Ryder System Inc Q1 FY2026 Earnings Call

Good morning, and welcome to the Ryder System First Quarter 2026 Earnings Release Conference Call. Operator provided instructions. Today's call is being recorded. Operator provided instructions. 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 First Quarter 2026 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 John Diez, Chief Executive Officer; and Cristy Gallo-Aquino, 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 Solutions, are on the call today and available for questions following the presentation. At this time, I'll turn the call over to John.

Good morning, everyone, and thanks for joining us. The Ryder team delivered solid first quarter results that exceeded our expectations. Our performance was driven by better-than-expected used vehicle sales results in Fleet Management. I'll begin today's call by providing an update on our balanced growth strategy, and an overview of our port-to-door logistics offering. I'll also provide you with key highlights from our first quarter performance. Cristy will then provide you with an overview of our segment performance, and we'll discuss our capital spending and capital deployment capacity. I'll then review our raised outlook for 2026. Let's begin with a strategic update. I'm proud of the team's ongoing execution and our balanced growth strategy, which remains consistent and focused on clear priorities. We're building upon our transformed business model and the actions taken to de-risk the portfolio, enhance returns and cash flow and strengthen the model's resiliency. De-risking actions included significantly reducing our reliance on used vehicle proceeds to achieve our targeted returns. Our multiyear lease pricing and maintenance cost savings initiatives continue to contribute meaningfully to our increased return profile and positive free cash flow over the cycle. Accelerated growth in our asset-light supply chain and dedicated businesses has resulted in a more resilient business mix that is less capital intensive. We remain focused on executing our strategic priorities of operational excellence, customer-centric innovation and profitable growth. Operational excellence is where we stand out and what enables us to leverage our full end-to-end capabilities to solve our customers' toughest logistics and transportation challenges. We're investing in customer-centric innovation that enables a proactive supply chain, giving our customers a competitive advantage. In RyderShare and RyderGyde, we're embedding generative AI in order to enhance capabilities and drive the evolution of these proprietary platforms. We're also leveraging generative AI use cases across the company, including Fleet Management customer service and roadside assistance where generative AI is enhancing the customer experience while improving effectiveness. Additionally, we continue to deploy automation and robotics in our warehouses to drive operating efficiencies. We remain focused on profitably growing our contractual relationships. Over 90% of our revenue is generated by long-term contracts. Our high-quality contractual portfolio has proven to be a key driver of business model resilience over the cycle. Our transformed model has demonstrated the effectiveness of our balanced growth strategy by outperforming prior cycles. Our three complementary business segments are leaders in North American logistics and transportation with secular trends that support further growth opportunities. We're encouraged by the earnings power and resilient performance of our transformed business model, and believe that executing on our balanced growth strategy will continue to enable us to outperform prior cycles and position us well to benefit from a cycle upturn. Our scaled port-to-door logistics and transportation offerings provide Ryder with significant opportunities for long-term revenue and earnings growth by addressing many of our customers' toughest challenges. Our port-to-door solutions give customers end-to-end control from pickup at any North American port to final delivery. We combine warehousing, fulfillment, cross-border cross-stocking, lease and maintenance, transportation logistics, contract packaging and last mile delivery with powerful technology and our supply chain experts to give real-time visibility, flexibility and speed. Whether our customer needs a complete solution or support at any discrete step, Ryder can provide a solution that aims to perfect their supply chain. As we continue to pursue profitable growth opportunities, we're focused on higher-return segments and verticals and increasing our share of wallet with our port-to-door offerings. By executing relentlessly, investing in our future, and growing our contractual relationships, we're well positioned to profitably grow our businesses, creating value for customers and shareholders. Turning to Page 6. Key financial and operating metrics have improved since 2018, reflecting the execution of our strategy. In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from Fleet Management Solutions. Ryder generated comparable EPS of $5.95 and return on equity of 13%. Operating cash flow was $1.7 billion. This was during peak freight cycle conditions. Now let's look at Ryder today. In 2026, we expect our transformed business model to deliver meaningfully higher earnings and returns than it did during the 2018 peak. Through organic growth, strategic acquisitions and innovative technology, we shifted our revenue mix towards supply chain and dedicated, with approximately 60% of 2026 expected revenue generated by these asset-light businesses compared to 44% in 2018. Our 2026 updated comparable EPS forecast range of $14.05 to $14.80 is more than double 2018 comparable EPS of $5.95. Our return on equity forecast of 17% to 18% is also well above the 13% generated during the 2018 cycle peak. As a result of profitable growth in our contractual lease, dedicated and supply chain businesses, forecasted operating cash flow of $2.7 billion is up approximately 60% from 2018. In 2026, the business is expected to outperform prior cycles, even when comparing the pre-transformation peak to the current market environment. Moving to key performance highlights from the first quarter. The Ryder team delivered our sixth consecutive quarter of comparable EPS growth in a challenging freight environment. Comparable EPS for the quarter was up 3%. Results reflect the strength of our contractual portfolio and resiliency of our transformed model. Return on equity was solid at 17%, in line with our expectations given where we are in the freight cycle. We're on track to deliver $70 million in incremental benefits from strategic initiatives during 2026. These initiatives are part of a $170 million multiyear program launched in 2024. Consistent execution on these initiatives is the key driver of expected earnings growth in 2026. And finally, freight cycle conditions in the first quarter were better than our expectations. Used vehicle sales results were higher year-over-year for the first time since the third quarter of 2022. Outperformance was driven by higher retail volumes relative to our expectations and retail pricing was stable sequentially. The sequential change in commercial rental demand was in line with historical seasonal trends for the first time in three years. We also experienced improved contractual sales activity. Supply Chain generated record sales in the first quarter, continuing the momentum from prior year record sales and reflecting the value of our solutions. We're also encouraged by stronger sales in Fleet Management and Dedicated segments which have been experiencing sales headwinds reflecting freight market conditions. Sales for both segments during the quarter were above prior year and ahead of expectations. That said, these conditions remain below normalized levels and geopolitical and macroeconomic factors continue to influence the pace and durability of the recovery. I'll now turn the call over to Cristy to further review our first quarter performance.

Thanks, John. Total company operating revenue of $2.6 billion in the first quarter was in line with prior year as contractual revenue growth in supply chain was offset by lower revenue in Dedicated. Comparable earnings per share from continuing operations were $2.54 in the first quarter, up 3% from the prior year, reflecting benefits from share repurchases, partially offset by lower earnings. The decline in earnings was due to lower supply chain performance compared to a robust prior year, partially offset by a lower tax rate driven by discrete items in the quarter from stock-based compensation tax benefits. Return on equity, our primary financial metric was 17%, in line with the prior year. Free cash flow increased to $273 million from $259 million in the prior year, reflecting reduced capital expenditures, partially offset by higher working capital needs. In Fleet Management Solutions, operating revenue was consistent with prior year. Earnings before taxes were $99 million, up versus prior year, reflecting continued execution on our strategic initiatives. Used vehicle results reflect a year-over-year improvement and better-than-expected performance. In rental, demand remained below prior year, but we are encouraged that the sequential seasonal decline was in line with historical trends, as mentioned earlier. Lower rental activity was partially offset by higher rental power fleet pricing, which was up 3% year-over-year. Rental utilization on the power fleet was 68% and up from the prior year of 66% on an average fleet that was 13% smaller. Fleet Management EBT as a percent of operating revenue was 7.9% in the first quarter, up from prior year, but below our long-term target of low teens over the cycle. In used vehicle sales, year-over-year used tractor pricing increased 6% and truck pricing declined 5%. On a sequential basis, pricing decreased for both tractors and trucks, with tractors down 3% and trucks down 4%. Sequential pricing reflected a lower retail sales mix as retail pricing remained stable. In the first quarter, 61% of our sales volume went through our retail channel, down from 69% in the fourth quarter. Our retail mix was above prior year levels of 56%. During the quarter, we sold 4,600 used vehicles, up 1,000 units sequentially and down versus the prior year. However, volumes for trucks, our largest inventory class, were up year-over-year. Used vehicle inventory of 9,500 vehicles is slightly above our targeted inventory range. Used vehicle pricing remained above residual value estimates used for depreciation purposes. Slide 21 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information. In supply chain, operating revenue increased 3%, driven by new business in omnichannel retail, partially offset by lost business and lower volumes in automotive. Earnings before taxes decreased 17% from prior year due to lower automotive results and, to a lesser extent, productivity of new business ramping up. Year-over-year comparisons were challenging in supply chain due to record first quarter performance in the prior year. Supply Chain EBT as a percent of operating revenue was 7% in the quarter at the segment's long-term target of high single digits. In Dedicated, operating revenue decreased 5% due to lower fleet count reflecting the prolonged freight downturn. Earnings before taxes were below prior year, reflecting lower operating revenue, partially offset by strategic initiatives driving Dedicated EBT toward its single-digit target. Next, let me cover capital expenditures. First quarter lease capital spending of $314 million was below prior year, reflecting the timing of replacement activity. In 2026, we're forecasting lease spending to be $1.9 billion, reflecting higher replacement activity versus the prior year. First quarter rental capital spending of $37 million was below prior year as expected. In 2026, we're forecasting rental capital spending of approximately $100 million reflecting lower planned replacement activity. Our ending rental fleet is now expected to decrease 3% during 2026, and our average rental fleet is now expected to be down 11%. The rental fleet remains well below peak levels as we manage through an extended market slowdown. We continue to closely monitor market conditions and may increase our planned capital expenditures if improved market conditions persist. In rental, in recent years, we shifted capital spending to trucks versus tractors as trucks have historically benefited from relatively stable demand and pricing trends. At quarter end, trucks represented approximately 60% of our rental fleet. Our full year 2026 capital expenditures forecast of approximately $2.4 billion is above prior year. We expect approximately $500 million in proceeds from the sale of used vehicles in 2026, in line with prior year. Full year 2026 net capital expenditures are expected to be approximately $1.9 billion. In addition to increasing the earnings and return profile of the business, our transformed contractual portfolio is also generating significant operating cash flow. Improving the overall cash generation profile of the business is one of the essential elements of our balanced growth strategy. Better earnings performance is driving higher cash flow generation and, in turn, is delevering our balance sheet at a more rapid pace. This momentum is creating incremental debt capacity given our target leverage range of between 2.5 and 3x. As shown on the slide, over a 3-year period, we expect to generate approximately $10.5 billion from operating cash flow and used vehicle sales proceeds. Our operating cash flow will benefit from increased contractual earnings. This creates approximately $3.5 billion of incremental debt capacity, resulting in $14 billion available for capital deployment. Over the same 3-year period, we estimate approximately $9.5 billion will be deployed for the replacement of lease and rental vehicles and for dividends. This leaves around $4.5 billion, which equates to approximately 60% of our quarter end market cap available for flexible deployment to support growth and return capital to shareholders. We estimate about half of our flexible deployment capacity will be used for growth CapEx, and the remaining will be available for discretionary share repurchases and strategic acquisitions and investments. Our capital allocation priorities remain focused on profitable growth, strategic investments and returning capital to our shareholders. Our top priority is to invest in organic growth. Aligned with these priorities, in the first quarter, we funded lease and rental replacement CapEx of approximately $400 million and returned $272 million to shareholders through buybacks and dividends. We've been executing under our discretionary 2 million share repurchase program authorized in the fourth quarter of 2025. Our balance sheet remains strong with leverage of 269% at quarter end, in our target range and continues to provide ample capacity to fund our capital allocation priorities. With that, I'll turn the call over to John to discuss our outlook.

Thanks, Cristy. We've increased our full year 2026 comparable EPS forecast to a range of $14.05 to $14.80, above prior year of $12.92. Our increased forecast reflects stronger-than-expected first quarter performance, a modest improvement in used vehicle market conditions and continued strong contractual performance. Our 2026 ROE forecast is unchanged at 17% to 18% and is in line with our expectations given current market conditions. Our free cash flow forecast of $700 million to $800 million is also unchanged from our prior forecast and reflects higher replacement capital expenditures. Our second quarter comparable EPS forecast range is $3.50 to $3.75 above prior year of $3.32. Our transformed model is well positioned for earnings growth. We continue to expect 2026 earnings growth to be driven by incremental benefits from multiyear strategic initiatives, which began in 2024, with total expected benefits of $170 million. These initiatives represent structural changes we're making to the business and are not dependent on a cycle upturn. Through year-end 2025, we realized $100 million in benefits, leaving $70 million of incremental benefits expected in 2026. In Fleet Management, we expect our multiyear lease pricing and maintenance cost savings initiatives to benefit 2026 results. In Dedicated, we expect benefits from margin improvement actions related to our Flex operating structure in 2026. In Supply Chain, we continue to focus on optimizing our omnichannel retail warehouse network through continuous improvement efforts and better aligning our warehouse footprint with the demand environment. In 2025, we downsized and exited select locations, which will benefit future performance. In addition to driving outperformance relative to prior cycles, our transformed model also provides a solid foundation for the business to meaningfully benefit from the cycle upturn. By the next cycle peak, we expect to realize meaningful improvement in pretax earnings. We estimate that this potential benefit could be $250 million with the majority expected to come from the cyclical recovery of rental and used vehicle sales in Fleet Management, with additional benefits from higher omnichannel retail volumes, leveraging our rationalized footprint. We expect to recognize these benefits over time as freight market conditions improve. Based on our increased forecast, we expect to realize approximately $10 million of upturn benefits in 2026 primarily from higher used vehicle sales results. In addition to benefiting our transactional businesses, we also expect additional opportunities for profitable contractual growth as freight conditions normalize. We've been pleased by the business's resilience and performance during the prolonged freight market downturn and are confident each of our business segments is well positioned to benefit from the cycle upturn. Our transformed business model continues to deliver value to our customers and our shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio. We continue to see significant opportunity for profitable growth, supported by secular trends, our operational expertise and ongoing momentum for multiyear strategic initiatives. 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, we expect to file our 10-Q later today. At this time, I'll turn it over to the operator to open the call for questions.

Operator provided instructions. We will take our first question from Ravi Shanker with Morgan Stanley.

This is Nancy on for Ravi. I know you had sort of pointed to roughly $10 million of benefits in 2026 from upturn conditions. What is sort of keeping you from being able to unlock more of the $250 million that you pointed to at peak with sort of your current momentum in the year? Or is there some conservatism embedded in this $10 million expectation?

Nancy, John here. Yes, we had set out that we had about a $250 million opportunity as we saw cycle conditions improve. We did see in the first quarter good activity from used vehicle sales. Primarily retail volumes came in better than what we had expected, and we also saw stability, I would say, in used vehicle pricing; that stability was a little bit sooner than what we had expected coming into the year. So both of those components are really what's taken us to higher expectations for the balance of the year and part of the reason for the raise in the guide. As to your question, what is, I guess, preventing us from raising it further at this point: clearly, a big component of the $250 million is attributed to rental and another component attributed to used vehicle sales. There may be opportunities with used vehicle sales to continue moving up. Obviously, we're seeing capacity continue to exit the market. We also expect later on this year that we're going to see significant increases on new equipment, which will provide support for higher used vehicle pricing. We just haven't put that into the forecast because we need to see more development on that side to get confident in that activity. On the rental side, which is a big component of that $250 million, I would say it's probably as big, if not bigger, than the used vehicle opportunity. We continue to see rental getting to normalized levels. We saw a seasonal trend in the current quarter. Nothing for us to get overly excited about. And that's why you probably didn't see from us any sort of upside momentum on rental for the balance of the year. We do expect that as things continue to improve, and if market conditions continue to improve, customers are going to need rental activity and rental assets in the months ahead. But none of that rental upside is contemplated because we just didn't see any breakout performance or anything in Q1 that led us to believe that's going to hold.

That's helpful. And then one more quick question on used vehicle sales. With sort of the supply side regulations cracking down, is there a risk to used vehicle sales as trucks potentially flood the market from these carriers exiting? Or is there enough strength from an improving market to offset?

Well, I mentioned I do think there's some structural changes happening in the marketplace that are going to provide upward momentum irrespective of what you're seeing in the regulatory side on drivers. The driver impact that you're seeing is primarily on the over-the-road activity and for-hire carriers, which will impact our sleeper class. We think we're well positioned with our used truck inventory. If you look at it, 60% of it is comprised of trucks with 40% being tractors. And I would say a bigger portion of our inventory on the tractor side is vocational, which is a different application than the over-the-road activity. So I think we're pretty well calibrated there. We don't think that's going to be a meaningful impact even if there continues to be pressure on the sleeper class moving forward.

Operator provided instructions. We'll take our next question from Jordan Alliger with Goldman Sachs.

Question on Dedicated. Sorry, getting back to this capacity and trucking tightening, driver situations tightening, I'm just sort of curious, have you or do you expect to see a significant step-up in inquiries around the Dedicated business, the dedicated pipeline? I would think that this could work to that business operations advantage.

With regards to what we're seeing in the marketplace and Dedicated, clearly, we've talked about the fact that a tighter driver market is good for Dedicated long term. We did see in the quarter, and we mentioned that on Slide 7, stronger sales activity in both Dedicated and Fleet Management. We have seen a number of inquiries and the level of commitment and activity from customers to sign up for longer-term contracts increase in the quarter, which was very encouraging. So clearly, there are signs out there that we are seeing pressure on that side. That's going to bring more demand for us. So we're pretty excited if, in fact, the market changes from a driver perspective and driver availability tightens; we've seen the level of activity and turnover increase as we exited the quarter, and certainly, we're excited about the opportunity to be able to sign more Dedicated activity as the market becomes more challenging.

And just as a Dedicated follow-up, given where margins started in the first quarter and then sort of the longer-term high single-digit sort of target, can you maybe give a little thought or color around potential step-up trajectory in Dedicated as we look ahead to the balance of 2026 from a margin standpoint?

Typically, Dedicated does have some seasonality when you look at the quality of earnings. Second and third quarters are typically our strongest quarters. So you should see a meaningful step-up of 200 to 300 basis points as we get through the middle part of the year. And then Q4 typically has a little bit of a step back. We do expect to get to the high single-digit level for the full year. That business has consistently delivered to high single digits; in fact, eight out of the last ten years Dedicated has delivered to high single digits, and we're confident that we're going to get back to that level as we get through the year.

Operator provided instructions. We'll take our next question from Harrison Bauer with Susquehanna.

Great. I was curious if either John or Tom could provide some demand commentary as it relates to trucks versus tractors — you mentioned some strengthening and maybe some lease signing on the FMS front. So curious if that's truck or tractor based.

I'll make some general comments here, Harrison, and I'll turn it over to Tom. One of the things that we did see in the quarter was on the used vehicle side we saw better pricing on the tractor side. So retail pricing was up sequentially, which was very encouraging for us. When you look at activity across the different classes and the different services that we offer, we continue to see good demand across the truck class in both rental and lease. Tom can give you a little bit more color on what he's seeing within the lease space.

Yes. So as we mentioned earlier, demand and the fleet were both down year-over-year. But as Cristy mentioned earlier, we are seeing a trend that's a little bit better than what we had expected. Particularly on the truck classes, the demand was higher than what we had expected. So that was the bigger driver of the uplift versus what we had expected. We also saw pricing in rental up about 3% year-over-year as well, which was coming from both classes really, but that was good to see that our pricing discipline held as we saw the demand tick up slightly versus our expectations and in line with what we would typically see historically.

And then maybe could you provide some updated thoughts on any potential prebuy for either tractors or trucks, how that might be affecting your business and what's contemplated in your guide for this year? And then maybe some early thoughts on how that could affect 2027 and your investment next year.

I'll make some comments and have Tom weigh in as well. With regards to the prebuy in our guidance, we don't have any meaningful pre-buy activity contemplated. Typically, where the pre-buy comes into play for us is on the sales side; we'll typically see a front-loading of sales activity for lease and then you'll see the benefits of that play out a little bit sooner. Obviously, with used vehicles, we do expect—and we haven't seen yet—what the OEMs' price increase will look like. We do think that price increase will be meaningful, certainly in that 10% to 15% range at a minimum, which will provide some support for used vehicle sales. But Tom can add some additional color on the prebuy activity.

Yes. We've been out talking with our customers about the potential price uplifts that are expected in 2027. But as John mentioned, those aren’t in the marketplace yet. Some customers have looked and have taken advantage of what you would expect to be lower pricing than going into 2027 and have ordered vehicles, but we haven't seen any large uptake or large volumes in that area. One other point: if we do see things starting to turn, particularly in rental, we still would expect to potentially place orders and believe we have slots to be able to get vehicles, maybe not necessarily driven by a pre-buy but driven by any demand that we would see coming here in the second quarter if things change.

Operator provided instructions. We'll take our next question from Rob Salmon with Wells Fargo.

A quick follow-up in terms of the contractual sales activity that you had noted the improvement in FMS and DTS. Could you give us some kind of color about what's up and when you'd expect to see the fleet start to grow in those two end markets? Obviously, the cyclical factors are continuing to pressure fleet sizes here. So just curious for some color on the activity, how that's compared to recent quarters and when we can kind of inflect to positive growth.

Rob, a few highlights there which I think are meaningful. Number one, we did see strong sales activity across all three segments. Our Supply Chain business really saw robust sales activity with another record performance in the quarter, which demonstrates the value from our solutions—most of the activity came from expansion business, meaning our existing customers are seeing the value we deliver and are awarding us accordingly. On the Fleet Management and Dedicated side, we did see a reversal of trend. If you look at where we've been the last several quarters, we saw stronger sales across the board. We saw some numbers we haven't seen in several years, which is really encouraging for us. Whether or not that continues, obviously we would like to see that continue, but the start of the year was stronger than what we had expected. The more important piece for us is we started seeing customers begin to commit to long-term leases at a higher rate, and we did see more dedicated activity with our pipeline and Dedicated being at the highest levels we've seen. So we did see good activity. First quarter was strong. We're hopeful that will continue. As far as lease fleet growth at both Dedicated and Fleet Management, these have significant lead cycles, so as we start putting together a few quarters of strong wins, you'll start seeing the fleet level off at the end of the year and into next year you should start seeing the growth assigned to those wins. So that's the trajectory of how we see the fleet growth moving.

Really helpful. And in your prepared comments, I didn't hear you reiterate getting back to the double-digit targets for SCS toward the end of the year. Maybe can you give us an update on that? Also, what you saw from the lost customer that was alluded to in the presentation and how we should think about margins trending from Q1.

I'll let Steve comment on what he's seen. We did make mention of the record sales. We do expect, as we exit the year, we're going to get back to near low double-digit target levels on growth. And clearly, based on the last quarter's performance, Q4 of last year and Q1 of this year, as we look ahead to 2027, I think we're well positioned to hit our target growth levels. Steve can add color on sales and the progression of the revenue base.

Again, a healthy pipeline continues to strengthen. As I said last quarter, it's all about our relationships from our vertical leads all the way through our sales team and, more importantly, the frontline operators and how they execute, focus on continuous improvement and innovation. Those deep relationships allow us to expand with our customers. As John said, last year was a record sales year. Q1 was record this year. We should be exiting at low double digits approaching Q4 of this year. So we feel really good about that. You also asked about margins. Last year, Q1 was 8.7%, that was a record quarter. While we had some challenges this past quarter due to lost business in automotive where a customer was trading dedicated service for truckload, as that tightens back up, we could see that come back. We were also challenged with volumes across OEMs as they retool and balance through EV and ICE production. So that will continue through the first half, and we expect that to return close to normal in the back half. So we feel really good about that. Q1 of this past year was the second highest Q1, so still performing in a high single-digit range.

Operator provided instructions. We'll take our next question from Ben Mohr with Citi.

Wanted to just ask more about your guide raise, which is on the used vehicle sales and strong contractual performance. You had guided last quarter for 2026 used vehicle sales being kind of flat versus the $22 million from last year — congrats on the strong $12 million in Q1. How do you expect used gains to trend through the rest of the year? And what would you see as an updated target for the full year?

Ben, with regards to our used vehicle sales and the guide, a few things. We're really excited that we came out of the gate strong and our initiatives are on track for the $70 million. The majority of the year-over-year improvement is still tied to our strategic initiatives and the execution of the team. As far as used vehicle sales, which is part of the reason for the raise, we do expect used vehicle gains to be about $10 million higher for the full year. We indicated that in our comments about the $250 million opportunity—we put $10 million for the current 2026 year. How that will play out over the course of the year really depends on the level of wholesale activity. There may be quarters where we do more wholesaling than retailing, so it won't be linear and will be a bit lumpy. You saw a pretty strong print in the first quarter; that may stay at that level or, if wholesale activity increases later in the year, it may come down a bit. But we do expect the full year to be about $10 million higher than our prior assumption.

Great. And on the other part, the strong FMS contractual business performance, can you parse out what part of that is volume, what part of that is price, and what part of it is the strategic initiatives in Q1 and then maybe a similar parse out for the remainder of the year?

I would say the majority is going to be driven by the strategic initiatives. Tom, I'll let you give a little more color. But if you look at the two biggest components, they are the pricing initiative that continues to deliver strong results coming into 2026—that was the reason why we upsized our strategic initiative overall target—and the maintenance initiatives, which continue to be a big part of the story. As far as volumes, we haven't seen outside of used vehicle volumes a big move from our original expectations.

John is right on it. There were no fleet increases that impacted the results in FMS; it's all related to the strategic initiatives around pricing and maintenance. In terms of the split, it was about 50% of the benefit from price and 50% from the maintenance initiatives.

Operator provided instructions. We'll take our next question from Scott Group with Wolfe Research.

So can you help us think about the progression from Q1 to Q2? I think you said Dedicated margins should improve 200 to 300 basis points sequentially, but how should we think about the other two businesses sequentially within the guide? And any thoughts on how fuel is impacting the P&L right now — I think it's generally a pass-through, but I don't know if there's a big wholesale-retail spread and if that's helping the numbers right now or not.

A few points there. You could expect all three businesses to continue to get better as we get through the year. Clearly, our Fleet Management business in rental, in particular, will benefit from the return to seasonal progression, and that's part of it. Our lease portfolio pricing and maintenance initiatives are playing a big part as well. So you should expect Fleet Management, Dedicated and Supply Chain to benefit from higher revenue as volumes typically are stronger in the middle part of the year. As far as fuel, it is generally a pass-through for us and not a meaningful part of the story. We did benefit a bit when there were rapid changes in energy prices, and we saw a small benefit in Q1, but nothing meaningful as we look forward.

Okay. Helpful. And then I just want to follow up on rental. I don't know if you mentioned this, but can you just talk about utilization trends throughout the quarter, what you're seeing so far to start Q2? And then looking at the rental fleet, it's about as small a percentage relative to the full-service lease fleet as I think we've ever seen. How do you think about starting to grow the rental fleet again in an up cycle?

On the rental fleet, it is significantly lower than peak levels—we're down nearly 10,000 units from peak. So as demand comes back, we're ready to use our asset management actions. Tom will talk through those. Even if we see activity rise over the next several weeks, we have the ability to put orders in and take advantage of vehicles that can be delivered later in the year to meet demand.

From an asset management perspective, the first lever you pull is you stop sending trucks to our used truck centers, so you can immediately increase the fleet and capture demand with existing assets in the business. That gives you time to place orders and allow OEMs to deliver new vehicles. We're looking for those trigger points to start making those decisions. We haven't started to do that yet, but hopefully we will if needed. Regarding utilization trends: demand and fleet are down quite a bit year-over-year, but utilization was better than we anticipated in the quarter. The January, February, March trend: we started January at 67%, then roughly 69% to 70% in February, and just slightly above 70% in March — about 270 basis points above prior year in the quarter. Going into April, we're still about that much better than last year, so that trend is rolling into April.

Operator provided instructions. We will take our next question from Brian Ossenbeck with JPMorgan.

Just coming back to the sales in SCS, it sounded like a lot of that was expansion of business with existing customers. Could you share some color in terms of what verticals those would be? And are you expecting to see some pickup in new customers and new logos? Is that in the pipeline? Do you have visibility to that?

The majority was expansion, but we did see a number of new names added to the portfolio. Steve can add color on verticals and pipeline.

Last year was about 80% expansion and 20% new names. We've had several new names that have started here in Q2 that we sold late last year, and we continue to win new customers. The great part is that when we get a new name, within the next two to four years, because of our execution, innovation and continuous improvement, we typically expand with those customers. Expansion is typically about 70%, and last year was a little higher than normal. The majority of the growth was coming out of omnichannel retail over the past six months. We're still seeing good pipeline activity in CPG and solid pipeline activity in our transactional businesses like co-pack and co-man. E-commerce last mile is a little slower than normal, but there's good diversification across verticals.

Okay. Steve, just to make sure I understand the outlook and expectations for used vehicle sales for the rest of the year: it sounds like Q1 was a little better and you're expecting some improvement from here, but I didn't hear that you're expecting a big ramp-up from here on out. I just wanted to make sure I understood what the guidance assumes right now and if there's any distinction between truck and tractor considering your mix is a little bit different than it has been in prior years.

What we guided to is a modest improvement. We did exit Q1 with higher pricing than we had expected. We reached stability on pricing a little sooner relative to our previous guide, and we're seeing improved pricing across both tractors and trucks relative to where we expected to exit Q1 originally. So modest improvement for the balance of the year, driven by higher pricing across both tractors and trucks.

Operator provided instructions. We'll take our next question from Jeff Kauffman with Vertical Research Partners.

John, congratulations and pleasure to have you leading our call. A lot of questions have been asked, but I want to go back and hammer a little bit on what gives you confidence? You talked about customers coming back for longer contracts. In terms of metrics, the rental fleet utilization was up 200 basis points in the first quarter, but 68% is a pretty low number historically for the first quarter, and the rental fleet is down 11%. You've shifted the mix to trucks from tractors. Does this give you a little less bounce into the up cycle than you would traditionally have? So it was a little safer on the downside, but does it rob some of the potential upside to both gains on equipment sales and operating margins in the next up cycle? What metrics can you look at that tell you, 'Hey, things really feel like they're turning here'? And then does the strategic shift to favor trucks more—was that a decision you made or a function of the environment? Is it going to cost us some upside when the cycle does turn?

A few points to take stock of. We're looking at broad market conditions: active truck utilization has been above 95% for three consecutive months; we haven't seen that since 2021. That's a strong indicator that capacity is exiting the market. We expect higher costs for new equipment later in the year, which will put a premium on existing units, and we think we're well positioned to deal with that given our rental fleet's current low utilization levels—there's upside to capture by deploying existing equipment. As evidence that things are turning: used vehicle sales retail pricing stabilized sequentially with tractors up; rental saw the seasonal uplift we expect coming out of Q4 into Q1; contractual sales were the best we've seen in a few years, which gave us confidence customers are coming back and committing to long-term leases. Look at redeployments and extensions in the back of our presentation—those stats pop when things are moving. Lease power miles started coming back up as well. Those are all indicators that things are gaining momentum. We need to see continued progress into the year before making decisions about adding fleet, especially to rental. Regarding the heavier share of trucks versus tractors, that's partly a secular shift with last-mile and vocational demand increasing post-COVID. We've reshaped some of our rental and lease strategies to reflect that. If tractors come back strongly, tractors are the asset class we can order and get delivered relatively quickly, so we'll participate in that recovery as well. Overall, we believe we're well positioned to take advantage of both secular trends and any cyclical recovery in tractors.

That concludes our question-and-answer session. At this time, I would like to turn the call back over to Mr. John Diez for closing remarks.

All right. Thank you, everyone. Appreciate everyone joining us today, and we look forward to seeing you out on the road. Take care.

That concludes today's call. We appreciate your participation.