Ryder’s cash flows on the radar

The recovery of US supply chain solutions and vehicle leasing firm, Ryder, appears to be on track, according to second-quarter results released at the end of July. However, this is chiefly a working capital story, and a certain degree of uncertainty persists on the prospects of Ryder due to its significant debt pile.

A few key financial metrics and growth rates were encouraging, but it is the cash flows that continue to draw attention because its investment needs remain significantly higher than the amount of cash it generates from its core operations. Partly boosted by cash inflows from receivables, operating cash flow came in at $762.6m in the first half of the year, up from $658.6m one year earlier.

However, lower debt proceeds, combined with higher cash outflows from dividends and buybacks – among other things – yielded a drop in cash flows from financing, which was down to $69.3m from $445m in the first half of 2015. Cash flow from investment, meanwhile, stood some $250m below last year’s levels.

As a result, gross cash balances of $66m at the end of June were mildly lower than the turn of the year.

In the second quarter, lease and rental revenues rose 2.4% to $798m from $779m year-on-year, while services revenues grew almost 7% to $786m. Despite a drop in fuel revenues, group sales reached $1.7bn, up from $1.66bn one year earlier, while operating revenues rose 4% to $1.45bn.

Operating revenue growth came in at 6% and net turnover was $2.86bn, which outpaced total revenue growth at 3% in the first half of 2016.

The core fleet management solutions (FMS) business reported total revenues of $1.15bn.

“FMS total revenue in the second quarter was consistent with the prior year as higher operating revenue was partially offset by lower fuel prices passed through to customers and a negative impact from foreign exchange,” Ryder said.

This performance was broadly in line with first-quarter trends. Growth in operating revenues should be attributed to growth in the full service lease fleet and higher prices on replacement vehicles, which were partially offset by lower demand in the commercial rental product line, it said.

Operating profits, earnings and earnings per share fell significantly year-on-year, so the focus is on its investment strategy. Capital expenditures dropped 30% to $1bn in the first half of the year, reflecting lower investment in the commercial rental fleet.

The group targets total capital expenditures of about $2bn this year, with funding expected to come from internal resources and additional debt financing.

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Source: Transport Intelligence, August 9, 2016

Author: Alessandro Pasetti