3Q 2026 Ryder Earnings Conference Call - RYDER SYSTEM INC

Financial Performance:

• Total operating revenue increased 6% to $2.8 billion in Q3 2026, driven by growth in contractual revenue across Supply Chain and Fleet Management Solutions (FMS).
• Comparable EPS reached $4.33, a 21% year-over-year increase, marking the eighth consecutive quarter of EPS growth.
• Return on Equity (ROE) rose to 18%, up from the prior year, with a full-year 2026 forecast of 18-19%.
• Free cash flow surged to $992 million in Q3 2026, compared to $496 million in the prior year, due to lower capital expenditures and improved earnings.
• FMS earnings before taxes (EBT) margin reached 13.2%, achieving the company's long-term "low teens" target early in the cycle.
• Supply Chain and Dedicated segments maintained EBT margins at their long-term targets of 8.1% and 7.5%, respectively (high single digits).
• Operating cash flow is forecast at $700-$800 million for Q4, contributing to a full-year 2026 forecast of over $2.6 billion, nearly 50% higher than 2018 levels.
• Balance sheet leverage stands at 242% at quarter-end, below the target range of 250%-300%, creating approximately $3.5 billion in incremental debt capacity over three years.

Guidance and Future Outlook:

• Full-year 2026 comparable EPS forecast raised to $14.85–$15.05 (from $13.40–$14.80), driven by Q3 outperformance and expected Q4 market improvements.
• Q4 2026 comparable EPS guidance increased to $4.25–$4.45, up from $3.59 in the prior year.
• Strategic initiative benefits are now expected to total over $70 million in 2026 (up from $50 million previously), contributing to a cumulative benefit of over $170 million by year-end.
• Cyclical upturn benefits for 2026 are raised to $40 million (from $20 million), driven by used vehicle pricing and rental recovery.
• Full-year 2026 capital expenditures forecast remains $2.4 billion, with rental CapEx increased to $500 million (up $300 million) and lease CapEx at $1.7 billion.
• Rental fleet is expected to grow 8% sequentially in Q4, resulting in a 10% increase in the second half of 2026, with full fleet growth accelerating into 2027.
• Management anticipates earnings will continue to outperform prior cycles as the freight market recovers, with potential cycle peak benefits exceeding $250 million.

Business Segments and Product Lines:

• Fleet Management Solutions (FMS): Revenue up 5%; EBT up 21%. Rental utilization hit 77% (up 700 bps), the highest since 2022, with rental pricing up 4%. Used vehicle sales pricing increased 19% for tractors and 5% for trucks year-over-year.
• Supply Chain Solutions: Revenue increased 9%, driven by new business and volume in e-commerce and last-mile delivery, partially offset by a loss in automotive accounts.
• Dedicated Transportation Solutions (DTS): Revenue down 1% due to lower fleet count, but sequential power fleet count increased by 100 units. Strong pipeline driven by customers seeking specialized, high-service private fleet conversions.
• Used Vehicle Sales: Retail channel volume increased to 61% of total sales (from 54% prior year); inventory declined to 7,300 units, near the lower end of the target range.
• Technology & Innovation: Embedding agentic AI into RiderShare and RiderGuide platforms; deploying automation and robotics in warehouses; enhancing FMS customer service via AI.

Market and Competitive Landscape:

• Over 90% of revenue is derived from long-term contracts (5-7 years for FMS, 3-5 years for Supply Chain/Dedicated), providing resilience against market volatility.
• The market is in early recovery stages; spot rates remain elevated and used vehicle inventories are low, driving pricing power.
• Demand for high-quality, specialized capacity is increasing as customers face challenges recruiting drivers and rising insurance costs.
• FMS achieved the first quarter with YoY revenue growth across all three product lines (lease, Select Care, rental) since Q4 2022.
• Rental tractor class utilization is the primary growth driver, with 10% fleet growth expected for the second half of 2026 to meet demand.

Risks and Challenges:

• Driver Availability & Wages: While 70-80% of DTS roles are specialized with daily home time, mid-single-digit wage inflation in select regions poses risks, though contracts include CPI and wage index adjusters to mitigate this.
• Macroeconomic & Geopolitical: Global events and macroeconomic factors remain variables affecting the pace and durability of the freight market recovery.
• EPA Regulations: 2027 EPA mandates may drive equipment pricing increases, though no significant pre-buy surge has been observed; non-conformance penalties are understood by the market.
• Asset Management: Rental fleet remains ~30% below peak levels; managing the transition from downsizing to strategic growth requires careful capital deployment.
• Customer Concentration: Loss of a major automotive account in Supply Chain highlighted volatility in transactional business lines, though new CPG/industrial opportunities are emerging.

Management Commentary and Tone:

• Tone was highly confident and optimistic, emphasizing the success of the "balanced growth strategy" and the durability of the transformed business model.
• Management highlighted an "inflection point" in the rental business and consistent execution on strategic initiatives as key drivers of outperformance.
• Strong focus on "profitable growth" and capital discipline, with a clear roadmap for redeploying capital into organic growth, acquisitions, and shareholder returns.
• Management stressed that their asset-light shift and contractual base allow them to outperform prior cycles even at earlier stages of a recovery.

Analyst Questions and Answers:

• Driver Wages: Addressed as a targeted issue (mid-single digit increases in select markets) rather than a broad crisis, with contracts structured to pass through inflation via CPI and wage indices.
• FMS Margins: Confirmed ability to sustain ~13% EBT margin as an inflection point, supported by strategic initiatives and a simultaneous YoY revenue increase across all FMS product lines.
• Fleet Growth: Rental fleet growth is expected to accelerate in Q4 and 2027; Lease fleet growth to materialize in 2027; Dedicated fleet growth driven by specialized conversions.
• Capital Allocation: Priority is organic fleet growth (especially rental) and high-return CapEx, followed by opportunistic M&A and share repurchases. $4.5 billion available for flexible deployment over three years.
• Supply Chain Growth: Revenue returned to double-digit growth targets (9% YoY) after a lapped automotive loss; future low-double-digit growth will likely require M&A.
• EPA Impact: No significant pre-buy activity observed; customers are pricing in 2027 increases but awaiting clarity on post-2027 technology rules.
• Pricing: Used vehicle pricing increases include a mix shift to retail (approx. 70 bps of windfall); underlying like-for-like pricing remains strong.

Other Key Points:

• Riders' business mix has shifted to 60% asset-light revenue (up from 44% in 2018), contributing to a 2.5x increase in comparable EPS and significantly higher ROE.
• The company generated over $1.7 billion in operating cash flow in 2018 at peak cycle, but forecasts $2.6 billion for 2026 despite a less mature market cycle.
• Strategic initiatives launched in 2024 aim for >$170 million in total benefits, with $70 million expected in 2026 alone.
• 50% of the remaining flexible capital capacity is earmarked for growth CapEx, while the rest is reserved for M&A and discretionary share repurchases.
• The company has successfully increased the number of "trucks per driver" utilized by lease customers, indicating better asset turnover.