Its shares, like those of most of its peers, have been under pressure for almost a year now, yet trends are unlikely to change anytime soon for Ryder shareholders. A stretched capital structure and significant funding needs do not bode well in the current environment.
The US-based supply chain solutions provider said on 2 February that it had reported record fourth-quarter (Q4) operating revenue on the back of a strong performance across its three divisions. Operating revenue differs from total revenue because it does not include fuel and subcontracted services.
Higher service lease and commercial rental revenue in fleet management solutions (FMS) came along with new business and increased volumes in dedicated transportation solutions (DTS) and supply chain solutions ess(SCS) – significant gains in all the three units were only partly offset by a negative impact from currencies.
Its core FMS unit turned over $999m in operating revenue (66% of group total) in Q4, while the smaller DTS and SCS divisions generated $188m and $322m respectively. Excluding exchange rate adjustments, quarterly operating revenue grew 7% compared to Q414, although total revenue was essentially flat year-on-year at $1.6bn.
Its earnings rose to $75m in Q415 from $11.5m in Q414, which was a remarkable performance – but doesn’t negate the risk facing it given that its market cap is $3bn and its enterprise, which includes net debt, reads $8.6bn at current prices. Core cash flows have deteriorated over the last 12 months.
There are signs that Ryder’s finances could become strained before it reaches the critical mass that it needs to generate healthy cash flows. At the end of 2015, its gross cash position stood at $60m, but total debts had risen by $787m year-on-year to over $5.5bn as it continued to invest in growth.
Its total debt-to-equity ratio stood at 278% on 31 December, slightly above its long-term target range of between 225% and 275%. It ended 2015 with a “record lease fleet growth of 6,800 vehicles, significantly exceeding” its initial “full-year plan of 4,000” vehicles.
Its projected net leverage, meanwhile, is currently above 3x.
The problem is that operating cash flow was $1.44bn in 2015, up only 4% up on the $1.38bn in 2014. The group is burning cash at a faster clip; negative free cash flow of $727m in 2015 compares with $315m in 2014, which essentially reflected higher capital expenditure needs (at $2.6bn in 2015 versus $2.2bn one year earlier).
Chief executive Robert Sanchez expects positive free cash flow in 2016, “demonstrating the counter-cyclical nature” of its business model.
Sanchez is so confident that he predicts a significant decline in leverage on the back of rising cash flows, which will “provide additional balance sheet flexibility” and could allow the company to resume “anti-dilutive repurchases in the second half of the year.”
In fact, Ryder might have to raise new equity, or cut capex, or both.
Source: Transport Intellingence, 10 February 2016
Author: Alessandro Pasetti
