Good afternoon, everyone, and again, welcome to Day Two of Barclays 43rd Annual Industrial Select Conference. I'm Brandon Oglenski, Airline and Transport Analyst, joined by David Zazula here on our team as well, and very happy, I think, for the first time ever, to have Ryder System at our conference. I know we've been doing this conference in Miami a long time. We probably should have done this many years ago, Robert, but we are joined by Robert Sanchez, Chairman and Chief Executive Officer, and almost on your way out, so congratulations on that.
I spent years knocking on the door here trying to get in, and finally I'm in, so yeah.
Well, I'm glad, glad we got you in here for one, but hopefully the first of many for your company. Like we've done in the past, for those in the audience here, if you could just pick up the little keypad in front of you, we'll queue up question one. Do you currently own Ryder? Yes, overweight, two, market weight, three, underweight, or four, no ownership. Thanks, everyone, for participating. Again, we do compile these and publish them post-conference. Okay, question number two, please. What's your general bias towards Ryder right now? Positive, negative, or neutral? All right, please, question number three. In your opinion, through cycle EPS growth for Ryder will be above peers, in line with peers, or below peers. Robert, again, thank you for coming down here.
If we can vote there, thank you. Appreciate you coming again. Can you just give us your perspective here? You know, as you've really driven a lot of change at the company.
Mm-hmm.
Just where do you, you know, what are you most proud of, and where do you see it heading?
Yeah, I think those who have followed the company for the last probably five or six years have probably seen the, the transformation we've been on. We called it our balanced growth strategy. We really adopted this back in 2019. You know, been around for over 90 years, so it's not like we're new to the business.
But certainly, as we got into, you know, 2015, 2016, 2017, and 2018, we went into a period of an extended used truck downturn and really forced us to reevaluate our business model and understand, you know, how do we de-risk this business and be less so, not be so reliant on the used truck market, which a lot of, a lot of investors were looking at Ryder almost like a proxy for the used truck market, which was kind of crazy, considering all the other things that we do. And then, you know, how do we improve the returns, make it less reliant? And then what should the portfolio look like?
You know, we focused on, from a de-risking of the business, we said, look, one of the key issues here that's driving all this reliance on the used truck market has been the way that we price our leases. We were pricing our leases to an average residual value. You know, we'd look at the last six years and say, what's the average used truck price been? That's what we're assuming it's going to sell six years from now. Some years you were better, some years you were worse. When the used truck market was within a certain band, you were over 50% of the time and below 50% of the time. As we got into that 2015, 2016, 2017 time period, we spent three years on the bottom end of that.
That meant that all these leases that we had signed six years prior, that we had done all this great work, maintained the truck, done all the road calls in the middle of the night, taking care of the customer, all those deals ended up being negative return deals. It's, you know, it's kind of crazy that we do all this work, and at the end, it all relies on that final used truck price. We reduced the assumption that we were making on that residual value to be really bottom quartile to the average. That way, most of the time, we were going to at least get the return that we expected. That in and of itself created a significant de-risking. We also exited some geographies and services that we were in that weren't giving us a good return.
How do we improve the returns? Well, we historically have been targeting a 60 basis point spread on those leases. We increased that target to 150 basis points, so now we're making more money on each of those leases. We also went and challenged our organization with $1.2 billion maintaining trucks. Can we find $100 million by improving the efficiencies of these 4,500 diesel technicians at locations that we're working? Targeted that one after that. Those initiatives, really, the maintenance initiative and the pricing initiatives [are] big drivers equated to over a multiyear period, ended up being $300 million of annual cost savings that we were able to take out of the business.
So if you consider a business that we were, our earnings before tax were about $300 million-$400 million, but the volatility of rental and used trucks was about $200 million. You had a lot of volatility in that earnings. Now, the business is making $700 million. You can still have that $200 million, but it's obviously a much smaller piece. So that was the de-risking and the improving of the returns. Then we looked at our logistics and dedicated business. Asset, more asset-light, good return, contractual business. How do we disproportionately look to grow that? Made some acquisitions, spent some money on sales and marketing, and really being able to grow it organically.
Then those two businesses who were, if you go back 10 years ago, were about 35% of the revenues of the company, are now 60% of the revenues of the company. Moved more towards the contractual parts of the business, more towards the asset light, and that's the portfolio that we're running today.
We just had Patrick Kelleher up here, the new CEO of GXO, actually gave you guys a shout-out as a competitor that he looks, you know, towards, to matching or, or beating in the future, but definitely giving some respect. I think you've gotten some recognition in the market. I guess in the near term, though, folks have been really focused on used truck values again, though, right?
Mm-hmm.
Because that does impact your earnings, which has been a little bit more challenged in the current environment. I don't know. We, we've been asking all the companies up here, are there any potential green shoots? Because short cycle industrial measures have gotten better. PMI is obviously better.
Yeah.
We've seen truckload spot rates come up. I don't know, from your perspective, is the market improving or is it more of the same this year?
Yeah, well, we just gave our full year forecast, and we're going to show earnings improvement again this year, but without a whole lot of help from the market. It's mostly these initiatives and self-helping programs, about $70 million improvement there. We're not assuming a pickup in the second half necessarily, only because we assume that the last two years and it didn't happen, so we figured this year we won't assume it, see if it does happen. But the guidance that we gave really didn't account for that. If there is a pickup, obviously we should do better than the range that we gave. Are we seeing anything? Not yet. You know, the PMI being above 50 is always a good thing. That helps manufacturing, should help the freight market.
Spot rates being up is a good thing, also, it's an early indicator. The FTR truck utilization being over 95% is a good indicator. That's also up. So these are all good things. It usually takes about six months for us to see it in our rental and used truck business. So if these things stick towards the second half of the year, we should see some improvement, but we haven't seen it as of yet. We're seeing just kind of stable, bumping along the bottom type activity.
So just doing the math, right, on the center of where it is on the 1Q guidance versus the full year, it does imply some acceleration in earnings. You're saying that's not due to the market, it's due to some other things that are going on.
Primarily due to our initiatives and our, you know, self-help. So we, we identified $70 million coming from some lease pricing still trickling into 2026, some maintenance cost initiatives that we've got lined aside to, that we feel good about, and also rationalizing some of our omni-channel retail network, so we got line of sight to that. And then also the layering in of our new supply chain accounts. So we had a really strong sales year in our logistics and supply chain business, record, actually. Those deals will start layering in here in 2026 and really hitting their stride in the second half. So we expect to start to see the benefits of that in the second half.
That's about a six-month ramp from the time-
About six months, yeah.
Right. And is there some startup costs associated where the margin initially is lower and then that further ramps from there?
There's a little bit, but that's not the bigger issue. The bigger issue is just really getting those ramped. Also, I should mention, in automotive, we had a really strong first quarter last year with a lot of auto production. Some of those plants are extending their shutdowns this year. We had a little bit of lost business, too, so that also created some headwind year-over-year with the first quarter.
We talked on the earnings call. It sounds like the outlook for that is still pretty tepid. I mean, the manufacturers you're talking to are at least fairly cautious in the near term.
On the truck leasing and on the dedicated side, yes. On the supply chain side, we are seeing customers making decisions. You know, we have, as I've mentioned, we had a record sales year last year, new contracts being signed, especially in the omni-channel retail sector. And we feel really good about the prospects. Our target for that business is double digit top line growth, and we expect to end the year really approaching that level as all these, these new contracts, layer in.
So you used to, you know, prior to this growth, or part of this, change plan, have fleet growth that was, you know, a little bit higher. You've reduced down to 2,000-4,000. What has that allowed you to do? How has that allowed you to have more stable earnings with that type of fleet growth?
Well, I think it's been the trade-off of price versus, versus volume, right? So we were growing prior to, to balanced growth. We were growing our lease fleet about 10,000-11,000 units a year. So when we made the decision to increase the spread, we knew there'd be some impact on that growth. That trade-off works for us. I'd rather grow 2,000-4,000 at the spread that we're at, the 150, and then growing 11,000 at the 60 basis point spread. So that's really been the, the trade-off. I think overall in the marketplace, there was a little bit of market share loss initially, but that's, that has, as the market has kind of moved with us, it's, it's stabilized.
You think, you know, 1% loss last year in terms of revenue growth, the long-term target of mid-single digit growth for fleet management, even at the two to four thousand-
Yeah.
Units per year, you think that's comfortable, you can get that?
Two to 4,000 gets us to that mid-single digit growth rate. Now, if the market really takes off at the pricing that we're at, and we see that we can grow more than that, we will. We wanna... I think it's important for us to make sure we maintain our pricing discipline.
Super, maybe a bigger issue here, just on, on tariffs and, you know, truck pricing going forward. How has that impacted the new truck market?
So we're one of the largest buyers of, of commercial trucks in the country. So as these tariffs, there has been already some impact from tariffs, especially initially some of the steel and aluminum tariffs. So as those get layered in, we build them into any new leases, so we, we pass it through, as, as we do with any cost that comes in. We're competing against a truck buyer, being able to buy the truck on, on their own. They're going to have the same issue. So they do get passed through. I think, we'll see how that, how that goes. I think right now, some of these OEs are, are a little tepid to pass them through, knowing that the market is soft. But as the market picks back up, I would assume some of that's going to start coming through.
I think we've heard from some of the trucking type providers that supply is coming out of the market due to government regulation. That's helped, you know, on the rate side. Are you hearing anything from your customers about it hurting you on the demand side, just in that there's, you know, fewer drivers out there in the market, less demand for trucks? Or is that a different segment of the market maybe that you're saying?
Yeah. Most of our customer base are private fleets, so these are folks that are not in the trucking business, but they need trucks to deliver their products to their customers or pick up. So they're more, you know, the private fleets really ramped up during COVID, and they've had to now scale down. So we've seen that in our lease fleet has come down. Our dedicated business hasn't been growing at the pace that we want. We think that's kind of getting to its equilibrium. It usually happens once the freight market stabilizes, and then we'll see that move back up. But we haven't yet. I mean, the driver market is still relatively loose.
I think as that tightens, you're going to see more companies, private fleets, looking for companies like Ryder to help them as they struggle with hiring new truck drivers.
The EPA 2027 standards, you know, has that impacted the market one way or another?
Not, not yet. We haven't had a lot of pre-buy requests yet from our customers. We have some, but not, there's not a big push like we've seen in other technology changes. I think if the market starts to come back and the market begins to tighten, you may see more companies wanting to jump in prior to the change.
Are we keeping those EPA standards or?
Yes. The bulk of the standards are staying. What I think is changing is the need for the OEs to provide a warranty throughout the entire life of the vehicle. I think that's being rolled back, which was a significant cost factor for them.
Got it.
With respect to dedicated, you know, we hear a lot of companies talk about having a dedicated offering. Do you guys serve a different segment of the market, maybe a little bit more specialized? You could just give us an overview of what you've done with the dedicated segment and where you think it can grow from here.
Right. Ryder's been in the dedicated business, I think, since 1945, when we first started delivering newspapers for the Miami Herald. What we do is more specialized, dedicated. There's very few of our accounts where we're taking a product from one dock door and delivering it to another dock door. It typically requires our driver to do something beyond just drive the truck. You think about, we do a lot in the metals industry. Metals are being run on a flatbed. There's a crane that the driver needs to operate to be able to move the metals off. That's the kind of business we do. Deliveries even to stores where it's not a dock door, it might be in a strip mall, and the driver has to get out and bring totes into a store.
We do that type of business. So that's the segment that we have always been in. We're the second largest provider in that segment, and we have a very competitive service offering there.
I think your long-term target, high single digits, I mean, you, you set the company up pretty well, over your time. You think that's the right target going forward, even though the market's been a little tougher lately?
This being my last conference, I'm in a position to start raising all the long-term targets. But I guess I should probably just stick with what I got, which is high single digits, I think is a reasonable target for that industry and the business that we're in.
You think this year is maybe a little tougher, or is that more going to be where you're trying to get to next year, or do you think-
Yeah, if you think about it, that business benefits from any... All of our businesses, we're in the outsourcing business, so anything that makes what we do difficult is good for us. So in a tight market where private fleets are struggling with their equipment or struggling with getting drivers, that's a positive for Ryder. They're more likely to then look for somebody like Ryder to help them. So right now, driver market has been pretty loose. As that begins to tighten, I think you're going to see more companies look for help. Another area, safety. You know, companies who don't do trucking or transportation for a living maybe don't have the same safety programs and that Ryder has. So we have had other customers now getting into big insurance claims over accidents, and they decide: You know what?
Why am I in this business? Let me go find somebody who does it. We've got a very robust safety program. We got in-cab cameras. We got all kinds of stuff to better manage that, and we're seeing companies look to outsource because of that.
If I could just ask one on that, Robert, I guess we've seen with a lot of our coverage in the trucking and freight space, like insurance costs have just been through the roof. Is that something you guys are experiencing, too, and how are you mitigating that?
Across different areas. Clearly on the BIPD side and on the vehicle insurance side, it's our safety programs, right? That's what we... safety is the number one priority at Ryder. We have 50,000 employees. We have a very strong safety culture. We implemented in-cab cameras probably before most people did. We've had them in place, I think, since 2016. It's been a big game changer for us in helping us, you know, coach our drivers and really drive the safety culture. We are seeing, as many companies across the industry, medical costs for our employees really come up.
We're doing what every other company is trying to do, figure out different ways of managing through that, but that is a real challenge, I think, for all of us.
You made an acquisition, you know, somewhat recently, Cardinal Logistics.
Mm-hmm.
I think you targeted, you know, $40 million-$60 million in synergies. You know, what's the breakdown there? Is there a risk to not getting there by the end of the year? And is there, you know, maybe some upside or additional things you're learning as you've integrated them?
Yeah, that was a good acquisition. We're very selective about our acquisitions. That was a company that's, I think, well-run, good contracts. We identified $40 million-$60 million of initiatives. We've delivered on that through 2025. A little bit trickling in this year, but most of that is already executed on. A lot of it was for those contracts, they were outsourcing their equipment to third parties or doing it themselves, doing their own maintenance. Putting that through the Ryder network brought a lot of savings because we buy a lot of trucks. We're very efficient in how we manage them and maintain them. We were able to bring a lot of savings to the operations that way, along with some overhead and things that we did there.
Yeah, that maintenance product, you can leverage that across the businesses-
Right.
You know, not just for dedicated as well.
Sure.
That's been part of the turnaround strategy.
Yep.
... Sure. I mean, supply chain solutions, I think you already mentioned ramping up towards the high, low double-digit target in 2022. Just, you know, what are the puts and takes? What are the different subcomponents of the business we should be thinking about? And, you know, what do you want to grow within supply chain, you know, well, after you're gone?
So the key with supply chain across whoever's doing it is execution. You have to be able to execute well, if you're going to expect a company to hand over an important part of their supply chain to you. So we've been in the business for a long time. We've learned. I know sometimes I think we paid a lot of tuition, too, over the, over the many years. We're very good at execution. Startups are probably the toughest part when you start up a new account. We have startup effectiveness teams that just fly around and only do startups, make sure we are able to flawlessly execute on that. So we feel really good about that, and we feel really good about the capabilities that we have there. That's why we win.
That business, though, is evolving, where we operate in four industry verticals, so we don't try to do everything for everybody. We're very good in automotive, inbound automotive logistics, one of the leaders. Omni-channel retail, which is our fastest growing segment now, where we're doing business with a lot of the retail companies and running distribution centers for them. We're in the CPG business, CPG vertical. Think about food logistics. We do a lot of business with CPG-type companies, and then we're also in the high tech and healthcare vertical. Continuing to focus on the port-to-door services that we provide, we're able to run the facilities, the warehouses. We have over 100 million sq ft of warehouse space that we run.
We have a transportation management service that we can manage, not just Ryder's trucks, but also third-party freight. We have, I think it's over $10 billion of freight that we manage for our customers, act as a traffic department. We have final mile delivery capabilities, especially with big and bulky products, and we also have an e-commerce fulfillment capability there. We're able to do consulting services. So anything that you need port to door in North America, we can provide through our supply chain services.
I think that's a differentiating point in your business offering, isn't it?
It is today, yes.
A lot of the competitors you run up against are just doing everything inside the building, right?
Correct. Correct. So we're able to offer all the services. Once you get to the port, we're able to offer all the services all the way to the end consumer.
Okay.
The margin in that business has actually really come up, even though it's been a pretty bad environment in terms of freight. I mean, should investors -- how do they think about that when looking at history? Is this something where, you know, you actually get a little bit of better margin in times of lower demand, or is it something where, due to your self-help initiatives, that's really what's been driving the margin?
Yeah, it's a contractual business, right? So it's not so much volume driven. There is some volume to it, but mostly it's contractual, cost plus type business. So I think it's been the discipline over time of making sure you're signing good contracts and then your ability to execute on those contracts. That's what allows you to achieve the returns that we're achieving. And our target returns there are high single digits, which is kind of where we've been at.
Is this just a U.S. business, or are you targeting global opportunities as well?
We made the decision years ago to focus solely on North America.
Yeah.
We'd been in different parts of the world, in South America, Europe, and really struggled. We struggled being great everywhere, and we said, "Let's just be great in North America." This business, this economy is very large. In that business, probably 75% of the business is still not outsourced. So to the extent we can chip away at that, that's plenty of business for us to be, to get.
On the warehousing side, you've done pretty well in terms of revenue. I mean, how much has that been due to new customer wins? And what has the commercial team been focusing on in that area of supply chain?
Yeah. So we've had some new customer wins, but a significant number, amount of our growth comes from existing customers. So we may go into a ... By the way, most of our customers there are large Fortune 500 type companies. So we could go into an account where we win one location out of, you know, maybe these are customers that have 10 distribution centers around the country. We win one. We prove ourselves with our startup effectiveness, with our ability to execute and our ability to bring continuous improvement, even when compared to the other nine. And then the customer says, "Okay, well, I'm going to give you the second one. I'm going to give you the third one." So typically, that's how we grow, is by being able to expand and then expand services.
So if you're doing the warehousing, let me also do the transportation, or if I'm doing the transportation, let me try the warehouse.
Okay, we should probably get to... Can we do, ARS question number four, please? So we're running out of time here. So for those in the room, if you don't mind picking up the keypad. In your opinion, what should Ryder do with excess cash, both on M&A, larger M&A, share repurchases, dividends, debt pay down, or internal investment? Oh, share repurchases.
No one thinks we should pay down debt. I'm surprised.
Okay. Question number five, please. In your opinion, what multiple of 2026 earnings should Ryder trade? You see the range there. Appreciate the vote.
They just think with your-
Can I vote or I'm not allowed?
We've yet to get remote up here.
Just with your earnings, they just think debt capacity. They, they saw that slide in the feedback.
Yeah.
There you go. And then if you all don't mind, question number six, what do you see as the most significant share price headwind facing Ryder? Core growth, margin performance, capital deployment, or execution and strategy. And again, thank you for participating.
... Well, you mentioned debt. I think your targeted range 2.5x-3 x.
Right.
Certainly, you know, what you do on the FMS side, very capital intensive. You know, how does that play into the cycle? When do you think about 2.5x? When do you think about 3x? Do you think, you know, now is the time to go near the high end of the cycle with potentially some growth coming next year?
Yeah. No, we I think in order for us, first of all, our business, based on the earnings power of the business right now, and we're talking debt to equity, we tend to delever on any given year. Even if we're growing, at this point, the amount of earnings that we're generating, even if we were growing our lease fleet by 10,000-11,000 units, we would still delever. So in from an organic standpoint, short of significant acquisitions, the business is likely to continue to delever. So what we would do then is look to do share buybacks and continue to drive keep us close to that leverage ratio, right?
So we're on the low end of that, and unless there's a big acquisition opportunity that we see that would move us there, we're likely to stay in that, in that range.
Sounds like you're in line with what your investors are looking for here. I guess short term expenditures, I think $1.9 billion this year. What's the breakdown there? What do you think in terms of power equipment? What can we expect on the CapEx side?
So the capital that we're expecting this year for leases is almost entirely. Actually, it's entirely replacement. So we're not assuming any growth in our lease. We actually seeing a slight decline. In rental, a very minimal purchase. I think we're doing $100 million of rental. On any—you know, on a good year, we could be doing $600 million-$700 million of rental CapEx. So until we see really a pickup in rental, we're not gonna pull the trigger on that. And then on the lease, it'd be we don't buy a truck until we have a signed lease. So when customers are ready to sign up for more fleet, is when we'll be ready to buy more vehicles.
From what you were saying earlier, it sounds like customers are at least on the cautious side, you know, right now, in terms of expanding their fleet.
Correct. We're not seeing a lot of expansion yet, but I've been with the company 33 years. I've been through enough of these cycles until the light switch turns on, and then everybody wants trucks immediately. So, we're waiting for that opportunity.
That replacement cycle that you're going through this year, that's going to maintain your average equipment age, kind of similar to-
It's a little bit long for us right now, so even with this replacement, we'll still be a little bit larger than we, we prefer. But again, we typically run on the lease business, we match the first life of the vehicle with the lease. So at the end of that lease, it's ready to go to the used truck center. If it still has life, we do have an asset management process, redeployed into another application. But generally, it's the replacement cycle happens as the leases term out.
That's really a big advantage to the business model, is you have so many different ways that you can make use of it.
Redeploy it. We can put it in our dedicated business, we can redeploy it to supply chain, we can deploy it to rental. So there's a lot of, asset management moves we can make.
Robert, we only have less than two minutes left here. Really appreciate you being here. But as you get set to leave Ryder, I mean, what legacy do you want at the company? And what's the most exciting that you think is going to be five years from now?
Yeah, look, I mean, the nice thing about ... I've been with the company, as I said, for 33 years. I turned 60 last year. I'd always had a goal of once I hit 60, I wanted to be able to move on. If things were going well, things are going well. I think we have positioned the company well. We got $250 million of earnings uplift between here and the next peak of rental and used vehicles coming back. We have a strong port-contractual portfolio. We've got great leadership that's really in place and coming up. You know, John has been with the company for over 20 years.
I've worked very closely with him for most of that time, along with Cristy, our CFO, Steve Sensing, who runs our supply chain business, Tom Regan runs Dedicated, and Tom Havens, our fleet management business. These are all folks who have been with the company a long time, understand the business really well, have all actively participated in the development and execution of this balanced growth strategy. I'm confident they're going to continue and take it to the next... There'll be another chapter, and they're going to write that chapter well and make sure that we're getting, continuing to grow the company and continue to have good returns for shareholders.
Well, thank you very much for coming. Really appreciate it.
Thank you for having me.
Congrats on retirement.
Thank you.