Ryder System Inc (R) Q3 2026 Earnings Call Transcript

Good morning and welcome to the Rider System 3rd Quarter 2026 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. Colleen Candela, Vice President, Investor Relations for Rider. Ms. Candela, you may begin.

Thank you. Good morning and welcome to Rider's third quarter 2026 earnings conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meeting 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 RIDER's filings with the Securities and Exchange Commission, which are available on RIDER's website. Presenting on today's call are John Diaz, Chief Executive Officer, and Christy 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 Rider team delivered our eighth consecutive quarter of comparable earnings per share growth. Strong results were driven by consistent execution on our strategic initiatives and improving performance in used vehicle sales and rental. I'll begin today's call with an update on our balanced growth strategy, followed by key highlights from our third quarter performance. Christy will review our segment performance, capital spending, and capital deployment capacity. I'll then review our outlook for 2026. Let's begin with a strategic update. Consistent execution on our balanced growth strategy has created a more durable earnings and cash flow profile, enabling us to outperform prior cycles. The solid foundation built by the Rider team reflects actions taken to de-risk the portfolio, enhance returns and cash flow, and shift to a less capital-intensive, more resilient business mix. This foundation continues to evolve and strengthen as we execute strategic priorities that create value for customers and shareholders. 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. Investing in customer-centric innovation that enables proactive supply chains and gives our customer a competitive advantage remains a key priority. We're enhancing the capabilities and driving the evolution of customer-facing platforms, such as RiderShare and RiderGuide, by embedding agentic AI. AI. We're also leveraging AI and FMS customer service and roadside assistance to enhance the customer experience while improving effectiveness. Additionally, we continue to drive operating efficiencies in our warehouses by deploying automation and robotics. We remain focused on profitably growing our contractual relationships by increasing customer engagement across our portfolio port-to-door solutions. Over 90 percent of our revenue is generated by long-term contracts and this high quality contractual base has proven to be a key driver of business model resilience over the cycle. Our three complementary business segments are leaders in North American logistics and transportation and position as well to support customers and their increasing need for the value-added solutions that we provide. I am confident our market-leading solutions, strong relationships, and transform model will continue to drive long-term earnings growth. We're also excited to unlock the company's full earnings potential as we continue executing on our strategic priorities against the backdrop of improving freight environment. Turning to page five, our business model is benefiting from a broader and more diversified revenue mix. Key financial and operating metrics have improved since 2018, reflecting the effectiveness 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 our fleet management segment. 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 Rider today. Our revenue mix has shifted towards supply chain and dedicated with approximately 60 percent of 2026 expected revenue generated by these asset light businesses compared to 44 percent in 2018 as a result of organic growth, strategic acquisitions, and innovative technology. Since 2018, we've more than doubled the size of our asset-light businesses while also delivering increased profitability. Our 2026 comparable EPS forecast range of $14.85 to $15.05 is more than two and a half times our 2018 comparable EPS of $5.95. cents. Our return on equity forecast of 18 to 19 percent is also well above the 13 percent generated during the 2018 cycle peak. As a result of our profitable growth across our contractual businesses, forecasted operating cash flow of 2.6 billion is nearly a billion or 50% higher than 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 third quarter, comparable EPS for the quarter was up 21%, marking our eighth consecutive quarter of comparable EPS growth. Results reflect the strength of our contractual portfolio, benefits from strategic initiatives, as well as improving performance in used vehicle sales and rental. Return on equity increased to 18%, in line with our expectations given where we are in the freight cycle. We remain on track to deliver more than $70 million in benefits from strategic initiatives during 2026. These initiatives are part of a multi-year program launched in 2024 with total benefits in excess of $170 million expected by the end of this year. Consistent execution on these initiatives is the key driver of expected earnings growth in 2026. And finally, we're encouraged to see benefits across the business from continued strengthening of freight market conditions. Contractual sales remain strong across all three segments with activity accelerating and least undedicated. Increased sales activity and robust pipelines reflect the value of our solutions and increase customer demand for quality capacity. Customers are facing a host of challenges including increasing difficulty attracting and retaining drivers, securing reliable and safe capacity, and addressing rising insurance transportation and litigation costs. These dynamics reinforce the value of riders end-to-end transportation and logistics solutions and are leading to new customer wins and expansion activity with existing customers. Used vehicle sales results continue improving and reflect better than expected pricing and retail sales volumes. Demand for used vehicles benefited from lower market inventories and spot rates that remain elevated. Lease miles per unit increased year-over-year and sequentially, indicating that our lease customers are increasing utilization of their fleets. Commercial rental utilization was strong at 77%, up 700 basis points year-over-year. While demand remained below prior year, it increased sequentially in line with historical seasonal patterns and was particularly strong in the tractor class. Third quarter utilization was the highest we've seen since 2022, and we expect utilization will remain near this level in the fourth quarter. The market remains in the early stages of a recovery, with conditions continuing to improve. However, geopolitical and macroeconomic factors remain key variables affecting the pace and durability of the recovery. I'll now turn the call over to Christy to further review our third quarter performance.

Thanks, John. Total company operating revenue increased 6% to $2.8 billion, reflecting contractual revenue growth in supply chain and fleet management. Comparable earnings per share from continuing operations were $4.33 in the third quarter, up 21% from the prior year, reflecting benefits from higher earnings in fleet management and share repurchases. Return on equity, our primary financial metric, was 18%, up from prior year, reflecting share repurchases and earnings growth. Free cash flow increased to $992 million from $496 million in the prior year, reflecting lower capital expenditures year-to-date. In fleet management solutions, operating revenue increased 5%, reflecting contractual revenue growth. Earnings before taxes were $177 million, up 21% versus prior year, reflecting benefits from strategic initiatives on choice lease results, as well as strengthening market conditions in used vehicle sales and improved rental performance. In rental, utilization increased to 77% on a 12% smaller average fleet. Rental results benefited from planned asset management action and higher pricing. Rental pricing was up 4% year-over-year. Fleet management EBT as a percent of operating revenue was 13.2% in the third quarter, up from prior year and in line with our long-term target of low teens over the cycle. We're encouraged to achieve this profitability level in the early stages of the freight market recovery. Looking ahead, FMS profitability has further upside as used vehicle sales and rental market conditions normalize, and we begin to realize the benefits from contractual fleet growth. In used vehicle sales, year-over-year pricing increased 19% for tractors and 5% for trucks. Sequential pricing increased 15% for tractors and 6% for trucks. In the third quarter, the retail channel accounted for 61% of our sales volume, up from 54% in the prior year and up from 56% in the second quarter. During the quarter, we sold 5,100 used vehicles in line with prior quarter and up 200 units year-over-year. Used vehicle inventory declined to 7,300 vehicles near the lower end of our target range. We're encouraged by continued improvement in used vehicle pricing, reflecting the early stages of a freight market recovery. In supply chain, operating revenue increased 9%, driven by new business and higher volumes and pricing, partially offset by lost business in automotives. Earnings before taxes increased 7% from prior year. Results benefited from higher volumes in e-commerce fulfillment and Rider Last Mile, which leveraged our optimized omnichannel retail network. These benefits were partially offset by productivity of new business ramping up and lower automotive results. Supply chain EBT as a percent of operating revenue was 8.1% in the quarter, at the segment's long-term target of high single digits. In dedicated, operating revenue decreased 1% due to lower year-over-year fleet count, partially offset by higher pricing. Sequentially, the power fleet count increased and was up 100 units due to improved net sales activity. Earnings before taxes declined from the prior year, reflecting lower operating revenue and a prior year workers' compensation insurance benefit, partially offset by benefits from strategic initiatives. Dedicated EBT as a percent of operating revenue was 7.5% in the quarter at the segment's long-term high single-digit target. Next, let me cover capital expenditures. Year-to-date lease capital spending of $996 million was below prior year, reflecting the timing of sales activity. Year-to-date rental capital spending of $265 million was just below prior year. Our full year 2026 capital expenditures forecast of $2.4 billion is above prior year and unchanged from our prior forecast, as increased investments in our rental fleet will be offset by lower lease spending. Our 2026 forecast for lease capital expenditures is now $1.7 billion, above prior year but below our previous forecasts reflecting the timing of lease sales activity. Our 2026 forecast for rental capital expenditures increased to $500 million, up $300 million from our prior forecast. A portion of these vehicles were delivered during the third quarter, and we expect remaining deliveries towards the end of the year. This rental investment positions us to benefit from improving market conditions and capture higher expected demand in 2027. We expect the ending rental fleet to increase 8% sequentially in the fourth quarter, resulting in an approximate 10% increase in the second half of 2026. Even with these investments, our ending rental fleet remains below peak levels. 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. Our high-quality contractual revenue base is generating higher earnings and cash flow, which is delevering our balance sheet at a more rapid pace than prior to our business model transformation. This momentum is creating incremental debt capacity given our target leverage range of between two and a half and three times. As shown on the slide, over a three-year period, we expect to generate approximately $10.5 billion from operating cash flow and used vehicle sales proceeds. This creates approximately $3.5 billion of incremental debt capacity. Together, these sources provide around $14 billion of capital available for deployment. Over the same three-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 50% 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 capital expenditures, and the remainder will be available for discretionary share repurchases, 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, year-to-date, we funded lease and rental replacement CapEx of approximately $1.3 billion and returned $485 million to shareholders through buybacks and dividends. Our balance sheet remains strong, with leverage of 242% at quarter end, slightly below 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.

Thank you, Christy. And turning to our outlook, we've increased our full year 2026 comparable earnings per share forecast to a range of $14.85 to $15.05, up from a range of $14.40 to $14.80. The increase to our forecast reflects stronger-than-expected third-quarter performance and incremental benefits expected in the fourth quarter from improving market conditions in used vehicle sales and rentals. We've increased our 2026 ROE forecast to a range of 18% to 19% to reflect higher expected earnings. Our free cash flow forecast of $700 million to $800 million remains unchanged. And our fourth-quarter comparable EPS forecast range is $4.25 to $4.45, above prior year of $3.59. Our transform model is well-positioned for continued earnings growth. We continue to expect 2026 earnings growth to be driven by incremental benefits from multi-year strategic initiatives. These initiatives represent structural changes we're making to the business and are not dependent on a cycle upturn. In 2024 and 2025, we realized approximately 100 million in benefits, leaving more than 70 million of incremental benefits expected in 2026. In addition to driving out performance relative to prior cycles, our transform model also provides a solid foundation for the business to meaningfully benefit from the cycle upturn. By the next cycle peak, we estimate the potential benefit could be $250 million or more, 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 time as freight market conditions improve. We now expect to realize approximately $40 million of up-term benefits in 2026, up from the $20 million in our prior forecast. These benefits are driven primarily by higher used vehicle sales results and to a lesser extent from improved rental performance. Profitable contractual growth provides another meaningful opportunity for long-term earnings Strong 2026 sales activity and lease dedicated in supply chain is creating growth momentum across our contractual businesses. We remain focused on pricing discipline and as a result, we expect our portfolio of five to seven-year lease contracts in FMS and three to five-year contracts in supply chain and dedicated to provide strong returns and earnings durability. We've been pleased by the business's resilience and performance over the most recent cycle 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 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 from multi-year strategic initiatives. We remain committed to investing in the future with products, capabilities, and technologies that will deliver value to our customers and our shareholders. Our transform model provides a solid foundation for rider to meaningfully benefit from the cycle upturn. That concludes our prepared remarks. Please note we expect to file our 10Q later today. At this time, I'll turn it over to the operator to open the call for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Your first question is from Jordan Allager with Goldman Sachs.

Yeah, hi, morning. Thanks. So, a question. There's been a fair bit of discussion of late from other transports about driver-related cost pressures, difficulty in getting drivers, particularly in dedicated. I'm just curious if you could talk to those two points and is the inflationary pressures on the driver front. Does that in any way impact your ability to do what you want to do on the dedicated margin front? And frankly, can you go in and do you need to go in to rework contracts as needed? Thanks.

Hey, good morning, Jordan, and thank you. Yeah, let me address some of the market conditions, and then I'll turn it over to Steve, who can provide you details. Just a reminder for the group our dedicated business is highly specialized so much of the discussion you've heard in the marketplace clearly for us is a little bit different in that 70 to 80 percent of our dedicated is highly specialized these are typically private fleet conversions where we take over a private fleet and execute the transportation typically we are dealing with very experienced professional drivers, which have a different wage structure than as you would consider a brand new driver. So what we've done over the last couple of years, and you heard us talk about this post-COVID, is we've introduced to many of our contracts inflationary adjusters for wage inflation, and that's still in place. So we would expect the impact to us to be really limited to select markets and not a broad-based kind of impact. And I'll let Steve maybe talk a little bit about what that looks like.

Yeah, thanks, Jordan. Overall, you know, we're seeing about a mid-single-digit wage increase in certain regions, so it's very targeted, not a wide-range, you know, nationwide issue. If you'll recall, back during COVID, we already worked on our contracts with our customers to really address this. So, we have annual CPI openers for the customers, but we also have driver wage indices that allow us, if we see a drastic change, to go back and open discussions with those customers. So, you know, I think we're pretty well protected there. Sometimes it's not immediate, but we do have tight windows. So, you know, and from a recruiting standpoint, our recruiting team does a great job.

Remember, 80% of our jobs are home every day or every night so that's very attractive along with our comprehensive safety program so i think we're in pretty good shape there and we'll continue to focus on that great thanks and um uh you know just just one other quick follow-up question on on the fms side you know it was a good step up uh in that margin to the 13 level so i guess the question is you You know, can we stick around that level or what has to happen to stay at that target zone?

Okay, I'll let Tom address that.

Yeah, I appreciate you pointing that out. But it was the first quarter where we saw all three key product lines, lease, select care, and rental, all with year-over-year revenue increases, albeit relatively small in rental. But it was nice to see. It was the first time we had seen that increase. year over year since Q4 of 2022. So, you know, we're expecting this to be the inflection point with rental. So very encouraging to get to 13% this early in the cycle, but certainly encouraged that we'll continue to do that with all three product lines growing year over year. So we do expect to see that over the coming quarters and into next year assuming we continue to see the tailwinds of the cycle.

Yeah, George, just to add to that, I think we want to underscore the fact that all the good work the team has been building up for with all the strategic initiatives both on the maintenance side and the lease pricing side has gotten us here and that business to get to that low teens level early in the cycle really underscores the good work that the team has been doing. So, thank you for asking the question. Thank you.

If you find that your question has been answered, you may remove yourself from the queue by pressing star one again. Your next question is from Brian Offenbeck with JPMorgan.

Hey, good morning. Thanks for taking the question. Maybe just a quick follow-up first just on the, I guess, the dedicated protection.

Have you felt any I guess mismatch in terms of timing when you can push through the higher cost and pay for the drivers yet and with Cardinal I think you closed that in 24 so was there anything you need to do there to kind of bring those contracts up to the same level of protection yeah Brian I think you're asking primarily about the the timing of the wage increases relative to when we can recover from our customers I would say there's usually a bit of a lag we're not seeing any significant drag in our business as of yet I think it's you heard from Steve there are select markets where that becomes more acute and we're getting out in front of it pretty quickly we did make the acquisition of Cardinal back at early 2024 so this will be the first cycle that we go through that with with those customers. Many of those customers have been replaced over the last several years, and we've introduced that kind of language and protection in those contracts. Obviously, there may be a little bit of a tail, but we don't expect any material drag from that activity.

All right. Thank you for that. And then just secondly, you raised the benefits for the upturn conditions in FMS, another 20 million to 40, is that mostly, how's that split between 3Q and 4Q, and what are sort of your early thoughts on how the remaining might transition into next year?

Yeah, as you saw in the numbers, we continue to see really good used vehicle performance. We are seeing at a broad market level, lower used vehicle market inventory, so that's providing a little bit of tailwind for us. We did start moving our retail wholesale mix upward and getting back to normalized levels. So we made improvements there. So a good portion of that improvement of the $20 million going to $40 million, I would say is huge vehicles, both driven by pricing and some of the actions we're taking to improve the overall retail mix. And then you are seeing the early signs of an inflection point, as you heard from Tom, on rental. We do expect this fourth quarter to be better than last year's fourth quarter, so you got a little bit of the carry-through from rental posted in that incremental $20 million for the year.

Okay. Thank you, John.

Your next question is from Scott Group with Wolf Research.

Hey, thanks. Good morning. So I want to just ask about some fleet expectations. I guess leasing, dedicated, continued to fall a little bit sequentially, rental I guess just started to move up for the first time in a couple of years. How should we think about fleet growth for the three businesses into 27?

Yeah, I'll give you some high-level remarks, and I think Tom can provide some details for If you think about what's been happening over the last several quarters, we've been seeing great sales performance. uh so we do have this ability to win and when that equipment will start coming in for both dedicated and fleet management our expectations we kind of flammed out in the quarter uh you may see a tick up in q4 and then it becomes more meaningful for both of those businesses as you get into 2027 uh to start the year but i'll let tom maybe talk a little bit about what he's seen at lease and also what's happening with the rental fleet yeah so it's probably a little

bit different story depending on the on the product line i'll start with i'll start with lease so as john mentioned here we've had three consecutive positive net sales quarters in in lease but really accelerated here in in the third quarter now with with lease some of the timing it does take a little bit longer before you see those sales results transition into the fleet with some of the ins and outs and the timing of the order. So you might see, you may not necessarily see the lease fleet improve yet by the end of this year, but certainly going into 2027 based on the sales results we're seeing, we would certainly expect to see that. In rental, I think we've seen the inflection point, and you heard from some of the opening comments that we've placed orders, and you're going to see that rental fleet continue to grow through this year with some benefit here in the fourth quarter, but really to set us up for what we expect to be an increasing demand environment into 2027. And then select care, we've started to see it in Q2, where we did start to sign new business. And in select care, you see it much more quickly than you do with lease as you transition those maintenance contracts pretty quickly. So you saw fleet growth, pretty good fleet growth year over year. Our pipelines are really strong, really at record levels in both select care and in lease. So we would expect that momentum to continue to carry into 2027 and see, you know, in 2027, all three product lines with fleet increases. Okay.

And just secondly, we've got 40 of the 250 of cyclical upturn tailwinds. Does that, versus history, does that feel about right to get that sort of percentage in the first year of an upcycle? What does the second year typically look like? I don't know.

It made it hard to, like, some of this is transactional, so hard to know, like how much of an uptick do you think we could see relative to that 250 target and any other thoughts on like puts and takes to for 27. yeah i would say look this is indicative of the early cycle when you get to the mid portion of the cycle and things are going we still need some freight demand to to accelerate and if you get that acceleration especially around rental you're going to see that number spike up. So, this is kind of typically the numbers you would expect early in the cycle. And then as rental accelerates, you're going to see that number increase significantly. And then it tapers off as you're approaching the peak of the cycle a little bit, the incremental improvements. But that's typical of what you should expect.

Thank you.

Your next question comes from Ravi Shanker with Morgan Stanley.

Hi, this is Nancy on for Ravi. Thanks for taking my question. It would be helpful to hear any thoughts into peak season strength across all three businesses.

Sure. So look, we, as you've heard already on the call, we've seen good acceleration in demand for the services we offer. Especially in the quarter, we saw a dedicated to continue to build on the momentum we saw in q2 as well as lease where we saw good activity we hadn't seen that level of sales activity going back to post-covid so that was a good indication for for the business we have seen continued solid performance on on the supply chain side on the sales side we did see our transactional businesses continue to improve you saw used vehicle pricing get better. You also saw our rental utilization get back to normal levels, mid-70s, and at the end of the quarter, we were in the high 70s. We expect that to continue and spill over into Q4 as we even add more fleet. So we're seeing increased demand on our contractual businesses, increased demand from some of our transactional businesses, and as you heard, we also saw better utilization of the lease fleet so our lease customers are running more miles on their fleet which should translate later on to more fleet additions as we move through the site great thank you that's helpful and then one more question on the dedicated side i know revenue remains a bit under pressure from the lower fleet count are you seeing signs that customers are becoming more willing to commit to dedicated capacity or what needs to change for fleet growth to start turning positive yeah just what we are seeing is actually more activity from dedicated capacity as the spot rate market has moved up and good quality capacity has been taken out of the market they're coming to us looking for a high level of service at a reasonable price level so we have seen a little bit of move back from that dedicated capacity space into our dedicated of business. More importantly, what we continue to see is customers looking for a specialized dedicated. We're seeing fleet conversions continue to accelerate in this market environment because the driver environment is getting tighter. We're seeing increased cost in insurance claims and the rising cost of equipment. All those things are putting pressure. We could do it have more efficiently and more effective for our customers. But I'll have Steve maybe add a little bit of color on what he's seen in the dedicated space.

Yeah, I would add, you know, the pipeline remains healthy. You know, we're seeing some good opportunities there. As John said, some of these customers traded costs for service earlier in the year. And last year, we're seeing that come back to us now as the tender acceptance rate for truckload is on the rise. So they want a service that they can count on. But again, our lost business is down year over year versus last year, so it should put us in good shape for 27.

Great. Thank you.

Your next question is from Brandon Oglinski with Barclays.

Hi. Good morning. Thanks for taking my question. I guess, John, can we unpack the capital priorities just given the returns that this business is putting off now, especially maybe in regards to M&A, because we've seen some dislocation and some other, you know, competitive deals go through here recently. So how do you see that landscape unfolding from your perspective?

Yeah, well, we're in a different part of the cycle. And coming into, you know, this upturn, one of the things that we do have plenty of debt capacity on the balance sheet, if you look at our targeted leverage. We're on the low end of our target leverage of 250. So we have plenty of capacity to, our first priority would be to continue to grow the fleet, rebuild the rental fleet, which is down almost 30% from peak levels. So we're going to continue to deploy capital there. We're excited to deploy capital in high return business fleet growth that we know we could execute against and then we'll look to opportunistic acquisitions obviously for us priorities include adding capabilities whether it's on the supply chain side or value creative acquisitions that we could do and and take advantage of opportunities that are in the marketplace so we'll continue to look at those uh that would be our top priorities uh clearly to We've built a stronger foundation for the future. And then as we continue, even in this higher capital spending cycle, we would continue to look to deploy capital and return capital to our shareholders.

Appreciate that response. And then quickly on supply chain, I think you guys talked about potentially maybe a contract loss there, but also new contracts starting up. So how do you think about getting back on track to long-term growth targets and margin targets in that business? Thank you.

Well, yeah, we've made mention about the lost automotive account. We finally, as you saw in the results, our year-over-year revenue growth was strong at high single digits of 9%. So that is, we've lapped that account. We continue to see good demand in the marketplace, and we expect that business to continue to grow. When you look at the bottom line performance, this business continues to deliver at high single-digit targets. We had another good quarter above 8%, and we expect that business to continue to deliver high single-digit targets through the year.

But, Steve, anything else to add there? Yeah, I want you to add a couple things. So, you know, John spoke about that lapped automotive loss last year. In that situation, they went away from dedicated and supply chain to truckload. We've seen through our pipeline part of that opportunity coming back to us. So I think I said that earlier in the year. So we're really excited about that. I think, too, if you look at our pipeline, we're seeing really solid increases in CPG, industrial, healthcare, and retail. So, you know, I think, as John said as well, for us to get to low double digits, that will take M&A activity. But we had a really solid quarter.

Thank you.

Your next question comes from Rob Salmon with Wells Fargo.

Hey, good morning. And thank you for taking our question. We saw a real nice acceleration in the revenue per active in choice lease. Can you give us a sense of what the roughly 200 basis point acceleration came from? Was this just contractual renewals with your annual rate increase, new business, or something else?

Well, it's a function. Thank you, Rob. It's a function of two factors. One, obviously, as we renew the new equipment, you've got higher inflation on that equipment. and then we are making sure that our pricing discipline and hitting our target spreads is showing through. So you're getting the benefit of that. We've also had a record level redeployment, so we put a lot more equipment to work, which has improved the overall performance of the portfolio of the business.

That's helpful. And then with the response to an earlier question, I think it was Scott's about the fleet. It sounded like there'd be continued pressure in the near term. I'm curious if we can see sequential growth looking out to the fourth quarter within the choice lease product, given some of that new contract momentum you had talked about earlier on the call.

Yeah, I wouldn't say pressure, meaning downward pressure. Right now, we've kind of flanned out. You should see that flanning to uptick perhaps in Q4 and then continue as the new equipment starts arriving. We should expect Q1 and beyond that in 27 to continue to grow and accelerate.

And John, just as my final follow-up there, in terms of the growth and any sense of what that can be, should we be thinking about low single-digit growth? Can it be better given the backdrop?

Yeah, right now, the business you've seen, and overall, the business is growing at mid-single digits. That's the complement of all three product lines that Tom talked about. As we get into the upcycle, you're going to see an acceleration of the top line from rental. That's probably going to be the catalyst. You are going to see healthy growth from lease. I would expect that to be in the mid to high single digits as we start growing that fleet. And then you're going to see Select Care continue to deliver mid single digit growth based on the market conditions we have in front of us.

Really appreciate the context.

Your next question comes from Bascom Majors with Stevens, Inc. Thanks for taking my questions.

John, just under two months ago i believe you guys commissioned a investor perception study of of analysts and shareholders and um i know that's probably not complete yet but if you could share any early findings that you've had from that engagement uh what surprised you what hasn't and and how is the board and management thinking about incorporating that into the company's strategy going forward thank you Yeah, Baskin, I have not seen the results of that or reviewed that, so it will be premature for me to comment on that, but I will tell you, look, I think, generally speaking, when

we talk to shareholders and I think everyone's been very pleased with, number one, the execution of the strategy that we set out to go after. The business mix has really dramatically changed, has elevated, as we've talked about, the overall profitability and the resiliency of the model i think one of the things that we're really proud of is we've been able to take that those asset-like businesses we've more than doubled those businesses and have expanded margins while at the same time significantly improved the margins of our historically largest segment which was fleet management and we expect that to continue one of the things we're excited about for the future is really around how do we leverage our port-to-door solutions and continue to grow and we're seeing early success with how do we grow our relationships which are deeply rooted and their long-lasting relationships with many of our customers where we can help them and solve some of their biggest supply chain challenges so i think that will show through going forward in our strategy and what you hear from us But as far as early indications from that report out, I don't have it, but clearly I think we're going to hear good things about the execution from the team on the overall strategy. Thank you.

Your next question is from Jeff Kaufman with Citizens Bank.

Thank you very much and congratulations. I want to get back to the growth question again. I know this has been answered a couple different ways, but you had talked about an increase in demand, an increase in mileage, both contractual and transactional. I was wondering if I could get a little bit more of a feel for it, just in terms of, is it an equipment size that you're seeing stronger than the other? Is it an industry segment or two that's a little stronger than others? is it geographic? Because, you know, based on your comments, it's across the board and kind of ubiquitous.

Yeah, I will tell you, obviously, there's going to be unique circumstances out there, but I'll paint a broad brush picture of what we're seeing in the landscape. We are seeing customers add fleet, which we hadn't seen in some time, Jeff. And when they're adding fleet, we're seeing additions across all three asset classes we have seen on the dedicated side on specialized handling we have seen higher demand for construction and on the industrial side which is interesting and then when you look at asset classes and asset class performance i will tell you on rental specifically we did see an acceleration in the tractor class in the quarter And we're going to grow that tractor fleet by 10% as we move into next year, by the end of the year. So that hopefully gives you a little bit of a broad perspective. I would say lease and dedicate is pretty broad-based. We are seeing good activity on the industrial side, on the dedicated sales activity. And then rental, we did see an acceleration in both tractors and trailers, which is indicative of maybe this freight market showing signs of life, which is one of the encouraging signs we saw in the quarter.

No, that's very, very helpful. So with respect to that rental fleet, you had gone about kind of downsizing the ratio of tractors relative to trucks over the last year or two. Right now, the rental fleet, at least on my numbers, if I combine the rental and the lease fleet, The rental fleet represents about 21% of that total, and normally that ratio is closer to 25. And tractors are going to be kind of tough to get over the next six to nine months just because of the EPA mandate. Do you have order slots already, or is that why you're saying, you know, we'll get that tractor fleet up 10% by the end of next year? And then over what, you know, do we go back to 25% of the total fleet since a lot of rental is holding for lease customers where the equipment isn't ready?

Yeah, we do feel confident we could grow that fleet. Everything you asked will be dictated by market conditions, right? If we continue to see demand, we're going to meet the demand. And we have not only the slots, but we obviously have a large fleet that we can redeploy equipment and do some things with our with our assets to meet some of that demand. But what I will tell you is we've already taken action. I'll let Tom speak to it a little bit more in detail. We've taken action already in the quarter of starting to bring in equipment. and we made some orders as you saw in our increase in our rental capex for the balance of the year which we think are going to alleviate some of the some of the pinch points we're seeing in the marketplace utilization is not yet to screaming red levels like we saw post-covid but it'll get there if if we don't have fleet and we're going to continue adding fleet to meet that demand but Tom, maybe you could add a little bit of color on the fleet itself.

Yeah, just to clarify a point, the 10% increase will be from Q3 to Q4, so we've made a pretty significant tractor order already, and your comment about availability of slots, that's not an issue. We were certainly able to order what we needed and have a pretty, you know, significant tractor fleet increase here in rental just in the fourth quarter. Going into 2027, obviously, we still have work to do on how much we'll continue to add to that fleet. The market will help dictate that. but to your point about the percent of the fleet, you might expect that to pick up a little bit, a couple of percentage points, depending on what the market tells us. But, you know, looking at history, you know, during the peak times, you typically do see that percentage increase a little bit on tractors, and I would expect to see the same thing, assuming the market indicators are there.

Okay, great context. Thank you.

Our next question comes from Ben Moore with Citibank.

Hi, good morning. Thanks for taking the question, John, Christy, and team. Thanks for fitting me in at the tail end here. My first question is on your used vehicle sales net target. Last quarter, You had it at $40 million for the year, and it sounds like from the previous conversation here, maybe we're targeting $55 to $60 million given your $20 million increase in your $26 million benefits. My question on that is kind of risk and puts and takes to that given this quarter the strength was driven by, as you mentioned, both volume and retail mix, 61% versus wholesale. So, the question is kind of, how should we think about that trending in the rest of the What's the risk on that? Could it be driven by the truck capacity dynamic turning a different direction or EPA 27? Just wanted to get a sense of kind of risk to that and what it takes.

Yep. Yeah, Ben, so you have it right. coming into the core, we had signal to about a $40 million used vehicle performance for the full year. That was up about $20 million year on year. We're now signaling up more closer, I would say, to 50 than to 60, as you called out. What we do see in the marketplace, which I think are favorable trends, even despite some of the potential headwinds we could face, is we continue to see market inventories decline. Our inventory continues to decline. We're now at the low end of our target range of 7,000. We're going to continue to sell through that inventory. I would suspect that it's going to give us the opportunity to continue to move our retail mix upward. Right now, we would expect to hopefully continue at the same level you saw in Q3, but as you get into next year we're going to get into the 70s and get into a 70 percent level with our retail wholesale mix based on the inventory levels we have so we have that lever for us based on the thin inventories we expect to face later next year so that's probably the biggest the biggest i would say hedge against market forces we continue to see capacity being taken out of the market and as long as the spot rates uh remain elevated i think there's going to be demand for equipment and we have equipment ready to to provide that service so that's kind of how we're seeing it right now and obviously come to the february when we get back together we'll give you a look at the full year for 2027. great thanks for that color that's very helpful for how we should think about modeling the next quarter and into next year.

My follow-up question is on what you're seeing as sort of in the road ahead strength in your DTS with your sort of three to five-year contracts. Other truckload dedicated carriers have been seeing a ramp in their renewal rates for their contracts at the beginning of the year, kind of starting point at up low single digits to now, many of them are seeing high single digit, low double digit. Are you, can you say that you're seeing kind of a similar upward trend or better or worse? And so this will signify kind of more benefit to come in 27 and 28?

Yeah, we're different. So we're not in that truck load carrier or dedicated capacity space like some of the competitors you alluded to most of our businesses specialize dedicated which is you know highly engineered solutions with specialized handling from our drivers in providing that service so i would say they behave a little bit different from a pricing perspective because you are not trading you know price for service per se, we've committed to a level of service that they expect. What you should expect is continued discipline from us on pricing. And as wages and inflation continues to tick up, we do have the measures and structurally in our contract that gives us the benefit to be able to recoup those. We'll continue to sign good business because there's good activity in the marketplace. and as capacity tines we should be able to take advantage of those opportunities as the market develops here. So hopefully that gives you a little bit of color on how we see dedicated progress.

Wonderful. Really appreciate that. Thank you.

Your next question is a follow-up from Scott Group with Wolf Research.

Hey, thanks for the follow-up. Appreciate it.

Just a couple things how are we thinking about impact of higher rates and i don't buy versus lease decisions return targets all that sort of stuff when you talk about return targets scott you're talking about uh returns and the overall business yeah just does does higher rates impact your ability to hit return targets and things like that interest rates yeah so yeah so look for us we continue to see that we're on pace of hitting our return targets right just to reiterate because I think it's important we're in the early parts of the cycle our return on equity is in that 18 to 19 percent level based on what we're seeing in the marketplace and some of the inflection points we discussed around that fleet management business we're going to move closer to our long-term target of low 20s over the cycle. So, we expect a progression there as some of that 250 gets realized. We are staying disciplined around our pricing, both on the lease side. You saw rental pricing improve sequentially in the quarter. We would expect pricing and rental to continue to strengthen, which can provide potentially upside opportunities on some of those returns over the cycle. And as you just heard from myself on Dedicated, we continue to see good activity there. Obviously, capacity is tight. There is opportunity for us to get some good rates while capacity remains tight. And I would expect both supply chain and Dedicated to continue to perform at their high single-digit targets.

Okay, helpful. And then just last thing, if I can, what's the impact of this still EPA uncertainty? Like, are you, your customers, like, hesitant to be placing orders for 27 now? Does this impact you? Just any thoughts on the EPA? Sure.

I'll let Bob. What we are seeing, I will tell you, I think we've called it out. We didn't see kind of this pre-buy surge activity with the change in the technology. But I do think Tom has some color around what we are seeing is price increases in the marketplace, which customers are feeling the impact of that, and we're helping them navigate through the increased pricing in the marketplace going into next year.

Yeah, I think it's pretty well understood at this point that price increases are coming in 2027, and despite that, there was not any significant pre-buy activity. Some customers took advantage of it, but certainly not to any large extent. The non-performance penalties, non-conformance penalties, or NCPs, are clear to the marketplace at this point. So they kind of know what pricing will look like and what type of increases they're looking at. The only thing that's maybe unclear is what happens after the non-conformance penalties and the engine manufacturers put out their new technology engines. That's certainly not clear to the market. We probably won't know that until some point mid-next year. We do have those conversations with our customers on a consistent basis, and the message is generally back now because pricing is increasing. And I think that's well understood in the marketplace.

Thank you, guys. Appreciate it.

Your next question is a follow-up from Brian Autenbeck with J.P. Morgan.

Yeah, hi. This is a real quick one here. But with the sequential pricing up, I think it's 15% tractors and like mid-single digits for trucks, is that on a like-for-like basis? And I talk about shifting the channel around a little bit. Sometimes there's some vintage movement there as well. I just wanted to see how clean of a read that is for the overall market.

Hey, Brian, thank you for the question. There is a little bit of noise there. I would say, look, on the tractor side, you're getting the benefit of a shift in retail mix there. As we've gotten lighter on inventory, we were able to, you know, take advantage of that and sell more through our retail channel. So you are seeing that 19% be a little bit wind-dated by our retail mix activity in the quarter. Generally speaking, I would say we continue to see pricing on a like-for-like basis continue to improve. across all asset classes. So that's really the underpinning performance of the overall market there.

Okay, any way to quantify roughly the wind assistance or the asterisk we should put on that or is it too difficult to tell?

No, I would say, look, I think absent the retail wholesale mix shift, it will probably be high to low double digits on the tractor side. So it benefited by, you know, it's about 700 basis points that I've benefited from.

Perfect. Thank you very much.

There are no further questions at this time. I'd like to turn the call back over to Mr. John Diaz for any closing remarks.

Yeah, thank you, everyone. Appreciate taking an interest in Rider and look forward to seeing you out on the road. Take care now.

This concludes today's conference call. You may now disconnect.