Conference Transcript - R 2026-02-18

Brandon Oglenski, Analyst — Barclays

Good afternoon, everyone, and again, welcome to day two of Barclays' 43rd Annual Industrial Select Conference. I'm Brandon Oglinski, airline and transport analyst, joined by David Zazula here on our team as well. I'm very happy, I think, for the first time ever to have Rider Systems at our conference, and I know we've been doing this conference in Miami a long time. We probably should have done this many years ago, Robert, but we are joined by Robert Sanchez, chairman and chief executive officer, and almost on your way out, so congratulations on that.

Robert Sanchez, Chairman

I spent years knocking on the door here trying to get in, and finally I'm in, so, yeah.

Brandon Oglenski, Analyst — Barclays

Well, I'm glad we got you in here for one, but hopefully the first of many for your company. So, like we've done in the past, for those in the audience here, if you could just pick up the little keypad in front of you, we'll queue up question one. Do you currently own Rider? Yes, overweight, two, market weight, three, underweight, or four, no ownership. And thanks, everyone, for participating. Again, we do compile these and publish them post-conference. Okay, and question number two, please. Was your general bias towards Rider right now positive, negative, or neutral?

Operator

All right, and then please, question number three.

Brandon Oglenski, Analyst — Barclays

In your opinion, through cycle EPS growth for Rider will be above peers, in line with peers, or below peers. And Robert, again, thank you for coming down here. If we can vote there, thank you. Appreciate you coming again. Can you just give us your perspective here? as you've really driven a lot of change at the company. What are you most proud of, and where do you see it heading?

Robert Sanchez, Chairman

Yeah, I think those who have followed the company for the last five or six years have probably seen the transformation we've been on. We've called it our balanced growth strategy. We really adopted this back in 2019. I've been around for over 90 years, so it's not like we're new to the business, But certainly, as we got into, you know, 2015, 16, 17, and 18, we went into a period of an extended used truck downturn and really forced us to reevaluate our business model and understand, you know, how do we de-risk this business and not be so reliant on the used truck market, which a lot of investors were looking at, right, are almost like a proxy for the used truck market, which was kind of crazy considering all the other things that we do. and then how do we improve the returns make it less reliant and then what should the portfolio look like so we focused on from a de-risking of the business we said look one of the key issues here that's driving all this reliance on the used truck market has been the way that we price our leases we were pricing our leases to an average residual value we'd look at the last six years and say what's the average used truck price been that's what we're assuming it's going to sell six years from now Some years you were better, some years you were worse. When the used truck market was within a certain band, you were over 50% of the time and below 50% of the time. But as we got into that 2015, 16, 17 time period, we spent three years on the bottom end of that. And that meant that all these leases that we had signed six years prior, that we had done all this great work, maintained the truck, done all the road calls in the middle of the night, taking care of the customer, all those deals ended up being negative return deals. It's kind of crazy that we do all this work, and at the end it all relies on that final used truck price. So we reduced the assumption that we were making on that residual value to be really bottom quartile instead of the average. And that way, most of the time, we were going to at least get the return that we expected. So that in and of itself created a significant de-risking. We also exited some geographies and services that we were in that weren't giving us a good return. It was all right, how do we improve the returns? Well, we historically have been targeting a 60 basis point spread on those leases. We increased that target to 150 basis points. So now we're making more money on each of those leases. We also went and challenged our organization with 1.2 billion maintaining trucks. Can we find $100 million by improving the efficiencies of these 4,500 diesel technicians out of locations that we're working? Targeted that, went after that. Those initiatives, really, the maintenance initiative and the pricing initiatives of big drivers, equated to over a multiyear period, ended up being $300 million of annual cost savings that we were able to take out of the business. So if you consider a business that our earnings before tax were about $300 million, $400 million, but the volatility of rental and used trucks was about $200 million. You had a lot of volatility in that earnings. Now the business is making $700 million. You could still have that $200 million, but it's obviously a much smaller piece. So that was the de-risking and the improving of the returns. Then we looked at our logistics and dedicated business, more asset-like, good return, contractual business. How do we disproportionately look to grow that? Made some acquisitions, spent some money on sales and marketing, and really being able to grow it organically. And then those two businesses who were, if you go back 10 years ago, were about 35% of the revenues of the company, are now 60% of the revenues of the company. So moved more towards the contractual parts of the business, more towards the asset light, and that's the portfolio that we're running today.

Brandon Oglenski, Analyst — Barclays

We just had Pat Keller up here, the new CEO of GXO, actually gave you guys a shout-out as a competitor that he looks, you know, towards matching or beating in the future, but definitely giving some respect. So I think you've gotten some recognition in the market. I guess in the near term, though, folks have been really focused on used truck values again, though, right? Because that does impact your earnings, which has been a little bit more challenged in the current environment. We've been asking all the companies up here, are there any potential green shoots? Because short-cycle industrial measures have gotten better. PMI is obviously better. We've seen truckload spot rates come up. I don't know, from your perspective, is the market improving or is it more of the same this year?

Robert Sanchez, Chairman

Yeah, we just gave our full year forecast, and we're going to show earnings improvement again this year, but without a whole lot of help from the market. It's mostly these initiatives and self-help programs, about $70 million improvement there. We're not assuming a pickup in the second half necessarily, only because we assumed that the last two years and it didn't happen. So we figured this year we won't assume it, see if it does happen. But the guidance that we gave really didn't account for that. If there is a pickup, obviously, we should do better than the range that we gave. Are we seeing anything? Not yet. You know, the PMI being above 50 is always a good thing. That helps manufacturing, should help the freight market. Spot rates being up is a good thing. Also, it's an early indicator. The FTR truck utilization being over 95 is a good indicator. That's also up. So these are all good things. It usually takes about six months for us to see it in our rental and used truck business. So if these things stick towards the second half of the year, we should see some improvement, but we haven't seen it as of yet. We're seeing just kind of stable bumping along the bottom type activity.

David Zazula, Analyst — Barclays

So just doing the math, right, on the center of where it is in the 1Q guidance versus the full year, it does imply some acceleration in earnings. You're saying that's not due to the market. It's due to some other things that are going on.

Robert Sanchez, Chairman

Primarily due to our initiatives and our, you know, self-help. So we identified $70 million coming from some lease pricing still trickling into 26, some maintenance cost initiatives that we've got line of sight to that we feel good about, and also rationalizing some of our omni-channel retail network. We've got line of sight to that. And then also the layering in of our new supply chain accounts. So we had a really strong sales year in our logistics and supply chain business record, actually. Those deals will start layering in here in 26 and really hitting their stride in the second half, so we expect to start to see the benefits of that in the second half.

David Zazula, Analyst — Barclays

And that's about a six-month ramp from the time?

Robert Sanchez, Chairman

About six months, yeah.

David Zazula, Analyst — Barclays

Right, and is there some startup costs associated where the margin initially is lower and then that further ramps from there?

Robert Sanchez, Chairman

A margin, there's a little bit, but that's not the bigger issue. The bigger issue is just really getting those ramped up. Also, I should mention in automotive, we had a really strong first quarter last year with a lot of auto production. Some of those plants are extending their shutdowns this year. We had a little bit of lost business, too. So that also created some headwind year over year with the first quarter.

David Zazula, Analyst — Barclays

And we talked on the earnings call. It sounds like the outlook for that is still pretty tepid. The manufacturers you're talking to are at least fairly cautious in the near term.

Robert Sanchez, Chairman

On the, again, on the truck leasing and on the dedicated side, yes. On the supply chain side, we are seeing customers making decisions. You know, we have, as I mentioned, we had a record sales year last year, new contracts being signed, especially in the omni-channel retail sector. And we feel really good about the prospects. Our target for that business is double-digit top-line growth, and we expect to end the year really approaching that level as all these new contracts layer in.

David Zazula, Analyst — Barclays

So you used to, prior to this change plan, have fleet growth that was a little bit higher. You've reduced down to $2,000 to $4,000. What has that allowed you to do? How has that allowed you to have more stable earnings with that type of fleet growth?

Robert Sanchez, Chairman

Well, I think it's been the tradeoff of price versus volume, right? So we were growing, prior to balanced growth, we were growing our lease fleet about 10,000, 11,000 units a year. So when we made the decision to increase the spread, we knew there'd be some impact on that growth. That tradeoff works for us. I'd rather grow 2,000 to 4,000 at the spread that we're at, the 150,000 than growing 11,000 at the 60 basis point spread. So that's really been the tradeoff. I think overall in the marketplace, there was a little bit of market share loss initially, but as the market has kind of moved with us, it's stabilized.

David Zazula, Analyst — Barclays

And you think 1% lost last year in terms of revenue growth, the long-term target of mid-single-digit growth for fleet management, even at the 2,000 to 4,000 units per year, you think that's comfortable you can get that?

Robert Sanchez, Chairman

2,000 to 4,000 gets us to that mid-single-digit growth rate. Now, the market really takes off at the pricing that we're at, and we see that we can grow more than that, we will. But I think it's important for us to make sure we maintain our pricing discipline.

Brandon Oglenski, Analyst — Barclays

So for help, maybe a bigger issue, too, just on tariffs and, you know, truck pricing going forward, how has that impacted the new truck market?

Robert Sanchez, Chairman

So we're one of the largest buyers of commercial trucks in the country. So as these tariffs, there has been already some impact from tariffs, especially initially some of the steel and aluminum tariffs. So as those get layered in, we build them into any new leases. So we pass it through as we do with any cost that comes in. We're competing against a truck buyer being able to buy the truck on their own. They're going to have the same issue. So they do get passed through. I think we'll see how that goes. I think right now some of these OEs are a little tepid to pass them through, knowing that the market is soft. But as the market picks back up, I would assume some of that's going to start coming through.

David Zazula, Analyst — Barclays

I think we've heard from some of the trucking-type providers that supply is coming out of the market due to government regulation that's helped on the rate side. Are you hearing anything from your customers about it hurting you on the demand side, just in that there's fewer drivers out there in the market, less demand for trucks? Was that a different segment of the market maybe?

Robert Sanchez, Chairman

Most of our customer base are private fleets. So these are folks that are not in the trucking business, but they need trucks to deliver their products to their customers or pickup. So they're more, you know, the private fleets really ramped up during COVID and they've had to now scale down. So we've seen that in our lease fleet has come down, our dedicated business hasn't been growing at the pace that we want. We think that's kind of getting to its equilibrium. It usually happens once the freight market stabilizes, and then we'll see that move back up. But we haven't yet. I mean, the driver market is still relatively loose. I think as that tightens, you're going to see more companies, private fleets looking for companies like Ryder to help them as they struggle with hiring new truck drivers.

David Zazula, Analyst — Barclays

And the EPA 2027 standards, has that impacted the market one way or the other?

Robert Sanchez, Chairman

Not yet. We haven't had a lot of pre-buy requests yet from our customers. We have some, but there's not a big push like we've seen in other technology changes. I think if the market starts to come back and the market begins to tighten, you may see more companies wanting to jump in prior to the change.

Brandon Oglenski, Analyst — Barclays

Are we keeping those EPA standards?

Robert Sanchez, Chairman

Yes. The bulk of the standards are staying. What I think is changing is the need for the OEs to provide a warranty throughout the entire life of the vehicle. I think that's being rolled back, which was a significant cost factor for them.

David Zazula, Analyst — Barclays

With respect to dedicated, we hear a lot of companies talk about having a dedicated offering. I think you guys serve a different segment of the market, maybe a little bit more specialized. Maybe just give us an overview of what you've done with the dedicated segment and where you think it can grow from here.

Robert Sanchez, Chairman

So Ryder's been in the dedicated business, I think, since 1945, when we first started delivering newspapers for the Miami Herald. So what we do is more specialized, dedicated. There's very few of our accounts where we're taking a product from one dock door and delivering it to another dock door. It typically requires our driver to do something beyond just drive the truck. So you think about we do a lot in the metals industry. Metals are being run on a flatbed. There's a crane that the driver needs to operate to be able to move the metals off. That's the kind of business we do. Deliveries even to stores where it's not a doctor or it might be in a strip mall and the driver has to get out and bring totes into a store. We do that type of business. So that's the segment that we have always been in. We're the second largest provider in that segment, and we've got a very competitive service offering there.

David Zazula, Analyst — Barclays

And I think your long-term target, high single digits, I mean, you've set the company up pretty well over your time. You think that's the right target going forward, even though the market's been a little tougher lately?

Robert Sanchez, Chairman

This being my last conference, I'm in a position to start raising all the long-term targets, but I guess I should probably just stick with what I got, which is high single digits, I think, is a reasonable target for that industry and the business that we're in.

David Zazula, Analyst — Barclays

And you think this year is maybe a little tougher? or is that more going to be where you're trying to get to next year?

Robert Sanchez, Chairman

Yeah, if you think about it, that business benefits from all of our businesses. We're in the outsourcing business, so anything that makes what we do difficult is good for us. So in a tight market where private fleets are struggling with their equipment or struggling with getting drivers, that's a positive for Rider. They're more likely to then look for somebody like Rider to help them. So right now, driver market has been pretty loose. As that begins to tighten, I think you're going to see more companies look for help. Another area is safety. Companies who don't do trucking or transportation for a living maybe don't have the same safety programs that Rider has. So we have had other customers now getting into big insurance claims over accidents, and they decide, you know what, why am I in this business? Let me go find somebody who does it. We've got a very robust safety program. We've got in-cap cameras. We've got all kinds of stuff to better manage that, and we're seeing companies look to outsource because of that.

Brandon Oglenski, Analyst — Barclays

If I can just ask one on that, Robert, I guess we've seen with a lot of our coverage in the trucking and freight space, like insurance costs have just been through the roof. Is that something you guys are experiencing too, and how are you mitigating that?

Robert Sanchez, Chairman

Across different areas. So clearly on the VIPD side and on the vehicle insurance side, it's our safety programs, right? That's what we, safety is the number one priority at Rider. We have 50,000 employees. We have a very strong safety culture. So we implemented in-cab cameras probably before most people did. We've had them in place, I think, since 2016. It's been a big game changer for us in helping us, you know, coach our drivers and really drive the safety culture. We are seeing as many companies across the industry, medical costs for our employees really come up. We're doing what every other company is trying to do, figure out different ways of managing through that, but that is a real challenge, I think, for all of us.

David Zazula, Analyst — Barclays

You made an acquisition somewhat recently, Cardinal Logistics. I think you've targeted 40 to 60 in synergies. What's the breakdown there? Is there a risk to not getting there by the end of the year? And is there maybe some upside or additional things you're learning as you've integrated them?

Robert Sanchez, Chairman

Yeah, that was a good acquisition. We're very selective about our acquisitions. That was a company that's, I think, well-run, good contracts. We identified $40 million to $60 million of initiatives. We've delivered on that through 2025. A little bit trickling in this year, but most of that is already executed on. A lot of it was for those contracts, they were outsourcing their equipment to third parties or doing it themselves, doing their own maintenance, putting that through the rider network. Brought a lot of savings because we buy a lot of trucks. were very efficient in how we manage them and maintain them. We were able to bring a lot of savings to the operations that way, along with some overhead and things that we did there.

David Zazula, Analyst — Barclays

And, yeah, that maintenance product, you can leverage that across the businesses, not just for dedicated as well. And that's been part of the turnaround strategy. I mean, supply chain solutions, I think you already mentioned, ramping up towards the low double-digit target in 2022. What are the puts and takes? What are the different subcomponents of the business we should be thinking about? And what do you want to grow within supply chain long after you're gone?

Robert Sanchez, Chairman

So the key with supply chain across whoever's doing it is execution. You have to be able to execute well if you're going to expect a company to hand over an important part of their supply chain to you. So we've been in the business for a long time. We've learned. Sometimes I think we've paid a lot of tuition, too, over the many years. We're very good at execution. We have a – startups are probably the toughest part when you start up a new account. We have startup effectiveness teams that just fly around and only do startups to make sure we are able to flawlessly execute on that. So we feel really good about that, and we feel really good about the capabilities that we have there. That's why we win. That business, though, is evolving. We operate in four industry verticals, so we don't try to do everything for everybody. We're very good in automotive, inbound automotive logistics, one of the leaders. Omnichannel retail, which is our fastest-growing segment now, where we're doing business with a lot of the retail companies and running distribution centers for them. We're in the CPG business, the CPG vertical. So the thing about food logistics, we do a lot of business with CPG-type companies, and then we're also in the high-tech and healthcare vertical. So continuing to focus on the port-to-door services that we provide, we're able to run the facilities, the warehouses. We have over 100 millisquare feet of warehouse space that we run. We have a transportation management service that we can manage not just riders' trucks but also third-party freight. I think it's over $10 billion of freight that we manage for our customers, act as a traffic department. We have final mile delivery capabilities, especially those big and bulky products. And we also have an e-commerce fulfillment capability there. We're able to do consulting services. So anything that you need port-to-door in North America, we can provide through our supply chain services.

Brandon Oglenski, Analyst — Barclays

I think that's a differentiating point in your business offering, isn't it?

Robert Sanchez, Chairman

It is today, yes.

Brandon Oglenski, Analyst — Barclays

A lot of the suppliers you run up against are just doing everything inside the building, right?

Robert Sanchez, Chairman

Correct, correct.

Brandon Oglenski, Analyst — Barclays

So we're able to offer all the services.

Robert Sanchez, Chairman

Once you get to the port, we're able to offer all the services all the way to the end consumer.

David Zazula, Analyst — Barclays

And the margin in that business has actually really come up, even though it's been a pretty bad environment in terms of freight. Should investors, how do they think about that when looking at history? Is this something where you actually get a little bit of better margin in times of lower demand, or is it something where due to your self-help initiatives, that's really what's been driving the margin?

Robert Sanchez, Chairman

Yeah, it's a contractual business, right? So it's not so much volume-driven. There is some volume to it, but mostly it's contractual cost-plus type business. So I think it's been the discipline over time of making sure you're signing good contracts and then your ability to execute on those contracts. That's what allows you to achieve the returns that we're achieving. And our target returns there are high single digits, which is kind of where we've been at.

Brandon Oglenski, Analyst — Barclays

And is this just a U.S. business, or are you targeting global opportunities as well?

Robert Sanchez, Chairman

We made the decision years ago to focus solely on North America. We'd been in different parts of the world, in South America, Europe, and really struggled. We struggled being great everywhere, and we said, let's just be great in North America. This business, this economy is very large. In that business, probably 75% of the business is still not outsourced. So to the extent we can chip away at that, that's plenty of business for us to get.

David Zazula, Analyst — Barclays

On the warehousing side, you've done pretty well in terms of revenue. I mean, how much has that been due to new customer wins? What has the commercial team been focusing on in that area of supply chain?

Robert Sanchez, Chairman

Yeah, so we've had some new customer wins, but a significant amount of our growth comes from existing customers. So we may go into a – by the way, most of our customers there are large Fortune 500-type companies. So we could go into an account where we win one location out of, you know, maybe these are customers that have ten distribution centers around the country. We win one. We prove ourselves with our startup effectiveness, with our ability to execute, and our ability to bring continuous improvement, even when compared to the other nine. And then the customer says, okay, well, I'm going to give you the second one. I'm going to give you the third one. So typically that's how we grow is by being able to expand and then expand services. So if you're doing the warehousing, I also let me do the transportation. Or if I'm doing the transportation, let me try the warehousing.

Brandon Oglenski, Analyst — Barclays

Can we do ARS question number four, please? We're running out of time here. So for those in the room, if you don't mind picking up the keypad, in your opinion, what should Ryder do with excess cash, both on M&A, larger M&A, share repurchases, dividends, debt pay down, or internal investment?

Robert Sanchez, Chairman

repurchases. No one thinks we should pay down

Brandon Oglenski, Analyst — Barclays

debt. I'm surprised. Question number five, please. In your opinion, what multiple of 26 earnings should ride or trade? You see the range there? Appreciate the vote.

David Zazula, Analyst — Barclays

Can I vote?

Brandon Oglenski, Analyst — Barclays

We've yet to get remotes up here.

David Zazula, Analyst — Barclays

I guess with your earnings, I just think death capacity, they saw that slide in the fallback.

Brandon Oglenski, Analyst — Barclays

If you all don't mind, question number six. What do you see as the most significant share price when facing Rider? Core growth, margin performance, capital deployment, or execution and strategy? And again, thank you for participating.

David Zazula, Analyst — Barclays

Well, you mentioned debt. I think your targeted range two and a half to three times. Certainly, what you do on the FMS side, very capital intensive. You know, how does that play into the cycle? When do you think about two and a half? When do you think about three? do you think, you know, now is the time to go near the high end of the cycle with potentially some growth coming next year?

Robert Sanchez, Chairman

Yeah, no, I think in order for us, first of all, our business based on the earnings power of the business right now, and we're talking debt to equity, we tend to delever on any given year. Even if we're growing at this point, the amount of earnings that we're generating, even if we were growing our lease fleet by 10,000, 11,000 units, we would still delever. So from an organic standpoint, short of significant acquisitions, the business is likely to continue to delever. So what we would do then is look to do share buybacks and continue to drive, keep us close to that leverage ratio, right? So we're on the low end of that. And unless there's a big acquisition opportunity that we see that would move us there, we're likely to stay in that range.

David Zazula, Analyst — Barclays

Sounds like you're in line with what your investors are looking for here. Short-term net capital expenditures, I think $1.9 billion this year. What's the breakdown there? What do you think in terms of power equipment? What can we expect on the CapEx side?

Robert Sanchez, Chairman

So the capital that we're expecting this year for leases is almost entirely – actually, it's entirely replacement. So we're not assuming any growth in our lease. We're actually seeing a slight decline. In rental, a very minimal purchase. I think we're going to do $100 million of rental. On a good year, we could be doing $600 million, $700 million of rental CapEx. So until we see really a pickup in rental, we're not going to pull the trigger on that. And then on the lease, we don't buy a truck until we have a signed lease. So when customers are ready to sign up to more fleet is when we'll be ready to buy more vehicles.

David Zazula, Analyst — Barclays

And from what you were saying earlier, it sounds like customers are at least on the cautious side right now in terms of expanding their fleet.

Robert Sanchez, Chairman

We're not seeing a lot of expansion yet, but I've been with the company 33 years. We've been doing enough of these cycles until the light switch turns on, and then everybody wants trucks immediately. So we're waiting for that opportunity.

David Zazula, Analyst — Barclays

And that replacement cycle that you're going through this year, that's going to maintain your average equipment age kind of similar to –

Robert Sanchez, Chairman

It's a little bit long for us right now. So even with this replacement, it will still be a little bit longer than we prefer. But, again, we typically run – on the lease business, we match the first life of the vehicle with the lease. So at the end of that lease, it's ready to go to the used truck center. If it still has life, we do have an asset management process to redeploy it into another application. But generally, the replacement cycle happens as the leases turn out.

David Zazula, Analyst — Barclays

And that's really a big advantage to the business model is you have so many different ways that you can make use of it.

Robert Sanchez, Chairman

We can put it in our dedicated business. We can redeploy it to supply chain. We can deploy it to rental. So there's a lot of asset management moves we can make.

Brandon Oglenski, Analyst — Barclays

Robert, we only have less than two minutes left here. Really appreciate being here. but as you get set to leave Ryder I mean what legacy do you want at the company and what's most exciting that you think is going to be five years from now

Robert Sanchez, Chairman

yeah look I mean the nice thing about I've been with the company as I said for 33 years I turned 60 last year I'd always had a goal of once I hit 60 I wanted to be able to move on if things were going well things are going well I think we have positioned the company well we got 250 million of earnings uplift between here and the next peak of rental and used vehicles coming back. We have a strong contractual portfolio. We've got great leadership that's really in place and coming up. You know, John has been with the company for over 20 years. I've worked very closely with him for most of that time, along with Christy, our CFO, Steve Sensing, who runs our supply chain business, Tom Regan runs Dedicated, and Tom Havens, our fleet management business. These are all folks who have been with the company a long time, understand the business really well, have all actively participated in the development and execution of this balanced growth strategy. I'm confident they're going to continue and take it to the next.

Brandon Oglenski, Analyst — Barclays

There will be another chapter, and they're going to write that chapter well

Robert Sanchez, Chairman

and make sure that we're getting, continuing to grow the company and continue to have good returns for shareholders. Thank you very much for coming. Really appreciate it. Thank you for having me. And congrats on retirement.