13 -Feb -2020 Ryder System, Inc. · was $564 million, up 1% from the prior year, primarily reflecting earnings contributions from our contractual businesses and cost reductions, partially

Corrected Transcript

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13-Feb-2020

Ryder System, Inc. (R)

Q4 2019 Earnings Call

Ryder System, Inc. (R) Q4 2019 Earnings Call

Corrected Transcript 13-Feb-2020


2 Copyright © 2001-2020 FactSet CallStreet, LLC

CORPORATE PARTICIPANTS

Robert S. Brunn Vice President-Investor Relations, Corporate Strategy & Product Strategy, Ryder System, Inc.

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc.

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc.

John J. Diez President-Fleet Management Solutions, Ryder System, Inc.

J. Steven Sensing President-Global Supply Chain Solutions, Ryder System, Inc.

.....................................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Benjamin John Hartford Analyst, Robert W. Baird & Co., Inc.

Todd Fowler Analyst, KeyBanc Capital Markets, Inc.

Scott H. Group Analyst, Wolfe Research LLC

Justin Long Analyst, Stephens, Inc.

Brian P. Ossenbeck Analyst, JPMorgan Securities LLC

Stephanie Benjamin Analyst, SunTrust Robinson Humphrey, Inc.

David G. Ross Analyst, Stifel, Nicolaus & Co., Inc.

John R. Cummings Analyst, Copeland Capital Management LLC





MANAGEMENT DISCUSSION SECTION

Operator: Good morning and welcome to the Ryder System Fourth Quarter 2019 Earnings Release Conference

Call. All lines are in a listen-only mode until after the presentation. Today's call is being recorded. If you have any

objections, please disconnect at this time.

I would now like to introduce Mr. Bob Brunn, Vice President, Investor Relations, Corporate Strategy and Product

Strategy for Ryder. Mr. Brunn, you may begin. .....................................................................................................................................................................................................................................................................

Robert S. Brunn Vice President-Investor Relations, Corporate Strategy & Product Strategy, Ryder System, Inc.

Thanks very much. Good morning, and welcome to Ryder's fourth quarter 2019 earnings and 2020 forecast

conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements

within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on

management's current expectations and are subject to uncertainty and changes in circumstances. Actual results

may differ materially from these expectations due to changes in economic, business, competitive, market, political

and regulatory factors.

More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the

nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's

filings with the Securities and Exchange Commission, which are available on Ryder's website.

Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer; and Scott Parker,

Executive Vice President and Chief Financial Officer. Additionally, John Diez, President of Global Fleet

Management Solutions; and Steve Sensing, President of Global Supply Chain Solutions and Dedicated

Transportation Solutions, are on the call today and available for questions following the presentation.

At this time, I'll turn the call over to Robert. .....................................................................................................................................................................................................................................................................


Good morning, everyone, and thanks for joining us. This morning, we'll provide a brief overview of our fourth

quarter results. We'll also provide our 2020 outlook including actions that we're taking to improve returns.

Following our prepared remarks, we'll open the call for questions.

With that, let's turn to an overview of our fourth quarter results. Comparable earnings per share from continuing

operations was a loss of $0.01 for the quarter as compared to a profit of $1.87 in the prior year. The loss included

$1.67 in higher depreciation related to previously announced residual value estimate changes. Comparable

results were at the lower end of our forecast range of a loss of $0.03 to a profit of $0.07, reflecting a modest

increase in the depreciation impact of the residual value change as we trued up the estimates provided.

Operating revenue increased by 3% to a record $1.8 billion for the fourth quarter driven by contractual revenue

growth in Fleet Management and Dedicated, partially offset by lower revenue, as expected, in Supply Chain.





Page 5 includes some additional financial information for the fourth quarter. Comparable EBITDA for the quarter

was $564 million, up 1% from the prior year, primarily reflecting earnings contributions from our contractual

businesses and cost reductions, partially offset by lower rental demand, higher insurance-related costs and the

impact from customer labor strikes. Comparable EBITDA for the full year was a record $2.3 billion, up 11% from

the prior year. The average number of diluted shares outstanding was $52.3 million, down slightly from the prior

year.

Excluding pension costs and other items, the comparable tax rate was a benefit of 98.7% in Q4 2019 as

compared to an expense of 21% in the prior year, reflecting the impact from residual value estimate changes.

Adjusted return on equity was 0.3%, down from 12.7% in the prior year, reflecting lower earnings from higher

depreciation related to the previously announced residual value changes.

I'll turn now to page 6 to discuss key trends that we saw in each business segment. Fleet Management Solutions

operating revenue increased 6%, driven by growth in our contractual ChoiceLease product, partially offset by

lower rental revenue. ChoiceLease revenue increased 9% driven by fleet growth and, to a lesser extent, higher

rates on replacement vehicles.

The lease fleet increased by a record of 10,500 vehicles or 7% for the full year, reflecting continued outsourcing

trends. We expanded our lease customer base by 400 accounts last year. These new customer relationships are

expected to yield benefits for a very long time as we typically renew customer deals over successive lease terms

and can expand many of these relationships into other services like Dedicated over time.

Rental revenue was down 4% for the quarter driven by lower demand for heavy-duty tractors, partially offset by

higher truck demand and increased pricing on all vehicle types. Rental utilization on power units was 76%, down

from the exceptionally high utilization levels we saw in the prior year. Our ending commercial rental fleet declined

by 6% sequentially from the prior quarter, reflecting actions taken to align the rental fleet size with lower market

demand.

FMS realized a loss of $80 million, primarily reflecting higher depreciation of $118 million due to the impact from

previously announced residual value changes as well as lower rental performance, higher insurance-related costs

and the cost to prepare a higher number of vehicles for sale. Results benefited from lease fleet growth and higher

pricing.

Page 7 highlights used vehicle sales results. We sold 6,000 vehicles during the quarter, up 33% versus the prior

year and up 13% sequentially. For the full year, we sold 21,300 vehicles, an increase of 3,800 or 22% from the

prior year. Used vehicle inventory held for sale was 9,400 vehicles at quarter-end, slightly above the high end of

our target range of 7,000 to 9,000 vehicles, but in line with expectations.

Inventory increased by 2,500 vehicles year-over-year and by 2,100 vehicles sequentially, reflecting a greater

number of units coming off lease this year, as expected, and downsizing of the rental fleet. Proceeds per vehicle

sold were down 25% for tractors and down 10% for trucks compared to a year ago, reflecting significant and

ongoing market weakness. Sequentially, tractor pricing was down 13% and truck pricing was down 5%. As a

reminder, as discussed on our last call, we revised our assumed used vehicle sales price levels for setting

residuals for both policy and accelerated depreciation purposes.

Page 9 of the third quarter earnings called slide deck identified the assumptions we made for policy depreciation

purposes for vehicles to be sold in the longer term. The assumption we made for accelerated depreciation

purposes for vehicles to be sold in the near term was significantly lower than that and at near the trough level





pricing that we saw back in 2002. Price levels that we saw in the quarter were in line with our expectations for the

quarter.

I'll turn now to Supply Chain on page 8. Operating revenue decreased 5%, reflecting previously announced lost

business and customer labor strikes, partially offset by higher pricing. SCS pre-tax earnings were up 3% due to

improved operating performance, partially offset by the impact from the strikes and a $3 million impact from the

change in residual value estimates for vehicles used in Supply Chain. Segment earnings before tax as a percent

of operating revenue were 7% for the quarter, up 50 basis points from the prior year.

Turning to Dedicated on page 9, operating revenue increased 4%, reflecting higher pricing in new business. DTS

earnings before tax increased due to improved operating performance and favorable development from prior-year

insurance claims. These benefits were partially offset by a $6 million impact from the change in residual value

estimates for vehicles used in DTS. Segment earnings before tax as a percent of operating revenue were 7.5%,

up 70 basis points from the prior year.

At this point, I'll turn the call over to our CFO, Scott Parker, to cover several items starting with capital spending. .....................................................................................................................................................................................................................................................................


Thanks, Robert. Turning to page 10, full year gross capital expenditures were $3.6 billion, up approximately $500

million from the prior year. This increase reflects higher investments to grow and refresh the contractual lease

fleet, while rental CapEx declined. Proceeds from sales were up about $120 million to $518 million, including $43

million from the sale of property in the second quarter. Net capital expenditures increased by approximately $300

million to $3.1 billion.

Turning to the next page, we generated $2.7 billion of total cash for the year, up by around $500 million or 26%

from the prior year. Free cash flow was negative $1.1 billion, reflecting capital spending to support record

contractual lease sales. Debt to equity at the end of 2019 increased to 320%, reflecting capital spending and a

reduction in equity for the residual value estimate change.

At this point, I'll turn it back to Robert to discuss the 2020 outlook. .....................................................................................................................................................................................................................................................................


Thanks, Scott. Page 13 and 14 highlight some of the key assumptions for our 2020 earnings forecast. Overall, we

expect a moderate growth in macro environment and strong contractual sales activity in Supply Chain and

Dedicated. We've added sales resources to support growth in these segments and leverage the secular trends

that continue to favor outsourcing. We expect lower ChoiceLease sales results reflecting lower OEM production

and from actions taken to improve lease returns.

In Fleet Management, the total lease fleet count we've historically reported is expected to decline due to the

progress made to reduce the number of vehicles being prepared for sale. We've added a new metric for the active

lease fleet count, which excludes vehicles that are in the in-service and out-service process.

The active lease fleet is expected to increase by up to 1,000 vehicles this year. The softer freight environment is

expected to result in lower commercial rental demand, particularly for heavy-duty tractors. Increased rental pricing

and higher year-over-year utilization in the second half should partially offset softer demand on the smaller fleet.





We're on track to substantially rightsize the rental fleet by the end of the first quarter, but we'll continue to make

more modest sequential reductions for the balance of the year in order to align the fleet with market conditions.

The ending rental fleet is expected to be down 3,700 vehicles or 9% year-over-year. Lower planned lease and

rental capital spending is forecast to result in positive free cash flow of $350 million. With a modest growth

strategy in FMS, we expect free cash flow to be positive over the cycle.

Total cash generated is expected to be $2.6 billion. We're expecting an EPS tailwind from a lower year-over-year

impact from the policy depreciation change, accelerated depreciation and used vehicle losses. Comparisons are

expected to be unfavorable, however, until the second half of the year when we catch the tail of the residual value

estimate change, which was effective as of July 2019. We expect used vehicle pricing to remain soft with some

recovery in the second half.

We do plan to sell a higher number of vehicles of used vehicles as we expand our retail capacity. We expect

continued benefits from our multiyear maintenance cost savings initiative and are increasing the total expected

annual savings from $75 million to $100 million. Incremental benefits from this initiative in 2020 will be partially

offset by higher cost to prepare vehicles for sale.

Turning to page 14, Supply Chain revenue growth will be slow during the first half due to previously announced

lost business. Revenue growth rates are expected to improve to target levels in the second half of the year as we

move past this impact. The earnings benefit from higher pricing and new business is expected to be offset by

strategic investments, favorable prior-year insurance claims development and residual value estimate changes for

vehicles used in Supply Chain.

In DTS, lower-than-expected sales activity and fewer large deals in the second half of last year will reduce our

2020 revenue growth. We are highly focused on building a quality sales pipeline and increasing sales results to

address this issue. DTS earnings will face headwinds from the unfavorable prior-year insurance claims

development that are not currently forecast to recur in 2020, residual value estimate changes on vehicles used in

Dedicated and strategic investments.

We expect continued savings from our zero-based budgeting program that will offset inflationary employee

compensation and benefit costs. We plan to fund strategic investments in sales and marketing, technology, and

new products such as RyderShare and COOP, which are focused on driving long-term revenue and earnings

growth.

Finally, our board approved a new two-year 1.5 million share anti-dilutive repurchase program, which replaces our

prior program that expired in December. Based on the assumptions I outlined, we expect operating revenue to

remain unchanged in 2020, reflecting revenue growth in ChoiceLease and Supply Chain, offset by a slowdown in

Rental and Dedicated.

Comparable earnings per share is forecast in the range of $1.10 to $1.50 in 2020 as compared to $1.01 last year.

This reflects the lower impact from previously announced residual value estimate changes and growth in our

contractual products. These benefits are partially offset by lower expected rental performance, strategic

investments, costs associated with actions to improve returns, and a higher tax rate. Comparable EBITDA is

forecast to be between $2.2 billion and $2.3 billion, consistent with the prior year.





The comparable tax rate is forecast to be 31%. The tax rate in 2020 is expected to be somewhat higher than a

more normalized rate in the high-20s that we would expect going forward. Adjusted ROE is expected to increase

to 2.7% in 2020 from the 0.3% in the prior year.

Page 16 outlines our revenue expectations by business segments. In Fleet Management, operating revenue is

expected to be flat, as slower growth in ChoiceLease revenue is offset by a decline in rental. ChoiceLease

revenue growth is forecast to slow to 2%, reflecting lower OEM production environment, the non-renewal of lease

business with lower returns, and anticipated lost business related to the discontinuation of our liability insurance

extension program for lease customers.

Commercial rental revenue is expected to decline by 7%, reflecting lower demand, partially offset by modestly

higher pricing. The demand change is largely driven by heavy rental activity in 2019 for customers who were

awaiting delivery for their new lease vehicles. SCS operating revenue growth is expected to be 2% with revenue

growth rates around target levels in the second half of the year. Dedicated operating revenue is forecast to

decline 1%, reflecting lower sales activity and fewer large deals signed in the second half of last year.

Page 17 provides a chart outlining the key changes from 2019 to reach the high end of our 2020 comparable EPS

forecast. The year-over-year impact from lower residual values is expected to generate an additional $1.65.

Growth in our contractual businesses of lease, Supply Chain, Dedicated – and Dedicated are forecast to add

$0.55 to EPS. Rental is expected to negatively impact EPS by $0.62, primarily reflecting lower tractor demand,

partially offset by higher pricing and higher utilization in the second half of the year. We continue to make strategic

investments to drive future revenue and earnings growth. In 2020, we're planning a $0.45 increase in strategic

spending, focused primarily on sales and marketing, information technology, new product development and

investments to achieve maintenance cost savings target.

Approximately half of these strategic investments are in FMS and focused on also improving returns. In 2020, we

expect to incur a negative $0.25 EPS impact related to initiatives that will position us to improve returns in future

years. This includes items related to the discontinuation of the lease insurance product line as well as actions to

address lower return accounts and assets. Incremental savings from our zero-based budgeting process will

largely offset higher employee-related expenses, including compensation and benefit costs.

The net impact of these operational items would result in EPS of $1.45 to $1.85. A higher tax rate is expected to

be an EPS headwind of $0.35, bringing the high end of our comparable EPS forecast rate to $1.50 with the range

of $1.10 to $1.50 forecast for the year.

I'll turn it back over to Scott now to cover capital spending and cash flow. .....................................................................................................................................................................................................................................................................


Thanks, Robert. Turning to page 18, we are forecasting total gross capital spending of approximately $2.1 billion,

down significantly due to the lower spending in both lease and rental. Gross capital for ChoiceLease is expected

to be down $900 million and ChoiceLease replacement spending is expected to be down around $200 million.

Rental spending is forecasted to decline by over $400 million to $130 million, reflecting a below full replacement

spend level due to the softness anticipated in the transactional market environment.

Our investment spending in property and equipment is expected to remain consistent with last year at around

$190 million. Proceeds from sales are forecast to decline by nearly $90 million to $430 million. Prior-year

proceeds included $43 million from our property sale. As a result, net capital expenditures are forecasted at





around $1.7 billion, a decrease of around $1.4 billion from 2019. Free cash flow is forecast to be positive $350

million, up by approximately $1.4 billion, reflecting significantly lower net capital spending. Our debt-to-equity

forecast is expected to decline to about 315% by the end of the year, but remain above our target of 250% to

300% as we work through the impacts of the residual value policy change.

I'll turn it back over to Robert now to discuss our 2020 forecast as well as our long-term targets and actions to

achieve them. .....................................................................................................................................................................................................................................................................


Turning to page 19, we're forecasting comparable EPS of $1.10 to $1.50 in 2020 versus $1.01 last year. We're

also providing our first quarter comparable EPS forecast of a loss of $0.65 to $0.80 versus a prior profit of $1.11.

Year-over-year earnings comparisons in the first half will be unfavorable as higher depreciation from the July

2019 residual value estimate change did not impact the first half of last year. However, we expect to return to

profitability in the second quarter. Additionally, please note that the first quarter is seasonally the lowest earnings

quarter for the year.

I'd like to turn now and discuss the progress we're making on actions and initiatives to support our strategy of

moderate growth with improved returns. We're continuing to implement meaningful ChoiceLease price increases

in order to raise returns and de-risk the business in light of the volatility of the used truck market. Although higher

pricing is likely to lower new sales from recent record levels, we believe this is an appropriate trade-off in order to

enhance returns. In addition, we continue to evaluate underperforming accounts and implement appropriate rate

increases at the time of renewal. We expect this will result in some higher levels of lost business and have

factored those into our forecast.

With favorable results in 2019 from our multi-year maintenance cost initiative, we're increasing our expected

annual savings from $75 million to $100 million. During the fourth quarter, we closed a number of

underperforming locations in the US and Canada. With higher expected used vehicle sales volumes in 2020, we

took action to increase retail sales capacity by adding sales locations, leveraging our inside sales capabilities and

enhancing our used vehicle sales website.

In order to accelerate growth in Supply Chain and Dedicated, we've made strategic investments in sales and

marketing resources. We discontinued our liability insurance extension program on customer lease vehicles in

order to reduce future exposure from escalating premiums and claims settlement costs. Finally, in 2020, 2020

awards under our executive compensation program will be more heavily weighted to cash flow and return-based

metrics and less weighted on revenue to align with our strategy. Taken together, these strategic initiatives create

short-term earnings headwinds in 2020, but are expected to better prepare us to deliver improved returns in 2021

and beyond.

Page 22 provides an overview of our financial model and our long-term targets, which have been updated to

reflect our current outlook for the business. Our primary financial target going forward will be adjusted return on

equity as we focus on improving returns in our business. ROE is a more widely used measure of returns and

capital efficiency and return on capital spread and is more easily comparable across companies. We plan to

continue to report return on capital spread for some time as well for a reference.

We're targeting an adjusted ROE of 11% to 15%. Our near-term goal is to reach our cost of equity, which is

around 11%. Longer term, we believe we can push higher than that, up to 15%. It's important to note that we

expect to be able to achieve these return levels with no gains in used vehicle sales. The high end of our ROE





target range is consistent with our prior ROC spread target. The key component to realizing our return targets

include operating revenue growth, pre-tax earnings as a percent of operating revenue and balance sheet

leverage.

In Fleet Management, we're targeting operating revenue growth in the mid-single digit range. This is below our

prior target, consistent with moderate growth and reflects our focus on increasing pricing and improving lease

returns. In Supply Chain and Dedicated, we're targeting growth rates in the high-single digits, in line with our prior

goals. We believe these growth rates are achievable given the large addressable markets in which all three

segments operates as well as secular trends that continue to favor outsourcing.

We're targeting pre-tax earnings as a percent of operating revenue in the high-single digit range for all three

business segments. These targets are unchanged in Supply Chain and Dedicated, but lower for FMS, reflecting

the impact from the recent residual value estimate change. Although, we're lowering our FMS earnings target, we

expect to be able to achieve a similar overall return level for the company, primarily due to the benefit of a lower

tax rate.

Our target leverage range of 250% to 300% remains unchanged. We believe actions and initiatives we're

executing will position Ryder well to achieve our return targets over time. We're looking at 2020 as the year to

ensure that we're taking the appropriate actions to drive better returns beginning in 2021 and beyond. As

discussed, some of these actions have negative impact to revenue and earnings this year, but we think is the right

approach, given that our primary focus is on driving higher returns in our business.

That concludes our prepared remarks this morning. Please note that we expect to file our 10-K late next week or

early the following, which will contain additional details for your review. We had a lot of material to cover today, so

please limit yourself to one question. If you have additional questions, you're welcome to get back in the queue

and we'll take as many as we can.

At this time, I'll turn it over to the operator to open up the lines.





QUESTION AND ANSWER SECTION

Operator: Thank you. [Operator Instructions] And we'll take our first question from Ben Hartford with Baird. .....................................................................................................................................................................................................................................................................

Benjamin John Hartford Analyst, Robert W. Baird & Co., Inc. Q Hi. Thanks. Good morning, everyone. A lot in here. Scott, maybe just to ask it directly. As you kind of come in and

start to get acclimated with the model, some of the changes on slide 22, I think, are pretty straightforward. But as

you think about what is the pathway in your mind – kind of two questions here, what's your pathway to achieving

that leverage ratio, the debt to equity target over the next several years? How do you think you'll get there? And

then in that same context, in the meantime, what is your attitude towards the current dividend policy? Thanks. .....................................................................................................................................................................................................................................................................

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A Yes. On the page 22, I think the path on the deleveraging is a combination of two things. So, the lower growth in

the free cash flow helps us lower the growth in the debt rate. Then the second piece, as the depreciation

continues to run off as well as these return on capital actions that we've talked about will build back the kind of the

earnings, which will improve our equity. So, those are the two levers that will drive us to get down in 2021 back

into our target range. And the second question, what was the second question, again? .....................................................................................................................................................................................................................................................................

Benjamin John Hartford Analyst, Robert W. Baird & Co., Inc. Q How are you thinking about dividend levels presently and kind of what's your approach to the dividend policy

going forward? .....................................................................................................................................................................................................................................................................

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A Yeah. I think the dividend policy really was, historically, to kind of be in line with kind of the earnings growth rate.

So, we feel that dividend is kind of a good contributor to shareholder return and we'll continue to look at that going

forward kind of relative to our earnings expectations going forward. .....................................................................................................................................................................................................................................................................

Benjamin John Hartford Analyst, Robert W. Baird & Co., Inc. Q Thank you. .....................................................................................................................................................................................................................................................................

Operator: [Operator Instructions] Our next question comes from Todd Fowler with KeyBanc Capital Markets. .....................................................................................................................................................................................................................................................................

Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Great. Thanks and good morning. Robert, when you think about the pivot on the strategic initiatives, how do we

think about your position within the leasing market? It sounds like really the driver going forward is just slower

lease growth. Is that looking at the lease portfolio and just pruning out the low-margin accounts, and that's really

what slows the growth? Or are you taking a different approach to the market in how you'll grow the lease fleet

going forward? I mean, the number two, with the $0.25 of headwind from the strategic initiatives this year, does





that go away next year or how do we think about that headwind? Does that turn into a tailwind as you move into

2021? Thanks. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Okay. First, on the lease side, I'll tell you our approach there is, look, we've been lowering the residual values for

our lease pricing for the last couple of years to reflect kind of the new normal for the used truck market. So, we're

– really continued doing that. In addition to that, I think given the volatility that we've seen in the used truck

market, the risk premium on the leases has gone up. So, we're adjusting the pricing for that. So, we're looking to

continue to increase the pricing to offset that. We don't know what that's going to give us in terms of growth. We're

assuming, based on what we've seen in the market, that it will curb some of the growth going forward, and that's

really what you've got built in here. So, we're not necessarily just back – we're not backing off from our lease

business and say we don't want to be in it or – we're just saying we want to make sure we're getting the right

return.

And I think given the fact that what's driven this change is market driven, the used truck market is down. Any

private owner who has their own truck is feeling the same pain. I would expect that, over time, more people will

continue to come to lease. So, I just think you're going to see a lot more of the growth maybe coming from the

private fleet and from companies that have not outsourced before. And we're looking to get a higher premium for

that. So, that's the first thing.

Around the strategic investments, as I mentioned on the call, about half of those investments are investments that

we're making to improve our profitability in FMS. A lot of these are maintenance initiatives that we're going to get

the benefits – continue to get benefits this year and then more benefits next year. So, some of that will subside

next year. And then we're also opening up additional used truck centers that is part of that too within FMS, that

once – we think we've got to get our capacity up a little bit higher, we think most of those investments will happen

this year. So, I think some of that will go away. The other pieces which are really the investments in Supply Chain

and Dedicated, I don't necessarily see those going away, because I think those will continue to make investments

to help grow those more asset-light businesses. .....................................................................................................................................................................................................................................................................

Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Okay. That's helpful. Let me jump back in line because I know there is a lot to cover. Thank you. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Hey, Todd, just one other thing. Let me just clarify, because if you were asking about the return on capital actions,

I just addressed the strategic initiatives. We broke it out in two buckets. The return on capital actions, a big chunk

of that in 2020 is really related to the fact that we're going to lose some accounts where we were providing – we

were extending lease insurance to them, insurance services to them. So if we pull the insurance, we may lose the

account. So, we've built that in. We expect that to be kind of a one year – some of it will bleed into 2021, but the

bulk of that will really impact this year. That's the chunk of it.

The other piece is just low-return accounts that we are not going to renew. So, they may be contributing to the

margin, but when you look at the return on capital and return on equity, they're certainly below the target that we

want. So, there will be some, I think, ongoing headwind each year from that. But as you'll see each year, you'll get

an improvement in returns on our invested capital and returns on our equity as a result of that.





Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Okay. So just to clarify, the first half of the comments were related to the $0.45 bucket on the strategic

investments. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Correct. .....................................................................................................................................................................................................................................................................

Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q The second piece of the comments that you just made on the insurance and low-margin accounts, that was the

$0.25 bucket. And it sounds like, of the $0.25 bucket, some of that will continue, but the order of magnitude would

be less than the $0.25 going forward. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Right. That would be the expectation. .....................................................................................................................................................................................................................................................................

Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Okay. Thanks for the clarification on that. Thank you. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Thanks, Todd. .....................................................................................................................................................................................................................................................................

Operator: And we'll take our next question from Scott Group with Wolfe Research. .....................................................................................................................................................................................................................................................................

Scott H. Group Analyst, Wolfe Research LLC Q Hey. Thanks. Morning, guys. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Hey, Scott. .....................................................................................................................................................................................................................................................................

Scott H. Group Analyst, Wolfe Research LLC Q So, I want to ask about the slide from last quarter with the Xs on used prices. So, where are used prices today

versus those Xs? I'm wondering if there's any additional cushion left or if we've sort of worked through that now.

And then, I'm wondering have you lowered the residual assumptions any further from what you told us last

quarter? And then, maybe just with that, can you just update us – last quarter, you told us what the depreciation

tailwinds would be in 2020 and 2021. Can you give us the updated numbers to the extent that those have

changed at all?





Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Let me address the question on the chart that we showed from last quarter, and then I'll let Scott talk about the

depreciation. To give you an idea where we're at, if you remember the slide – and I hate talking about a slide from

last quarter, but I know this thing got a lot of press. It was a slide that we had a 20-year look-back on tractor

pricing and then we showed a nexus to where our policy depreciation was, but we did not share an X as to where

accelerator was just because of – it would not – certainly not wanting to drive the market in that direction. But

what I just said on this call was that our accelerated depreciation number is towards the trough level that we saw

in 2002, so a 20-year low. That's where we have marked the accelerated depreciation at.

Where we ended the quarter was in between the two numbers. So, we were right in the middle between where

the policy X is and where the accelerated depreciation is, which is right where we expected to be. So, you did see

a decline in the quarter. Used vehicle pricing continues to decline, as we'd expect. We're expecting it to bottom

out in the middle of the year and then see some pickup in the second half of the year. .....................................................................................................................................................................................................................................................................

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A Scott, on the second question, we added a slide on page 26 of the deck that I'll tie into – kind of refer to your

question about what changed from the third quarter estimate. So if you go back there, we had for – the impact of

the second half of 2019 just from the estimate change was $289 million. We mentioned that there was a slight

refinement and true-up as we pushed that down in the fourth quarter of about $8 million. So, the total impact from

the change was $297 million. There will be more details in the K for that. We also mentioned that there was some

policy and depreciation that was effective 1/1/2019. That number was about $60 million. So, the total depreciation

impact in 2019 was around $357 million.

And then we add the losses from used vehicle sales, so we had some additional in the fourth quarter than what

we had in the third quarter. So, a total of all of the depreciation and UVS losses for 2019 was around $415 million.

As you kind of go into 2020, the chart we had last quarter had the impact from the estimate change at $250

million. The follow-through of some of the 1/1/2019 does trail into 2020. So, that's about $25 million, so the total

impact from depreciation we're expecting at $275 million.

And then, when it comes to estimation for the used vehicles, we expect that there are some assets that are not in

our accelerated classification that, on a monthly basis, we do take back units that are outside of that definition that

we will have some potential slight losses in 2020 related to those assets. So, that gets you to $295 million for the

total impact for 2020. So, the year-over-year change is $120 million that we have on the chart, which is about

$1.65. So, hopefully, when you get to the page 26 to kind of see the details of how that kind of relates to what we

shared in the third quarter. .....................................................................................................................................................................................................................................................................

Scott H. Group Analyst, Wolfe Research LLC Q And I know it's early, but was the $125 million for 2021 changed? .....................................................................................................................................................................................................................................................................

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A The $125 million for 2021, if you were to solve right now, like the $120 million year-over-year benefit from 2019 to

2020, right now, we're expecting the impact from 2020 to 2021 to be around that or maybe a little bit higher,

maybe $125 million, $130 million impact of positive tailwind from 2021 – or 2020, sorry.





Scott H. Group Analyst, Wolfe Research LLC Q Okay. And if I can ask one more just on the strategic investments. So, I went back – and I think it's now nine years

in a row where it's become an incremental year-over-year headwind. I guess, two things, in prior years, though,

there was some cost actions and maintenance things that are offsets. How come we don't see anything like that in

the bridge this year? And I guess, why not a more meaningful sort of reduction in the future to these investments,

if the growth is slowing and maybe the payout hasn't been there? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Yeah. Although – well, a couple of things. One is there are cost actions in there. We talked about it in the

waterfall. We didn't call it out, but we're – the cylinder – the item that has overheads has got it netted out with the

cost actions. There's at least $20 million of zero-based budgeting benefit built into that that is offsetting the

compensation increases year-over-year. So, they are in there.

In terms of why not pull back on the strategic investment, remember, half of that are investments that we're

making to basically get improvements in the business. So, we need those in order to get the maintenance cost

savings that you're going to see in contractual business and in rental, and then also in order to get – to expand

our used vehicle networks so that we can sell more units. So, we haven't come off of that. I think the issue is just

continuing – is making sure that we're making the investments we need to get the savings, along with the

investments that we're making – the other investments are really primarily related to growing more asset-light

Supply Chain and Dedicated businesses. .....................................................................................................................................................................................................................................................................

Scott H. Group Analyst, Wolfe Research LLC Q Okay. Thank you, guys. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A All right. Thanks, Scott. .....................................................................................................................................................................................................................................................................

Operator: And we'll take our next question from Justin Long with Stephens. .....................................................................................................................................................................................................................................................................

Justin Long Analyst, Stephens, Inc. Q Thanks. I wanted to follow-up on the 2020 guidance, just given some of the earnings volatility we're seeing.

Obviously, you gave the first quarter outlook and, Robert, I think you mentioned you expect profitability in the

second quarter. But is there any additional color you can provide on the cadence of EPS from 2Q to 4Q this year

as we try to model that out? And maybe as you answer that, you could talk about how these strategic investments

and the return improvement costs are going to flow through the model quarterly over the course of 2020? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Yeah. I think the key item – number one is the first quarter is always the lowest quarter, primarily driven by rental,

which is usually your lowest utilization quarter as there is less need for seasonal units to be used, along with just

less miles driven generally in transportation in the first quarter. So as we get into a seasonal uptick in the second





quarter, you're going to see the benefits of that. And that's why I mentioned that we expect to turn to profitability.

The big benefit in earnings really starts to kick in, in the third and fourth quarter as the impact of the depreciation

change really starts to subside, and you start to get some earnings benefit there. Along with that, as I mentioned,

the growth that we're really expecting to ramp back up in Supply Chain and Dedicated, you start to see some

benefits coming from that part of it, along with, on the rental side I would tell you, right-sizing the rental fleet and

getting the utilization levels back up to where they need to be in the second of the year. So, those are probably

the biggest drivers. You're going to see some improvement in the second quarter, as I said, we get to profitability.

And then you see a bigger improvement in earnings in the second half of the year. .....................................................................................................................................................................................................................................................................

Justin Long Analyst, Stephens, Inc. Q And just to follow up on that rental piece, what's your assumption for rental demand first half versus second half? I

know it's down 10% for the full year, but what does the cadence look like? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A John, you got that there? .....................................................................................................................................................................................................................................................................

John J. Diez President-Fleet Management Solutions, Ryder System, Inc. A Yeah. So, Justin, we'll let you know that we expected a decline in revenue in the range of 7% for the full year, and

you could expect the first quarter, which has the toughest comps, to be the biggest decline year-over-year, you're

looking at near double digit. And then it will start trailing off from there once we get the fleet right-sized and

demand levels kind of balance out. And really you're looking at Q3, Q4 for that to balance out. .....................................................................................................................................................................................................................................................................

Justin Long Analyst, Stephens, Inc. Q Okay. Great. I'll leave it there. Thanks for the time. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Thanks, Justin. .....................................................................................................................................................................................................................................................................

Operator: And we'll take our next question from Brian Ossenbeck with JPMorgan. .....................................................................................................................................................................................................................................................................

Brian P. Ossenbeck Analyst, JPMorgan Securities LLC Q Hey. Good morning. Thanks for taking the question. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Hey, Brian. .....................................................................................................................................................................................................................................................................

Brian P. Ossenbeck Analyst, JPMorgan Securities LLC Q





Hey. I just wanted to expand a little bit more on the thought process or maybe the time line of the, I guess,

footprints. You're shrinking some locations. If you can just give us some context in terms of how many that was?

Are these leased or owned? Any sort of follow-on financial impact, whether impairments or gain on sale or

anything like that embedded in the guidance? So, maybe a little bit of the detail. And then just bigger picture, how

do you think this – how long you think this right-sizing might last and to what degree? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A I'll let John give you a little bit of color. But I would tell you that's just part of our – kind of our pruning process. As

we looked at the network, we found some locations that were underperforming. We do this on a regular basis.

There was probably a few more that we picked up this year. So, we made some adjustments there. I think in

terms of ongoing efforts, I think you're going to still see some of it as we continue to look at either accounts or

customers that are underperforming. But it was a little bit more than usual, but again not a significant number. I'll

let John give you a little bit more color. .....................................................................................................................................................................................................................................................................

John J. Diez President-Fleet Management Solutions, Ryder System, Inc. A Yeah. Just to provide a little bit of color, I think what you heard on the closures is really a consolidation. So, we're

always looking at improving the health of the business, and when we looked at a number of our facility, we were

looking at those that were underperforming, but also we got to take an eye towards the customer impact as well

as the employee impact, and we just saw opportunities to consolidate a number of these smaller facilities into our

larger shop. In total, we impacted about 30 facilities. So, I would tell you I think the large portion is behind us. We

may do some selective consolidation as we move forward. But overall, as we look forward, we're trying to improve

the overall health of the business. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A I think, an important thing, Brian, is that a lot of – our capital is really tied up in the assets, the actual trucks. So,

reducing the infrastructure does give you some improvement, but the important thing is to make sure that we're

getting the right return on each of the vehicles. And that's the work that we're doing. And I think the key is, a lot of

these decisions really happen at the time of the renewal. We've got six year leases. You can't just in the middle of

the lease typically – it's not good for the customer or good for Ryder to break those leases. But as each year as

you get renewals, certainly taking a harder look at each of them, raising the pricing going forward is going to help

us accelerate getting to our target returns. .....................................................................................................................................................................................................................................................................

Brian P. Ossenbeck Analyst, JPMorgan Securities LLC Q Okay. So, it sounds like this is maybe a little bit above average in terms of the normal pruning process given the

strategic initiatives you're going through. So, it sounds like we shouldn't assume that there is any immaterial

impact in terms of impairments or severance or things like that embedded in the numbers? .....................................................................................................................................................................................................................................................................

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A No. .....................................................................................................................................................................................................................................................................





Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A No, that's not – that's correct, I wouldn't assume that. .....................................................................................................................................................................................................................................................................

Brian P. Ossenbeck Analyst, JPMorgan Securities LLC Q Okay. Thank you for the time. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Thank you. .....................................................................................................................................................................................................................................................................

Operator: And we'll take our next question from Stephanie Benjamin of SunTrust. .....................................................................................................................................................................................................................................................................

Stephanie Benjamin Analyst, SunTrust Robinson Humphrey, Inc. Q Hi good afternoon. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Hi, Stephanie. .....................................................................................................................................................................................................................................................................

Stephanie Benjamin Analyst, SunTrust Robinson Humphrey, Inc. Q I was hoping you could give a little bit color on some of the investments you're making to build out the Dedicated

and Supply Chain segments. You mentioned sales and marketing, IT, just maybe some examples of what that

entails, when you really start to step up those investments? And when we should expect to see some of the

returns and the benefits? That'd be helpful. Thank you. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Yeah. I'd tell you that the simple one is certainly adding more sales resources and marketing dollars to really get

after those accounts that we think we could win. As you know, a big opportunity for us continues to be leveraging

our FMS sales force to sell into Dedicated. So, adding more resources to help facilitate that is a part of that

investment. Adding more resources on the Supply Chain side, not only on the sales side, but also on the startup

teams to really get these accounts to get us to higher growth rates, I think, is another part of it also. A big part of

the spend, I would tell from what we're doing here, is really around two significant strategic initiatives. One is

RyderShare, which is our visibility and collaboration tool. And I'll let Steve give a little more color on that. The

exciting thing about that is that really does, we think, provide us a competitive advantage in the marketplace as

we go out and prospect for new business. Our ability to provide our customers with that visibility and collaboration

across their supply chain is a differentiator. And I think that's going to continue to be a big part of what we do.

And then the second piece is around our e-fulfillment network. As you know, we bought Ryder Last Mile. We

bought XPO a few years ago. We brought MXD and turned it into Ryder Last Mile. So, we want to continue to see

how we expand that and really grow that part of the business. But we also want to develop this e-fulfillment





network, which allows us to handle not just big and bulky, but it allows us to handle a product for customers that

want to go direct to their consumer and not go through any retailer. So, building out of that network we've got now

facilities on the West, Central and East Coast of the US, and really starting to build that out. So, let me also let

Steve give a little more color. .....................................................................................................................................................................................................................................................................

J. Steven Sensing President-Global Supply Chain Solutions, Ryder System, Inc. A Yes, Stephanie. This is Steve. On back to RyderShare, think of it as a collaborative supply chain visibility tool, as

Robert said. We have began the roll out our across our DTS organization earlier this year, should be complete

midyear of 2020. We started our transportation management service that's what we kind of operate as the traffic

department for our customers. We've began that rollout here in Q1. Really focused on getting that fully rolled out

to our customer base by about Q1 of next year. And then, we'll begin to expand into the warehousing and e-

fulfillment side of the business. So, it really allows our operators, customers, our carrier partners to view the same

information in real time and make decisions that will improve the service to the end consumer. I'll touch real quick

on e-comm. We are up and running now in three locations. We are putting automation into the three locations as

well, really as the volume comes in, because it's a cost/benefit analysis, so we're getting good traction there. The

pipeline continues to increase with new opportunities. So investing sales and marketing in e-comm, e-fulfillment

as well. And then Last Mile, this will be our first year of full comps. And I'll tell you that we're coming off a really

good sales year this past year. So, it's really going to be about execution implementation as we look at 2020. .....................................................................................................................................................................................................................................................................

Stephanie Benjamin Analyst, SunTrust Robinson Humphrey, Inc. Q Great. And I'll leave it at that. Thank you. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Thank you, Stephanie. .....................................................................................................................................................................................................................................................................

Operator: And we'll take our next question from David Ross with Stifel. .....................................................................................................................................................................................................................................................................

David G. Ross Analyst, Stifel, Nicolaus & Co., Inc. Q Yes. Good morning, gentlemen. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Hi, David. .....................................................................................................................................................................................................................................................................

David G. Ross Analyst, Stifel, Nicolaus & Co., Inc. Q A question on slide 18. Scott, when you look at the CapEx year-over-year, and you break it out to growth and

replacement, replacement CapEx looks lower on a bigger lease fleet, so $1.5 billion versus $1.7 billion, and then

rental replacement's down significantly from about $560 million to $130 million. What's a good run rate for – I

know there is difference in timing and annual trade cycles. But what's a good run rate for replacement CapEx for

both the rental and lease fleet? .....................................................................................................................................................................................................................................................................





Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A Yeah, I'll address the rental first. I mean, the rental, to think on a normal level replacement, not in the market we

are, it's probably more in the $400 million range. On the replacement, I think part of this is kind of as we're going

through these ROC actions that Robert mentioned, it's kind of get too much further out. We have to kind of see

how all that plays out in regards to the renewals, the price increases we're implementing, how that impacts that,

David. But that's something we can kind of think about as we go forward giving more clarity. But right now, we're

kind of in the early stages of that, so I don't want to get too far into kind of predicting that level. .....................................................................................................................................................................................................................................................................

David G. Ross Analyst, Stifel, Nicolaus & Co., Inc. Q And then, I guess, a quick follow up, on slide 22, why is growth necessary for the ROE targets and not just

improved earnings before tax margins? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Why is top-line growth necessary? .....................................................................................................................................................................................................................................................................

David G. Ross Analyst, Stifel, Nicolaus & Co., Inc. Q Yeah. I mean, why can't the business just cycle through some of these depreciation challenges, used truck

challenges? Even if you had the same fleet, in theory, I would think you would be able to get in the range. So, I

guess, why does it need to be a big revenue base to get to those financial targets? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Well, remember, some of the revenue increase is going to come from just improved pricing on the new stuff

coming in. But some fleet growth will help drive some of that earnings. Again, if the fleet growth is coming in at

good returns, which we feel confident that's what we're doing with the pricing that we put in or will continue to put

in, that's going to help us get to the return level sooner. .....................................................................................................................................................................................................................................................................

David G. Ross Analyst, Stifel, Nicolaus & Co., Inc. Q Okay. Thank you. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Thanks. .....................................................................................................................................................................................................................................................................

Operator: And we'll take our next question from John Cummings with Copeland Capital. .....................................................................................................................................................................................................................................................................

John R. Cummings Analyst, Copeland Capital Management LLC Q





Hi. Thanks for taking the question. I just wanted to ask a follow-up question on the dividend. You mentioned

moving dividend over time with earnings. So with earnings down significantly now, I mean how are you thinking

about the current dividend level? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Yeah. I think, on that, dividends have historically been for us really an indication of long-term earnings potential.

So if you look at our long-term earnings potential, we don't see a change in that at this point. So, our view around

it, it's a long-term indication of where we're going and we don't see that as having changed significantly here with

this depreciation change that we made. .....................................................................................................................................................................................................................................................................

John R. Cummings Analyst, Copeland Capital Management LLC Q Okay. So then, I guess, at what point would you consider – I mean, would you still consider raising the dividend at

this point or holding it flat? I'm just kind of trying to understand the philosophy here given the challenges you're

facing. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Yeah. No, look, I think that's the decision we'll make with the board here this year in terms of whether we raise it

or not. But I think, again, the dividend policy overall is really tied to our long-term earnings expectation. Right now,

based on the earnings we're producing, obviously, the yield is pretty significant. But we see that changing over the

next several years as depreciation impact starts to subside and we get back to more normalized earnings level.

So, our view is to really keep it consistent with where we think we're going, which would kind of keep us in the

range that we're in right now. .....................................................................................................................................................................................................................................................................

John R. Cummings Analyst, Copeland Capital Management LLC Q Okay. Thanks. And then, I just wanted to ask one more question on the ROE targets. And just if you can comment

on when you'd expect to get back into that target range. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Yeah. If you look at ROE targets we've laid out, we're saying that if as we get to the bottom end of that range is

really covering our cost of equity. So, we would expect to be certainly in that range in the next three to five years,

getting to our cost of equity within the next three years, and then expanding beyond that. And again, an important

comment there is that we're not expecting any UVS gains as we come up with these targets. So if the used truck

market were to come back higher than the levels that we expect here or above the levels we've expected, we

would get there sooner.

We are expecting a stable rental market too, which is another part of the environment. So, timing will be driven by

certainly the execution on our initiatives and then those economic and market factors that impact used vehicle

sales and rental. But certainly, the takeaway I'd give you is that our moderate growth strategy in ChoiceLease

should lead to significantly better free cash flow over the cycle. And you're seeing some of that this year. As we

get into next year and we get to a more normalized rental, probably replacement, some of that free cash flow may

come down from where we are today. But still certainly looking to be positive over the cycle and going forward. .....................................................................................................................................................................................................................................................................





John R. Cummings Analyst, Copeland Capital Management LLC Q Okay. Thank you. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Okay. .....................................................................................................................................................................................................................................................................

Operator: And we will take our next question from Ben Hartford with Baird. .....................................................................................................................................................................................................................................................................

Benjamin John Hartford Analyst, Robert W. Baird & Co., Inc. Q Hi. Thanks for taking me back in. Can I just get, Robert, a little bit of context behind the termination of the lease

insurance program? I mean, we understand the dynamics obviously in the market at this point in time. But how

big of a drag has it been in recent quarters? And what does it do? How does it change anything from a go-to-

market standpoint as you think about 2020 and beyond not having that program in place? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Yeah. Look, I think, Ben, it's a program we've had in place for many years. It was really a convenience for some

of our customers. We're extending our insurance to those customers. So, the short-term impact is really for a

select number of customers, where we think that by pulling that away they're not going to renew with us or they

may go away. I think longer term, I don't see it as a significant drag on our growth, because still the vast majority

of our lease customers do have their own insurance, through their own programs, and do not take our lease

insurance program. But over the last several years, it has been a headwind in FMS and we think that that

headwind – that risk is not worth the benefit that we're getting. Therefore, we're moving to move out of that part of

the business. .....................................................................................................................................................................................................................................................................

Benjamin John Hartford Analyst, Robert W. Baird & Co., Inc. Q Okay. Thanks. You guys are reporting relatively late in the calendar. Could you provide – obviously, you don't

have as much Asian outbound export exposure than some. But to what extent can you provide any context as to

what's going on now that we're beyond February 10 and it still seems like factory output is constrained? What are

you hearing from an in-bound freight standpoint? What are your customers saying? Supply Chain might provide a

little bit of insight into that, particularly from an automotive or an electronics vertical. Any context real-time that you

can provide as to what the impact will be in the coming weeks from a freight standpoint? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A I'll let Steve mention or comment on any of the stuff that we're seeing on the Supply Chain side more broadly. But

I would tell you on the rental side, which is typically our leading indicator of what's going on with freight, we are

continuing to see softness there. That is not surprising considering the imbalance between freight and trucks right

now. You've got a lot of trucks on the road for the amount of freight that's moving. That's something we expect

just on normal cycles to get back in line in the second half of this year, as you're hearing from other folks in the

industry. So, we are seeing that. I would tell you we saw that in January. We did build that into our full-year





forecast that you're getting. So, again, some really softness around the freight environment, I think, would be a –

what I tell you, we saw in January. Steve, do you want to mention any thing, what you're seeing? .....................................................................................................................................................................................................................................................................

J. Steven Sensing President-Global Supply Chain Solutions, Ryder System, Inc. A Yeah, Ben, I mean, we shut down our Asia operations, so we're no longer in the region. But I'll tell you, in working

across primarily the auto and industrial industries right now, we're not really seeing any short-term impact. I think

many of our customers are looking at alternative plans and kind of kicking in disaster recovery plans and then

switching suppliers where they can. So, nothing really coming from the customer base at this point. So, just more

to come and more to watch. .....................................................................................................................................................................................................................................................................

Benjamin John Hartford Analyst, Robert W. Baird & Co., Inc. Q Okay. Thank you. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A All right. Thanks. .....................................................................................................................................................................................................................................................................

Operator: And we'll take our next question from Todd Fowler with KeyBanc Capital Markets. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Todd, you might be muted. .....................................................................................................................................................................................................................................................................

Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Can you guys hear me? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A We can hear you now. .....................................................................................................................................................................................................................................................................

Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Okay. Sorry about that. Yeah, I did have it on mute. I just wanted to ask, Scott, on slide 26 that you referenced,

can you help us understand, it sounds like that pricing was within your expectations for the fourth quarter, but

there was a little bit of movement in the depreciation. So, what contributes to the variability? And specifically,

when we think about the $1.65 that you're expecting in 2020, what factors would make that different from your

forecast? Is it used truck pricing? But again, it sounds like it was within your range. I'm just trying to figure out how

the depreciation tailwind could move? How it moved in the fourth quarter and then how it can move into 2020? .....................................................................................................................................................................................................................................................................

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A





Yeah, Todd. So, I think with the size of the change that we made, I think the true-up that we did is kind of – not

kind of – shouldn't be read there's any change in the assumptions or what we did. It was just kind of a minor

modification to that. As you think about going forward, as Robert mentioned, in the fourth quarter, pricing was in

line with what our expectations are. We have forecasted that out for the remainder of 2020. So, what – the factors

that would impact that is – is really comes down to our forecast versus kind of what happens in the marketplace.

So, we've used the best information and what we've been seeing for the last six months to kind of inform us on

that, on what we're doing. But as Robert mentioned, we're kind of – on the accelerated side, we're kind of at that

kind of trough level. So, anything that's beyond that would be something that – would be something we would

need to kind of address. If it comes in a little bit better than that, that would be welcome news. .....................................................................................................................................................................................................................................................................

Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Okay. And then, can you just speak to, in your forecast, is that just staying at the trough level? It sounds like

maybe a little bit of improvement in the back half of the year. And not looking for specifics, but maybe just

directionally kind of what you have in your forecast? .....................................................................................................................................................................................................................................................................

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A Correct. As we mentioned in the prepared remarks, we have [ph] being continuing to (01:02:41) go down and then

a modest recovery in the back half of the year based on what we've seen and heard in regards to some of the

research out there about some of the supply/demand imbalance kind of stabilizing, as we get through this year. .....................................................................................................................................................................................................................................................................

Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Great. Okay. And then just lastly, can you share how much in the 2020 guidance is the cost to prep vehicles for

sale? .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Yeah. I don't think – on that one, Todd, we haven't been specific – the comment was really around the fact that

we have more vehicles that we have to out-service. So because of that, we're going to spending more money

doing those out-servicing and really getting those vehicles prepared for sales. That's really it. It's not a specific

number that we get into. .....................................................................................................................................................................................................................................................................

Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Okay. That's fair. I think that, Robert, I think we're trying to put together some of the pieces that won't be in the

2021 numbers. So, that's what I was looking for there. But we can follow up. Thanks. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Right. Well, what I would tell you, though, is you will see – you're going to have that increase this year – as you

get into next year, though, you'll still have a significant number – you'll still have the similar number of units to out-

service and to get – get to sell as the similar number of units will be terming out. So, I wouldn't expect it to be a

good guy next year, nor a bad guy, maybe flattish for the following year. .....................................................................................................................................................................................................................................................................





Todd Fowler Analyst, KeyBanc Capital Markets, Inc. Q Got it. Okay. Thanks again for the time. .....................................................................................................................................................................................................................................................................

Robert E. Sanchez Chairman & Chief Executive Officer, Ryder System, Inc. A Okay. .....................................................................................................................................................................................................................................................................

Operator: And we'll take our last question from Scott Group with Wolfe Research. .....................................................................................................................................................................................................................................................................

Scott H. Group Analyst, Wolfe Research LLC Q Hey. Thanks. I just got a real quick one. What is the tax rate for this year? And then is that the new normal? Does

that go back down next year? Can you help us out? .....................................................................................................................................................................................................................................................................

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A Yeah. Thanks for the question. No, given what we're going through, I would just first start off in the first quarter as

we talked about that we expect to have negative earnings. So when you think about the tax rate that we've put out

for 2020, the first quarter, we'll have a tax benefit. And then as you get through the year, we'll get the kind of the

tax rate that we provided guidance around. And the real challenge that we're working through, Scott, is that there

is kind of the statutory tax rate. But when you have lower earnings and we also have a fair number of discrete

items and there was one as – came in the fourth quarter in regards to a true-up for some of our state tax returns

that we don't expect to repeat in 2020.

So as – with a low pre-tax number and having a discrete item that doesn't repeat, that's why the rate is higher in

2020 versus 2019. But if you think about it going forward, as we look at 2021 and 2022, just because of the

impact of the lower earnings from the depreciation we're taking, I think it'd be more applicable to kind of use kind

of a high-20s kind of tax rate until we kind of get back to, what I'd call, more normalized earnings levels, which

would then effectively make the rate go down because you have more pre-tax with kind of similar tax expense.

So, that's what brings us down the rate. But I think for the next couple of years, I'd stay in the high-20s. .....................................................................................................................................................................................................................................................................

Scott H. Group Analyst, Wolfe Research LLC Q Right. So, what we've got in the forecast is 31%, and then going forward stay in the high-20s. .....................................................................................................................................................................................................................................................................

Scott T. Parker Chief Financial Officer & Executive Vice President, Ryder System, Inc. A Yeah. So, it kind of come down as we get that depreciation unwinding over the next couple of years, that would

kind of marginally reduce the rate that you would be seeing from the 31% in 2020. .....................................................................................................................................................................................................................................................................

Scott H. Group Analyst, Wolfe Research LLC Q Okay. Thank you. .....................................................................................................................................................................................................................................................................





Operator: I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks. .....................................................................................................................................................................................................................................................................


All right. Thanks everyone. About five minutes past the top of the hour, but I think we got all the questions that

were in the queue. So, thank you all for your interest and we certainly look forward to seeing you over the next

few months. .....................................................................................................................................................................................................................................................................

Operator: That concludes today's conference. Thank you all for your participation.

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13 -Feb -2020 Ryder System, Inc. · was $564 million, up 1% from the prior year, primarily reflecting earnings contributions from our contractual businesses and cost reductions, partially