Bear of the Day: Ryder (R) – December 3, 2019

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Ryder System, Inc. (R Free Report) is still growing revenue but saw an earnings loss in the third quarter thanks to a change in vehicle residual value estimates of all power vehicles. This Zacks Rank #5 (Strong Sell) is expected to see earnings decline 81% in 2019.

Ryder operates in commercial fleet management, dedicated transportation and supply chain solutions.

Another Beat in the Third Quarter

On Oct 29, Ryder reported its third quarter results and beat the Zacks Consensus Estimate by 3 cents. Earnings were $1.52 versus the Consensus of $1.49.

It is on a beating streak as that was the 10th quarter in a row it met or beat.

Total revenue was up 3% to $2.2 billion.

Fleet Management saw revenue pop 4% to $1.4 billion from $1.34 billion a year ago. Dedicated Transportation Services also saw a 5% gain to $359 million. Only Supply Chain Solutions saw a drop, of 2%, to $618 million.

So what’s the problem?

The used vehicle market softened in late second quarter and intensified in the third quarter which led to a triggering review and change in residual value estimates on all power vehicles.

The earnings outlook was adjusted downward even as it expects solid revenue growth.

New Full Year Guidance

The most significant negative impact to earnings will be in the third quarter, and is expected to decline each quarter after that but fourth quarter 2019 isn’t going to be a picnic either.

As a result, the full-year 2019 EPS forecast was revised down to between $1.00 and $1.10.  

9 estimates were revised lower, sending the Zacks Consensus down to $1.06 from $5.64. That’s an 81% decline from 2018’s $5.79.

2020’s Zacks Consensus was also cut dramatically to $2.60 from $5.99 60 days ago. 2 more estimates were even cut in the last month which could indicate that the used vehicle market remains soft.

Shares Under Perform the S&P 500 in 2019

It’s been a roller coaster ride ever since shares hit a new 52-week low at the end of December 2018.

They’ve gained just 7.6% in 2019, under performing the S&P 500 which is up 24% during that same time period.

However, the company is shareholder friendly. It has paid a quarterly cash dividend for 43 years, or 173 consecutive quarters.

It’s currently yielding an impressive 4.2%.

But with the earnings guidance cut, the shares now look “expensive” on a P/E basis as they are trading at 49.7x.

The Zacks Ranks don’t look great for most of the industry. The Transportation Equipment and Leasing industry is in the bottom 4% of the Zacks Industry Rank.

Several others are also Zacks Rank #5 (Strong Sells) including CAI International (CAI Free Report) and Trinity Industries (TRN Free Report) .

GATX Corporation (GATX Free Report) has the highest rank and it’s a Zacks Rank #2 (Buy) with a forward P/E of 15.5.

Investors might want to wait for a turnaround in the earnings outlook in the industry before diving in.

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2019-12-03 11:06:00

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