Wednesday, transportation and supply chain management solutions provider Ryder System, Inc. (R) slashed its comparable earnings guidance for the first quarter ended March 2009, citing lower than expected results in its Fleet Management Solutions business segment. Looking ahead, the company expects the challenging economic environment to continue throughout the remainder of 2009.
The Miami, Florida-based company now sees comparable first quarter earnings per share in the range of $0.22-$0.24, significantly lower than the previous forecast of $0.40-$0.50. On average, eight analysts polled by Thomson Reuters expect earnings of $0.46 per share for the quarter. Analysts' estimates typically exclude special items.
The company's previous first-quarter 2009 earnings forecast, issued in February, said the earnings were expected to be much lower than the $0.96 per share reported for the first quarter of the previous fiscal as the previous year had lower pension expense and stronger market conditions.
In December 2008, Ryder announced several measures aimed at tackling the economic crisis. The company decided to discontinue operations in several international markets and eliminate 700 jobs primarily in the U.S. Ryder also decided to temporarily lay off 1300 drivers and 125 salaried employees.
Ryder now expects to incur first quarter pre-tax restructuring and other charges of about $8 million or $0.12 per share, related to actions undertaken in the fourth quarter of 2008. Including charges, reported first quarter 2009 earnings per share are expected in the range of $0.10-$0.12.
The company noted that the economic environment deteriorated throughout the first quarter beyond its original expectations, leading to lower freight volumes. Unlike in the past two years, when the decline in volume mainly hurt the transactional commercial rental product line, this time the company's full service lease and contract maintenance product lines have been hurt as well.
Customer demand has reduced for new leases and more customers downsized their fleets, Ryder said. Customers are also scaled down driving, thus lowering variable revenue and fuel gallons sold, the company added.
Ryder said its Supply Chain Solutions and Dedicated Contract Carriage business segments performed largely in line with expectations.
Expecting a continuation of the economic scenario for the remainder of the year, Ryder expects significantly lower than anticipated results in the Fleet Management Solutions segment. Due to the decline in transportation volumes, miles driven, fleet count, and fuel volumes within the company's full service lease and contractual maintenance product lines are now expected to be lower than previously planned.
Ryder added that to a lesser extent, it expects additional deterioration in commercial rental demand and used vehicle pricing beyond previous expectations.
The company also expects reduced net capital expenditures relative to the previous forecast due to lower expected levels of new lease sales and replacements, although partially offset by lower proceeds from the sale of used vehicles.
Ryder now sees full year 2009 free cash flow to improve from the previous forecast due to lower net capital expenditures, lower expected pension contributions, and reduced cash taxes partly because of recent government economic stimulus packages.
Commenting on the decline in freight activity, Ryder's Chairman and Chief Executive Officer Greg Swienton said, For the past two-and-a-half years we have been in a freight recession. During the first quarter, we saw further material reductions in freight volumes. As a result of this more severe downturn in freight activity, we're now seeing reductions in Ryder's lease product line resulting in fewer leased units and lower usage of the vehicles currently under contract. We expect these impacts to continue throughout the year.
The challenging economy has had a negative impact on most industries and rental and leasing services are no exception. In order to tackle the financial crisis, firms are restricting spending and postponing decisions indefinitely, contributing to lower revenues for such service providers.
Ryder's peer Con-Way, Inc. (CNW) recently slashed its workforce and put in place a pay freeze for management and administrative employees for 2009. The company also suspended its full-year earnings outlook, citing uncertain global economy and lack of visibility into future business volumes and market trends.
R closed Tuesday's regular trade at $29.56, down from the previous close of $30.96, on 1.15 million shares.
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