Ryder System Inc (R) Q2 2023 Earnings Call Transcript

Please standby, we are about to begin. Good morning, and welcome to the Ryder System Second Quarter 2023 Earnings Release Conference Call. All lines are in a listen-only mode until after the presentation. Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Ms. Calene Candela, Vice President, Investor Relations for Ryder. Ms. Candela, you may begin.

Thank you. Good morning, and welcome to Ryder's second quarter 2023 earnings conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political, and regulatory factors. More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation, and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website. Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer; and John Diez, Executive Vice President and Chief Financial Officer. Additionally, Tom Havens, President of Fleet Management Solutions; and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solution, are on the call today and available for questions following the presentation. At this time, I'll turn the call over to Robert.

Good morning, everyone, and thanks for joining us. I'm very proud of the strong second quarter results delivered by our team despite challenging freight conditions. As many of you know, several years ago, we adopted a balanced growth strategy and have since been focused on its execution. As we'll discuss on today's call, the transformative changes we've made to derisk our business model, enhance returns and free cash flow, and drive long-term profitable growth have significantly increased the earnings and return profile of the company even in the market conditions we are currently seeing. Results for the quarter were above our forecasts reflecting better-than-expected performance in all three business segments. I'll begin today's call by providing you with a strategic update. John will then take you through our second quarter results. We'll then discuss our outlook. Let's begin on Slide 4. Our strong year-to-date performance and increased forecasts provide clear evidence that our balanced growth strategy is working. We've executed transformative changes that have increased the earnings and return profile of the business. Our updated model has proven to be more resilient than prior cycles. We see incremental opportunity ahead from our initiatives, as well as the secular trends that continue to favor transportation and logistics outsourcing. We remain focused on enhancing returns above our target return on equity of 24% for the trailing 12-month period, reflecting elevated market conditions in Fleet Management Solutions during the second half of 2022, as well as the benefits from our initiatives. These initiatives include pricing and cost recovery actions, which benefited returns in all segments. Our outlook for return on equity remains strong, and we expect to end 2023 in line with our high teens target despite weak freight conditions. All three business segments achieved target earnings before tax margins during the quarter. And our enhanced asset management playbook has enabled us to generate higher earnings in each phase of the cycle. We recently announced a 15% increase in our quarterly dividends, which demonstrates our confidence in the long-term earnings generation of the model. Our strong balance sheet and solid investment-grade credit rating continue to provide us with ample capacity to pursue targeted acquisitions and investments, as well as return capital to shareholders. We repurchased 1.1 million shares during the quarter under our repurchase programs. Since the beginning of 2021, we've repurchased approximately 15% of our outstanding shares. We are encouraged to see the accelerated timing of OEM deliveries because it's allowing us to fulfill these contracts sooner. Our capital expenditures have increased as a result of these earlier deliveries, which in turn has lowered our expected free cash flow for the year. Slide 5 illustrates the increased earnings and return profile that has resulted from our business model transformation. In 2018, prior to the implementation of our balanced growth strategy, we generated comparable earnings per share of $5.95 and return on equity of 13%. This was during peak freight cycle conditions. At that time, the majority of our $8.4 billion of revenue was from Fleet Management Solutions. Supply chain revenue had a 3-year growth rate of 16%. Operating cash flow was $1.7 billion. Now let's look at Ryder today. In 2023, during a freight cycle downturn, our updated model is expected to generate meaningfully higher earnings and returns than it did during the 2018 freight cycle peak. Comparable earnings per share is expected to be $12.20 to $12.70 compared to $5.95 in 2018, and return on equity is expected to be in our high teens target range, well above the 13% generated in 2018. Our revenue mix has shifted towards supply chain and dedicated with 55% of 2023 revenue expected from these asset-light businesses compared to 44% in 2018. The supply chain growth rate is expected to increase to 24%. As a result of profitable growth in our contractual lease, supply chain and dedicated businesses, operating cash flow is expected to increase to $2.5 billion this year. As illustrated here, the business is outperforming prior cycles, even when comparing prior peak to current downturn conditions. I'm proud and encouraged by the results of our transformation thus far, and I'm confident that there will be incremental benefits beyond 2023. Slide 6 highlights key areas of focus for our balanced growth strategy and the actions we've taken to transform the business. Reducing the reliance on used vehicle proceeds needed to achieve ChoiceLease returns has been a key initiative to derisk our business model. Our pricing residuals today are approximately 40% lower than they were in 2017, resulting in higher cash flows coming from more stable and predictable lease payments rather than more cyclical used vehicle proceeds. This has been a key driver of higher lease performance. We've optimized our Fleet Management Solutions business mix by exiting our underperforming U.K. and lease liability insurance businesses. Returns on our ChoiceLease portfolio have been enhanced by expanding pricing spreads that have resulted in better aligning price with customer segmentation. We continue to expect incremental benefit from our overall lease pricing initiative, as approximately 70% of our lease portfolio has been priced under our updated model, and an additional 10% is under contract and awaiting vehicle delivery. This initiative is expected to be fully implemented by 2025, with an estimated total annual benefit of $125 million. Results are also benefiting from our multi-year maintenance cost savings initiatives, which have generated over $100 million in annual savings today compared to 2018. Moderate lease growth at higher returns has increased our expected free cash flow, with positive free cash flow expected in most years and over the cycle. Higher lease fleet growth targets and related capital expenditures prior to the balanced growth strategy pressured historical free cash flow. A key component of our balanced growth strategy has been to accelerate growth in our higher return, asset-light supply chain and dedicated businesses. As a result of several strategic acquisitions, investments in technology and new product development as well as secular trends that favor logistics outsourcing 55% of our 2023 revenue is expected to come from our asset-light supply chain and dedicated businesses, as mentioned earlier. Our 3-year revenue growth rate for supply chain has increased from 16% in 2018 to 24% today. Overall, the transformative changes we've made to the business are improving returns and positioning our business for long-term profitable growth. I will turn the call over to John to review our second quarter performance.

Thanks, Robert. Total company results for the second quarter are on Page 7. Operating revenue of $2.3 billion in the second quarter, up 1% from the prior year, primarily reflects revenue growth in supply chain and dedicated, partially offset by the Fleet Management Solutions U.K. exit. Comparable earnings per share from continuing operations were $3.61 in the second quarter, down from a record $4.43 in the prior year, reflecting expected weaker market conditions in used vehicle sales and rental. As we discussed in our prior calls, GAAP EPS in the second quarter was impacted by a one-time noncash cumulative currency translation charge related to the exit of our U.K. business. Return on equity, our primary financial metric, was 24% and remained above our high teens target, reflecting elevated used vehicle sales and rental market conditions in the second half of 2022 as well as our returns initiatives. Year-to-date, free cash flow decreased to $16 million from $551 million in the prior year due to increased capital expenditures and lower used vehicle sales proceeds. Turning to Fleet Management Solutions results on Page 8. Fleet Management Solutions operating revenue decreased 4% as a result of exiting the U.K. Operating revenue in North America was unchanged, as higher SelectCare and ChoiceLease offset lower rental demand. Pre-tax earnings in Fleet Management were $180 million and down year-over-year as anticipated. Prior year results reflect record pre-tax earnings in Fleet Management, largely due to elevated market conditions in used vehicle sales and rental. Lower used vehicle pricing in the quarter was partially offset by higher sales volumes. Rental utilization on the power fleet of 75% was in our mid- to high-70s range, but down from prior year record levels of 85%. Lower utilization was partially offset by a 2% increase in power fleet pricing. Despite a weaker used vehicle sales and rental environment, Fleet Management earnings before tax as a percent of operating revenue remained strong at 14.4% in the second quarter, above the segment's long-term target of low double digits. For the trailing 12-month period, it was also above target at 17.2%. Page 9 highlights used vehicle sales results in North America for the quarter. As anticipated, market conditions for used vehicle sales continue to normalize from elevated levels in the prior year. Compared with the prior year, used tractor proceeds declined 41%, and used truck proceeds declined 34%, reflecting weaker freight conditions. On a sequential basis, proceeds for tractors decreased 15% and proceeds for trucks decreased 14%, both generally in line with expectations. During the quarter, we sold 5,500 used vehicles, up sequentially versus prior year. Used vehicle inventory increased to 7,000 vehicles at quarter end and is in line with our target inventory levels of 7,000 to 9,000 units. Increased sales volumes and inventory levels reflect higher lease replacement and rental de-fleeting activity. Although used vehicle pricing declined, proceeds remain above residual value estimates used for depreciation purposes. Slide 20 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information. Turning to supply chain on Page 10. Operating revenue increased 8%, reflecting new business, higher volumes, and increased pricing. Double-digit revenue increases in automotive, consumer packaged goods, and industrial verticals more than offset the softer volumes in omni-channel retail. Supply chain earnings before tax increased 23%, reflecting revenue growth and lower incentive-based compensation costs as well as prior-year customer accommodation charges, which also benefited earnings comparisons. These items were partially offset by lower volumes in the omni-channel retail vertical. Supply Chain earnings before tax as a percent of operating revenue was 8.7% in the quarter, returning to the segment's high single-digit target range as profitable growth more than offset lower omni-channel volumes. Moving to Dedicated on Page 11. Operating revenue increased 7%, reflecting inflationary pricing and higher volumes. Dedicated earnings before tax increased 43%, primarily due to operating revenue growth and improved labor productivity. We continue to see improvement in the number of open positions and time-to-fill for our professional drivers. Dedicated earnings before tax as a percent of operating revenue of 10.3% was above the segment's high single-digit target. During the quarter, we saw slower contract sales activity in Dedicated, consistent with a softer freight environment. As we discussed last quarter, we expect Dedicated sales activity to moderate for the remainder of the year and expect segment revenue growth to be below our high single-digit target range. Dedicated remains on track to achieve its high single-digit target for segment pre-tax earnings. Turning to Slide 12. Year-to-date, lease capital spending of $1.4 billion was up from prior year, reflecting increased lease replacement and growth activity as well as the accelerated timing of OEM deliveries in the quarter. Year-to-date, rental capital spending of $310 million was below prior year as planned. Our 2023 forecast for lease capital spending of $2.6 billion reflects higher lease replacement and growth capital versus prior year. Although we now expect the ending lease fleet to be up 7,000 to 8,000 vehicles versus prior year, due to the accelerated timing of OEM deliveries, the ending active fleet is expected to be up by approximately 4,000 vehicles. In rental, our ending fleet is now expected to be down 11% or 4,600 vehicles, reflecting higher rental redeployment activity. Our average fleet is anticipated to be down slightly from 2022. Our full year 2023 capital expenditures forecast increased to approximately $3.2 billion due to the accelerated timing of OEM deliveries. We continue to expect proceeds from the sale of used vehicles of approximately $800 million in 2023, below prior year, which included $400 million of proceeds related to the U.K. exit. Full year 2023 net capital expenditures are now expected to be approximately $2.4 billion. Turning to Slide 13. We've decreased our 2023 forecast for free cash flow by approximately $100 million to reflect the accelerated timing of OEM deliveries and the corresponding increase to lease capital expenditures. The forecast for operating cash flow increased to $2.5 billion. As shown, the trajectory of our cash flow continues to improve over time, reflecting growth in our contractual supply chain, dedicated, and lease businesses, which comprised approximately 85% of Ryder's operating revenue. Our free cash flow profile has changed significantly since the implementation of our balanced growth strategy. Since 2020, lower targeted lease growth as well as COVID effects and OEM delays resulted in lower capital spending and higher free cash flow. Proceeds from the exit of the U.K. Fleet Management Solutions business also benefited free cash flow in 2022. The summary on the right side of the slide illustrates the strong free cash flow generated by the business prior to investing in fleet growth. In 2023, we expect to generate approximately $100 million of free cash flow. And prior to investing in growth capital, this number is expected to be approximately $500 million. Our capital allocation priorities continue to support our strategy to drive long-term profitable growth. Our top priority is to continue to invest in organic growth. We will continue to pursue targeted acquisitions, which have been a key contributor to accelerate growth in supply chain. Acquisitions have helped transform our supply chain business, both in terms of expanding capabilities as well as rebalancing our vertical mix. Balance sheet leverage of 211% was below our 250% to 300% target and provides ample capacity to fund organic growth and targeted acquisitions as well as to return capital to shareholders through share repurchases and dividends. With that, I will turn the call back over to Robert to discuss our enhanced asset management playbook and outlook.

Thanks, John. Page 14 provides key highlights from our enhanced asset management playbook, which is focused on optimizing returns over the cycle from our transactional used vehicle sales and rental businesses. In response to weakening used vehicle and rental demand, we are redeploying underutilized rental vehicles to fulfill lease, dedicated, and supply chain contracts. In 2023, we expect to redeploy between 3,000 and 4,000 units to align our rental fleet with demand conditions. This elevated level of redeployment activity is enabling us to fulfill these contracts sooner and is also contributing to higher lease fleet growth. Rental utilization for the full year 2023 is expected to be within the target range of mid to high 70s. In used vehicle sales, we are leveraging our expanded retail sales network. Since 2019, we've increased our retail sales capacity by approximately 50% by adding physical locations and increasing our inside sales team to capture digital sales opportunities. Increasing retail sales volumes benefits results, as wholesale proceeds have historically been at a 30% discount to retail proceeds. And finally, we continue to shift our vehicle mix in rental towards trucks, where we see stronger demand trends that have historically been more resilient than those of tractors. By year-end 2023, we expect that trucks will be approximately 60% of the North American rental fleet, up from 49% in 2018. Although earnings are impacted by the freight environment, successful execution of our enhanced asset management playbook is generating higher earnings in each phase of the cycle. Turning to Page 15. We are raising our full year 2023 comparable EPS forecast range to $12.20 to $12.70, up from the prior range of $11.30 to $12.05. Our increased forecast reflects better-than-expected year-to-date results in used vehicle sales, ongoing maintenance cost improvements, and supply chain automotive performance partially offset by softer conditions in omni-channel retail. Full year 2023 GAAP EPS forecast includes approximately $3.96 from the cumulative currency translation that was recorded in this quarter. We are also providing third quarter comparable EPS forecast of $3 to $3.25 versus the prior year of $4.45. Our 2023 return on equity forecast has increased to 17% to 19% from 16% to 18% in line with our long-term high teens target. We expect strong earnings in 2023, although down from the prior year as market conditions and used vehicle sales and rental declined from elevated levels in 2022. Turning to Page 16. We believe Ryder is well-positioned to increase shareholder value. We see significant opportunity for profitable growth supported by secular trends, our operational expertise, and ongoing momentum for our multi-year initiatives. We've made transformative changes to our business model and continue to demonstrate strong execution on our balanced growth strategy, which has positioned us to achieve our long-term targets, increase business model resiliency, and outperform prior cycles. We remain committed to investing in products, capabilities, and technologies that will deliver value to our customers and our shareholders. That concludes our prepared remarks. Please note that we expect to file our 10-Q later today. We had a lot of material to cover today, so please limit yourself to one question each. If you have additional questions, you're welcome to get back in the queue and we will take as many as we can. At this point, I'll turn it over to the operator.

Thank you. We will take your first question from Jordan Alliger from Goldman Sachs.

Yes, good morning. The Supply Chain margin has significantly improved both sequentially and year-over-year. Could you elaborate a bit more on this progress and highlight the key factors that contributed to this success? It's important to understand what needs to be done to maintain margins at your target levels, especially considering that the pipeline looks promising for the next year or two. It seems like there’s a balancing act involved in deciding how much business to take on, pricing strategy, and margin management. Since this asset-light transition has been a major focus for you, any insights on that would be appreciated. Thank you.

Yes. Thanks, Jordan. Just to remind everybody, our target for profitability on Supply Chain is at high single digits. So we are really pleased to be there this quarter and certainly expect to be there for the balance of the year. And that's really a result of not just the pricing of new business, but also the work we've done over the last year to make sure that we passed through the cost increases that we needed to, especially in our automotive business. So this quarter was really more a story about automotive getting back to where it needed to be. We still have some headwinds in our omni-channel retail business, which we expect over time, as we work through that, and we continue to see growth in that area, that will pick up also. So we feel good about the opportunity and our ability to continue to grow the top line and supply chain, both organically and through acquisitions. And with that, continue to grow the bottom line.

Thank you.

We will move next to Scott Group from Wolfe Research. Please go ahead.

Hey, thanks. Good morning. Robert, I know it's probably a bit early, but how do you see the factors influencing earnings for next year? Do you have any insights on gains, depreciation, or anything else? Ultimately, I’m trying to understand if your perspective on normalized earnings that you've shared with us previously is changing at all. Furthermore, considering the stock's current low valuation, I’m curious about the discussions you and the Board are having regarding potential strategies for enhancing shareholder value.

Yes. Looking ahead to next year, we expect to finish this year with solid earnings and revenue growth. Although we anticipate a decline year-over-year mainly due to used vehicles and rentals, we see growth in the contractual aspects of the business. Next year, I expect leasing will contribute more significantly to earnings since growth in this area has been limited this year, primarily due to OEM delivery delays. Our Supply Chain and Dedicated segments will also continue to grow in earnings alongside revenue. The situation for used vehicles and rentals depends on market cycle dynamics. Currently, our best estimate is that the market will likely hit its lowest point in the first half of next year and then start to improve in the second half. The full-year implications remain uncertain, but this quarter's performance and our overall year-end forecast should illustrate that even in challenging freight conditions, we have achieved higher earnings with reduced business risks and an improved returns profile. This is the outcome of strategies we've implemented over nearly four years focused on balanced growth. We believe the business model now supports higher earnings potential. For instance, our historical peak return on equity was in the mid-teens, but we now expect our lowest return on equity to be in that range, while the peak could reach the low 20s. We've made significant changes, outlined in our presentation, which have contributed to this new model. Moving into next year, we anticipate core earnings will continue to grow, along with some variability in used trucks and rentals based on performance. We're confident in our return on equity and our capacity to achieve robust returns. Regarding valuation, we are currently trading below our historical multiples, despite our belief that our business now has lower risk and better returns compared to the past. Our year-to-date performance and updated forecasts clearly demonstrate our enhanced earnings capability, even amid a slowing freight market. I expect that as we navigate through the freight cycle, this will positively impact our valuation.

Okay. Thank you, guys.

We will hear next from Jeff Kauffman from Vertical Research Partners.

Thank you very much. Hey, everybody. Well, first of all, congratulations. And boy, a lot of moving pieces this quarter. You answered my fleet utilization question, because I thought it's a little closer to the lower end of what you are comfortable with. So you're saying average, kind of mid to high 70% range for the year. So that would imply it gets better in the second half of the year. Am I understanding that right?

Yes.

Okay. And then just a quick question on the CapEx. So delivery was accelerated. As a result, CapEx up about $200 million. A lot of other fleets I talk to say, look, any catch up that we need to do is being done at the end of 3Q. Where do you stand on getting caught up on CapEx? And is this extra $200 million catching up from last year? Or is this stuff that we are not going to have to spend next year? How should I think about this $200 million change because of faster supplier deliveries?

Yes, we have been sold out for most of this year. Some of the units that were expected to arrive in 2024 are now being delivered in 2023. We still have a significant number of deals signed, and we're awaiting the corresponding vehicles. This will continue through the remainder of this year and into next year. Currently, our lead time has reduced from 12 months to approximately 9 months, which reflects some improvement. The encouraging news is that we have strong visibility into ongoing business in the lease sector, which is set to contribute to our earnings over the next year, or around 12 to 18 months, as we move into 2024.

Okay. And last question. A lot of companies that are looking to try battery electrics or zero-emission vehicles are going to lease them through Ryder, at least initially. What are you seeing on the customer demand side? We are hearing some fleets were gung-ho to get into that and now they're kind of pulling back a little bit on whether it's charging infrastructure, just understanding the vehicles better. But can you talk a little bit about some of the new vehicle technologies and what some of your customers are doing with respect to plowing into that area?

I will let Tom provide a bit more detail. Generally speaking, we are highly engaged in this area. Right now, we are noticing an increase in interest and demand for light-duty delivery vans, where the charging infrastructure requires less investment compared to medium and heavy-duty vehicles. Cost is also a concern for heavy and medium vehicles. Therefore, our current focus is primarily on light-duty delivery vans, which align more closely with our customers' interests. Tom, would you like to elaborate further?

Yes. So, Robert, thank you and good morning, Jeff. Like Robert said, the light-duty, there's more of a clear path to the total cost of ownership and with the infrastructure as well. So I think more of the activity we are seeing now from our customers is on the light-duty side. I think there are customers interested in testing and continuing to try out more of the medium-duty and heavier-duty equipment. We have relationships, as you know, with most of the OEM suppliers that are going to be playing in that game. But still, the total cost of ownership and the infrastructure challenges along with that are still a pretty big hurdle. We do have vehicles in our fleet to test, which customers are trying, but they still haven't yet kind of crossed the line and stepped in a big way. And we'll see over time how that changes and progresses. I think the other area, there's still a little bit of uncertainty in terms of regulations and incentives, particularly in the state of California. And getting clarity on those regs and regulations over the next even 6 months here is going to help the industry make some of those long-term decisions.

Okay, great. Thank you very much. That's all I have.

Thanks, Jeff.

We will hear next from Brian Ossenbeck from JPMorgan.

Hey, good morning. Thanks for taking the questions. I just wanted to see if you could offer some comments on the pipeline and the conversations around Dedicated Transportation Solutions and Supply Chain Solutions. And I know you mentioned a little bit of a slowdown, but how has that trended more recently? And are there any verticals or end markets that you're more or less excited about or seeing more demand from?

Sure. Let me hand it over to Steve to give you some color there.

Hi, Brian. Thank you. Good morning. Regarding supply chain, the pipeline looks healthy, showing positive percentages year-over-year. As we sign new business, 35% of our new sales are still solid, which is encouraging. The rest of the growth comes from expanding services and capabilities with current customers. The supply chain side remains robust, and we are on track to meet our midyear target. In Dedicated, as Robert mentioned earlier, we are experiencing some softness mainly due to the freight market. Customers are postponing decisions and taking advantage of low spot market rates by prioritizing cost over service. We hope to see a recovery by the end of the year, but it will likely be in the first part of '24 once the spot market stabilizes. The pipeline for Dedicated has slightly decreased, but we remain focused on the remainder of the year.

And any verticals within, I guess, Supply Chain Solutions that are more or less exciting from the pipeline conversations?

Well, no, they're all up. As I look at each one of the pipelines, e-commerce remains up year-over-year. Last mile is up about 15%, consumer packaged goods is up. So we've got our teams focused on these industry verticals as our teams are structured that way and excited about the pipelines really across the board.

Okay. And then just a follow-up for you, Robert. If you can just give some thoughts on the direction and expectations for used vehicle pricing, probably more so focused on tractors, but what you have expected through the rest of the year? Will the OEM increase in deliveries have an impact on used vehicle pricing, one way or the other? And I guess, ultimately, should we still expect some level of gains into 2024 just based on where residuals are and just the normal churn in the lease fleet?

Our perspective on the used truck market has remained relatively consistent since the beginning of the year. We anticipated a decline throughout the year. It has decreased somewhat, but at a slower pace in the first half of the year than we anticipated. We expect it to continue declining for the rest of the year. Typically, based on historical trends, this suggests that it might reach its lowest point in the first quarter of the next year, but each cycle is unique. As for your second question about potential gains next year, while it's hard to predict precisely what will happen, I do expect some gains given our residual values. We have data showing the end prices in the second quarter and our residuals, and there is still a considerable gap between them.

Okay. Thanks for your time. Appreciate it.

Thank you.

Allison Poliniak from Wells Fargo has your next question.

Hi. Good morning. I want to revisit the topic of Supply Chain Solutions. You mentioned that lower volumes are impacting margins. Can you help us quantify that impact to better understand it? I would say that the incremental changes are more significant, especially as we approach that inflection point. Thank you.

Yes. I want to emphasize that the decline in volumes was mainly due to our omni-channel retail sector, particularly in our Ryder Last Mile division. Specifically, our big and bulky delivery business experienced a volume decrease of about 20%, which affected overall performance. In terms of e-commerce, we have also seen a downturn in volumes and throughput, and while we have invested in infrastructure, we now need to ensure that we utilize it effectively. I believe this is a timing issue. E-commerce deliveries, particularly the Ryder Last Mile for big and bulky items, surged significantly after COVID, and we are now witnessing a return to pre-COVID levels, which is to be expected. We’re optimistic that as we continue to utilize our facilities, those volumes will recover. On a positive note, we are still seeing strong volumes in the automotive, industrial, and consumer packaged goods sectors. These areas are providing good returns and volumes, which is why our supply chain, despite the challenges in the omni-channel vertical, continues to perform well overall, bolstered by the strength in these other segments.

Got it. Thank you.

Thank you, Allison.

We will hear next from Justin Long from Stephens.

Thanks. Sorry if I missed it, but I was wondering if you could share the monthly trends that you saw in the rental business during the quarter. And there's a lot of discussion right now around Yellow. But in the event that Yellow does go bankrupt, any thoughts around the potential impact that could have on the broader rental market and the used equipment market as well?

Yes. I will let Tom provide the rental month-to-month details for the quarter. However, I can say that if Yellow does go bankrupt, there would likely be an increase in rental demand as other companies in that sector seek equipment to take on the business that has been vacated. Overall, this would benefit our rental segment and to some extent, the used truck market as owner-operators may step in to handle that business. I think the primary impact would be on the rental side, and given our current utilization and market conditions, we have the equipment available to meet that demand. Tom, can you share the rental utilization for the quarter?

Yes. As we went through the quarter, we saw the fleet decline where we finished the quarter down 5% on fleet sequentially. And as we were bringing down the fleet, we saw the utilization tick up a little bit. So we ended up in June, obviously, at a higher utilization than what we saw in April. And we got to that kind of mid to upper 70s utilization target here at the end of June. So we feel like we've got the fleet correct, given the current utilization. So kind of rightsizing of that rental fleet here by the end of the second quarter. As we look out for the third and the fourth, we are expecting to continue to bring the rental fleet down to kind of match that demand expectation, but not at the levels of nearly 2,000 units that we saw in the second quarter. And then like Robert said, if we do see something with Yellow Freight, we might see that utilization pop and maybe hold off on a few trucks that we were planning to move out of the fleet. So we will track that closely as we move through Q3 here and adjust the fleet accordingly.

Great. That’s helpful. Thanks.

Thanks, Justin.

At this time, there are no additional questions. I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks.

Okay. Well, thanks, everyone. Thanks for getting on the call and your interest in the company. Have a safe day.

That does conclude today's teleconference. We thank you all for your participation.