Ryder System, Inc.

Moat: 3/5

Understandability: 2/5

Balance Sheet Health: 3/5

Ryder System, Inc. provides commercial transportation, supply chain, and logistics solutions, focusing on fleet management, dedicated transportation, and supply chain services across North America, and increasingly internationally.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Ryder System operates through three main segments:

Fleet Management Solutions (FMS): This segment represents a core part of Ryder’s business and provides a variety of vehicle leasing, maintenance, and related services to commercial clients.
Dedicated Transportation Solutions (DTS): DTS provides fully outsourced transportation solutions, including drivers, vehicles, maintenance, and other specialized services to businesses.
Supply Chain Solutions (SCS): SCS offers a range of supply chain services, from distribution management to warehousing, transportation and freight management, and logistics consulting.

Competitive Landscape

Ryder operates in highly competitive markets, with competitors in each segment varying widely based on specialization, geographic reach, and service offerings.

Fleet Management: Competitors include leasing and rental companies like Penske and Element Fleet Management, as well as vehicle manufacturers.
Dedicated Transportation: Competition in this segment comes from other large and small players that provide customized transportation services such as J.B. Hunt or Schneider.
Supply Chain: This sector is extremely competitive with players offering an expansive suite of services, including Amazon and UPS.

What Makes Ryder Different?

Ryder differentiates itself with a combination of scale, a broad range of offerings, and extensive network, as well as by having more years of operating expertise (almost 90 years.) They often integrate their services to client needs, and invest heavily in technology to stay ahead of the curve.

Integrated Solutions: Ryder aims to provide integrated solutions to its customers, allowing clients to handle multiple logistics needs through one company, thus saving them time and money.
Scale and Experience: Ryder is among the largest providers of its kind in the United States, giving them scale advantages over smaller competitors, along with decades of experience.

Financial Analysis

Ryder’s financial results are a bit complex due to different accounting treatments in their main segments and can sometimes be difficult to interpret.

Revenues Ryder’s revenue is primarily derived from:

Lease revenue: from vehicles under long-term leases
Fuel revenue: from fuel sold to customers, which is passed on to customers with no profit margin
Transportation services revenues: from providing contract drivers and other operational management services
Logistics revenues: fees and service charges from supply chain and distribution solutions

Revenue is divided by geography as well, in which US constitutes the majority of its sales, followed by Canada and other countries. There has been good growth of the business, as revenue has generally increased every year.

Profitability & Margins

Ryder’s operating profit margins are somewhat low due to the capital intensive nature of the business and intense competition. Operating margins were 11.2%, 10%, and 13.2% respectively in 2022, 2021 and 2020.
Net income margins in 2022, 2021 and 2020 were, 2.9%, 1.8% and 3.1% respectively.
The company has been focused on improving operating expenses and margins through technology implementation and route density. They are showing some signs of positive results.
A large source of its profits are from used vehicle sales.

Used vehicle sales prices have been high over the last few years, benefiting Ryder, but this could revert in future years as supply chains improve.

Balance Sheet

Ryder’s balance sheet is complex due to the capital intensive nature of their business. They heavily lease equipment to customers as part of the FMS division.
Ryder carries a large amount of debt, which makes them highly susceptible to interest rate changes, and they have been refinancing their debt obligations to help offset this.
They have also been buying back shares, which means the company seems to think the shares are a great investment at current levels.
The company has a reasonable amount of cash and short-term investments available to pay for day-to-day operations.

Overall their capital structure does not make them a very healthy company.

Moat Assessment

Ryder’s moat is not wide, but rather “narrow”, a rating of 3 out of 5. They are one of the biggest players in the industry, but their position in the market does not lend itself to wide-moat advantages.

Distribution network A strong network of locations increases their moat, providing a strong first-mover advantage.
Switching Costs Their business operations are so critical to their customers’ operations that switching costs can be very high. They have an emphasis on tight integration into their clients’ businesses.
Scale: Their massive operation and geographic reach allows them to enjoy some economies of scale advantages.

However, they are not unique as other companies have managed to create similar services and capabilities, making these advantages hard to protect. Overall the economic moat is good, but they are not in the position of a unique business that no one can compete with.

Risks

Technological Disruption: The transportation and logistics industry is undergoing rapid technological changes such as the development of autonomous vehicles, which may make some of the company’s assets obsolete if they are not able to keep up.
Economic Cycles: Ryder’s revenue stream is susceptible to overall market economic conditions. During recessions, the need for their services plummets. If the economy faces a recession, they may face considerable challenges.
Competition: The industry has many competitors, some bigger than Ryder themselves, who might eat into their market share through lower prices.
Interest Rate Risk: A large portion of Ryder’s financing is done through borrowing. Rising interest rates might increase their interest expenses.
Dependence on Key Customers: While the company has a huge client base, some specific customers make up a disproportionately high portion of revenues. The loss of a couple of their biggest customers may cause drastic losses.
Cost Inflation: Rising prices of vehicles, labor, fuel, and other operations can drive costs up and lower profitability.

Resilience

Despite the various risks mentioned, Ryder has a number of characteristics that allow them to remain resilient.

Their diversified revenue stream ensures that a decline in one sector may be offset by growth in other areas.
Their long-term relationships and contracts with their customers helps build sustainable revenues.
Their investments into technology, innovation and efficiency also makes them better able to cope with changing economic and industry landscapes.
Their wide geographic reach allows them to weather downturns in specific areas.

Understandability Rating

A rating of 2 out of 5. Although it is easy to understand the basic business model (they lease trucks), it becomes very complex to analyze the financials because of their multiple divisions and complicated accounting practices.

Balance Sheet Health Rating

A rating of 3 out of 5 because although the business has positive cash flow and enough cash to meet current obligations, their leverage (debt vs equity) is high making them vulnerable to market shocks and changes in interest rate, and their intangibles account for a high percentage of assets which may be hard to value.

Recent Issues

Ryder is currently dealing with high interest rates, which is impacting their debt obligations, they are, however, working to decrease that as discussed in the latest earning calls. They have been increasing prices to partially offset these increasing debt costs. Furthermore, the used vehicle market has begun to show some signs of weakness as supply chains are catching up, this will likely bring down profits from used vehicle sales, a major part of revenue, however, management believes pricing to still be high. As well as this, their leasing business is becoming increasingly popular with customers as some uncertainties surrounding vehicle maintenance and technology, which seems like a long term strength. Finally, they have been increasing investment in technology to better track supply chains and vehicle utilization, with aims to improve efficiency and save costs, but this is still in its early stages.