Ryder (NYSE: R) cited a stronger market for used vehicles as a reason for its turnaround from an operating loss in the fourth quarter of 2019 to an operating profit this year.
Under GAAP provisions, Ryder in the fourth quarter of 2020 posted earnings per share of 48 cents. In the corresponding quarter of 2019, that number was a loss of $1.02 per share. Under non-GAAP accounting, income from continuing operations was 83 cents last quarter, including a 38-cents-per-share hit for a bonus to front-line employees. Last year, that number was just under breakeven, with a loss of 1 cent per share.
Ryder’s profitability is heavily dependent on the margins of the market it finds for its sales of used vehicles out of its Fleet Management Solutions division, which is more than 60% of the company’s revenue. It is that division that leases trucks and other equipment to customers.
In the fourth quarter of 2019, the Fleet Management Solutions segment was still being impacted by a decision taken mid-2019 by Ryder for more aggressive depreciation of its used fleet. The FMS division in the fourth quarter of 2019 had an operating loss of $80 million in part because of $118 million of higher depreciation expenses taken that quarter as part of that plan.
The fourth-quarter 2020 earnings also were hit with depreciation charges. But the company said the Fleet Management Solutions hit from depreciation in the fourth quarter of 2020 was $86 million. A year earlier, it was $148 million.
In prepared remarks released with the earnings, Ryder CEO Robert Sanchez said that the stronger market for used vehicles “resulted in gains on sale in the second half of 2020 and enabled us to reduce inventory levels to within our target range.”
Sanchez, in previous company quarterly earnings and on earnings calls with analysts, has repeatedly talked about seeking to get the company’s inventory of used vehicles in line with the market. In the statement released in conjunction with Q4 2020 earnings, Sanchez said that “actions taken to align the rental fleet size with lower demand conditions following the pandemic have been successful, resulting in fourth quarter utilization levels higher than prior year.”
Initial reaction to the earnings was negative. The non-GAAP EPS number from continuing operations of 83 cents missed consensus estimates by 12 cents, according to SeekingAlpha. The GAAP EPS of 48 cents was short of estimates by 30 cents. The company’s quarterly revenue of $2.21 billion was off by $10 million.
Just prior to the opening of trading on the New York Stock Exchange, data provided by Barchart reported Ryder stock to be down 3.73%, a decline of $2.58 to $66.56 per share.
Although Fleet Management Solutions’ earnings were improved, its revenue was not. Revenue for the group was down 7% from the fourth quarter of 2019, to $1.335 billion from $1.432 billion. The company’s Dedicated segment also saw a decline, down 13%, to $301 million from $346 million.
But Ryder’s Supply Chain Solutions revenue rose 10%, to $711 million from $649 million. Supply Chain Solutions at Ryder focuses on various last-mile, logistic and e-commerce activities, and Sanchez has said in the past that Ryder would like to reduce the size of Fleet Management Solutions relative to the total size of the company in favor of growth in Dedicated and Supply Chain Solutions. The percentage of revenue from Fleet Management Solutions did decline in the fourth quarter of 2020 to about 60.3% from 62.8% a year earlier.
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