Ryder System Inc 10-Q for FY2023 Q3
Ryder System Inc (R)
10-Q
2023-10-25
For: 2023-09-30
View Original
Added on
April 10, 2026
About this 10-Q
Ryder System Inc filed this 10-Q on October 25, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.92B
- down 3.7% from $3.04B a year earlier
- Net income
- $161M
- down 34.6% from net income of $246M a year earlier
- Diluted EPS
- $3.47
- down 28.0% from $4.82 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 1-4364
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||||||||
( | ||||||||||||||||||||||||||
| (Address of principal executive offices, including zip code) | (Registrant's telephone number, including area code) | |||||||||||||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares of Ryder System, Inc. Common Stock outstanding at September 30, 2023, was 44,322,243 .
RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
| Page No. | ||||||||
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions, except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Lease & related maintenance and rental revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Services revenue | ||||||||||||||||||||||||||
| Fuel services revenue | ||||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||||
| Cost of lease & related maintenance and rental | ||||||||||||||||||||||||||
| Cost of services | ||||||||||||||||||||||||||
| Cost of fuel services | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Non-operating pension costs, net | ||||||||||||||||||||||||||
| Used vehicle sales, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Miscellaneous income, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Currency translation adjustment loss | ||||||||||||||||||||||||||
| Restructuring and other items, net | ( | ( | ||||||||||||||||||||||||
| Earnings from continuing operations before income taxes | ||||||||||||||||||||||||||
| Provision for income taxes | ||||||||||||||||||||||||||
| Earnings from continuing operations | ||||||||||||||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | ( | ( | ||||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||||||||||||
| Earnings (loss) per common share — Basic | ||||||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | ||||||||||||||||||||||
| Discontinued operations | ( | ( | ||||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||||||||||||
| Earnings (loss) per common share — Diluted | ||||||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | ||||||||||||||||||||||
| Discontinued operations | ( | ( | ||||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
Note: EPS amounts may not be additive due to rounding.
1
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||||||||||||
| Changes in cumulative translation adjustment and unrealized gains from cash flow hedges, net of taxes | ( | ( | ( | |||||||||||||||||||||||
| Amortization of pension and postretirement items | ||||||||||||||||||||||||||
| Income tax expense related to amortization of pension and postretirement items | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of pension and postretirement items, net of taxes | ||||||||||||||||||||||||||
| Change in net actuarial loss and prior service cost | ||||||||||||||||||||||||||
| Income tax expense related to change in net actuarial loss and prior service cost | ( | |||||||||||||||||||||||||
| Change in net actuarial loss and prior service cost, net of taxes | ||||||||||||||||||||||||||
| Other comprehensive income (loss), net of taxes | ( | ( | ( | |||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| (In millions, except share amounts) | September 30, 2023 | December 31, 2022 | ||||||||||||
| Assets: | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Receivables, net | ||||||||||||||
| Inventories | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Revenue earning equipment, net | ||||||||||||||
Operating property and equipment, net of accumulated depreciation of $ | ||||||||||||||
| Goodwill | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Operating lease right-of-use assets | ||||||||||||||
| Sales-type leases and other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities and shareholders' equity: | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Short-term debt and current portion of long-term debt | $ | $ | ||||||||||||
| Accounts payable | ||||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt | ||||||||||||||
| Other non-current liabilities | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Total liabilities | ||||||||||||||
Commitments and contingencies (Note 14) | ||||||||||||||
| Shareholders' equity: | ||||||||||||||
Preferred stock, | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total shareholders' equity | ||||||||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine months ended September 30, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||||||||
| Cash flows from operating activities from continuing operations: | ||||||||||||||||||||
| Net earnings | $ | $ | ||||||||||||||||||
| Less: Loss from discontinued operations, net of tax | ( | |||||||||||||||||||
| Earnings from continuing operations | ||||||||||||||||||||
| Depreciation expense | ||||||||||||||||||||
| Used vehicle sales, net | ( | ( | ||||||||||||||||||
| Currency translation adjustment loss | ||||||||||||||||||||
| Amortization expense and other non-cash charges, net | ||||||||||||||||||||
| Non-cash lease expense | ||||||||||||||||||||
| Non-operating pension costs, net and share-based compensation expense | ||||||||||||||||||||
| Deferred income tax expense | ||||||||||||||||||||
| Collections on sales-type leases | ||||||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Receivables | ( | |||||||||||||||||||
| Inventories | ( | |||||||||||||||||||
| Prepaid expenses and other assets | ( | ( | ||||||||||||||||||
| Accounts payable | ( | |||||||||||||||||||
| Accrued expenses and other liabilities | ( | ( | ||||||||||||||||||
| Net cash provided by operating activities from continuing operations | ||||||||||||||||||||
| Cash flows from investing activities from continuing operations: | ||||||||||||||||||||
| Purchases of property and revenue earning equipment | ( | ( | ||||||||||||||||||
| Sales of revenue earning equipment | ||||||||||||||||||||
| Sales of operating property and equipment | ||||||||||||||||||||
| Acquisitions, net of cash acquired | ( | |||||||||||||||||||
| Other investing activities | ( | |||||||||||||||||||
| Net cash used in investing activities from continuing operations | ( | ( | ||||||||||||||||||
| Cash flows from financing activities from continuing operations: | ||||||||||||||||||||
| Net borrowings of commercial paper and other | ||||||||||||||||||||
| Debt proceeds | ||||||||||||||||||||
| Debt repayments | ( | ( | ||||||||||||||||||
| Dividends on common stock | ( | ( | ||||||||||||||||||
| Common stock issued | ( | |||||||||||||||||||
| Common stock repurchased | ( | ( | ||||||||||||||||||
| Other financing activities | ( | ( | ||||||||||||||||||
| Net cash used in financing activities from continuing operations | ( | ( | ||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | ( | ( | ||||||||||||||||||
| Decrease in cash, cash equivalents, and restricted cash | ( | ( | ||||||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
| Three months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except share amounts in thousands) | Amount | Shares | Par | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance as of July 1, 2023 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Common stock dividends declared —$ | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
Common stock issued under employee stock award and stock purchase plans and other (1) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | ( | ( | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Three months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except share amounts in thousands) | Amount | Shares | Par | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance as of July 1, 2022 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Common stock dividends declared —$ | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
Common stock issued under employee stock award and stock purchase plans and other (1) | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | ( | — | ( | — | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
(1)Net of common shares delivered as payment for the exercise price or to satisfy the holders' withholding tax liability upon exercise of options.
See accompanying Notes to Condensed Consolidated Financial Statements.
5
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
| Nine months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except share amounts in thousands) | Amount | Shares | Par | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Common stock dividends declared —$ | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
Common stock issued under employee stock award and stock purchase plans and other (1) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | ( | ( | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except share amounts in thousands) | Amount | Shares | Par | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Common stock dividends declared —$ | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
Common stock purchased under employee stock option and stock purchase plans and other (1) | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | ( | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
————————————
(1)Net of common shares delivered as payment for the exercise price or to satisfy the holders' withholding tax liability upon exercise of options.
See accompanying Notes to Condensed Consolidated Financial Statements.
6
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements include the accounts of Ryder System, Inc. (Ryder) and all entities in which Ryder has a controlling voting interest (subsidiaries) and variable interest entities (VIE) where Ryder is determined to be the primary beneficiary in accordance with generally accepted accounting principles in the United States (GAAP). Ryder is deemed to be the primary beneficiary if we have the power to direct the activities that most significantly impact the entity's economic performance and we share in the significant risks and rewards of the entity. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting policies described in our 2022 Annual Report on Form 10-K and should be read in conjunction with the consolidated financial statements and notes thereto. The year-end Condensed Consolidated Balance Sheet data was derived from our audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair statement have been included and the disclosures herein are adequate. The operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. Certain prior period amounts have been reclassified to conform with the current period presentation. In the three and nine months ended September 30, 2022, we previously reported certain costs in "Cost of fuel services" that should have been included in the "Cost of services" within the unaudited Condensed Consolidated Statement of Earnings. These costs were not material to any financial statement line item, and we elected to revise the presentation of these prior period costs to conform to the current year presentation in our financial statements. We added the "Operating lease right-of-use assets" financial statement line to the unaudited Condensed Consolidated Balance Sheets. These assets were previously included in "Sales-type leases and other assets" in the year-end Condensed Consolidated Balance Sheets.
We report our financial performance based on three business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing and leasing with flexible maintenance options, commercial rental and maintenance services of trucks, tractors and trailers to customers principally in the United States (U.S.) and Canada; (2) Supply Chain Solutions (SCS), which provides integrated logistics solutions, including distribution management, dedicated transportation, transportation management, brokerage, e-commerce, last mile, and professional services in North America; and (3) Dedicated Transportation Solutions (DTS), which provides turnkey transportation solutions in the U.S., including dedicated vehicles, professional drivers, management, and administrative support. Dedicated transportation services provided as part of an operationally integrated, multi-service, supply chain solution to SCS customers are primarily reported in the SCS business segment.
In the beginning of 2022, we announced our intention to exit our lower return FMS Europe (primarily United Kingdom (U.K.)) business. We completed the shutdown of operations as well as the sale of the remaining vehicles and properties as of June 30, 2023, generating cash proceeds of $394 million and recording gains of $95 million from the beginning of 2022 through June 30, 2023. As a result of the shutdown, we reclassified $188 million ($183 million, net of tax) of cumulative currency translation adjustment charges from "Accumulated other comprehensive loss" in our Condensed Consolidated Balance Sheet into a one-time, non-cash charge in the second quarter of 2023 in our Condensed Consolidated Statements of Earnings. The currency translation adjustment loss had no material impact on our consolidated financial position or cash flows. Refer to Note 10, "Accumulated Other Comprehensive Loss" for a discussion on the currency translation adjustment loss.
2. SEGMENT REPORTING
7
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table sets forth financial information for each of our segments and provides a reconciliation between segment EBT and Earnings from continuing operations before income taxes:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Fleet Management Solutions: | ||||||||||||||||||||||||||
| ChoiceLease | $ | $ | $ | $ | ||||||||||||||||||||||
| Commercial rental | ||||||||||||||||||||||||||
| SelectCare and other | ||||||||||||||||||||||||||
FMS Europe (1) | ||||||||||||||||||||||||||
| Fuel services revenue | ||||||||||||||||||||||||||
| Fleet Management Solutions | ||||||||||||||||||||||||||
| Supply Chain Solutions | ||||||||||||||||||||||||||
| Dedicated Transportation Solutions | ||||||||||||||||||||||||||
Eliminations (2) | ( | ( | ( | ( | ||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Earnings from continuing operations before income taxes: | ||||||||||||||||||||||||||
| Fleet Management Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Supply Chain Solutions | ||||||||||||||||||||||||||
| Dedicated Transportation Solutions | ||||||||||||||||||||||||||
| Eliminations | ( | ( | ( | ( | ||||||||||||||||||||||
| Unallocated Central Support Services | ( | ( | ( | ( | ||||||||||||||||||||||
Intangible amortization expense (3) | ( | ( | ( | ( | ||||||||||||||||||||||
Non-operating pension costs, net (4) | ( | ( | ( | ( | ||||||||||||||||||||||
Other items impacting comparability, net (5) | ( | ( | ||||||||||||||||||||||||
| Earnings from continuing operations before income taxes | $ | $ | $ | $ | ||||||||||||||||||||||
————————————
(1)Refer to Note 13, "Other Items Impacting Comparability" for further information on the FMS U.K. business exit.
(2)Represents the elimination of intercompany revenue in our FMS business segment.
(3)Included within "Selling, general and administrative expenses" in our Condensed Consolidated Statements of Earnings.
(4)Refer to Note 12, "Employee Benefit Plans," for a discussion on this item.
(5)Refer to Note 13, "Other Items Impacting Comparability," for a discussion of items excluded from our primary measure of segment performance.
Long-Lived Asset Impairment
During the first quarter of 2023, we identified impairment indicators primarily associated with specialized sortation and conveyor equipment used in the warehouse operations of a specific SCS customer. The impairment indicators were triggered by the credit deterioration and eventual bankruptcy of this customer in April 2023. These events resulted in a significant decline in the forecasted operating cash flows associated with the equipment. We performed an asset impairment test under the income-based approach using a discounted cash flow method of valuation and determined we had a $30 million impairment. Events or changes in circumstances may occur in the near term resulting in a change in management’s estimates of undiscounted cash flows. Any such events or changes could ultimately impact the amount of the impairment loss. In the fourth quarter of 2022, we were notified by this customer of their intent to early terminate operations at one of their distribution centers and we recorded an impairment charge of $20 million in the fourth quarter of 2022.
8
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table sets forth the capital expenditures paid for each of our segments:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Fleet Management Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Supply Chain Solutions | ||||||||||||||||||||||||||
| Dedicated Transportation Solutions | ||||||||||||||||||||||||||
| Central Support Services | ||||||||||||||||||||||||||
| Purchases of property and revenue earning equipment | $ | $ | $ | $ | ||||||||||||||||||||||
3. REVENUE
The following tables present our revenue recognized by primary geographical market in our reportable business segments and by industry vertical for SCS. Refer to Note 2, "Segment Reporting," for the disaggregation of our revenue by major products/service lines.
Primary Geographical Markets
| Three months ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| (In millions) | FMS | SCS | DTS | Eliminations | Total | |||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Canada | ( | |||||||||||||||||||||||||||||||
| Mexico | ||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Three months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| (In millions) | FMS | SCS | DTS | Eliminations | Total | |||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Canada | ( | |||||||||||||||||||||||||||||||
Europe (1) | ||||||||||||||||||||||||||||||||
| Mexico | ||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
(1)Refer to Note 13, "Other Items Impacting Comparability" for further information on the exit of the FMS U.K. business.
9
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
| Nine months ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| (In millions) | FMS | SCS | DTS | Eliminations | Total | |||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Canada | ( | |||||||||||||||||||||||||||||||
| Mexico | ||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| (In millions) | FMS | SCS | DTS | Eliminations | Total | |||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Canada | ( | |||||||||||||||||||||||||||||||
Europe (1) | ||||||||||||||||||||||||||||||||
| Mexico | ||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
————————————
(1)Refer to Note 13, "Other Items Impacting Comparability" for further information on the exit of the FMS U.K. business.
Industry
Beginning in the first quarter of 2023, we introduced the omnichannel retail industry vertical within our SCS business segment to provide better visibility to the revenue mix following recent acquisitions and organic growth. This new vertical includes retail, e-commerce, last mile services, and technology. Our SCS business segment included revenue from the following industries:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Omnichannel retail | $ | $ | $ | $ | ||||||||||||||||||||||
| Automotive | ||||||||||||||||||||||||||
| Consumer packaged goods | ||||||||||||||||||||||||||
| Industrial and other | ||||||||||||||||||||||||||
| Total SCS revenue | $ | $ | $ | $ | ||||||||||||||||||||||
Lease & Related Maintenance and Rental Revenue
The non-lease revenue from maintenance services related to our ChoiceLease product is recognized in "Lease & related maintenance and rental revenue" in the Condensed Consolidated Statements of Earnings. For the three months ended September 30, 2023 and 2022, we recognized $239 million and $250 million, respectively. For the nine months ended September 30, 2023 and 2022, we recognized $722 million and $769 million, respectively.
10
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Deferred Revenue
The following table includes the changes in deferred revenue due to the collection and deferral of cash or the satisfaction of our performance obligation under the contract:
| Nine months ended September 30, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Balance as of beginning of period | $ | $ | ||||||||||||
| Recognized as revenue during period from beginning balance | ( | ( | ||||||||||||
| Consideration deferred during period, net | ||||||||||||||
| Foreign currency translation adjustment and other | ( | |||||||||||||
| Balance as of end of period | $ | $ | ||||||||||||
Contracted Not Recognized Revenue
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (contracted not recognized revenue). Contracted not recognized revenue was $2.7 billion as of September 30, 2023, and primarily includes deferred revenue and amounts for ChoiceLease maintenance revenue that will be recognized as revenue in future periods as we provide maintenance services to our customers.
4. RECEIVABLES, NET
| (In millions) | September 30, 2023 | December 31, 2022 | ||||||||||||
| Trade | $ | $ | ||||||||||||
| Sales-type lease | ||||||||||||||
| Other, primarily warranty and insurance | ||||||||||||||
| Allowance for credit losses and other | ( | ( | ||||||||||||
| Receivables, net | $ | $ | ||||||||||||
| Nine months ended September 30, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Balance as of beginning of period | $ | $ | ||||||||||||
| Changes to provisions for credit losses | ||||||||||||||
| Write-offs and other | ( | ( | ||||||||||||
| Balance as of end of period | $ | $ | ||||||||||||
11
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
5. REVENUE EARNING EQUIPMENT, NET
Estimated Useful Lives (In Years) | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Cost | Accumulated Depreciation | Net | Cost | Accumulated Depreciation | Net | ||||||||||||||||||||||||||||||||||||||
| Held for use: | ||||||||||||||||||||||||||||||||||||||||||||
| Trucks | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Tractors | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Trailers and other | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
Held for sale (1) | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
————————————
(1)Revenue earning equipment held for sale, where net book values exceed fair values, are adjusted to fair value on a nonrecurring basis and these adjustments are considered Level 3 fair value measurements. The fair value of revenue earning equipment held for sale adjusted with Level 3 fair value measurements was $13 million and $3 million as of September 30, 2023 and December 31, 2022, respectively. The net book value of all other assets held for sale were below fair value.
Residual Value Estimate Changes
We periodically review and adjust, as appropriate, the estimated residual values and useful lives of existing revenue earning equipment for the purposes of recording depreciation expense. Reductions in estimated residual values or useful lives will increase depreciation expense over the remaining useful life of the vehicle. Conversely, an increase in estimated residual values or useful lives will decrease depreciation expense over the remaining useful life of the vehicle. Our review of the estimated residual values and useful lives of revenue earning equipment is based on vehicle class (i.e., generally subcategories of trucks, tractors and trailers by weight and usage), historical and current market prices, third-party expected future market prices, expected lives of vehicles, and expected sales in the wholesale or retail markets, among other factors. A variety of factors, many of which are outside of our control, could cause residual value estimates to differ from actual used vehicle sales pricing, such as changes in supply and demand of used vehicles; volatility in market conditions; changes in vehicle technology; competitor pricing; regulatory requirements; driver shortages; customer requirements and preferences; and changes in underlying assumption factors. We have disciplines related to the management and maintenance of our vehicles designed to manage the risk associated with the residual values of our revenue earning equipment. For the nine months ended September 30, 2023 and 2022, we did not adjust the estimated residual values and useful lives of existing revenue earning equipment.
Used Vehicle Sales and Valuation Adjustments
Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Losses on vehicles held for sale for which carrying values exceeded fair value, which we refer to as "valuation adjustments," are recognized at the time they are deemed to meet the held for sale criteria and are presented within "Used vehicle sales, net" in the Condensed Consolidated Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. For revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for each class of similar assets and vehicle condition, if available, or third-party market pricing. In addition, we also consider expected declines in market prices when valuing the vehicles held for sale, as well as forecasted sales channel mix (retail/wholesale).
The components of "Used vehicle sales, net" were as follows:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Gains on used vehicle sales, net (1) | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Losses from valuation adjustments | ||||||||||||||||||||||||||
| Used vehicle sales, net | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
————————————
(1)Includes gains on used vehicles sold as part of the exit of the FMS U.K business of $2 million, for the nine months ended September 30, 2023, and $15 million and $43 million, for the three and nine months ended September 30, 2022, respectively.
12
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
6. ACCRUED EXPENSES AND OTHER LIABILITIES
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| (In millions) | Accrued Expenses | Non-Current Liabilities | Total | Accrued Expenses | Non-Current Liabilities | Total | ||||||||||||||||||||||||||||||||
| Salaries and wages | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Deferred compensation | ||||||||||||||||||||||||||||||||||||||
| Pension and other employee benefits | ||||||||||||||||||||||||||||||||||||||
Insurance obligations, primarily self-insured | ||||||||||||||||||||||||||||||||||||||
Operating taxes | ||||||||||||||||||||||||||||||||||||||
| Interest | ||||||||||||||||||||||||||||||||||||||
| Deposits, mainly from customers | ||||||||||||||||||||||||||||||||||||||
| Operating lease liabilities | ||||||||||||||||||||||||||||||||||||||
Deferred revenue | ||||||||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
7. LEASES
Leases as Lessor
The components of lease income were as follows:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Operating leases | ||||||||||||||||||||||||||
| Lease income related to ChoiceLease | $ | $ | $ | $ | ||||||||||||||||||||||
Lease income related to commercial rental (1) | $ | $ | $ | $ | ||||||||||||||||||||||
| Sales-type leases | ||||||||||||||||||||||||||
| Interest income related to net investment in leases | $ | $ | $ | $ | ||||||||||||||||||||||
Variable lease income excluding commercial rental (1) | $ | $ | $ | $ | ||||||||||||||||||||||
————————————
(1)Lease income related to commercial rental includes both fixed and variable lease income. Variable income is approximately 15 % of total commercial rental income based on management's internal estimates.
The components of net investment in sales-type leases, which are included in "Receivables, net" and "Sales-type leases and other assets" in the Condensed Consolidated Balance Sheets, were as follows:
| (In millions) | September 30, 2023 | December 31, 2022 | ||||||||||||||||||
| Net investment in the lease — lease payment receivable | $ | $ | ||||||||||||||||||
| Net investment in the lease — unguaranteed residual value in assets | ||||||||||||||||||||
| Estimated loss allowance | ( | ( | ||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
13
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
8. DEBT
| Weighted Average Interest Rate | ||||||||||||||||||||||||||
| (Dollars in millions) | September 30, 2023 | Maturities | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Debt: | ||||||||||||||||||||||||||
U.S. commercial paper | 2026 | $ | $ | |||||||||||||||||||||||
| Trade receivables financing program | 2024 | |||||||||||||||||||||||||
Global revolving credit facility | 2026 | |||||||||||||||||||||||||
| Unsecured U.S. obligations | 2024-2027 | |||||||||||||||||||||||||
Unsecured medium-term note issued February 2018 | 2023 | |||||||||||||||||||||||||
| Unsecured medium-term note issued June 2018 | 2023 | |||||||||||||||||||||||||
| Unsecured medium-term note issued October 2018 | 2023 | |||||||||||||||||||||||||
| Unsecured medium-term note issued February 2019 | 2024 | |||||||||||||||||||||||||
| Unsecured medium-term note issued August 2019 | 2024 | |||||||||||||||||||||||||
| Unsecured medium-term note issued April 2020 | 2025 | |||||||||||||||||||||||||
| Unsecured medium-term note issued May 2020 | 2025 | |||||||||||||||||||||||||
| Unsecured medium-term note issued December 1995 | 2025 | |||||||||||||||||||||||||
Unsecured medium-term note issued November 2021 (1) | 2026 | |||||||||||||||||||||||||
| Unsecured medium-term note issued November 2019 | 2026 | |||||||||||||||||||||||||
Unsecured medium-term note issued February 2022 (1) | 2027 | |||||||||||||||||||||||||
| Unsecured medium-term note issued May 2022 | 2027 | |||||||||||||||||||||||||
| Unsecured medium-term note issued February 2023 | 2028 | |||||||||||||||||||||||||
| Unsecured medium-term note issued May 2023 | 2028 | |||||||||||||||||||||||||
| Unsecured foreign obligations | 2024 | |||||||||||||||||||||||||
Asset-backed U.S. obligations (2) | 2023-2030 | |||||||||||||||||||||||||
| Finance lease obligations and other | 2023-2031 | |||||||||||||||||||||||||
| Debt issuance costs and original issue discounts | ( | ( | ||||||||||||||||||||||||
Total debt (3) | ||||||||||||||||||||||||||
| Short-term debt and current portion of long-term debt | ( | ( | ||||||||||||||||||||||||
| Long-term debt | $ | $ | ||||||||||||||||||||||||
————————————
(1)Includes impact from the fair market values of hedging instruments on our notes, which was $48 million as of September 30, 2023 and $47 million as of December 31, 2022, and was included in "Other non-current liabilities" within the Condensed Consolidated Balance Sheets. The notional amount of interest rate swaps designated as fair value hedges was $500
(2)Asset-backed U.S. obligations are related to financing transactions backed by a portion of our revenue earning equipment.
(3)The unsecured medium-term notes bear semi-annual interest.
The fair value of total debt (excluding finance lease and asset-backed U.S. obligations) was approximately $6.1 billion and $5.7 billion as of September 30, 2023 and December 31, 2022, respectively. For publicly traded debt, estimates of fair value were based on market prices. For other debt, fair value was estimated based on a model-driven approach using rates currently available to us for debt with similar terms and remaining maturities. The fair value measurements of our publicly traded debt and our other debt were classified within Level 2 of the fair value hierarchy.
As of September 30, 2023, there was $642 million available under the global revolving credit facility. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated net worth of less than or equal to 300 %, as defined in the credit facility agreement. As of September 30, 2023, the ratio was 166 %.
14
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
On April 25, 2023, certain terms of our global revolving credit facility were amended. Pursuant to the amendment, among other items, (i) the definition of consolidated net worth was revised to exclude impacts from the exit of the FMS U.K. business, (ii) LIBOR was replaced as an available benchmark interest rate with term secured overnight financing rate (SOFR), and (iii) the maximum absolute dollar amounts for our trade receivables financing program and asset-backed financings were removed and the percentage-based maximum amounts were substantially increased.
We had letters of credit and surety bonds outstanding of $464 million and $513 million as of September 30, 2023 and December 31, 2022, respectively, which primarily guarantee the payment of insurance claims.
As of September 30, 2023, the available proceeds under the trade receivables financing program were $167 million. As of September 30, 2023, utilization of this program included borrowing of $50 million and letters of credit outstanding of $83 million.
The following table summarizes our debt proceeds and repayments in 2023:
| Nine months ended September 30, 2023 | ||||||||||||||||||||
| (In millions) | Debt Proceeds | Debt Repayments | ||||||||||||||||||
Medium-term notes (1) | $ | Medium-term notes | $ | |||||||||||||||||
| U.S. and foreign term loans, finance lease obligations and other | U.S. and foreign term loans, finance lease obligations and other | |||||||||||||||||||
Total debt proceeds | $ | Total debt repaid | $ | |||||||||||||||||
————————————
(1)Proceeds from medium-term notes presented net of discount and issuance costs.
Debt proceeds were used to repay maturing debt and for general corporate purposes. If the unsecured medium-term notes are downgraded below investment grade following, or as a result of, a change in control, the note holders can require us to repurchase all or a portion of the notes at a purchase price equal to 101 % of principal value plus accrued and unpaid interest.
9. SHARE REPURCHASE PROGRAMS
We maintained two share repurchase programs during the nine months ended September 30, 2023: the 2021 Anti-Dilutive Program and the February 2023 Discretionary Program, as defined below. The first program authorized management to repurchase up to 2.5 million shares of common stock, issued to employees under our employee stock plans since September 1, 2021 (the "2021 Anti-Dilutive Program"). The 2021 Anti-Dilutive Program was designed to mitigate the dilutive impact of shares issued under our employee stock plans. The 2021 Anti-Dilutive Program commenced October 14, 2021, and expired October 14, 2023. In February 2023, our board of directors authorized a discretionary share repurchase program to grant management discretion to repurchase up to 2 million shares of common stock over a period of two years (the "February 2023 Discretionary Program"). Share repurchases under both programs can be made from time to time using our working capital and a variety of methods, including open-market transactions and trading plans established pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and actual number of shares repurchased are subject to market conditions, legal requirements and other factors, including balance sheet leverage, availability of acquisitions and stock price.
During the three and nine months ended September 30, 2023, we repurchased and retired 0.3 million shares for $26 million and 1 million shares for $96 million, respectively, under the 2021 Anti-Dilutive Program. During the three and nine months ended September 30, 2022, we did not
During the three and nine months ended September 30, 2023, we repurchased and retired 1.2 million shares for $123 million and 2 million shares for $186 million, respectively, under the February 2023 Discretionary Program. The February 2023 Discretionary Program was completed in September 2023.
15
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
In October 2023, our board of directors approved two new share repurchase programs. The first program authorized management to repurchase up to 2 million shares issued to employees under our employee stock plans since August 31, 2023, under a new anti-dilutive program (the "2023 Anti-Dilutive Program") designed to mitigate the dilutive impact of shares issued under our employee stock plans. The second program grants management discretion to repurchase up to 2 million shares of common stock over a period of two years under a new discretionary share repurchase program (the "October 2023 Discretionary Program"). Both the 2023 Anti-Dilutive Program and the October 2023 Discretionary Program commenced October 12, 2023, and expire October 12, 2025.
In September 2022, we completed our $300 million accelerated share repurchase program. This program was authorized by our board of directors in February 2022, and at that time, we repurchased and retired an initial share amount of approximately 3 million shares. The final settlement occurred in September 2022, resulting in the delivery and retirement of approximately 1 million additional shares. The number of shares ultimately repurchased and retired was based on the average of Ryder's daily volume-weighted average price per share of common stock during a repurchase period, less a discount. The average price paid for all of the shares delivered and retired under the accelerated share purchase agreement was $74.47 per share.
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
Comprehensive income presents a measure of all changes in shareholders' equity except for changes resulting from transactions with shareholders in their capacity as shareholders. The following summary sets forth the change in each component of Accumulated other comprehensive loss, net of tax (AOCI):
| (In millions) | Currency Translation Adjustments | Net Actuarial (Loss) Gain and Prior Service Costs | Unrealized Gain (Loss) from Cash Flow Hedges | Accumulated Other Comprehensive (Loss) Gain | ||||||||||||||||||||||||||||||||||
| January 1, 2023 | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||
Other comprehensive gain, net of tax, before reclassifications | ||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI, net of tax | ( | |||||||||||||||||||||||||||||||||||||
| Net current-period other comprehensive gain (loss), net of tax | ( | |||||||||||||||||||||||||||||||||||||
| September 30, 2023 | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||
| (In millions) | Currency Translation Adjustments | Net Actuarial (Loss) Gain and Prior Service Costs | Unrealized (Loss) Gain from Cash Flow Hedges | Accumulated Other Comprehensive (Loss) Gain | ||||||||||||||||||||||||||||||||||
| January 1, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||
| Other comprehensive gain (loss), net of tax, before reclassifications | ( | ( | ||||||||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI, net of tax | ||||||||||||||||||||||||||||||||||||||
| Net current-period other comprehensive gain (loss), net of tax | ( | ( | ||||||||||||||||||||||||||||||||||||
| September 30, 2022 | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||
In the second quarter of 2023, we recognized a non-cash, cumulative currency translation adjustment loss of $183 million as a result of the FMS U.K. business exit, which is included in "Currency translation adjustment loss" in our Condensed Consolidated Statements of Earnings. The cumulative currency translation adjustment loss had no impact on our consolidated financial position or cash flows.
16
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
11. EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share from continuing operations:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
(Dollars in millions and shares in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||
| Earnings per share — Basic: | |||||||||||||||||||||||||||||||||||
| Earnings from continuing operations | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Less: Distributed and undistributed earnings allocated to unvested stock | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Earnings from continuing operations available to common shareholders | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||||||||||||||
| Earnings from continuing operations per common share — Basic | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Earnings per share — Diluted: | |||||||||||||||||||||||||||||||||||
| Earnings from continuing operations | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Less: Distributed and undistributed earnings allocated to unvested stock | ( | ||||||||||||||||||||||||||||||||||
| Earnings from continuing operations available to common shareholders — Diluted | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Weighted average common shares outstanding — Basic | |||||||||||||||||||||||||||||||||||
| Effect of dilutive equity awards | |||||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding — Diluted | |||||||||||||||||||||||||||||||||||
| Earnings from continuing operations per common share — Diluted | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Anti-dilutive equity awards not included in diluted EPS | |||||||||||||||||||||||||||||||||||
————————————
Note: Amounts may not be additive due to rounding.
17
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
12. EMPLOYEE BENEFIT PLANS
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Company-administered plans: | ||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of net actuarial loss and prior service cost | ||||||||||||||||||||||||||
| Net pension expense | $ | $ | $ | $ | ||||||||||||||||||||||
| Company-administered plans: | ||||||||||||||||||||||||||
| U.S. | $ | $ | $ | $ | ||||||||||||||||||||||
| Non-U.S. | ( | |||||||||||||||||||||||||
| Net pension expense | $ | $ | $ | $ | ||||||||||||||||||||||
Non-operating pension costs, net include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or curtailments if recognized. During the nine months ended September 30, 2023, we contributed $5 million to our pension plans. We do not have any required contributions to our pension plans for the year 2023. We also maintain other postretirement benefit plans that are not reflected in the table above as the amount of postretirement benefit expense for such plans was not material for any period presented.
18
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
13. OTHER ITEMS IMPACTING COMPARABILITY
Our primary measure of segment performance as shown in Note 2, "Segment Reporting," excludes unallocated corporate costs, intangible amortization expense, and certain items we do not believe are representative of the ongoing operations of our business segments. Excluding these items from our segment measure of performance allows for better year over year comparison:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
FMS Europe results (1) | $ | $ | $ | $ | ||||||||||||||||||||||
Gains on sale of U.K. revenue earning equipment (2) | ( | ( | ( | |||||||||||||||||||||||
Gains on sale of U.K. properties (3) | ( | ( | ( | |||||||||||||||||||||||
Commercial claims proceeds, net of fees (1) | ( | ( | ||||||||||||||||||||||||
Severance and other, net (1) | ||||||||||||||||||||||||||
| FMS U.K. exit | ( | ( | ( | |||||||||||||||||||||||
| Currency translation adjustment loss | ||||||||||||||||||||||||||
Other, net (1) | ( | ( | ||||||||||||||||||||||||
| Other items impacting comparability | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
________________________
(1)Included within "Restructuring and other items, net" in our Condensed Consolidated Statements of Earnings.
(2)Included within "Used vehicle sales, net" in our Condensed Consolidated Statements of Earnings.
(3)Included within "Miscellaneous income, net" in our Condensed Consolidated Statements of Earnings.
14. CONTINGENCIES AND OTHER MATTERS
We are a party to various claims, complaints, and proceedings arising in the ordinary course of our continuing business operations, including those relating to commercial and employment claims, environmental matters, risk management matters (e.g., vehicle liability, workers' compensation, etc.), and administrative assessments primarily associated with operating taxes. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. We believe that the resolution of these claims, complaints, and legal proceedings will not have a material effect on our Condensed Consolidated Financial Statements.
Our estimates regarding potential losses and materiality are based on our judgment and assessment of the claims utilizing currently available information. Although we will continue to reassess our estimated liability based on future developments, our objective assessment of the legal merits of such claims may not always be predictive of the outcome and actual results may vary from our current estimates.
Securities Litigation Relating to Residual Value Estimates
On May 20, 2020, a putative class action on behalf of purchasers of our securities who purchased or otherwise acquired their securities between July 23, 2015 and February 13, 2020, inclusive (Class Period), was commenced against Ryder and certain of our current and former officers in the U.S. District Court for the Southern District of Florida (the "Securities Class Action"). The complaint alleges, among other things, that the defendants misrepresented Ryder's depreciation policy and residual value estimates for its vehicles during the Class Period in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeks to recover, among other things, unspecified compensatory damages and attorneys' fees and costs. On August 3, 2020, the State of Alaska, Alaska Permanent Fund, the City of Fort Lauderdale General Employees' Retirement System, and the City of Plantation Police Officers Pension Fund were appointed lead plaintiffs. On October 5, 2020, the lead plaintiffs filed an amended complaint. On December 4, 2020, Ryder and the other named defendants in the case filed a Motion to Dismiss the amended complaint. On May 12, 2022, the court denied the defendants' motion to dismiss. The court entered a case management schedule on June 27, 2022, which, among other things, provides that discovery shall be completed by October 2023 and trial shall commence in June 2024. On April 18, 2023, the parties reached an agreement in principle to resolve the Securities Class Action. On May 19, 2023, plaintiffs filed an unopposed Motion for Preliminary Approval of the settlement, with corresponding settlement documentation. On August 11, 2023, the court entered an order directing the plaintiffs to file a renewed Motion for Preliminary Approval of the settlement with specified changes to the settlement documentation, which was filed on August 17, 2023. The renewed Motion for Preliminary Approval of the settlement remains
19
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
pending court approval. We expect that the settlement amount will be covered by insurance, and accordingly is not material to our financial position or results of operations.
As previously disclosed, between June 2020 and February 2, 2021, five shareholder derivative complaints were filed purportedly on behalf of Ryder against us as nominal defendant and certain of our current and former officers and directors. The derivative complaints are generally based on the allegations set forth in the Securities Class Action and allege breach of fiduciary duties, unjust enrichment, and waste of corporate assets. The derivative plaintiffs, on our behalf, seek an award of monetary damages and restitution to us, improvements in our corporate governance and internal procedures, and legal fees. Three of these derivative complaints were filed in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida, and were then consolidated into a single action (the "State Action"). Two of the derivative complaints were filed in U.S. District Court for the Southern District of Florida (the "Federal Actions", and together with the State Action, the "Derivative Cases"). All of the Derivative Cases were stayed (stopped) pending the resolution of the motion to dismiss the Securities Class Action described in the paragraph above. On July 18, 2022, the Federal Actions were further stayed pending the final resolution of the State Action. On July 26, 2022, the State Action was further stayed until the conclusion of summary judgment proceedings in the Securities Class Action (except that certain discovery would be permitted). In September 2023, the parties reached an agreement in principle to resolve the Derivative Cases in exchange for certain specified corporate reforms, subject to the execution of definitive settlement documentation and court approval. We expect that any settlement amount of plaintiffs' attorneys' fees and expenses in connection with the settlement of the Derivative Cases also will be covered by insurance, and accordingly is not material to our financial position or results of operations.
15. SUPPLEMENTAL CASH FLOW INFORMATION
| Nine months ended September 30, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||||||||
| Interest paid | $ | $ | ||||||||||||||||||
| Income taxes paid | $ | $ | ||||||||||||||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||||||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||||||||||||||
| Finance leases | $ | $ | ||||||||||||||||||
| Operating leases | $ | $ | ||||||||||||||||||
| Capital expenditures acquired but not yet paid | $ | $ | ||||||||||||||||||
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included under Item 1, as well as our audited Consolidated Financial Statements and notes thereto and related MD&A included in the 2022 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform with the current period presentation. During the three and nine months ended September 30, 2022, we previously reported certain costs in "Cost of fuel services" that should have been included in the "Cost of services" within the unaudited Condensed Consolidated Statement of Earnings. These costs were not material to any financial statement line item and we elected to revise the presentation of these prior period costs to conform to the current year presentation in our financial statements.
OVERVIEW
General
We operate in highly competitive markets. Our customers select us based on numerous factors, including service quality, price, technology and service offerings. As an alternative to using our services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative services from other third-party vendors. Our customer base includes enterprises operating in a variety of industries including food and beverage service, transportation and logistics, retail and consumer goods, automotive, industrial, housing, technology, and business and personal services.
Business Trends
During the three and nine months ended September 30, 2023, market conditions for our used vehicle sales and commercial rental continued to weaken. We are still benefiting from favorable secular trends in logistics and transportation solutions including supply chain disruptions and a limited supply of vehicles available in the market due to vehicle delivery delays from original equipment manufacturers (OEMs). These secular trends, along with successful management of initiatives to increase long-term returns, are driving revenue growth and benefiting earnings in our Supply Chain Solutions (SCS) and Dedicated Transportation Solutions (DTS) business segments.
In our Fleet Management Solutions (FMS) North America business, used vehicle pricing declined from the historical highs in the prior year and rental utilization was 75% for the three and nine months ended September 30, 2023, as compared to a record 83% in the prior year comparative periods. We anticipate that market conditions, including a slower freight environment, for used vehicle sales and rental will remain weak in the fourth quarter of 2023. ChoiceLease vehicle fleet grew during the first nine months of the year, and included the redeployment of units from our rental fleet into new ChoiceLease contracts in order to maintain optimal rental utilization and provide immediate availability to our lease customers. Our lease pricing initiatives are delivering improved portfolio returns and we expect to realize incremental earnings benefits as our remaining portfolio is renewed at higher returns. In addition, our maintenance cost savings initiatives continue to benefit earnings.
In our SCS business, strong outsourcing trends in warehousing and distribution continue. Higher pricing drove strong operating revenue (a non-GAAP measure) growth in SCS in the third quarter of 2023. SCS operating revenue growth also benefited from new contract wins. Pricing adjustments and cost recovery initiatives benefited earnings in both SCS and DTS. Profitability in SCS is in line with our long-term target range for the second consecutive quarter, despite weaker volume trends and increased lost business in the omnichannel retail vertical. In the first nine months of 2023, DTS contract sales activity slowed, consistent with a softer freight environment. However, DTS profitability was within our target range. We expect SCS and DTS revenue to grow at a slower pace in the last quarter of the year reflecting lower consumer demand in the omnichannel retail market and a slower freight environment.
While we are experiencing positive momentum in our businesses, other unknown effects from extended higher fuel prices, inflationary cost pressures, labor interruptions, extended disruptions in vehicle and vehicle part production and rising interest rates may negatively impact demand for our business and financial results.
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
SELECTED OPERATING PERFORMANCE ITEMS
•Diluted EPS from continuing operations of $3.44 in the third quarter of 2023 compared to $4.82 in prior year
•Comparable EPS (a non-GAAP measure) from continuing operations of $3.58 in the third quarter of 2023, as compared to $4.45 in prior year, reflecting weaker market conditions in used vehicle sales and rental partially offset by strong SCS results
•Total revenue of $2.9 billion in the third quarter of 2023, compared to $3.0 billion in prior year
•Operating revenue (a non-GAAP measure) of $2.4 billion in the third quarter of 2023, up 1%, reflecting contractual revenue growth across all segments partially offset by lower commercial rental revenue in FMS
•Adjusted Return on Equity (ROE) (a non-GAAP measure) of 21% for the trailing twelve months ended September 30, 2023
•Net cash provided by operating activities from continuing operations of $1.8 billion and free cash flow (a non-GAAP measure) of $32 million in the nine months ended September 30, 2023
Total revenue was $2.9 billion in the third quarter of 2023, as compared to $3.0 billion in prior year and $8.8 billion in the nine months ended September 30, 2023, as compared to $8.9 billion in prior year, reflecting lower fuel revenue and subcontracted transportation, largely offset by higher operating revenue. Operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) increased 1% in the third quarter and 3% in the nine months ended September 30, 2023, primarily reflecting SCS and DTS revenue growth partially offset by lower commercial rental revenue in FMS and the exit of the FMS U.K. business.
EBT and Comparable EBT (a non-GAAP measure) decreased in the third quarter of 2023, primarily due to lower gains on used vehicles sold and decreased commercial rental results in FMS partially offset by higher earnings in SCS. EBT and Comparable EBT decreased in the nine months ended September 30, 2023, primarily due to lower gains on used vehicles sold, decreased commercial rental results in FMS, a first quarter $30 million asset impairment related to a SCS customer bankruptcy and the exit of the FMS U.K. business partially offset by higher earnings in DTS. EBT in the nine months ended September 30, 2023, also reflects a one-time, non-cash $188 million currency translation adjustment loss related to the FMS U.K. exit.
The following discussion provides a summary of financial highlights that are discussed in more detail throughout our MD&A and within the Notes to Condensed Consolidated Financial Statements:
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Total revenue | $ | 2,924 | $ | 3,035 | $ | 8,760 | $ | 8,923 | (4)% | (2)% | ||||||||||||||||||||||||||||
Operating revenue (1) | 2,379 | 2,347 | 7,051 | 6,870 | 1% | 3% | ||||||||||||||||||||||||||||||||
| Earnings from continuing operations before income taxes (EBT) | $ | 213 | $ | 334 | $ | 458 | $ | 924 | (36)% | (50)% | ||||||||||||||||||||||||||||
Comparable EBT (1) | 227 | 309 | 643 | 877 | (27)% | (27)% | ||||||||||||||||||||||||||||||||
| Earnings from continuing operations | 160 | 247 | 282 | 663 | (35)% | (57)% | ||||||||||||||||||||||||||||||||
Comparable earnings from continuing operations (1) | 165 | 227 | 468 | 641 | (27)% | (27)% | ||||||||||||||||||||||||||||||||
| Net earnings | 161 | 246 | 282 | 661 | (35)% | (57)% | ||||||||||||||||||||||||||||||||
Comparable EBITDA (1) | 680 | 696 | 1,982 | 2,031 | (2)% | (2)% | ||||||||||||||||||||||||||||||||
Earnings per common share (EPS) — Diluted | ||||||||||||||||||||||||||||||||||||||
| Continuing operations | $ | 3.44 | $ | 4.82 | $ | 6.01 | $ | 12.86 | (29)% | (53)% | ||||||||||||||||||||||||||||
Comparable (1) | 3.58 | 4.45 | 10.00 | 12.44 | (20)% | (20)% | ||||||||||||||||||||||||||||||||
| Net earnings | 3.47 | 4.82 | 6.02 | 12.82 | (28)% | (53)% | ||||||||||||||||||||||||||||||||
______________________
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
CONSOLIDATED RESULTS
Lease & Related Maintenance and Rental
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Lease & related maintenance and rental revenue | $ | 986 | $ | 1,044 | $ | 2,941 | $ | 3,119 | (6)% | (6)% | ||||||||||||||||||||||||||||
| Cost of lease & related maintenance and rental | 666 | 691 | 2,001 | 2,078 | (4)% | (4)% | ||||||||||||||||||||||||||||||||
| Gross margin | $ | 320 | $ | 353 | $ | 940 | $ | 1,041 | (9)% | (10)% | ||||||||||||||||||||||||||||
| Gross margin % | 32% | 34% | 32% | 33% | ||||||||||||||||||||||||||||||||||
Lease & related maintenance and rental revenue represent revenue from our ChoiceLease and commercial rental product offerings within our FMS business segment. Revenue decreased 6% in both the third quarter and the nine months ended September 30, 2023, reflecting lower commercial rental demand and 2% and 4%, respectively, negative impacts from the exit of the FMS U.K. business.
Cost of lease & related maintenance and rental represents the direct costs related to Lease & related maintenance and rental revenue and are comprised of depreciation of revenue earning equipment, maintenance costs (primarily repair parts and labor), and other costs such as licenses, insurance and operating taxes. Cost of lease & related maintenance and rental excludes interest costs from vehicle financing, which are reported within "Interest expense" in our Condensed Consolidated Statements of Earnings. Cost of lease & related maintenance and rental decreased 4% in both the third quarter and the nine months ended September 30, 2023. The decrease in the third quarter of 2023 primarily reflects lower operating costs on a 7% smaller average commercial rental fleet and the exit from the FMS U.K. business. The decrease in the nine months ended September 30, 2023 is primarily from the exit of the FMS U.K. business.
Lease & related maintenance and rental gross margin decreased primarily due to lower commercial rental demand. Lease & related maintenance and rental gross margin percentage decreased in the third quarter and the nine months ended September 30, 2023, primarily due to lower commercial rental demand and utilization.
Services
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Services revenue | $ | 1,799 | $ | 1,811 | $ | 5,399 | $ | 5,258 | (1)% | 3% | ||||||||||||||||||||||||||||
| Cost of services | 1,524 | 1,550 | 4,638 | 4,523 | (2)% | 3% | ||||||||||||||||||||||||||||||||
| Gross margin | $ | 275 | $ | 261 | $ | 761 | $ | 735 | 5% | 4% | ||||||||||||||||||||||||||||
| Gross margin % | 15% | 14% | 14% | 14% | ||||||||||||||||||||||||||||||||||
Services revenue represents all the revenue associated with our SCS and DTS business segments, including subcontracted transportation and fuel, as well as SelectCare and fleet support services associated with our FMS business segment. Services revenue decreased 1% in the third quarter of 2023 due to lower subcontracted transportation and fuel revenue passed through to customers largely offset with increased pricing, new business and higher volumes in SCS and DTS. Services revenue increased 3% for the nine months ended September 30, 2023, due to increases in revenue in SCS and DTS primarily driven by new business, increased pricing and higher volumes, as well as higher pricing in SelectCare, partially offset by lower subcontracted transportation and fuel revenue passed through to customers.
Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, subcontracted transportation (purchased transportation from third parties), fuel, vehicle liability costs and maintenance costs. Cost of services decreased 2% in the third quarter reflecting lower subcontracted transportation and fuel costs. Cost of services increased 3% for the nine months ended September 30, 2023, reflecting higher revenue and a first quarter of 2023 $30 million SCS asset impairment charge from a customer bankruptcy.
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Services gross margin increased 5% in the third quarter of 2023 and increased 4% for the nine months ended September 30, 2023. Services gross margin as a percentage of revenue increased 1% in the third quarter of 2023. These increases reflect higher pricing in SCS and DTS.
Fuel
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Fuel services revenue | $ | 139 | $ | 180 | $ | 420 | $ | 546 | (23)% | (23)% | ||||||||||||||||||||||||||||
| Cost of fuel services | 137 | 176 | 412 | 530 | (22)% | (22)% | ||||||||||||||||||||||||||||||||
| Gross margin | $ | 2 | $ | 4 | $ | 8 | $ | 16 | (50)% | (50)% | ||||||||||||||||||||||||||||
| Gross margin % | 2% | 2% | 2% | 3% | ||||||||||||||||||||||||||||||||||
Fuel services revenue represents fuel services provided to our FMS customers. Fuel services revenue decreased 23% in both the third quarter and the nine months ended September 30, 2023, reflecting lower fuel prices passed through to customers and fewer gallons sold.
Cost of fuel services includes the direct costs associated with providing our customers with fuel. These costs include fuel, salaries and employee-related costs of fuel island attendants and depreciation of our fueling facilities and equipment. Cost of fuel services decreased 22% in both the third quarter and the nine months ended September 30, 2023, as a result of lower fuel prices and fewer gallons sold.
Fuel services gross margin decreased in the third quarter and the nine months ended September 30, 2023, compared to prior year. Fuel services gross margin as a percentage of revenue was in line with the prior year for the third quarter and decreased in the nine months ended September 30, 2023. Fuel is largely a pass-through to customers for which we realize minimal changes in margin during periods of steady market fuel prices. However, fuel services margin is impacted by sudden increases or decreases in market fuel prices during a short period of time, as customer pricing for fuel is established based on current market fuel costs. Fuel services gross margin for the third quarter and nine months ended September 30, 2023, was not significantly impacted by these price change dynamics as fuel prices fluctuated during the periods.
Selling, General and Administrative Expenses
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses (SG&A) | $ | 347 | $ | 350 | $ | 1,053 | $ | 1,053 | (1)% | —% | ||||||||||||||||||||||||||||
| Percentage of total revenue | 12% | 12% | 12% | 12% | ||||||||||||||||||||||||||||||||||
SG&A expenses decreased 1% in the third quarter and were consistent with the prior year period in the nine months ended September 30, 2023. The decrease in third quarter of 2023 primarily reflects lower incentive-based compensation expenses. SG&A expenses as a percentage of total revenue remained at 12% for the third quarter of 2023 and for the nine months ended September 30, 2023.
Non-Operating Pension Costs, net
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||||||||
| Non-operating pension costs, net | $ | 10 | $ | 3 | $ | 30 | $ | 8 | NM | NM | ||||||||||||||||||||||||||||||||||
————————————
NM - Denotes Not Meaningful throughout the MD&A
Non-operating pension costs, net include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
curtailments if recognized. The non-operating pension costs, net increased due to higher interest expense from a higher discount rate partially offset by an increase in expected return on plan assets.
Used Vehicle Sales, net
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Used vehicle sales, net | $ | (47) | $ | (113) | $ | (174) | $ | (356) | (58)% | (51)% | ||||||||||||||||||||||||||||
Used vehicle sales, net includes gains or losses from sales of used vehicles, selling costs associated with used vehicles and write-downs of vehicles held for sale to fair market values (referred to as "valuation adjustments"). Used vehicle sales, net decreased in the third quarter of 2023 and nine months ended September 30, 2023, due to lower proceeds per unit on sales of used vehicles partially offset by higher volumes. Used vehicle sales, net for the three and nine months ended September 30, 2022, includes gains associated with the exit of the FMS U.K. business of $15 million and $43 million, respectively. Refer to Note 13, "Other Items Impacting Comparability" for further details.
Average proceeds per unit decreased in the third quarter of 2023 and for the nine months ended September 30, 2023. The following table presents the average used vehicle pricing changes for North America compared to the prior year:
Proceeds per unit change 2023/2022 (1) | ||||||||||||||
| Three Months | Nine Months | |||||||||||||
| Tractors | (31)% | (35)% | ||||||||||||
| Trucks | (30)% | (27)% | ||||||||||||
————————————
(1) Represents percentage change compared to prior year period in average sales proceeds on used vehicle sales using constant currency.
Interest Expense
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Interest expense | $ | 75 | $ | 57 | $ | 212 | $ | 165 | 32% | 28% | ||||||||||||||||||||||||||||
| Effective interest rate | 4.6% | 3.6% | 4.4% | 3.4% | ||||||||||||||||||||||||||||||||||
Interest expense in the third quarter of 2023 increased 32% from the prior year and increased 28% for the nine months ended September 30, 2023, primarily reflecting higher interest rates.
Miscellaneous Income, net
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Miscellaneous income, net | $ | (5) | $ | (9) | $ | (36) | $ | (23) | (44)% | 57% | ||||||||||||||||||||||||||||
Miscellaneous income, net consists of investment income on securities used to fund certain benefit plans, interest income, gains on sales of operating property, foreign currency transaction remeasurement and other non-operating items. Miscellaneous income, net was $5 million in the third quarter of 2023 compared to $9 million in the prior year period, primarily reflecting higher gains on sales of properties in the prior year related to the exit of the FMS U.K. business. Miscellaneous income, net was $36 million for the nine months ended September 30, 2023, compared to $23 million in the prior year period, primarily due to higher investment income on securities used to fund certain benefit plans partially offset by higher gains on sales of properties related to the exit of the FMS U.K. business in the prior year.
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Currency Translation Adjustment Loss
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Currency translation adjustment loss | $ | — | $ | — | $ | 188 | $ | — | NM | NM | ||||||||||||||||||||||||||||
Refer to Note 10, "Accumulated Other Comprehensive Loss" for a discussion on the currency translation adjustment loss.
Restructuring and Other Items, net
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Restructuring and other items, net | $ | 4 | $ | (4) | $ | (22) | $ | 21 | NM | NM | ||||||||||||||||||||||||||||
Refer to Note 13, "Other Items Impacting Comparability" in the Notes to Condensed Consolidated Financial Statements for a discussion of restructuring charges and other items.
Provision for Income Taxes
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | 53 | $ | 87 | $ | 176 | $ | 261 | (39)% | (33)% | ||||||||||||||||||||||||||||
| Effective tax rate on continuing operations | 25.2% | 26.3% | 38.5% | 28.3% | ||||||||||||||||||||||||||||||||||
Comparable tax rate on continuing operations (1) | 27.0% | 26.3% | 27.2% | 26.9% | ||||||||||||||||||||||||||||||||||
————————————
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
Our effective tax rate on continuing operations was 25.2% in the third quarter of 2023, compared to 26.3% in the prior year. Our effective tax rate on continuing operations was 38.5% for the nine months ended September 30, 2023, compared to 28.3% in the prior year, primarily due to a one-time, nondeductible cumulative currency translation adjustment loss related to the completion of the FMS U.K. business exit in the second quarter of 2023.
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
OPERATING RESULTS BY BUSINESS SEGMENT
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||
| Fleet Management Solutions | $ | 1,487 | $ | 1,582 | $ | 4,449 | $ | 4,732 | (6)% | (6)% | ||||||||||||||||||||||||||||
| Supply Chain Solutions | 1,194 | 1,206 | 3,574 | 3,469 | (1)% | 3% | ||||||||||||||||||||||||||||||||
| Dedicated Transportation Solutions | 448 | 455 | 1,342 | 1,330 | (1)% | 1% | ||||||||||||||||||||||||||||||||
| Eliminations | (205) | (208) | (605) | (608) | 1% | —% | ||||||||||||||||||||||||||||||||
| Total | $ | 2,924 | $ | 3,035 | $ | 8,760 | $ | 8,923 | (4)% | (2)% | ||||||||||||||||||||||||||||
Operating Revenue: (1) | ||||||||||||||||||||||||||||||||||||||
| Fleet Management Solutions | $ | 1,266 | $ | 1,303 | $ | 3,782 | $ | 3,892 | (3)% | (3)% | ||||||||||||||||||||||||||||
| Supply Chain Solutions | 909 | 835 | 2,653 | 2,371 | 9% | 12% | ||||||||||||||||||||||||||||||||
| Dedicated Transportation Solutions | 325 | 317 | 974 | 919 | 3% | 6% | ||||||||||||||||||||||||||||||||
| Eliminations | (121) | (108) | (358) | (312) | (12)% | (15)% | ||||||||||||||||||||||||||||||||
| Total | $ | 2,379 | $ | 2,347 | $ | 7,051 | $ | 6,870 | 1% | 3% | ||||||||||||||||||||||||||||
| Earnings from continuing operations before income taxes: | ||||||||||||||||||||||||||||||||||||||
| Fleet Management Solutions | $ | 169 | $ | 266 | $ | 531 | $ | 801 | (36)% | (34)% | ||||||||||||||||||||||||||||
| Supply Chain Solutions | 81 | 71 | 174 | 176 | 14% | (1)% | ||||||||||||||||||||||||||||||||
| Dedicated Transportation Solutions | 28 | 28 | 90 | 72 | (2)% | 26% | ||||||||||||||||||||||||||||||||
| Eliminations | (23) | (27) | (73) | (84) | 17% | 13% | ||||||||||||||||||||||||||||||||
| 255 | 338 | 722 | 965 | (25)% | (25)% | |||||||||||||||||||||||||||||||||
| Unallocated Central Support Services | (20) | (21) | (54) | (61) | (5)% | (11)% | ||||||||||||||||||||||||||||||||
Intangible amortization expense | (8) | (8) | (25) | (27) | (1)% | (8)% | ||||||||||||||||||||||||||||||||
Non-operating pension costs, net (2) | (10) | (3) | (30) | (8) | NM | NM | ||||||||||||||||||||||||||||||||
Other items impacting comparability, net (3) | (4) | 28 | (155) | 55 | NM | NM | ||||||||||||||||||||||||||||||||
| Earnings from continuing operations before income taxes | $ | 213 | $ | 334 | $ | 458 | $ | 924 | (36)% | (50)% | ||||||||||||||||||||||||||||
————————————
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
(2)Refer to Note 12, "Employee Benefit Plans," for a discussion on this item.
(3)Refer to Note 13, "Other Items Impacting Comparability," and below for a discussion of items excluded from our primary measure of segment performance.
As part of management's evaluation of segment operating performance, we define the primary measurement of our segment financial performance as segment "Earnings from continuing operations before income taxes" (EBT), which includes an allocation of Central Support Services (CSS), and excludes Non-operating pension costs, net, intangible amortization expense, and certain other items as discussed in Note 13, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements. CSS represents those costs incurred to support all business segments, including finance and procurement, corporate services, human resources, information technology, public affairs, legal, marketing, and corporate communications.
The objective of the EBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment accountable for their allocated share of CSS costs. In the first quarter of 2023, we revised our primary measurement of segment financial performance to exclude intangible amortization expense. This change did not have a material impact to segment results. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Certain corporate costs are not attributable to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation.
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Our FMS segment leases revenue earning equipment and also provides rental vehicles, fuel, maintenance and other ancillary services to the SCS and DTS segments. Inter-segment EBT allocated to SCS and DTS includes earnings related to equipment used in providing services to SCS and DTS customers. EBT related to inter-segment equipment and services billed to SCS and DTS customers (equipment contribution) are included in both FMS and the segment that served the customer and then eliminated upon consolidation (presented as "Eliminations").
The following table sets forth the benefits from equipment contribution included in EBT for our SCS and DTS business segments:
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Equipment Contribution: | ||||||||||||||||||||||||||||||||||||||
| Supply Chain Solutions | $ | 10 | $ | 12 | $ | 32 | $ | 33 | (17)% | (3)% | ||||||||||||||||||||||||||||
| Dedicated Transportation Solutions | 13 | 15 | 41 | 51 | (13)% | (20)% | ||||||||||||||||||||||||||||||||
Total | $ | 23 | $ | 27 | $ | 73 | $ | 84 | (15)% | (13)% | ||||||||||||||||||||||||||||
The decrease in DTS and SCS equipment contribution in the third quarter of 2023 and in the nine months ended September 30, 2023, was related to lower gains on sales of used vehicles and lower fuel prices passed through to customers.
Items excluded from our segment EBT measure and their classification within our Condensed Consolidated Statements of Earnings are as follows (in millions):
————————————
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
| Description | Classification | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
FMS Europe results (1) | Restructuring and other items, net | $ | (4) | $ | — | $ | (7) | $ | — | |||||||||||||||||||||||
Gains on sale of U.K. revenue earning equipment (1) | Used vehicles sales, net | — | 15 | 2 | 43 | |||||||||||||||||||||||||||
Gains on sale of U.K. properties (1) | Miscellaneous income, net | — | 10 | 9 | 34 | |||||||||||||||||||||||||||
Commercial claims proceeds, net of fees (1) | Restructuring and other items, net | — | 5 | 31 | (7) | |||||||||||||||||||||||||||
Severance and other, net (1) | Restructuring and other items, net | — | (3) | (3) | (12) | |||||||||||||||||||||||||||
FMS U.K. exit (1) | (4) | 27 | 32 | 58 | ||||||||||||||||||||||||||||
Currency translation adjustment loss (1) | Currency translation adjustment loss | — | — | (188) | — | |||||||||||||||||||||||||||
Other, net (1) | Restructuring and other items, net | — | 1 | 1 | (3) | |||||||||||||||||||||||||||
| Other items impacting comparability, net | (4) | 28 | (155) | 55 | ||||||||||||||||||||||||||||
Non-operating pension costs (2) | Non-operating pension costs | (10) | (3) | (30) | (8) | |||||||||||||||||||||||||||
| $ | (14) | $ | 25 | $ | (185) | $ | 47 | |||||||||||||||||||||||||
(1)Refer to Note 13, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements for additional information.
(2)Includes the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or curtailments if recognized.
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Fleet Management Solutions
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| ChoiceLease | $ | 799 | $ | 772 | $ | 2,356 | $ | 2,299 | 3% | 2% | ||||||||||||||||||||||||||||
Commercial rental (1) | 293 | 349 | 898 | 991 | (16)% | (9)% | ||||||||||||||||||||||||||||||||
| SelectCare and other | 174 | 159 | 528 | 460 | 9% | 15% | ||||||||||||||||||||||||||||||||
| FMS Europe | — | 23 | — | 142 | (100)% | (100)% | ||||||||||||||||||||||||||||||||
| Fuel services revenue | 221 | 279 | 667 | 840 | (21)% | (21)% | ||||||||||||||||||||||||||||||||
| FMS total revenue | $ | 1,487 | $ | 1,582 | $ | 4,449 | $ | 4,732 | (6)% | (6)% | ||||||||||||||||||||||||||||
FMS operating revenue (2) | $ | 1,266 | $ | 1,303 | $ | 3,782 | $ | 3,892 | (3)% | (3)% | ||||||||||||||||||||||||||||
| FMS EBT | $ | 169 | $ | 266 | $ | 531 | $ | 801 | (36)% | (34)% | ||||||||||||||||||||||||||||
| FMS EBT as a % of FMS total revenue | 11.4% | 16.8% | 11.9% | 16.9% | (540) bps | (500) bps | ||||||||||||||||||||||||||||||||
FMS EBT as a % of FMS operating revenue (2) | 13.4% | 20.4% | 14.0% | 20.6% | (700) bps | (660) bps | ||||||||||||||||||||||||||||||||
| Twelve months ended September 30, | Change 2023/2022 | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| FMS EBT as a % of FMS total revenue | 13.0% | 17.0% | (400) bps | |||||||||||||||||||||||||||||||||||
FMS EBT as a % of FMS operating revenue (3) | 15.4% | 20.4% | (500) bps | |||||||||||||||||||||||||||||||||||
————————————
(1)For the three months ended September 30, 2023 and 2022, rental revenue from lease customers in place of a lease vehicle represented 34% and 33% of commercial rental revenue, respectively. For the nine months ended September 30, 2023 and 2022, rental revenue from lease customers in place of a lease vehicle represented 35% and 33% of commercial rental revenue, respectively.
(2)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
FMS total revenue decreased 6% in both the third quarter and the nine months ended September 30, 2023, due to lower fuel services revenue passed through to customers and lower operating revenue (a non-GAAP measure excluding fuel and ChoiceLease liability insurance revenue). FMS operating revenue decreased 3% in both the third quarter and the nine months ended September 30, 2023, reflecting lower rental demand and a negative impact from the UK business exit, 2% and 4% in the third quarter and for the nine months ended September 30, 2023, respectively, partially offset by higher ChoiceLease and SelectCare revenue.
FMS EBT decreased 36% in the third quarter of 2023 and decreased 34% in the nine months ended September 30, 2023, reflecting lower gains on used vehicle sales and lower commercial rental results. Lower North America gains reflect a 30% and 31% decrease in used truck and tractor pricing, respectively, in the third quarter of 2023 and a 27% and 35% decrease in used truck and tractor pricing, respectively, in the nine months ended September 30, 2023. The decreases in used truck and tractor pricing were partially offset by higher volumes in the three and nine months ended September 30, 2023. Rental power fleet utilization declined to 75% in both the third quarter and the nine months ended September 30, 2023, as compared to the 83% in both the third quarter and the nine months ended September 30, 2022. The average power fleet was 7% smaller in the third quarter of 2023 and 1% smaller in the nine months ended September 30, 2023. Commercial rental results benefited from 1% and 2% increases in power-fleet pricing during the third quarter and nine months ended September 30, 2023, respectively. In the nine months ended September 30, 2023, we redeployed 3,300 units from the rental fleet into new ChoiceLease contracts in order to maintain optimal rental utilization levels and to meet ChoiceLease customer needs for used equipment.
29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Our North America fleet of owned and leased revenue earning equipment and SelectCare vehicles, including vehicles under on-demand maintenance, is summarized as follows (number of units rounded to the nearest hundred):
| Change | ||||||||||||||||||||||||||||||||
| September 30, 2023 | December 31, 2022 | September 30, 2022 | Sept 2023/ Dec 2022 | Sept 2023/ Sept 2022 | ||||||||||||||||||||||||||||
| End of period vehicle count | ||||||||||||||||||||||||||||||||
| By type: | ||||||||||||||||||||||||||||||||
Trucks (1) | 75,100 | 72,100 | 72,400 | 4% | 4% | |||||||||||||||||||||||||||
Tractors (2) | 70,500 | 69,300 | 69,100 | 2% | 2% | |||||||||||||||||||||||||||
Trailers and other (3) | 41,400 | 41,200 | 40,100 | —% | 3% | |||||||||||||||||||||||||||
| Total | 187,000 | 182,600 | 181,600 | 2% | 3% | |||||||||||||||||||||||||||
| By product line: | ||||||||||||||||||||||||||||||||
ChoiceLease | 139,300 | 134,600 | 134,100 | 3% | 4% | |||||||||||||||||||||||||||
Commercial rental | 37,900 | 41,800 | 41,800 | (9)% | (9)% | |||||||||||||||||||||||||||
| Service vehicles and other | 2,000 | 2,100 | 2,000 | (5)% | —% | |||||||||||||||||||||||||||
| 179,200 | 178,500 | 177,900 | —% | 1% | ||||||||||||||||||||||||||||
Held for sale | 7,800 | 4,100 | 3,600 | 90% | 117% | |||||||||||||||||||||||||||
| Total | 187,000 | 182,600 | 181,500 | 2% | 3% | |||||||||||||||||||||||||||
| Memo: U.K. Vehicle Count (excluded from above) | — | 1,000 | 3,300 | (100)% | (100)% | |||||||||||||||||||||||||||
Customer vehicles under SelectCare contracts (4) | 52,300 | 54,600 | 55,100 | (4)% | (5)% | |||||||||||||||||||||||||||
| Quarterly average vehicle count | ||||||||||||||||||||||||||||||||
| By product line: | ||||||||||||||||||||||||||||||||
| ChoiceLease | 139,200 | 134,500 | 133,900 | 3% | 4% | |||||||||||||||||||||||||||
| Commercial rental | 38,700 | 41,800 | 41,500 | (7)% | (7)% | |||||||||||||||||||||||||||
| Service vehicles and other | 2,000 | 2,000 | 2,000 | —% | —% | |||||||||||||||||||||||||||
| 179,900 | 178,300 | 177,400 | 1% | 1% | ||||||||||||||||||||||||||||
| Held for sale | 7,400 | 3,700 | 3,700 | 100% | 100% | |||||||||||||||||||||||||||
| Total | 187,300 | 182,000 | 181,100 | 3% | 3% | |||||||||||||||||||||||||||
Customer vehicles under SelectCare contracts (4) | 52,100 | 55,300 | 55,000 | (6)% | (5)% | |||||||||||||||||||||||||||
Customer vehicles under SelectCare on-demand (5) | 3,000 | 5,800 | 6,300 | (48)% | (52)% | |||||||||||||||||||||||||||
| Total vehicles serviced | 242,400 | 243,100 | 242,400 | —% | —% | |||||||||||||||||||||||||||
————————————
(1)Generally comprised of Class 1 through Class 7 type vehicles with a Gross Vehicle Weight (GVW) up to 33,000 pounds.
(2)Generally comprised of over the road on highway tractors and are primarily comprised of Class 8 type vehicles with a GVW of over 33,000 pounds.
(3)Generally comprised of dry, flatbed and refrigerated type trailers.
(4)Excludes customer vehicles under SelectCare on-demand contracts.
(5)Comprised of the number of unique vehicles serviced under on-demand maintenance agreements for the quarterly periods. This does not represent averages for the periods. Vehicles included in the count may have been serviced more than one time during the respective period.
Note: Quarterly amounts were computed using a 6-point average based on monthly information.
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides information on our North America active ChoiceLease fleet (number of units rounded to nearest hundred) and our commercial rental power fleet (excludes trailers):
| Change | ||||||||||||||||||||||||||||||||
| September 30, 2023 | December 31, 2022 | September 30, 2022 | Sept 2023/ Dec 2022 | Sept 2023/ Sept 2022 | ||||||||||||||||||||||||||||
| Active ChoiceLease fleet | ||||||||||||||||||||||||||||||||
End of period vehicle count (1) | 130,500 | 128,400 | 129,100 | 2% | 1% | |||||||||||||||||||||||||||
Quarterly average vehicle count (1) | 130,500 | 128,800 | 128,800 | 1% | 1% | |||||||||||||||||||||||||||
| Commercial rental statistics | ||||||||||||||||||||||||||||||||
Quarterly commercial rental utilization - power fleet (2) | 75% | 82% | 83% | (700) bps | (800) bps | |||||||||||||||||||||||||||
Year-to-date commercial rental utilization - power fleet (2) | 75% | 83% | 83% | (800) bps | (800) bps | |||||||||||||||||||||||||||
————————————
(1)Active ChoiceLease vehicles are calculated as those units currently earning revenue and not classified as not yet earning (NYE) or no longer earning units (NLE). NYE units represent new vehicles on hand that are being prepared for deployment to a lease customer or into the rental fleet. Preparations include activities such as adding lift gates, paint, decals, cargo area and refrigeration equipment. NLE units represent all vehicles held for sale and vehicles for which no revenue has been earned in the previous 30 days. Accordingly, these vehicles may be temporarily out of service, being prepared for sale or awaiting redeployment.
(2)Rental utilization is calculated using the number of days units are rented divided by the number of days units are available to rent based on the days in the calendar year.
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Supply Chain Solutions
Beginning in the first quarter of 2023, we introduced the omnichannel retail industry vertical to provide better visibility to the revenue mix following recent acquisitions and organic growth. This new vertical includes retail, e-commerce, last mile services, and technology.
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Omnichannel retail | $ | 291 | $ | 309 | $ | 877 | $ | 871 | (6)% | 1% | ||||||||||||||||||||||||||||
| Automotive | 274 | 226 | 790 | 638 | 21% | 24% | ||||||||||||||||||||||||||||||||
| Consumer packaged goods | 228 | 208 | 669 | 593 | 10% | 13% | ||||||||||||||||||||||||||||||||
| Industrial and other | 116 | 92 | 317 | 269 | 25% | 18% | ||||||||||||||||||||||||||||||||
| Subcontracted transportation and fuel | 285 | 371 | 921 | 1,098 | (23)% | (16)% | ||||||||||||||||||||||||||||||||
| SCS total revenue | $ | 1,194 | $ | 1,206 | $ | 3,574 | $ | 3,469 | (1)% | 3% | ||||||||||||||||||||||||||||
SCS operating revenue (1) | $ | 909 | $ | 835 | $ | 2,653 | $ | 2,371 | 9% | 12% | ||||||||||||||||||||||||||||
| SCS EBT | $ | 81 | $ | 71 | $ | 174 | $ | 176 | 14% | (1)% | ||||||||||||||||||||||||||||
| SCS EBT as a % of SCS total revenue | 6.8% | 5.9% | 4.9% | 5.1% | 90 bps | (20) bps | ||||||||||||||||||||||||||||||||
SCS EBT as a % of SCS operating revenue (1) | 9.0% | 8.6% | 6.6% | 7.4% | 40 bps | (80) bps | ||||||||||||||||||||||||||||||||
| Memo: | ||||||||||||||||||||||||||||||||||||||
End of period fleet count (2) | 14,100 | 12,500 | 14,100 | 12,500 | 13% | 13% | ||||||||||||||||||||||||||||||||
| Twelve months ended September 30, | Change 2023/2022 | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| SCS EBT as a % of SCS total revenue | 4.5% | 4.6% | (10) bps | |||||||||||||||||||||||||||||||||||
SCS EBT as a % of SCS operating revenue (1) | 6.1% | 6.7% | (60) bps | |||||||||||||||||||||||||||||||||||
————————————
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
(2)End of period power fleet count is 4,200 and 4,000 as of September 30, 2023 and September 30, 2022, respectively.
SCS total revenue decreased 1% in the third quarter of 2023 and increased 3% in the nine months ended September 30, 2023, primarily as a result of higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) offset by lower subcontracted transportation. SCS operating revenue increased 9% in the third quarter of 2023 and increased 12% for the nine months ended September 30, 2023, driven by new business and increased pricing.
SCS EBT increased 14% in the third quarter of 2023, primarily due to higher operating revenue and lower incentive-based compensation costs, partially offset by lower volumes in the omnichannel retail vertical. For the nine months ended September 30, 2023, SCS EBT decreased 1%, reflecting a $30 million asset impairment charge related to a customer bankruptcy. Refer to Note 2, "Segment Reporting," for additional discussion. The negative impact from the asset impairment and lower volumes in the omnichannel retail vertical was partially offset by revenue growth and lower incentive-based compensation costs.
32
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Dedicated Transportation Solutions
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except fleet count) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| DTS total revenue | $ | 448 | $ | 455 | $ | 1,342 | $ | 1,330 | (1)% | 1% | ||||||||||||||||||||||||||||
DTS operating revenue (1) | $ | 325 | $ | 317 | $ | 974 | $ | 919 | 3% | 6% | ||||||||||||||||||||||||||||
| DTS EBT | $ | 28 | $ | 28 | $ | 90 | $ | 72 | (2)% | 26% | ||||||||||||||||||||||||||||
| DTS EBT as a % of DTS total revenue | 6.2% | 6.2% | 6.7% | 5.4% | — bps | 130 bps | ||||||||||||||||||||||||||||||||
DTS EBT as a % of DTS operating revenue (1) | 8.5% | 8.9% | 9.3% | 7.8% | (40) bps | 150 bps | ||||||||||||||||||||||||||||||||
| Memo: | ||||||||||||||||||||||||||||||||||||||
End of period fleet count (2) | 11,100 | 11,400 | 11,100 | 11,400 | (3)% | (3)% | ||||||||||||||||||||||||||||||||
| Twelve months ended September 30, | Change 2023/2022 | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| DTS EBT as a % of DTS total revenue | 6.7% | 4.9% | 180 bps | |||||||||||||||||||||||||||||||||||
DTS EBT as a % of DTS operating revenue (1) | 9.4% | 6.9% | 250 bps | |||||||||||||||||||||||||||||||||||
————————————
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
(2)End of period power fleet count is 5,200 and 5,300 as of September 30, 2023 and September 30, 2022, respectively.
DTS total revenue decreased 1% in the third quarter of 2023, reflecting lower fuel revenue passed through to customers largely offset by higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation). DTS total revenue increased 1% for the nine months ended September 30, 2023, primarily due to higher operating revenue partially offset by lower fuel revenue. DTS operating revenue increased 3% in the third quarter of 2023 and 6% in the nine months ended September 30, 2023, primarily due to inflationary cost recovery. Higher volumes also benefited operating revenue in the nine months ended September 30, 2023.
DTS EBT in third quarter of 2023, is generally in line with the prior year. DTS EBT increased 26% for the nine months ended September 30, 2023, primarily due to inflationary cost recovery.
Central Support Services
| Three months ended September 30, | Nine months ended September 30, | Change 2023/2022 | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | Three Months | Nine Months | ||||||||||||||||||||||||||||||||
| Total CSS | 106 | 109 | 312 | 313 | (3)% | —% | ||||||||||||||||||||||||||||||||
Allocation of CSS to business segments | (86) | (88) | (258) | (252) | (2)% | 2% | ||||||||||||||||||||||||||||||||
| Unallocated CSS | $ | 20 | $ | 21 | $ | 54 | $ | 61 | (5)% | (11)% | ||||||||||||||||||||||||||||
Total CSS costs decreased 3% in the third quarter primarily due to strategic marketing investments made in the prior year, lower incentive-based compensation costs and lower professional fees partially offset by strategic investments in information technology. Total CSS costs in the nine months ended September 30, 2023, were consistent with the prior year period as lower incentive-based compensation costs and lower professional fees, as well as the first quarter gain from the sale of our corporate headquarters building were offset by strategic investments in information technology and marketing.
33
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Unallocated CSS costs decreased 5% in the third quarter of 2023, primarily reflecting lower professional fees. Unallocated CSS costs decreased 11% for the nine months ended September 30, 2023, primarily reflecting lower incentive-based compensation costs, the first quarter gain from the sale of our corporate headquarters building and lower professional fees.
FINANCIAL RESOURCES AND LIQUIDITY
Cash Flows
The following is a summary of our cash flows from continuing operations:
| Nine months ended September 30, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Net cash provided by (used in): | ||||||||||||||
| Operating activities | $ | 1,842 | $ | 1,786 | ||||||||||
| Investing activities | (1,814) | (1,351) | ||||||||||||
| Financing activities | (126) | (600) | ||||||||||||
| Effect of exchange rate changes on cash | (10) | (51) | ||||||||||||
| Net change in cash, cash equivalents, and restricted cash | $ | (108) | $ | (216) | ||||||||||
| Nine months ended September 30, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Earnings from continuing operations | $ | 282 | $ | 663 | ||||||||||
| Non-cash and other, net | 1,549 | 1,368 | ||||||||||||
| Currency translation adjustment loss | 188 | — | ||||||||||||
| Collections on sales-type leases | 91 | 99 | ||||||||||||
| Changes in operating assets and liabilities | (268) | (344) | ||||||||||||
| Cash flows from operating activities from continuing operations | $ | 1,842 | $ | 1,786 | ||||||||||
Cash provided by operating activities were $1.8 billion for the nine months ended September 30, 2023, consistent with the prior year period, as lower working capital needs were offset by lower earnings. Cash used in investing activities increased to $1.8 billion for the nine months ended September 30, 2023, compared with $1.4 billion in 2022, primarily due to increased capital expenditures in 2023 and the accelerated timing of vehicle deliveries from OEMs as compared to the prior year, partially offset by the acquisition of the Whiplash business in 2022. Cash used in financing activities decreased to $126 million for the nine months ended September 30, 2023, compared with $600 million in 2022, primarily reflecting higher borrowing needs.
The following table shows our free cash flow (a non-GAAP measure) computation:
| Nine months ended September 30, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Net cash provided by operating activities | $ | 1,842 | $ | 1,786 | ||||||||||
Sales of revenue earning equipment (1) | 587 | 922 | ||||||||||||
Sales of operating property and equipment (1) | 60 | 54 | ||||||||||||
Other (1) | — | 42 | ||||||||||||
Total cash generated (2) | 2,489 | 2,804 | ||||||||||||
Purchases of property and revenue earning equipment (1) | (2,457) | (1,917) | ||||||||||||
Free cash flow (2) | $ | 32 | $ | 887 | ||||||||||
————————————
(1)Included in cash flows from investing activities.
(2)Non-GAAP financial measure. Reconciliations of net cash provided by operating activities to total cash generated and to free cash flow are set forth in
this table. Refer to the "Non-GAAP Financial Measures" section of this MD&A for the reasons why management believes this measure is important to investors.
34
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Free cash flow (a non-GAAP measure) declined to $32 million for the nine months ended September 30, 2023, compared to $887 million in 2022, primarily reflecting an increase in capital expenditures and prior year proceeds of approximately $300 million from the FMS U.K. business exit.
The following table provides a summary of gross capital expenditures:
| Nine months ended September 30, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Revenue earning equipment: | ||||||||||||||
| ChoiceLease | $ | 1,994 | $ | 1,317 | ||||||||||
| Commercial rental | 388 | 492 | ||||||||||||
| 2,382 | 1,809 | |||||||||||||
| Operating property and equipment | 200 | 224 | ||||||||||||
| Gross capital expenditures | 2,582 | 2,033 | ||||||||||||
| Changes to liabilities related to purchases of property and revenue earning equipment | (125) | (116) | ||||||||||||
| Cash paid for purchases of property and revenue earning equipment | $ | 2,457 | $ | 1,917 | ||||||||||
Gross capital expenditures increased to $2.6 billion for the nine months ended September 30, 2023, reflecting higher investments in the lease fleet and accelerated timing of OEM deliveries partially offset by lower investments in commercial rental.
Financing and Other Funding Transactions
We utilize external capital primarily to support working capital needs and growth in our asset-based product lines. The variety of financing alternatives typically available to fund our capital needs include commercial paper, long-term and medium-term public and private debt, asset-backed securities, bank term loans, leasing arrangements and bank credit facilities. Our principal sources of financing are issuances of unsecured commercial paper and medium-term notes.
Cash and cash equivalents totaled $159 million as of September 30, 2023. As of September 30, 2023, $117 million was held outside the U.S. and is available to fund operations. Our intention is to permanently reinvest the earnings of our foreign subsidiaries, with the exception of our U.K. and Germany subsidiaries where the assertion was removed in 2021. Federal, state and foreign income taxes, withholding taxes and the tax impact of foreign currency exchange gains or losses were considered on the remaining U.K. and Germany undistributed earnings as of September 30, 2023, and there was no impact to deferred taxes. For the nine months ended September 30, 2023, we repatriated $78 million of foreign earnings from the U.K.
We believe that our operating cash flows, together with our access to the public unsecured bond market, commercial paper market and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. However, volatility or disruption in the public unsecured debt market or the commercial paper market may impair our ability to access these markets or secure terms commercially acceptable to us. If we cease to have access to public bonds, commercial paper and other sources of unsecured borrowings, we would meet our liquidity needs by drawing upon contractually committed lending agreements or by seeking other funding sources.
In February 2023, we issued an aggregate principal amount of $500 million unsecured medium-terms notes that mature on March 1, 2028. The notes bear interest at a rate of 5.65% per year. In May 2023, we issued an aggregate principal amount of $650 million unsecured medium-terms notes that mature on June 1, 2028. The notes bear interest at a rate of 5.25% per year. Refer to Note 8, "Debt," in the Notes to Condensed Consolidated Financial Statements for additional information on our global revolving credit facility, trade receivables financing program, medium-term notes, and asset-backed financing obligations.
Our ability to access unsecured debt in the capital markets is impacted by both our short-term and long-term debt ratings. These ratings are intended to provide guidance to investors in determining the credit risk associated with our particular securities based on current information obtained by the rating agencies from us or from other sources. Ratings are not recommendations to buy, sell or hold our debt securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Lower ratings generally result in higher borrowing costs, as well as reduced access to unsecured capital markets. A significant downgrade of our short-term debt ratings would impair our ability to issue commercial paper and likely require us to rely on alternative funding sources. A significant downgrade would not affect our ability to borrow amounts under our global revolving credit facility described below, assuming ongoing compliance with the terms and conditions of the credit facility.
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Our debt ratings and rating outlooks as of September 30, 2023, were as follows:
| Rating Summary | ||||||||||||||||||||||||||
| Short-term | Short-term Outlook | Long-term | Long-term Outlook | |||||||||||||||||||||||
| Standard & Poor’s Ratings Services | A2 | — | BBB+ | Stable | ||||||||||||||||||||||
| Moody’s Investors Service | P2 | Stable | Baa2 | Stable | ||||||||||||||||||||||
| Fitch Ratings | F2 | — | BBB+ | Positive | ||||||||||||||||||||||
As of September 30, 2023, we had the following amounts available to fund operations under the following facilities:
| (In millions) | |||||
| Global revolving credit facility | $ | 642 | |||
| Trade receivables financing program | $ | 167 | |||
On September 29, 2023, we entered into a definitive agreement to acquire all the outstanding equity of IFS Holdings, LLC, a holding company for Impact Fulfillment Services, LLC, which specializes in contract packaging, contract manufacturing and warehousing, primarily in the consumer packaged goods, retail, and healthcare industries. We anticipate completing the acquisition in the fourth quarter of 2023 for a purchase price of approximately $250 million. The transaction is expected to add approximately $250 million in annual total revenue.
In accordance with our funding philosophy, we attempt to align the aggregate average remaining re-pricing life of our debt with the aggregate average remaining re-pricing life of our vehicle assets. We utilize both fixed-rate and variable-rate debt to achieve this alignment and generally target a mix of 20% - 40% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total debt (including notional value of swap agreements) was 20% and 19% as of September 30, 2023 and December 31, 2022, respectively.
Our debt-to-equity ratio was 214% and 216% as of September 30, 2023 and December 31, 2022, respectively. The debt-to-equity ratio represents total debt divided by total equity.
Share Repurchases and Cash Dividends
For the nine months ended September 30, 2023, we repurchased and retired 1 million shares for $96 million under the 2021 Anti-Dilutive Program, and 2 million shares for $186 million under the February 2023 Discretionary Program. The February 2023 Discretionary Program was completed in September 2023, and the 2021 Anti-Dilutive Program expired in October 2023.
In October 2023, our board of directors approved two new share repurchase programs. The first program authorizes management to repurchase up to 2 million shares issued to employees under our employee stock plans since August 31, 2023, under a new anti-dilutive program (the "2023 Anti-Dilutive Program") designed to mitigate the dilutive impact of shares issued under our employee stock plans. The second program grants management discretion to repurchase up to 2 million shares of common stock over a period of two years under a new discretionary share repurchase program (the "October 2023 Discretionary Program"). Both the 2023 Anti-Dilutive Program and the October 2023 Discretionary Program commenced October 12, 2023, and expire October 12, 2025.
Refer to Note 9, "Share Repurchase Programs," in the Notes to Condensed Consolidated Financial Statements for a discussion on our share repurchase programs.
In October 2023 and 2022, our board of directors declared a quarterly cash dividend of $0.71 and $0.62 per share of common stock, respectively.
36
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
NON-GAAP FINANCIAL MEASURES
This Quarterly Report on Form 10-Q includes information extracted from condensed consolidated financial information, but not required by generally accepted accounting principles in the United States (GAAP) to be presented in the financial statements. Certain elements of this information are considered "non-GAAP financial measures" as defined by SEC rules. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance or liquidity prepared in accordance with GAAP. Also, our non-GAAP financial measures may not be comparable to financial measures used by other companies. We provide a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure in this non-GAAP financial measures section or in the MD&A above. We also provide the reasons why management believes each non-GAAP financial measure is useful to investors in this section.
Specifically, we refer to the following non-GAAP financial measures in this Form 10-Q:
| Non-GAAP Financial Measure | Comparable GAAP Measure | ||||
Operating Revenue Measures: | |||||
| Operating Revenue | Total Revenue | ||||
| FMS Operating Revenue | FMS Total Revenue | ||||
| SCS Operating Revenue | SCS Total Revenue | ||||
| DTS Operating Revenue | DTS Total Revenue | ||||
| FMS EBT as a % of FMS Operating Revenue | FMS EBT as a % of FMS Total Revenue | ||||
| SCS EBT as a % of SCS Operating Revenue | SCS EBT as a % of SCS Total Revenue | ||||
| DTS EBT as a % of DTS Operating Revenue | DTS EBT as a % of DTS Total Revenue | ||||
Comparable Earnings Measures: | |||||
| Comparable Earnings Before Income Tax | Earnings Before Income Tax | ||||
| Comparable Earnings | Earnings from Continuing Operations | ||||
| Comparable Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) | Net Earnings | ||||
| Comparable EPS | EPS from Continuing Operations | ||||
| Comparable Tax Rate | Effective Tax Rate from Continuing Operations | ||||
| Adjusted Return on Equity (ROE) | Not Applicable. However, non-GAAP elements of the calculation have been reconciled to the corresponding GAAP measures. A numerical reconciliation of net earnings to adjusted net earnings and average shareholders' equity to adjusted average equity is provided in the following reconciliations. | ||||
Cash Flow Measures: | |||||
| Total Cash Generated and Free Cash Flow | Cash Provided by Operating Activities from Continuing Operations | ||||
37
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Set forth in the table below is an overview of each non-GAAP financial measure and why management believes that the presentation of each non-GAAP financial measure provides useful information to investors.
Operating Revenue Measures: | |||||||||||
| Operating Revenue FMS Operating Revenue SCS Operating Revenue DTS Operating Revenue FMS EBT as a % of FMS Operating Revenue SCS EBT as a % of SCS Operating Revenue DTS EBT as a % of DTS Operating Revenue | Operating revenue is defined as total revenue for Ryder or each business segment (FMS, SCS and DTS) excluding any (1) fuel and (2) subcontracted transportation. We believe operating revenue provides useful information to investors as we use it to evaluate the operating performance of our core businesses and as a measure of sales activity at the consolidated level for Ryder System, Inc., as well as for each of our business segments. We also use segment EBT as a percentage of segment operating revenue for each business segment for the same reason. Note: FMS EBT, SCS EBT and DTS EBT, our primary measures of segment performance, are not non-GAAP measures. Fuel: We exclude FMS, SCS and DTS fuel from the calculation of our operating revenue measures, as fuel is an ancillary service that we provide our customers. Fuel revenue is impacted by fluctuations in market fuel prices and the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time, as customer pricing for fuel services is established based on current market fuel costs. Subcontracted transportation: We exclude subcontracted transportation from the calculation of our operating revenue measures, as these services are also typically a pass-through to our customers and, therefore, fluctuations result in minimal changes to our profitability. While our SCS and DTS business segments subcontract certain transportation services to third party providers, our FMS business segment does not engage in subcontracted transportation and, therefore, this item is not applicable to FMS. | ||||||||||
Comparable Earnings Measures: | |||||||||||
| Comparable Earnings before Income Taxes (EBT) Comparable Earnings Comparable Earnings per Diluted Common Share (EPS) Comparable Tax Rate Adjusted Return on Equity (ROE) | Comparable EBT, Comparable Earnings and Comparable EPS are defined, respectively, as GAAP EBT, earnings and EPS, all from continuing operations, excluding (1) non-operating pension costs, net and (2) other items impacting comparability (as further described below). We believe these comparable earnings measures provide useful information to investors and allow for better year-over-year comparison of operating performance. Non-operating pension costs, net: Our comparable earnings measures exclude non-operating pension costs, net, which include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or curtailments if recognized. We exclude non-operating pension costs, net because we consider these to be impacted by financial market performance and outside the operational performance of our business. Other Items Impacting Comparability: Our comparable and adjusted earnings measures also exclude other significant items that are not representative of our business operations as detailed in the reconciliation table below. These other significant items vary from period to period and, in some periods, there may be no such significant items. Comparable Tax Rate is computed using the same methodology as the GAAP provision for income taxes. Income tax effects of non-GAAP adjustments are calculated based on the marginal tax rates to which the non-GAAP adjustments are related. Adjusted ROE is defined as adjusted net earnings divided by adjusted average shareholders' equity and represents the rate of return on shareholders' investment. Other items impacting comparability described above are excluded, as applicable, from the calculation of adjusted net earnings and adjusted average shareholders' equity. We use adjusted ROE as an internal measure of how effectively we use the owned capital invested in our operations. | ||||||||||
38
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
| Comparable Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) | Comparable EBITDA is defined as net earnings, first adjusted to exclude discontinued operations and the following items, all from continuing operations: (1) non-operating pension costs, net and (2) any other items that are not representative of our business operations (these items are the same items that are excluded from comparable earnings measures for the relevant periods as described immediately above) and then adjusted further for (1) interest expense, (2) income taxes, (3) depreciation, (4) used vehicle sales results and (5) amortization. We believe comparable EBITDA provides investors with useful information, as it is a standard measure commonly reported and widely used by analysts, investors and other interested parties to measure financial performance and our ability to service debt and meet our payment obligations. In addition, we believe that the inclusion of comparable EBITDA provides consistency in financial reporting and enables analysts and investors to perform meaningful comparisons of past, present and future operating results. Other companies may calculate comparable EBITDA differently; therefore, our presentation of comparable EBITDA may not be comparable to similarly-titled measures used by other companies. Comparable EBITDA should not be considered as an alternative to net earnings, earnings from continuing operations before income taxes or earnings from continuing operations determined in accordance with GAAP, as an indicator of our operating performance, as an alternative to cash flows from operating activities (determined in accordance with GAAP), as an indicator of cash flows, or as a measure of liquidity. | ||||||||||
Cash Flow Measures: | |||||||||||
| Total Cash Generated Free Cash Flow | We consider total cash generated and free cash flow to be important measures of comparative operating performance, as our principal sources of operating liquidity are cash from operations and proceeds from the sale of revenue earning equipment. Total Cash Generated is defined as the sum of (1) net cash provided by operating activities, (2) net cash provided by the sale of revenue earning equipment, (3) net cash provided by the sale of operating property and equipment and (4) other cash inflows from investing activities. We believe total cash generated is an important measure of total cash flows generated from our ongoing business activities. Free Cash Flow is defined as the net amount of cash generated from operating activities and investing activities (excluding changes in restricted cash and acquisitions) from continuing operations. We calculate free cash flow as the sum of (1) net cash provided by operating activities, (2) net cash provided by the sale of revenue earning equipment and operating property and equipment, and (3) other cash inflows from investing activities, less (4) purchases of property and revenue earning equipment. We believe free cash flow provides investors with an important perspective on the cash available for debt service and for shareholders, after making capital investments required to support ongoing business operations. Our calculation of free cash flow may be different from the calculation used by other companies and, therefore, comparability may be limited. * See Total Cash Generated and Free Cash Flow reconciliations in the Financial Resources and Liquidity section of Management's Discussion and Analysis. | ||||||||||
39
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of GAAP earnings before taxes (EBT), earnings, and earnings per diluted share (Diluted EPS) from continuing operations to comparable EBT, comparable earnings, and comparable EPS. Certain items included in EBT, earnings, and Diluted EPS from continuing operations have been excluded from our comparable EBT, comparable earnings and comparable EPS measures. The following table lists a summary of these items, which are discussed in more detail throughout our MD&A and within the Notes to Condensed Consolidated Financial Statements:
| Continuing Operations | ||||||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| EBT | $ | 213 | $ | 334 | $ | 458 | $ | 924 | ||||||||||||||||||||||||||||||
| Non-operating pension costs, net | 10 | 3 | 30 | 8 | ||||||||||||||||||||||||||||||||||
FMS U.K. exit (1) | 4 | (27) | (32) | (58) | ||||||||||||||||||||||||||||||||||
| Currency translation adjustment loss | — | — | 188 | — | ||||||||||||||||||||||||||||||||||
Other, net (1) | — | (1) | (1) | 3 | ||||||||||||||||||||||||||||||||||
| Comparable EBT | $ | 227 | $ | 309 | $ | 643 | $ | 877 | ||||||||||||||||||||||||||||||
Earnings from continuing operations | $ | 160 | $ | 247 | $ | 282 | $ | 663 | ||||||||||||||||||||||||||||||
| Non-operating pension costs, net | 8 | 2 | 24 | 5 | ||||||||||||||||||||||||||||||||||
FMS U.K. exit (1) | 4 | (27) | (32) | (58) | ||||||||||||||||||||||||||||||||||
| Currency translation adjustment loss | — | — | 183 | — | ||||||||||||||||||||||||||||||||||
Other, net (1) | — | (3) | (1) | 2 | ||||||||||||||||||||||||||||||||||
Tax adjustments, net (2) | (7) | 8 | 12 | 29 | ||||||||||||||||||||||||||||||||||
| Comparable Earnings | $ | 165 | $ | 227 | $ | 468 | $ | 641 | ||||||||||||||||||||||||||||||
| Diluted EPS | $ | 3.44 | $ | 4.82 | $ | 6.01 | $ | 12.86 | ||||||||||||||||||||||||||||||
| Non-operating pension costs, net | 0.17 | 0.03 | 0.51 | 0.10 | ||||||||||||||||||||||||||||||||||
FMS U.K. exit (1) | 0.09 | (0.53) | (0.68) | (1.13) | ||||||||||||||||||||||||||||||||||
| Currency translation adjustment loss | — | — | 3.91 | — | ||||||||||||||||||||||||||||||||||
Other, net (1) | — | (0.01) | (0.02) | 0.06 | ||||||||||||||||||||||||||||||||||
Tax adjustments, net (2) | (0.12) | 0.14 | 0.27 | 0.55 | ||||||||||||||||||||||||||||||||||
Comparable EPS | $ | 3.58 | $ | 4.45 | $ | 10.00 | $ | 12.44 | ||||||||||||||||||||||||||||||
————————————
(1)Refer to Note 13, “Other Items Impacting Comparability,” in the Notes to Condensed Consolidated Financial Statements for additional information.
(2)Adjustments include the global tax impacts related to the FMS U.K. business exit in 2023, and gains on sales of U.K. revenue earning equipment and properties during 2022.
Note: Amounts may not be additive due to rounding.
The following table provides a reconciliation of the effective tax rate to the comparable tax rate:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Effective tax rate on continuing operations (1) | 25.2 | % | 26.3 | % | 38.5 | % | 28.3 | % | |||||||||||||||
Tax adjustments and income tax effects of non-GAAP adjustments (2) | 1.8 | % | — | % | (11.3) | % | (1.4) | % | |||||||||||||||
Comparable tax rate on continuing operations (1) | 27.0 | % | 26.3 | % | 27.2 | % | 26.9 | % | |||||||||||||||
————————————
(1)The effective tax rate on continuing operations and comparable tax rate are based on EBT and comparable EBT, respectively, found on the previous page.
(2)Refer to the table above for more information on tax adjustments. Income tax effects of non-GAAP adjustments are calculated based on the marginal tax rates to which the non-GAAP adjustments are related.
40
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of earnings to comparable EBITDA:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net earnings | $ | 161 | $ | 246 | $ | 282 | $ | 661 | ||||||||||||||||||
(Earnings) loss from discontinued operations, net of tax | (1) | 1 | — | 2 | ||||||||||||||||||||||
| Provision for income taxes | 53 | 87 | 176 | 261 | ||||||||||||||||||||||
| EBT | 213 | 334 | 458 | 924 | ||||||||||||||||||||||
| Non-operating pension costs, net | 10 | 3 | 30 | 8 | ||||||||||||||||||||||
FMS U.K. exit (1) | 4 | (27) | (32) | (58) | ||||||||||||||||||||||
Currency translation adjustment loss (1) | — | — | 188 | — | ||||||||||||||||||||||
Other, net (1) | — | (1) | (1) | 3 | ||||||||||||||||||||||
| Comparable EBT | 227 | 309 | 643 | 877 | ||||||||||||||||||||||
| Interest expense | 75 | 57 | 212 | 165 | ||||||||||||||||||||||
| Depreciation | 417 | 421 | 1,274 | 1,275 | ||||||||||||||||||||||
Used vehicle sales, net (2) | (47) | (99) | (172) | (313) | ||||||||||||||||||||||
| Amortization | 8 | 8 | 25 | 27 | ||||||||||||||||||||||
| Comparable EBITDA | $ | 680 | $ | 696 | $ | 1,982 | $ | 2,031 | ||||||||||||||||||
————————————
(1)Refer to the table above in the Operating Results by Segment for a discussion on items excluded from our comparable measures and their classification within our Condensed Consolidated Statements of Earnings and Note 13,"Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements for additional information.
(2)Refer to Note 5, "Revenue Earning Equipment, net," in the Notes to Condensed Consolidated Financial Statements for additional information.
The following table provides a reconciliation of total revenue to operating revenue:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Total revenue | $ | 2,924 | $ | 3,035 | $ | 8,760 | $ | 8,923 | ||||||||||||||||||
| Subcontracted transportation and fuel | (545) | (688) | (1,709) | (2,053) | ||||||||||||||||||||||
| Operating revenue | $ | 2,379 | $ | 2,347 | $ | 7,051 | $ | 6,870 | ||||||||||||||||||
The following table provides a reconciliation of FMS total revenue to FMS operating revenue:
| Three months ended September 30, | Nine months ended September 30, | Twelve months ended September 30, | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| FMS total revenue | $ | 1,487 | $ | 1,582 | $ | 4,449 | $ | 4,732 | $ | 6,044 | $ | 6,231 | ||||||||||||||||||||||||||
| Fuel services revenue | (221) | (279) | (667) | (840) | (941) | (1,039) | ||||||||||||||||||||||||||||||||
| FMS operating revenue | $ | 1,266 | $ | 1,303 | $ | 3,782 | $ | 3,892 | $ | 5,103 | $ | 5,192 | ||||||||||||||||||||||||||
| FMS EBT | $ | 169 | $ | 266 | $ | 531 | $ | 801 | $ | 787 | $ | 1,057 | ||||||||||||||||||||||||||
| FMS EBT as a % of FMS total revenue | 11.4% | 16.8% | 11.9% | 16.9% | 13.0% | 17.0% | ||||||||||||||||||||||||||||||||
| FMS EBT as a % of FMS operating revenue | 13.4% | 20.4% | 14.0% | 20.6% | 15.4% | 20.4% | ||||||||||||||||||||||||||||||||
41
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of SCS total revenue to SCS operating revenue:
| Three months ended September 30, | Nine months ended September 30, | Twelve months ended September 30, | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| SCS total revenue | $ | 1,194 | $ | 1,206 | $ | 3,574 | $ | 3,469 | $ | 4,825 | $ | 4,339 | ||||||||||||||||||||||||||
| Subcontracted transportation and fuel | (285) | (371) | (921) | (1,098) | (1,289) | (1,354) | ||||||||||||||||||||||||||||||||
| SCS operating revenue | $ | 909 | $ | 835 | $ | 2,653 | $ | 2,371 | $ | 3,536 | $ | 2,985 | ||||||||||||||||||||||||||
| SCS EBT | $ | 81 | $ | 71 | $ | 174 | $ | 176 | $ | 217 | $ | 200 | ||||||||||||||||||||||||||
| SCS EBT as a % of SCS total revenue | 6.8% | 5.9% | 4.9% | 5.1% | 4.5% | 4.6% | ||||||||||||||||||||||||||||||||
| SCS EBT as a % of SCS operating revenue | 9.0% | 8.6% | 6.6% | 7.4% | 6.1% | 6.7% | ||||||||||||||||||||||||||||||||
The following table provides a reconciliation of DTS total revenue to DTS operating revenue:
| Three months ended September 30, | Nine months ended September 30, | Twelve months ended September 30, | ||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| DTS total revenue | $ | 448 | $ | 455 | $ | 1,342 | $ | 1,330 | $ | 1,798 | $ | 1,731 | ||||||||||||||||||||||||||
| Subcontracted transportation and fuel | (123) | (138) | (368) | (411) | (504) | (521) | ||||||||||||||||||||||||||||||||
| DTS operating revenue | $ | 325 | $ | 317 | $ | 974 | $ | 919 | $ | 1,294 | $ | 1,210 | ||||||||||||||||||||||||||
| DTS EBT | $ | 28 | $ | 28 | $ | 90 | $ | 72 | $ | 121 | $ | 84 | ||||||||||||||||||||||||||
| DTS EBT as a % of DTS total revenue | 6.2% | 6.2% | 6.7% | 5.4% | 6.7% | 4.9% | ||||||||||||||||||||||||||||||||
| DTS EBT as a % of DTS operating revenue | 8.5% | 8.9% | 9.3% | 7.8% | 9.4% | 6.9% | ||||||||||||||||||||||||||||||||
The following tables provide numerical reconciliations of net earnings to adjusted net earnings and average shareholders' equity to adjusted average shareholders' equity (Adjusted ROE), and of the non-GAAP elements used to calculate the adjusted return on equity to the corresponding GAAP measures:
| Twelve months ended September 30, | ||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | ||||||||||||||||||||||||
| Net earnings | $ | 488 | $ | 842 | ||||||||||||||||||||||
Other items impacting comparability, net (1) | 128 | (46) | ||||||||||||||||||||||||
Income taxes (2) | 268 | 316 | ||||||||||||||||||||||||
| Adjusted earnings before income taxes | 884 | 1,112 | ||||||||||||||||||||||||
Adjusted income taxes (3) | (243) | (288) | ||||||||||||||||||||||||
| Adjusted net earnings | $ | 641 | $ | 824 | ||||||||||||||||||||||
| Average shareholders' equity | $ | 3,029 | $ | 2,761 | ||||||||||||||||||||||
Average adjustments to shareholders' equity (4) | (21) | (9) | ||||||||||||||||||||||||
| Adjusted average shareholders' equity | $ | 3,008 | $ | 2,752 | ||||||||||||||||||||||
Adjusted return on equity (5) | 21% | 30% | ||||||||||||||||||||||||
————————————
(1)Refer to the table below for a composition of Other items impacting comparability, net for the 12-month rolling period.
(2)Includes income taxes on discontinued operations.
(3)Represents provision for income taxes plus income taxes on other items impacting comparability.
(4)Represents the impact of other items impacting comparability, net of tax, to equity for the respective period.
(5)Adjusted return on equity is calculated by dividing Adjusted net earnings into Adjusted average shareholders' equity.
42
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
| Twelve months ended September 30, | ||||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||||||||||||||
| FMS U.K. exit | $ | (56) | $ | (58) | ||||||||||||||||||||||
| Currency translation adjustment loss | 188 | — | ||||||||||||||||||||||||
| Other, net | (4) | 12 | ||||||||||||||||||||||||
Other items impacting comparability (1) | $ | 128 | $ | (46) | ||||||||||||||||||||||
————————————
(1)Refer to Note 13, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements for additional information.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements (within the meaning of the Federal Private Securities Litigation Reform Act of 1995) are statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. These statements are often preceded by or include the words "believe," "expect," "intend," "estimate," "anticipate," "will," "may," "could," "should" or similar expressions. This Quarterly Report contains forward-looking statements including statements regarding:
•our expectations with respect to the effects of outsourcing trends in warehousing and distribution on our business and financial results;
•our expectations with respect to the macroeconomic and freight environment;
•our expectations regarding supply of vehicles and vehicle parts and its effect on pricing and demand;
•the expected pricing for used vehicles and sales channel mix;
•our expectations regarding used vehicle sales and rental;
•our expectations regarding the impact of labor shortages and interruptions and subcontracted transportation costs;
•our expectations regarding ChoiceLease and SelectCare;
•our expectations in our SCS and DTS business segments related to revenue, earnings growth, and contract sales activity;
•our expectations with respect to weakening trends and lower volumes in our omnichannel retail vertical;
•our expectations of cash flow from operating activities, free cash flow, and capital expenditures;
•the adequacy of our accounting estimates and reserves for goodwill and other asset impairments, residual values and other depreciation assumptions, deferred income taxes and annual effective tax rates, variable revenue considerations, the valuation of our pension plans, allowance for credit losses, and self-insurance loss reserves;
•the adequacy of our fair value estimates of publicly traded debt and other debt;
•our ability to fund all of our operating, investing and financial needs for the foreseeable future through internally generated funds and outside funding sources;
•our expected level of use and availability of outside funding sources, anticipated future payments under debt and lease agreements, and risk of losses resulting from counterparty default under hedging and derivative agreements;
•our ability to meet our objectives with the share repurchase programs;
•the anticipated impact of fuel and energy prices, interest rate movements, and exchange rate fluctuations;
•our expectations as to return on pension plan assets, future pension expense, and estimated contributions;
43
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
•our expectations regarding the scope and anticipated outcomes with respect to certain claims, proceedings, and lawsuits;
•our ability to access commercial paper and other available debt financing in the capital markets;
•our intent to permanently reinvest the earnings of our non U.K. & Germany foreign subsidiaries indefinitely;
•our expectations regarding the benefits from our strategic investments and initiatives, including the timing and completion of our anticipated acquisition of IFS Holdings, LLC, and maintenance and lease pricing initiatives;
•our expectations regarding the achievement of our return on equity improvement initiatives;
•our expectations with respect to the asset impairment charge related to a customer bankruptcy;
•the anticipated impact of inflationary pressures;
•our expectations of the long-term residual values of revenue earnings equipment, including the probability of incurring losses or having to decrease residual value estimates in the event of a potential cyclical downturn or changes to the estimated useful lives; and
•our expectations regarding the U.S. federal, state, and foreign tax positions and realizability of deferred tax assets.
These statements, as well as other forward-looking statements contained in this Quarterly Report, are based on our current plans and expectations and are subject to risks, uncertainties and assumptions. We caution readers that certain important factors could cause actual results and events to differ significantly from those expressed in any forward-looking statements. These risk factors, among others, include the following:
•Market Conditions:
◦Changes in general economic and financial conditions in the U.S. and worldwide leading to decreased demand for our services and products, lower profit margins, increased levels of bad debt, and reduced access to credit and financial markets.
◦Decreases in freight demand which would impact both our transactional and variable-based contractual business.
◦Changes in our customers' operations, financial condition or business environment that may limit their demand for, or ability to purchase, our services and products.
◦Decreases in market demand affecting the commercial rental market and used vehicle sales as well as global economic conditions.
◦Volatility in customer volumes and shifting customer demand in the industries we service.
◦Changes in current financial, tax or other regulatory requirements that could negatively impact our financial and operating results.
◦Financial institution disruptions and geopolitical events or conflicts.
•Competition:
◦Advances in technology may impact demand for our services or may require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments.
◦Competition from other service providers, some of which may have greater capital resources or lower capital costs, or from our customers, who may choose to provide services themselves.
◦Continued consolidation in the markets where we operate, which may create large competitors with greater financial resources.
◦Our inability to maintain current pricing levels due to economic conditions, demand for services, customer acceptance or competition.
44
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
•Profitability:
◦Lower than expected sales volumes or customer retention levels.
◦Decreases in commercial rental fleet utilization and pricing.
◦Lower than expected used vehicle sales pricing levels and fluctuations in the anticipated proportion of retail versus wholesale sales.
◦Loss of key customers in our SCS and DTS business segments.
◦Decreases in volume in our omnichannel retail vertical.
◦Our inability to adapt our product offerings to meet changing consumer preferences on a cost-effective basis.
◦The inability of our information technology systems to provide timely access to data.
◦The inability of our information security program to safeguard our data.
◦Sudden changes in market fuel prices and fuel shortages.
◦Higher prices for vehicles, diesel engines and fuel as a result of new regulations or inflationary cost pressures.
◦Higher than expected maintenance costs and lower than expected benefits associated with our maintenance initiatives.
◦Lower than expected revenue growth due to production delays at our automotive SCS customers, primarily related to the worldwide semiconductor supply shortage, and supply chain disruptions.
◦The inability of an original equipment manufacturer or supplier to provide vehicles or components as originally scheduled.
◦Our inability to successfully execute our strategic returns and asset management initiatives, maintain our fleet at normalized levels and right-size our fleet in line with demand.
◦Our key assumptions and pricing structure, including any assumptions made with respect to inflation, of our SCS and DTS contracts prove to be inaccurate.
◦Increased unionizing, labor strikes and work stoppages, including the current United Auto Workers strike.
◦Difficulties in attracting and retaining professional drivers, warehouse personnel and technicians due to labor shortages, which may result in higher costs to procure drivers and technicians and higher turnover rates affecting our customers.
◦Our inability to manage our cost structure.
◦Our inability to limit our exposure for customer claims.
◦Unfavorable or unanticipated outcomes in legal or regulatory proceedings or uncertain positions.
◦Business interruptions or expenditures due to severe weather or other natural occurrences.
•Financing Concerns:
◦Higher borrowing costs.
◦Increased inflationary pressures.
◦Unanticipated interest rate and currency exchange rate fluctuations.
◦Negative funding status of our pension plans caused by lower than expected returns on invested assets and unanticipated changes in interest rates.
45
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
◦Instability in U.S. and worldwide credit markets, resulting in higher borrowing costs and/or reduced access to credit.
•Accounting Matters:
◦Reductions in residual values or useful lives of revenue earning equipment.
◦Increases in compensation levels, retirement rate and mortality resulting in higher pension expense; regulatory changes affecting pension estimates, accruals and expenses.
◦Changes in accounting rules, assumptions and accruals.
•Other risks detailed from time to time in our SEC filings including our 2022 Annual Report on Form 10-K and in "Item 1A.-Risk Factors" of this Quarterly Report.
New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. As a result, we cannot provide assurance as to our future results or achievements. You should not place undue reliance on the forward-looking statements contained herein, which speak only as of the date of this Quarterly Report. We do not intend, or assume any obligation, to update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to Ryder's exposures to market risks since December 31, 2022. Please refer to the 2022 Annual Report on Form 10-K for a complete discussion of Ryder's exposures to market risks.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the third quarter of 2023, we carried out an evaluation, under the supervision and with the participation of management, including Ryder's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Ryder's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the third quarter of 2023, Ryder's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective.
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2023, there were no changes in Ryder's internal control over financial reporting that have materially affected or are reasonably likely to materially affect such internal control over financial reporting.
46
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please refer to Note 14, "Contingencies and Other Matters," in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
To our knowledge and except to the extent additional factual information disclosed in this Quarterly Report on Form 10-Q relates to such risk factors, there have been no material changes in the risk factors described in "Item 1A. Risk Factors" in our Form 10-K for the year ended December 31, 2022, filed with the SEC on February 15, 2023. Our operations could also be affected by additional risk factors that are not presently known to us or by factors that we currently consider not material to our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information with respect to purchases we made of our common stock during the three months ended September 30, 2023:
| (Dollars in millions, except per share) | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Number of Shares That May Yet Be Purchased Under the Discretionary and Anti-Dilutive Programs (2) | ||||||||||||||||||||||||||||
| July 1 through July 31, 2023 | 81,292 | $ | 101.10 | 81,077 | 1,948,424 | |||||||||||||||||||||||||||
| August 1 through August 31, 2023 | 823,818 | 98.80 | 820,866 | 1,127,558 | ||||||||||||||||||||||||||||
| September 1 through September 30, 2023 | 589,489 | 100.37 | 584,391 | 543,167 | ||||||||||||||||||||||||||||
| Total | 1,494,599 | $ | 99.54 | 1,486,334 | ||||||||||||||||||||||||||||
————————————
(1)During the three months ended September 30, 2023, we purchased an aggregate of 8,265 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock withheld as payment for the exercise price of options exercised or to satisfy the tax withholding liability associated with our share-based compensation programs and (ii) open-market purchases by the trustee of Ryder's deferred compensation plans relating to investments by employees in our stock, one of the investment options available under the plans.
(2)We maintained two share repurchase programs during the nine months ended September 30, 2023: the 2021 Anti-Dilutive Program and the February 2023 Discretionary Program, as defined below. The first program authorized management to repurchase up to 2.5 million shares of common stock, issued to employees under our employee stock plans since September 1, 2021 (the "2021 Anti-Dilutive Program"). The 2021 Anti-Dilutive Program was designed to mitigate the dilutive impact of shares issued under our employee stock plans. The 2021 Anti-Dilutive Program commenced October 14, 2021 and expired October 14, 2023. In February 2023, our board of directors authorized a discretionary share repurchase program to grant management discretion to repurchase up to 2 million shares of common stock over a period of two years (the "February 2023 Discretionary Program"). The February 2023 Discretionary Program was completed in September 2023.
In October 2023, our board of directors approved two new share repurchase programs. The first program authorized management to repurchase up to 2 million shares issued to employees under our employee stock plans since August 31, 2023 under a new anti-dilutive program (the "2023 Anti-Dilutive Program") designed to mitigate the dilutive impact of shares issued under our employee stock plans. The second program grants management discretion to repurchase up to 2 million shares of common stock over a period of two years under a new discretion share repurchase program (the "October 2023 Discretionary Program"). Both the 2023 Anti-Dilutive Program and the October 2023 Discretionary Program commenced October 12, 2023, and expire October 12, 2025. Share repurchases under these programs can be made from time to time using our working capital and a variety of methods, including open-market transactions and trading plans established pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and actual number of shares repurchased are subject to market conditions, legal requirements and other factors, including balance sheet leverage, availability of acquisitions and stock price.
47
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans Trading Arrangements
Certain of our officers or directors, as applicable, have made elections to participate in, and are participating in, our dividend reinvestment plan and 401(k) savings plan, and have made, and may from time to time make, elections to purchase shares, have shares withheld to cover withholding taxes, or pay the exercise price of options, which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
48
ITEM 6. EXHIBITS
| Exhibit Number | Description | |||||||
| 10.1* | ||||||||
| 10.2* | ||||||||
| 10.3* | ||||||||
| 10.4* | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) | |||||||
* Management contract or compensation plan arrangement pursuant to Item 601(b)(10) of Regulation S-K.
49
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RYDER SYSTEM, INC. | |||||||||||
| (Registrant) | |||||||||||
| Date: | October 25, 2023 | By: | /s/ JOHN J. DIEZ | ||||||||
| John J. Diez | |||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
| Date: | October 25, 2023 | By: | /s/ CRISTINA GALLO-AQUINO | ||||||||
| Cristina Gallo-Aquino | |||||||||||
| Senior Vice President and Controller | |||||||||||
| (Principal Accounting Officer) | |||||||||||
50
EXHIBIT 31.1
CERTIFICATION
I, Robert E. Sanchez, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ryder System, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | October 25, 2023 | /s/ ROBERT E. SANCHEZ | ||||||
Robert E. Sanchez President and Chief Executive Officer | ||||||||
EXHIBIT 31.2
CERTIFICATION
I, John J. Diez, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ryder System, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | October 25, 2023 | /s/ JOHN J. DIEZ | ||||||
| John J. Diez Executive Vice President and Chief Financial Officer | ||||||||
EXHIBIT 32
CERTIFICATION
In connection with the Quarterly Report of Ryder System, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert E. Sanchez, President and Chief Executive Officer of the Company, and John J. Diez, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ ROBERT E. SANCHEZ | |||||
| Robert E. Sanchez President and Chief Executive Officer | |||||
| October 25, 2023 | |||||
| /s/ JOHN J. DIEZ | |||||
| John J. Diez Executive Vice President and Chief Financial Officer | |||||
| October 25, 2023 | |||||