Ryder System, Inc. 2026 Q3 Earnings Call

Thank you. Good morning, and welcome to Ryder's third quarter 2026 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 and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation, and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website. Presenting on today's call are John Diez, Chief Executive Officer, and Cristy Gallo-Aquino, Executive Vice President and Chief Financial Officer.

Additionally, Tom Havens, President of Fleet Management Solutions, and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solutions, are on the call today and available for questions following the presentation. At this time, I'll turn the call over to John.

Good morning, everyone, and thanks for joining us. The Ryder team delivered our eighth consecutive quarter of comparable earnings per share growth. Strong results were driven by consistent execution on our strategic initiatives and improving performance in used vehicle sales and rental. I'll begin today's call with an update on our balanced growth strategy, followed by key highlights from our third quarter performance. Cristy will review our segment performance, capital spending, and capital deployment capacity. I'll then review our outlook for 2026. Let's begin with a strategic update. Consistent execution on our balanced growth strategy has created a more durable earnings and cash flow profile, enabling us to outperform prior cycles. The solid foundation built by the Ryder team reflects actions taken to de-risk the portfolio, enhance returns and cash flow, and shift to a less capital-intensive, more resilient business mix.

This foundation continues to evolve and strengthen as we execute strategic priorities that create value for customers and shareholders. Operational excellence is where we stand out and what enables us to leverage our full end-to-end capabilities to solve our customers' toughest logistics and transportation challenges. Investing in customer-centric innovation that enables proactive supply chains and gives our customer a competitive advantage remains a key priority. We're enhancing the capabilities and driving the evolution of customer-facing platforms, such as RyderShare™ and RyderGyde™, by embedding agentic AI. We're also leveraging AI in FMS customer service and roadside assistance to enhance the customer experience while improving effectiveness. Additionally, we continue to drive operating efficiencies in our warehouses by deploying automation and robotics. We remain focused on profitably growing our contractual relationships by increasing customer engagement across our portfolio of port-to-door solutions.

Over 90% of our revenue is generated by long-term contracts, and this high-quality contractual base has proven to be a key driver of business model resilience over the cycle. Our three complementary business segments are leaders in North American logistics and transportation and position us well to support customers and their increasing need for the value-added solutions that we provide. I am confident our market-leading solutions, strong relationships, and transformed model will continue to drive long-term earnings growth. We're also excited to unlock the company's full earnings potential as we continue executing on our strategic priorities against the backdrop of improving freight environment. Turning to page five, our business model is benefiting from a broader and more diversified revenue mix. Key financial and operating metrics have improved since 2018, reflecting the effectiveness of our strategy.

In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from our Fleet Management segment. Ryder generated comparable EPS of $5.95 and return on equity of 13%. Operating cash flow was $1.7 billion. This was during peak freight cycle conditions. Now let's look at Ryder today. Our revenue mix has shifted towards Supply Chain and Dedicated, with approximately 60% of 2026 expected revenue generated by these asset-light businesses, compared to 44% in 2018, as a result of organic growth, strategic acquisitions, and innovative technology. Since 2018, we've more than doubled the size of our asset-light businesses while also delivering increased profitability. Our 2026 comparable EPS forecast range of $14.85 to $15.05 is more than two and a half times our 2018 comparable EPS of $5.95.

Our return on equity forecast of 18%-19% is also well above the 13% generated during the 2018 cycle peak. As a result of our profitable growth across our contractual businesses, forecasted operating cash flow of $2.6 billion is nearly $1 billion or 50% higher than 2018. In 2026, the business is expected to outperform prior cycles, even when comparing the pre-transformation peak to the current market environment. Moving to key performance highlights from the third quarter. Comparable EPS for the quarter was up 21%, marking our eighth consecutive quarter of comparable EPS growth. Results reflect the strength of our contractual portfolio, benefits from strategic initiatives, as well as improving performance in used vehicle sales and rental. Return on equity increased to 18%, in line with our expectations, given where we are in the freight cycle.

We remain on track to deliver more than $70 million in benefits from strategic initiatives during 2026. These initiatives are part of a multi-year program launched in 2024, with total benefits in excess of $170 million expected by the end of this year. Consistent execution on these initiatives is the key driver of expected earnings growth in 2026. Finally, we are encouraged to see benefits across the business from continued strengthening of freight market conditions. Contractual sales remain strong across all three segments, with activity accelerating in leased and dedicated. Increased sales activity and robust pipelines reflect the value of our solutions and increase customer demand for quality capacity. Customers are facing a host of challenges, including increasing difficulty attracting and retaining drivers, securing reliable and safe capacity, and addressing rising insurance, transportation, and litigation costs.

These dynamics reinforce the value of Ryder's end-to-end transportation and logistics solutions and are leading to new customer wins and expansion activity with existing customers. Used vehicle sales results continued improving and reflect better-than-expected pricing and retail sales volumes. Demand for used vehicles benefited from lower market inventories and spot rates that remain elevated. Lease miles per unit increased year-over-year and sequentially, indicating that our lease customers are increasing utilization of their fleets. Commercial rental utilization was strong at 77%, up 700 basis points year-over-year. While demand remained below prior year, it increased sequentially in line with historical seasonal patterns and was particularly strong in the tractor class. Third quarter utilization was the highest we have seen since 2022, and we expect utilization will remain near this level in the fourth quarter. The market remains in the early stages of a recovery, with conditions continuing to improve.

However, geopolitical and macroeconomic factors remain key variables affecting the pace and durability of the recovery. I will now turn the call over to Cristy to further review our third quarter performance.

Thanks, John. Total company operating revenue increased 6% to $2.8 billion, reflecting contractual revenue growth in Supply Chain Solutions and Fleet Management Solutions. Comparable earnings per share from continuing operations were $4.33 in the third quarter, up 21% from the prior year, reflecting benefits from higher earnings in Fleet Management Solutions and share repurchases. Return on equity, our primary financial metric, was 18%, up from prior year, reflecting share repurchases and earnings growth. Free cash flow increased to $992 million from $496 million in the prior year, reflecting lower capital expenditures year to date. In Fleet Management Solutions, operating revenue increased 5%, reflecting contractual revenue growth. Earnings before taxes were $177 million, up 21% versus prior year, reflecting benefits from strategic initiatives on ChoiceLease results, as well as strengthening market conditions in used vehicle sales and improved rental performance. In rental, utilization increased to 77% on a 12% smaller average fleet.

Rental results benefited from planned asset management actions and higher pricing. Rental pricing was up 4% year-over-year. Fleet Management Solutions EBT as a percent of operating revenue was 13.2% in the third quarter, up from prior year and in line with our long-term target of low teens over the cycle. We are encouraged to achieve this profitability level in the early stages of the freight market recovery. Looking ahead, FMS profitability has further upside as used vehicle sales and rental market conditions normalize, and we begin to realize the benefits from contractual fleet growth. In used vehicle sales, year-over-year pricing increased 19% for tractors and 5% for trucks. Sequential pricing increased 15% for tractors and 6% for trucks. In the third quarter, the retail channel accounted for 61% of our sales volume, up from 54% in the prior year, and up from 56% in the second quarter.

During the quarter, we sold 5,100 used vehicles, in line with prior quarter, and up 200 units year-over-year. Used vehicle inventory declined to 7,300 vehicles, near the lower end of our target range. We are encouraged by continued improvement in used vehicle pricing, reflecting the early stages of a freight market recovery. In Supply Chain Solutions, operating revenue increased 9%, driven by new business and higher volumes and pricing, partially offset by lost business in automotive. Earnings before taxes increased 7% from prior year. Results benefited from higher volumes in e-commerce fulfillment and Ryder Last Mile, which leveraged our optimized omni-channel retail network. These benefits were partially offset by productivity of new business ramping up and lower automotive results. Supply Chain Solutions EBT as a percent of operating revenue was 8.1% in the quarter, at the segment's long-term target of high single digits.