an enhancement to our financial reporting that we plan to implement in 2013. And after our initial remarks, we'll open up the call for questions. So let me get right into the overview of our third quarter results.

On the PowerPoint slides, turning to Page 4, net earnings per diluted share from continuing operations were $1.26 for the third quarter 2012, up from $1.10 in the prior year period. Third quarter results included a $0.02 charge from a tax law change in the U.K.

The prior year's third quarter included a $0.01 tax benefit from acquisition-related transaction costs. Excluding these items, in each period, comparable EPS was $1.28 in the third quarter 2012, up from $1.09 in the prior year. So this is an improvement of $0.19 or 17% over the prior year period.

Our results also represent an outperformance of $0.06 to $0.13 versus our third quarter forecast of $1.15 to $1.22. Our outperformance this quarter reflects contractual revenue growth and strong used vehicle sales.

Results were also supported by the timely actions we took a few months ago to adjust both our cost structure and the rental fleet size given current market conditions.

Although total revenue was unchanged from the prior year, operating revenue, which excludes FMS fuel and all subcontracted transportation revenue, increased 2%. And the increase in operating revenue reflects organic growth in Full Service Lease.

Page 5 includes some additional financial statistics for the third quarter. The average number of diluted shares outstanding for the quarter declined slightly to 50.6 million. During the third quarter, we purchased approximately 87,000 shares at an average price of $39.86 under our 2 million share anti-dilutive program which expires in December 2013.

As of September 30, there were 51.1 million shares outstanding, of which 50.6 million are included in the diluted share calculation.

The third quarter 2012 tax rate was 35.6%. And this tax rate reflects the negative impact from a tax law change in the U.K. Excluding this item, the comparable tax rate would be 34.7%. The prior year's tax rate of 35% reflects the benefit from acquisition-related transaction costs. And excluding this item in 2011, the comparable tax rate would have been 35.7% last year.

Earnings per share, excluding the nonoperating portion of pension expense, was $1.37, up by $0.22 or 19% over third quarter 2011.

Page 6 highlights key financial statistics for the year-to-date period. Operating revenue was up 6%. Comparable EPS from continuing operations were $2.87, up by 14% from $2.52 in the prior year. Adjusted return on capital was 5.6% versus 5.5% in the prior year. And the spread between adjusted return on capital and cost of capital is 70 basis points for the trailing 12-month period and continues to be forecast at 80 basis points for the full year. Earnings per share, excluding nonoperating pension costs, were $3.15 versus $2.68 last year, up by $0.47 or 18%.

I'll now turn to Page 7 to discuss some of the key trends we saw during the third quarter in the business segments.

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