Ryder’s Q2 results show its total revenue of $1.9bn, reflecting a 16% decrease Y-o-Y, and its operating revenue down 10% Y-o-Y, to $1.6bn, primarily reflecting COVID-19 impacts on commercial rental and automotive activity in the supply chain.
Fleet Management Solutions
In the Fleet Management Solutions (FMS) business segment, total revenue was $1.2bn, down 14% Y-o-Y. FMS operating revenue (a non-GAAP measure excluding fuel and lease liability insurance revenue) was $1.1bn, down 8% Y-o-Y. The decline was driven by a 33% Y-o-Y decrease in commercial rental revenue due to lower demand. ChoiceLease revenue increased 1%, reflecting a larger average fleet size and higher prices on new vehicles, partially offset by lower mileage based revenue.
In addition, there was a negative estimated impact of COVID-19 on commercial rental performance of $55m. The impact of COVID-19 on current and expected used vehicle market conditions triggered a review of Ryder’s residual value estimates, resulting in increased depreciation and valuation adjustments totalling $49m. Rental power fleet utilisation was 56% in Q2, down from 75% from last year. The company has taken action to reduce the rental fleet to better align with market conditions, resulting in a 19% Y-o-Y and a 7% sequential decline in fleet size.
Supply Chain Solutions
In the Supply Chain Solutions (SCS) business segment, total revenue was down 20% to $519m reflecting lower operating revenue, as well as lower subcontracted and fuel revenues. Operating revenue was down 16% to $405m Y-o-Y. The decline in SCS operating revenue primarily reflects COVID-19 related reductions in the automotive sector.
SCS earnings before tax of $37m decreased 19% in Q2 2020, from $46m in 2019. This decrease reflects $25m in estimated COVID-19 impacts primarily related to lower activity with automotive customers, partially offset by COVID-19-related cost actions and lower medical expenses totalling $13m. In addition, earnings were negatively impacted by $5m due to changes in residual value estimates on vehicles used in this segment.
Dedicated Transportation Solutions
In the Dedicated Transportation Solutions (DTS) business segment, total revenue was down 19% to $294m and operating revenue decreased by 8% to $228m Y-o-Y. The decline in DTS total revenue reflects lower subcontracted transportation revenue and lower fuel costs passed through to customers, as well as lower DTS operating revenue primarily due to lower sales.
DTS earnings before tax of $21m decreased 22% compared with $27m in 2019, primarily due to a negative impact of $7m related to changes in residual value estimates on vehicles used in this segment.
COVID-19 Impacts to Date and Outlook
The COVID-19 pandemic and measures taken to prevent its spread negatively affected Ryder’s business for a total estimated pre-tax earnings impact of $45m in Q2 2020, including lower commercial rental demand ($55m estimated impact) and reduced automotive activity in supply chain ($25m estimated impact), partially offset by COVID-19-related temporary cost savings of $35m. Due to the effects of COVID-19, the company now expects the recovery in the used vehicle market will be delayed beyond the company’s prior expectation of mid-2021. Although it saw stronger than expected volumes in used vehicle sales in both the retail and wholesale markets, it expects pricing pressure to continue through mid-2022. As a result, the company primarily extended accelerated depreciation on vehicles expected to be sold by an additional year through mid-2022 and lowered long term policy residual value estimates, particularly for trucks. Additionally, in order to address elevated used vehicle inventories, certain vehicles were written down to reflect wholesale pricing levels.
Commenting on the company’s response to the challenges of COVID-19, Q2 results, and current outlook, Ryder Chairman and CEO Robert Sanchez said, “Market conditions related to COVID-19 troughed in April for Ryder’s rental, supply chain automotive, and used vehicle sales businesses, and conditions improved sequentially thereafter. […] Although we expect the months ahead to remain challenging, we believe the effects of the pandemic are accelerating trends toward e-commerce fulfilment, final mile delivery of big and bulky goods, and on-shoring and near-shoring of manufacturing and supply chain operations. We believe this presents a compelling opportunity for transportation and logistics outsourcing to Ryder, and as a leading North American logistics provider, we are strongly positioned to capitalise on this opportunity.”
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