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Q22008transcript

  1. 1. FINAL TRANSCRIPT R - Q2 2008 Ryder System, Inc. Earnings Conference Call Event Date/Time: Jul. 23. 2008 / 11:00AM ET www.streetevents.com Contact Us © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  2. 2. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call CORPORATE PARTICIPANTS Bob Brunn Ryder System, Inc. - VP IR Greg Swienton Ryder System, Inc. - Chairman - CEO Robert Sanchez Ryder System, Inc. - CFO Tony Tegnelia Ryder System, Inc. - President US Fleet Management Solutions CONFERENCE CALL PARTICIPANTS Arthur Hatfield Morgan Keegan - Analyst John Larkin Stifel Nicolaus - Analyst Jon Langenfeld Robert W. Baird - Analyst Ed Wolfe Wolfe Research - Analyst Todd Fowler KeyBanc Capital Markets - Analyst John Barnes BB&T Capital Markets - Analyst David Campbell Thompson Davis & Company - Analyst PRESENTATION Operator Good morning, and welcome to Ryder System second quarter earnings release conference call. All lines are in a listen-only mode until after the presentation. (OPERATOR INSTRUCTIONS). Today call is being recorded. I would like to introduce Mr. Bob Brunn, Vice President of Investor Relations and Public Affairs for Ryder. Mr. Brunn you may begin. Bob Brunn - Ryder System, Inc. - VP IR Thanks very much. Good morning, and welcome to Ryder's second quarter 2008 earnings conference call. I'd like to begin with a reminder, that in the presentation you will 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 is contained in this morning's earnings release and in Ryder's filings with the Securities and Exchange Commission. Presenting on today's call are Greg Swienton, Chairman and Chief Executive Officer, and Robert Sanchez, Executive Vice President and Chief Financial Officer. Additionally, Tony Tegnelia, President of global Fleet Management Solutions and John Williford, www.streetevents.com Contact Us 1 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  3. 3. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call President of global Supply Chain Solutions are on the call today and available for questions following the presentation. With that let me turn it over to Greg. Greg Swienton - Ryder System, Inc. - Chairman - CEO Thanks Bob and good morning everyone. This morning we will recap our second quarter 2008 results. We'll update our capital spending and cash flow forecast. We'll review the asset management area and we'll provide our current outlook for the business. And after our initial remarks we will open up the call for questions. Before I get into the results, I would like to briefly introduce John Williford our new President of global Supply Chain Solutions, who joined us in June. Many of you will recall that last November, we announced the decision to combine Ryder's US and International supply chain solution businesses into one fully integrated organization. We are very happy that John has joined Ryder to lead our global Supply Chain and Dedicated Contract Carriage business. John has amass a great depth of experience during his 25 year career in the logistics industry and we are very pleased that he's here to assist the company in moving forward with our global customer service strategy. In addition, Tony Tegnelia responsibilities have been expanded to include the leadership of our European Fleet Management Solutions operations. Tony has been promoted to the position of President of global Fleet Management Solutions. Tony now has global responsibility for Fleet Management, mirroring our approach in supply chain. We certainly look forward to his continuing strong leadership of our FMS team in his newly expanded role. With that said let me get into the overview of our second quarter results. For those of you who are following on the power point, on page four, reported net earnings per diluted share were $1.10 for the second quarter 2008 as compared to $1.07 in the prior year period. Reported EPS, in the second quarter included a charge of $0.12 from our Brazilian supply chain operations for items related to prior years. The charges related to accrual and tax deferred adjustments primarily for the years, 2004 through 2007 and were not material to any individual prior year. The charge to before-tax earnings was $6.5 million and after tax earnings was $6.8 million. The impact to EPS is magnified, as there is no tax benefit to partially offset the charge on an after tax basis. Excluding the charge, comparable second quarter 2008 EPS was $1.22, up 14% from $1.07 in the prior year. Comparable earnings for the quarter exceeded the forecast we provided on our last earnings call of $1.10 to $1.20. Better than anticipated performance came in at our Fleet Management solution segment, primarily through continued contractual revenue growth. The strong performance in FMS was partially offset by lower operating results in our supply chain segment. Total revenue for the company was unchanged from the prior year. Flat total revenue reflects the impact of the previously announced change from gross to net revenue reporting for subcontracting transportation with one supply chain customer. Operating revenue which excludes FMS fuel and all subcontracted transportation revenue was up 5% due to FMS contractual revenue growth including acquisitions, higher fuel prices in our SCS and dedicated segments and favorable foreign exchange rate movements. Fleet Management total revenue was up 16% while operating revenue was up 5% versus the prior year. Contractual revenue which includes both full service lease and contract maintenance was up 5%. Lease revenue growth was up 5% driven by our recent acquisitions while higher contract maintenance revenue also a 5%, reflects organic sales activity. Total FMS revenue was impacted by a 44% increase in fuel revenue reflecting higher fuel costs passed through to customers. Foreign exchange rate movements accounted for 1 percentage point of total FMS revenue growth. Global commercial rental revenue was up 1%, representing the second consecutive quarter of rental revenue growth. US rental revenue was modestly down in the quarter, although the rate of decline slowed again this quarter. The domestic rental revenue decline was more than offset by growth in the Canadian and the UK markets. Gains from the sale of used vehicles were down by $3.4 million, due primarily to a lower volume of used vehicles available to be sold and actually sold. The decline in gains; however, was more than offset by the lower carrying cost on that smaller used vehicle inventory. Net before tax earnings in Fleet Management were up by 19%. Fleet Management earnings as a percent of operating revenue was up by 180 basis points to 14.9%. FMS earnings benefited primarily www.streetevents.com Contact Us 2 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  4. 4. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call from improved contractual business performance. FMS results also benefited from higher fuel margins due to unusually rapid increases in fuel prices and from recently closed acquisitions. Turning to the supply chain solution segment on page five. Total revenue was down 25% due to a change to net revenue reporting on subcontracted transportation business with one customer that was previously reported on a gross basis. This reporting change did not impact operating revenue or earnings. Operating revenue was up by 6% reflecting the impact of foreign exchange rates, higher fuel costs and both new and expanded customer contracts. Second quarter net before tax earnings in supply chain were down 56% versus the prior year. Net before tax earnings as a percent of operating revenue was down 280 basis point toss 1.9%. Supply chain earnings were well below our expectations and were impacted by lower operating results in our Brazilian operations and from several North America automotive strikes. I'll discuss these items in more detail shortly. In Dedicated Contract Carriage total revenue and operating revenue were both up 2% due to higher fuel cost partially offset by nonrenewed contracts. Net before tax earnings in DCC was down by 1%. Earnings in the quarter were impacted by higher safety and insurance cost partially offset by improved operating performance. DCC's net before tax earnings as a percent of operating revenue were down by 30 basis points to 8.8%, due mainly to the impact of higher fuel pass through cost on the margin percent calculation. Page six, highlights key financial statistics for the second quarter. Operating revenue was up by 5%, mainly due to growth in multi-year contractual business. Reported earnings per share were up by 3%, including the Brazil charge of $6.8 million for prior years. The charge in Brazil was identified in the course of a detailed business and financial review which occurred following certain adverse tax and legal developments. We utilized the cross functional team of US and local employees as well as internal and external accounting and legal professionals to assist in the review process. Although we are continuing to review our business operations and practices in Brazil we believe that the ultimate resolution of this review will not result in a material adjustment to our consolidated financial statements. We also believe that we've taken a number of appropriate steps including changes made to the leadership team in Brazil to prevent similar issues from occurring in the future and that we have the proper procedures in place going forward to ensure our financial statements accurately reflect current period results. Excluding the Brazil charge, comparable earnings per share were up by 14%. This increase reflects comparable net earnings growth of 7% and a lower average number of shares outstanding due to share repurchases. The average number of diluted shares outstanding for the quarter was down by 3.8 million shares to 57.3 million. In December 2007, we announced both a $300 million discretionary share repurchase program and a $2 million share anti-dilutive repurchase program. During the second quarter, we repurchased 925,000 shares at an average price of $68.79 per share, under the $300 million program, bringing the program to date purchases to 1.765 million shares at an average price of $64.11 per share. During the quarter, we purchased an additional 510,000 shares at an average price of $69.40 under the 2 million share program, bringing that program to date purchases to 1.261 million shares at an average price of $63.07 per share. As of June 30, there were 56.5 million shares outstanding. The second quarter 2008 tax rate was 44.1% compared to the prior year tax rate of 37.6%. The current period tax rate reflects the adverse impact of higher nondeductible foreign losses mostly in Brazil. Last years tax rate reflects the benefit of 1.2% due to the impact of income tax changes in New York. The balance of the year we anticipate our tax rate to be modestly below our initial full year plan rate which was 39.1%. Page seven, highlights key financial statistics for the year-to-date period. Operating revenue again was up by 5%. Reported earnings per share were up by 8%. Comparable earnings per share were $2.18 up by 15% from $1.90 in the prior year. The average number of diluted shares outstanding were 57.7 million down by 3.4 million shares. The year-to-date tax rate was 41.9% compared to the prior tax year rate of 38.5%. The tax rates in each year were impacted by the second quarter items I discussed previously. Return on capital, which is calculated on a rolling 12 month basis was 7.4% versus 7.6% in the prior year second quarter. Return on capital was impacted by the change in our year-over-year tax rate including the impact of nondeductible foreign losses. www.streetevents.com Contact Us 3 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  5. 5. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Now I'll turn to page eight to discuss our second quarter results for the business segment. In Fleet Management Solutions, operating revenue was up by 5%, driven by 5% contractual revenue growth with 1% growth in the smaller commercial rental product line. Total revenue increased by 16% due both to this operating revenue growth and higher fuel cost passed through to customers. Total FMS revenue also included a 1% favorable foreign exchange impact. Fleet Management Solutions earnings were up by $18.3 million or 19%. In lease, we continued solid revenue growth driven primarily by our three recently closed acquisitions. Organic net lease sales are running ahead of last year to date primarily due to improved customer retention resulting from several initiatives in this area. Miles driven per vehicle, per workday on US lease power units were up 3% versus the second quarter 2007 and were seasonally up 5% as compared to last quarter. Contract maintenance grew 5% due to continued new sales to the private fleet market partially offset by lower miles per unit. US commercial rental utilization on power units was 72.8%, up 220 basis points from 70.6% in the second quarter 2007, due to our actions to reduce the size and change the mix of the rental fleet. This is the third consecutive quarter of improving rental utilization comparisons. US rental pricing on power units was seasonally stable in both the first and second quarters of 2008 compared to the prior year quarters. This represents an improvement from last year where rental pricing was down by around 4%. In Supply Chain Solutions, total revenue was down 25% in the quarter due to the change from gross to net revenue reporting I discussed previously. SCS operating revenue excludes subcontracted transportation and therefore excludes the impact of this change. SCS operating revenue was up 6% reflecting the impact of foreign exchange rates, higher fuel cost as well as new and expanded customer contracts. SCS net before tax earnings were down $8.4 million for the quarter. Segment earnings exclude the impact of the Brazil charge related to prior years, as this item is shown below segment margins in the restructuring and other charges net line. Two items impacted supply change operating margin during the second quarter. First, Brazil's earnings were negatively impacted by $8.1 million due to several operational issues including higher subcontracted transportation costs, the impact of customs and cross border strikes, and adverse developments of litigation related matters. The impact of the strikes and litigation development are expected to be largely limited to the second quarter while the impact of higher purchased transportation cost will be an ongoing challenge for Brazil that we are working to offset through operational efficiencies. As a result, we do not expect the same magnitude of an operational impact to earnings in Brazil in future quarters. The impact of the second quarter operational issues had not been known or factored into the EPS forecast we provided on our prior earnings call. Second, SCS results during the quarter were also negatively impacted by $3 million related to North American automotive strikes which concludes in May. The North American auto strikes had been previously identified and discussed during our first quarter earnings call and had been factored into our EPS forecast range for the quarter and the full year. As a result of these items, earnings as a percent of operating revenue declined from 4.7% in the prior year period to 1.9% in the current quarter. In Dedicated Contract Carriage total revenue and operating revenue were both up by 2% due to passed through fuel costs partially offset by nonrenewed contracts. DCC's net before tax earnings were down by 1% due to higher safety and insurance costs partially offset by improved operating performance. Our total central support services costs were down by $3.1 million due primarily to a charge last year of $1.8 million related to an adjustment in the amortization period of restricted stock units. A portion of central support cost allocated to the business segments and included in segment net earnings was up by $800,000. The unallocated share, which is shown separately on the P&L decreased by $3.9 million. Net earnings were 62.9 million down 3%. Comparable net earnings were $69.8 million, up by 7% from $65.1 million in the prior year. Page nine, highlights our year-to-date results by business segment. In the interest of time I won't review these results in full detail but we'll just highlight the bottom line results. Comparable year-to-date net earnings excluding the Brazil charge were $125.9 million as compared to $116.4 million in the prior year. And this represents an increase of $9.5 million or 8%. And at this point I'll turn the call over to Robert Sanchez, our Chief Financial Officer to cover several items beginning with capital expenditures. www.streetevents.com Contact Us 4 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  6. 6. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Robert Sanchez - Ryder System, Inc. - CFO Thanks Greg. Turning to page ten, second quarter gross capital expenditures totaled $639 million. Down from $149 million from the prior year. Full service lease vehicle spending was down $91 million. The reduction in lease spending reflected lower expansions of customer fleets and increase term extension on existing vehicles. Additionally, lease spending was elevated in the prior year due to the prebuy of 2006 model year engines, which continued to be placed into service with customers in early 2007. Commercial rental vehicles spending was down by $69 million from the prior year. We realized proceeds primarily from the sale of revenue earning equipment of $143 million, down by $52 million from the prior year reflecting fewer units sold as a result of having a smaller use vehicle inventory. In the second quarter 2007, we executed $150 million sale lease back but did not have a sale lease back in the current year-to-date period. Including proceeds from sale, net capital expenditures were $496 million, up by $53 million from the prior year. We also spent a little over $200 million on Fleet Management acquisitions of Lily in the northeast US and Gator in Florida. Turning to the next page, you'll see that we generated cash from operating activity of $522 million year-to-date, up by $17 million from the prior year. This increase was due primarily to increased depreciation. Increased depreciation was largely due to spending on new contractual lease vehicles and to foreign exchange rate changes. Including the impact of used vehicle sales activity, we generated $698 million in total cash, down by $185 million from the prior year. This decline was primarily due to the 150 million sale lease in the prior year. Cash payments for capital expenditures were 609 million, down by 276 million versus the prior year. Including all -- including our capital spending the Company generated $89 million of positive free cash flow in the current year-to-date as compared to essentially break-even free cash flow in the prior year period. On page 12, you can see total obligations of approximately $3.2 billion are up by $205 million as compared to year-to-date 2007. The increase debt level is largely due to spending on acquisition and net stock repurchases. Balance sheet debt to equity was 162% as compared to 147% at the end of the prior year. Total obligations as a percent of equity at the end of the quarter were 171% versus 157% at the end of 2007. Our recently closed acquisitions as well as the share repurchase activity is starting to move our balance sheet leverage higher this year in accordance with our previously stated objectives. We continue to have significant balance sheet capacity as the total obligations to equity ratio of 171% is well below our target of 250 to 300% for our current mix of business. We remain committed to increasing our financial leverage in a balanced way over the next few years through organic growth acquisition and share buy backs. Our equity balance at the end of the quarter was 1.85 billion down by 37 million versus year end 2007. Our ending equity balance reflects net share repurchases and dividends which more than offset our net earnings. Turning to page 13, I'd like to cover some revision we are making to some of our financial forecast for the year. Many of you will recall that on February 1, we communicated our 2008 business plan targets. As the year has unfolded a few items have changed, which resulted in a revision to some of these projections. First we planning to spend an additional 30 million in commercial rental bringing our new rental capital forecast for the full year to $170 million. Our rental spending this year will still be below our 2007 spending of approximately $220 million. The additional capital will modestly increase the rental fleet size in a certain vehicle class with very high utilization and will also reduce the fleet age. Second we are forecasting a reduction of $165 million in full-service lease spending bringing the total lease capital forecast to $1 billion for the year. This change reflects fewer new lease sales than originally forecasted due to the soft economy and the impact of increased term extension on existing vehicles, which reduces the need to buy replacement units. Although new lease sales are some what below the original forecast, as Greg mentioned earlier, our retention rates with existing customers are better than in the prior year reflecting the impact of our initiatives in this area. As a result, net lease sales have improved as compared to the prior year. Third, we are forecasting a reduction of $70 million in used vehicles sales proceeds to $265 million. This change reflects primarily fewer units to be sold due to increased term extensions on existing vehicles and secondarily somewhat softer market conditions. As a result of the change in our used vehicle sales forecast, our forecast for total cash generated is changing from 1.6 billion to www.streetevents.com Contact Us 5 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  7. 7. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call 1.55 billion. Gross capital spending is now forecast at $1.28 billion, down from over $1.44 billion previously. Free cash flow is projected to increase from $205 million to $300 million. Finally, our total obligations to equity ratio is project to increase from the prior forecast of 158% to a new forecast of 170%. The leverage forecast does not include the potential impact of any future acquisitions that have not been announced and closed. At this point, I'll hand the call over to Greg, to provide an asset management update. Greg Swienton - Ryder System, Inc. - Chairman - CEO Thank you, Robert. Page 15, summarizes the key results in our US Asset Management area. At quarter end, our used vehicle inventory for sale was approximately 4600 vehicles, down 14% from 5300 units at the end of the first quarter. Used inventory were less than half the over 10,000 units we held-for-sale at the end of the second quarter last year. The lower used fleet balance reflects the actions we took last year to reduce inventories and bring them in line with our targeted levels. We sold 4400 used vehicles during the quarter, down 32% from the prior year and in line with our expectations. Because our inventories are now in line with our targets, we've returned this year to our normal process of selling the large majority of our vehicles at retail prices through our own used vehicle sale centers, where we realize the best pricing. Proceeds per vehicle on sales of used tractors were up by 8%, while proceeds per vehicle on sales of used trucks were down by 11%, as compared to the second quarter last year. Both tractor and truck proceeds per unit were modestly up from the first quarter. Because our inventories are so much lower than last year, we are able to be much more selective and can focus on maximizing the price per unit sold. At the end of the quarter, approximately 5500 units were classified as no longer earning revenue. This number is down by 6500 units from the prior year and down by 1,000 units from the first quarter primarily due to a decrease in the number of units available for sale. Our total US commercial rental fleet in the second quarter was down on average by 6% from the prior year. The rental fleet reductions we made last year have accomplished their objective by significantly improving rental utilization levels by 220 basis points in the second quarter versus the prior year. As I mentioned earlier, this is the third consecutive quarter of significantly improved rental utilization levels. If you'll turn to page 17, regarding the forecast, we are holding our full year 2008 EPS forecast to a narrow range. Our prior forecast was a range of $4.55 to $4.75 while our narrowed range is now $4.60 to $4.70. This represents an increase of 9% to 12% over the prior year comparable EPS of $4.21. We are also establishing a third quarter EPS forecast of $1.25 to $1.30, up 10% to 14% from the $1.14 in the prior year. While the North American automotive strikes that impacted our supply chain business in the second quarter are behind us, we have some additional headwinds in the automotive sector. Automotive volumes are down in general. Toyota has also announced a temporary closure of two production facilities we serve, as they transition these sites to production of different models. This will impact our second half earnings in supply chain. Additionally, we expect to continue to face some operational challenges in Brazil as we focus on improving our results there. Fleet Management; however, continues to solidly outperform our original expectations for the year. The strong performance in FMS is driven by continued contractual revenue growth, improved rental performance, a lower used vehicle fleet, and our recently closed acquisitions. We expect FMS to have a solid second half due to these factors. As with our original business plan, our current forecast does not assume an improving economic or transportation environment. Our good results and expectations for the year are driven by continued sales of new long-term contractual business, improved performance in commercial rentals versus a very difficult 2007, solid results from our completed acquisitions, continuation of our share repurchase programs and continued tactical execution by our team. And that does conclude our prepared remarks this morning. So at this time, I'll turn it over to the operator and we'll open up the line for questions. www.streetevents.com Contact Us 6 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  8. 8. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call QUESTIONS AND ANSWERS Operator Thank you. (OPERATOR INSTRUCTIONS). Art Hatfield you may ask your question and please state your company name. Arthur Hatfield - Morgan Keegan - Analyst I'm with Morgan Keegan. Good morning, everybody. Greg Swienton - Ryder System, Inc. - Chairman - CEO Good morning. Arthur Hatfield - Morgan Keegan - Analyst I heard your comment on the average sale price on the vehicles but I was still a little surprised that the tractor number was up 8% given how much capacity we've seen in the tracking industry this spring. Can you give us a little more detail on that, or is that a number that you saw deteriorate as you went further into the quarter? Greg Swienton - Ryder System, Inc. - Chairman - CEO I would say that 2007 was a weaker comparison year because all of the available equipment and we noticed that. I would say that there can be a number of characteristics that support the used tractor pricing. I'll let Tony Tegnelia comment. But I think in general, you know that we are doing more retail selling and not whole selling because we have fewer to sell and we can move those to our centers and we get a higher price there and they also get the full maintenance record of Ryder provided services which adds an extra added value. So I think those are contributors. There may be some value to grandfather equipment in engines and tractors because of the old standards. That is what strikes me. Tony you may add anything else. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions I think generally the primary reason why we are seeing that increase is because we are in a position right now with the significantly lower inventory levels to be much more selective in pricing that we take on the units. Actually in the wholesale as well as the retail market even though we are doing much more retail this year compared to last year which was always our plan when reducing these inventory levels. And there is some market for the, as Greg mentioned, the pretechnology change units as well. But generally speaking with these dramatically lower inventory levels, which is exactly where we wanted to be going into this year, it's allowing us to be much more selective on the price we accept for the sale of those vehicles. Arthur Hatfield - Morgan Keegan - Analyst Okay. And because of the quality of the vehicle you have is much better than what guys will see in the market that's helping on price too? Greg Swienton - Ryder System, Inc. - Chairman - CEO That has always been the case with the Ryder reputation in the marketplace. We maintain well over the life. We have all the maintenance records when they are sold so that definitely help us in the marketplace. www.streetevents.com Contact Us 7 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  9. 9. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Arthur Hatfield - Morgan Keegan - Analyst Thank you. Next, Greg on page 29, and on the asset management update, one question I'm getting is that the big jump in extension, is it fair to say that that big jump is somewhat of a positive in that customers realize they need the vehicle but they are not seeing an uptick in their business yet to commit to a long-term lease but yet they are not seeing their business deteriorate at this point in time where they want to turn the vehicle back in? Greg Swienton - Ryder System, Inc. - Chairman - CEO Sure. I can answer that. And for those of you who are following on the power point and can get to page 29, it's on the appendix's on the Asset Management update and those of you who can grab it later. But Art is referring to the fact that there's about, year-to-date '08, extensions totaled 2789, where last year, yeat-to-date was 1800, so that's a big jump and it's a big jump when you look at the graph, and I think that is a positive. I think that's an indication that even though customers may be reluctant to ink a new longer-term contract because they are not sure about the long-term prospects for their business, they know that they need some equipment for the short-term, they continue to lease that equipment from us on an extended basis, and then I think the other positives that come from that is you don't lose a customer. You don't lose the equipment. You continue the revenue stream, and we also don't end up spending additional capital and it all helps the return and the bottom line. So I think for a lot of combination of reasons and if I missed any Tony, you can jump in, but in answer to your statement it is a positive considering this very challenging operating environment and economic environment. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions I think Greg you covered all the primary points there. There's another point there as well that some customers are extending the use of these vehicles, and then in '09, they will re-up to avoid the 2010 technology change. So you see some fleet planning happening with some of the customers as well. Arthur Hatfield - Morgan Keegan - Analyst That's helpful. And another quick question, Greg. I think I ask you every quarter, but on the commercial rental fleet utilization, I know the way you calculated 100% is never achievable. What has been the maximum number where that number has topped out in the last cycles? Greg Swienton - Ryder System, Inc. - Chairman - CEO I think you are right. First of all in that the way we calculate it is on a seven work week and since these are commercial units. Somebody bring it back on Friday, you knock out two seven's of that over a weekend. We also include in that calculation equipment that is down for service and maintenance. So it's a pretty rigorous. I would say in the best of times when things are really heavy you get in the upper 70s. Arthur Hatfield - Morgan Keegan - Analyst Okay. And then just two other ones and I'll hang up and listen. First, the incremental $100 million in free cash, do you have any plans for that, or are you going to put that to work in your share repurchase? And then the one question I'm getting a lot of, people are concerned about your exposure to the automotive business and supply chain. Is there anything you can do in the short run to maybe reduce that a little bit? www.streetevents.com Contact Us 8 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  10. 10. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman - CEO First on the use of the $100 million, I would say that it's primarily there to support our efforts in continuing acquisitions as well as share repurchase which you've noted. If there is any other that Robert wants to add, as CFO, he can tell me, but I dont think there are, that's it primarily. And then the second question was -- Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions Automotive exposure. Greg Swienton - Ryder System, Inc. - Chairman - CEO In the short run, not a lot. In the long term, and this is certainly a part of what John Williford and his team will be working on is to diversify into some other industries that we think we can continue to serve well and that is a longer-term issue to rebalance the portfolio. So a little less in the short run. In the short run we do a lot to handle physical truck and tractor and trailer equipment with our sister division, but in the long run it's really the effort to rebalance that portfolio among customers and other industries. Arthur Hatfield - Morgan Keegan - Analyst Thank you. Operator Thank you. Our next question is from John Larkin. John Larkin - Stifel Nicolaus - Analyst Good morning, everybody. I'm with Stifel Nicolaus. I had a question on the rapid rise in fuel prices during the quarter and how your margin and Fleet Management Solutions react to that, does the margin stay constant on the fuel portion of the sale? Does it shrink a little bit as fuel prices go up? How does that dynamic work? Greg Swienton - Ryder System, Inc. - Chairman - CEO The margin over the long run should really be consistent by customer and that is per gallon there is X cents per gallon. And over the long run and kind of normal periods of time, that is the case. If you had a rapid run-up as you may recall happened during the Hurricane Katrina period or even in the recent past or you have a rapid decline, although we don't have a lot of inventory in the tank, usually about a week or five workday, if there's a rapid run-up, the prices are adjusted on a market basis. So if you have a rapid rise or a rapid fall, you can gain a little bit more or lose a little bit more when you have those rapid periods of rising and falling and Tony if there's anything else you want to add. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions I think Greg is exactly right. Our Ryder program on fuel is passed through to the customer. There is only a small portion of the rental where there is real profitability on fuel. So over time we recapture our total cost. Rapidly rising prices or rapidly falling prices will put us in a position where we may incur in ground inventory gains or losses on the P&L. But overall we are passed through program with our customers on fuel over period of time. www.streetevents.com Contact Us 9 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  11. 11. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call John Larkin - Stifel Nicolaus - Analyst So it's safe to say that the expansion we saw in Fleet Management Solutions was totally unrelated to the spike in fuel prices during the quarter? Greg Swienton - Ryder System, Inc. - Chairman - CEO I wouldn't say 100 percent. The fact is that 80% of the incremental margin came from contractual sales and the other 20% came from a variety of factors, some of which was fuel. John Larkin - Stifel Nicolaus - Analyst Okay. Fair enough. Just wanted to have you perhaps Greg, remind us of just how big the foreign pricing are. We tend not to talk about that too much on these calls but with the issues in Brazil it might be worth reviewing that. Is it large enough to consider that a growth area re in a. Is it something you would consider moving away over time? What is your general thought process regarding the foreign operations? Greg Swienton - Ryder System, Inc. - Chairman - CEO In foreign operations, I know that Robert's probably has got his page out but probably accounts for I would guess 15 to 20% in total gross revenue. So about a fifth. They are growth opportunities. I think that we certainly see them in supply chain especially in the [NAFTA] related countries. I think that in Canada and Mexico, you have significant growth opportunities and profitable ones. The other parts of the world in South America, in Asia, perhaps some in Europe, we have been less prominent. We try to match up with where our customers would like us to be. There's certainly no thought or comment from us at this point to say we had any reason to think about leaving where we are. I think that the strategic question that John and his team and we talk about for the future is what level of emphasis and what locations, and I think we want to be appropriately focused and targeted in those areas. But they are growth opportunity and they should be profitable growth opportunities. John Larkin - Stifel Nicolaus - Analyst There has been a lot of talk over the last few weeks and months about customers thinking about redesigning their supply chains perhaps more so due to the rapid rise in fuel cost than anything else. Could you talk a little bit about how Ryder's participating in that. It could be a positive where they are tapping into your expertise to get some help with the supply chain redesign but on the other hand to the extent that they are taking ton miles out of their network could be a negative. How do you see that playing out here over the next few quarters and next few years? Greg Swienton - Ryder System, Inc. - Chairman - CEO Well, generally I'm not one to sound like Pol Ana, I think that in our case both could be a positive. I think that where you have already extended supply chains, the ability for us to effectively manage and design networks and do transportation management and carrier management ensures that when you have disruptions or costs you have to be as efficient as you ever. So I think that plays to our network design, engineering, and transportation management strength. On the other hand, if US customers, for example, and we are beginning to see some of this already, if they are becoming concerned over the total landed cost including the fuel and transport cost, they may actually be going back to in some cases where they were before and adding more distribution centers, in which case one of our areas of expertise is running and managing networks with distribution facilities including ground transportation that handles that. www.streetevents.com Contact Us 10 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  12. 12. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call So I think that because -- I think at this point because of concerns over disruption and cost including transportation for total landed cost of final product to the final user, I think we can play well because of our expertise there. John Larkin - Stifel Nicolaus - Analyst Excellent answer. Thank you. One final question. Based on some of the trucking companies that we talked to here with respect to the month of June in particular, there's been so much truckload capacity that has been either shipped over to Eastern Europe or to Asia or just parked up against the fence that there were quite a few pockets around the country where there wasn't enough truckload capacity as the quarter came to an end, and I was just wondering if you saw that really reflected in a spike in commercial rental activity during the month of June and whether you expect to see more of that perhaps as more and more truckload capacity falls out of the marketplace. Greg Swienton - Ryder System, Inc. - Chairman - CEO I would say that the details by the geographies, I'll let Tony comment, but when you heard that we are going to spend a little bit additional of one category of commercial rental equipment, that is a reflection that there is some very specific demand in some locations, for some equipment. So maybe that is a part of that but I'll let Tony answer. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions Well, what we are seeing is that our tractor portion of our rental fleet is clearly our highest utilization rates that we have right now. They are very attractively high in the 80s. It is a heavier investment unit so we like to see that utilization in the high 80s. But we are seeing as companies don't make commitment to capital, the private operators, that they are turning to our rental fleet. We are seeing upward pricing with that asset class as well and also higher utilization. So we are enjoying a very nice revenue per unit on those vehicles, yes. John Larkin - Stifel Nicolaus - Analyst Did you see a bit of a spike in the month of June in particular? Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions Yes, we did. And that is where, as Greg mentioned, we put the additional capital in so we can generate more revenue and profit ability with that dynamic happening in the marketplace with the tractors. John Larkin - Stifel Nicolaus - Analyst Got it. Thank you very much. Operator Thank you. Jon Langenfeld, you may ask your questions and please state your company name. www.streetevents.com Contact Us 11 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  13. 13. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Jon Langenfeld - Robert W. Baird - Analyst Robert W. Baird. Can you comment on the pipeline what you are seeing on the contractual leasing end, size and also what kind to close the deal, have you seen any changes on that end? Greg Swienton - Ryder System, Inc. - Chairman - CEO I know that it's not getting easier and it's tough out there but I'll let Tony comment. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions John, we are seeing our pipeline continue to grow. As we have discussed a number of quarters in a row we continue to invest in a very, very strong sales force that we have in the marketplace, and they are all required to develop and work a pipeline. So our pipeline continues to grow. It's a strong pipeline. We like the component of the pipeline that relates to large deals. I'd also tell you that customers are deferring some of their decisions. They are delaying a bit. We are seeing that impact to some extent in the rental utilization at the same time, but it is a strong pipeline. We very happy with where that pipeline is. We'll be there whenever those customers make decisions. Now there's a bit of a mix bag. We are seeing some defer we also seeing a number of other customers really can't wait any longer as a result of the age of their private fleet and some things of that nature. So we feel very good about the pipeline as we go into the future. It's solid and growing. Jon Langenfeld - Robert W. Baird - Analyst And does it feel -- the pipeline feel a similar way back in 2001 or -- how much how quickly did the pipeline dry up is my question? Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions Well, I'll tell you our processes here for evaluating the pipeline and determining the pipeline are dramatically different now than they were in 2001 and 2002. So I would say the quality of that pipeline and the probability of converting that pipeline to genuine sale is improved and much higher than it was. As a matter of fact, we are seeing that on our closing ratios right now. Our closing ratios continue to improve our replacement ratios continue to improve while at the same time the pipeline is higher and also the higher . We cleanse the pipeline process a number of years ago and the value of the pipeline determines the quality of the pipeline and the close ability of the pipeline and we made a lot of progress improving Jon Langenfeld - Robert W. Baird - Analyst Okay. And would you say the pipeline is similar size where it was 12 months ago? Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions No. It's larger than it was 12 months ago clearly. Jon Langenfeld - Robert W. Baird - Analyst Okay. And then what would -- at the beginning of the year you had a growth CapEx in full service lease of 100 to 170 million, and I know you have a number of moving parts with extension and probably lower maintenance CapEx. But would you suspect -- where would you suspect you are relative to that range? www.streetevents.com Contact Us 12 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  14. 14. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman - CEO I think, and Robert is finding the right page, I think that we are down a little bit with pure top-line growth CapEx. I think that's down a bit from the original forecast, but what has improved in terms of the performance is berry tension on existing equipment and plus you have the extensions. Robert Sanchez - Ryder System, Inc. - CFO The extension is what is driving -- the extensions are what is driving the CapEx down because clearly as you see a 1000 more extensions year-to-date, that equate to a significant amount of CapEx. You are looking year-to-date to represent $100 million of CapEx that is being deferred. Jon Langenfeld - Robert W. Baird - Analyst That's what I was thinking. In effect your maintenance CapEx is coming down in one respect, but, so the gross CapEx that would stay in a similar range, 100 to 170 or is even that towards the lower end. Robert Sanchez - Ryder System, Inc. - CFO More towards the lower end. Jon Langenfeld - Robert W. Baird - Analyst Why would that be if your pipeline is bigger today? Greg Swienton - Ryder System, Inc. - Chairman - CEO Because even though the pipeline is bigger, the ink and pulling the trigger by those customers that time frame is extending. Jon Langenfeld - Robert W. Baird - Analyst Okay. That makes sense. What -- I think you gave us in the first quarter, what the organic full service lease revenue growth would have been. Greg Swienton - Ryder System, Inc. - Chairman - CEO I think it would have been 2 to 4% if you can confirm that Tony. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions Well, slightly more than half of our total contractual revenue growth in the second quarter came from the acquisitions, which is greater than it was in the first quarter, and our commitment that we've made for total contractual growth throughout the year remains solid. But the mix between acquisition and organic is dynamic. www.streetevents.com Contact Us 13 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  15. 15. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Jon Langenfeld - Robert W. Baird - Analyst Okay. Good. And then on the unallocated corporate expense side you made the comment in the press release how relative to the prior year, I understood the delta there. How about with the first quarter. The corporate unallocated amount was down 2, 3 million. Greg Swienton - Ryder System, Inc. - Chairman - CEO It was down a little bit. Jon Langenfeld - Robert W. Baird - Analyst Is there a reason why? I'm trying to understand what our go forward rate on that unallocated. I think in the first quarter is 11, 11.5 million. In this quarter it was 8, 8.5 million. Greg Swienton - Ryder System, Inc. - Chairman - CEO I would say for the second quarter, there's always an effort when you have challenging times to try to control your expenses so that is a part of it. Going forward unless we did something more dramatic, it will be around $10 million a quarter. Jon Langenfeld - Robert W. Baird - Analyst All right. And what about the credit environment Greg? Is that -- how have you guys looked at that as a positive, negative? How is that impacting your leasing business? Greg Swienton - Ryder System, Inc. - Chairman - CEO Robert, do you want to talk about credit and fund availability, and how it's effecting our business? Robert Sanchez - Ryder System, Inc. - CFO Sure. From a funds availability, clearly the spreads with the banks have increased a bit. We are seeing that rising. Although the base rate had come down clearly for the year. Our access to capital remains strong. We are still seeing interest from the banks certainly as some of them as they rebalance their portfolios. We are still viewed as a strong company in terms of the fact that our debt is backed by assets and long-term contracts. So even though the spreads have a bit, we are still in a very good position and have a lot of access to capital. Jon Langenfeld - Robert W. Baird - Analyst Does it help the value proposition to customers, I don't know if it's noticeable that says look we have better access to capital than you so maybe that part of the value proposition helps? Robert Sanchez - Ryder System, Inc. - CFO Yes. That's part of it and it's also the fact that our asset management program, we are able to buy the vehicles cheaper and manage them better and better proceeds at the end therefore the full package for them is much better. So things tighten up www.streetevents.com Contact Us 14 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  16. 16. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call for them, for customers they are looking for spending their capital on the core business and looking to Ryder to leverage our infrastructure to capitalize the fleet. Greg Swienton - Ryder System, Inc. - Chairman - CEO I think the critical thing to reiterate is that they must be credit worthy. They have to be good credit quality customers and the fact, as Robert says we have better buying power. We have better leverage and then they can invest their limited capital into their core operations of the business is exactly the value proposition that we are selling. Jon Langenfeld - Robert W. Baird - Analyst Very good. Thanks for the time. Nice quarter. Greg Swienton - Ryder System, Inc. - Chairman - CEO Thank you. Operator Thank you. Ed Wolfe you may ask your question and please state your company name. Ed Wolfe - Wolfe Research - Analyst Ed Wolfe for Wolfe Research. The stock is falling. It's down over $6 on what seems like a strong report. Maybe there is a little confusion on the guidance range. You gave guidance at 4.65 in the mid range. Are you assuming $1.10 or $$1.22 in the second quarter as part of that? Greg Swienton - Ryder System, Inc. - Chairman - CEO We are assuming $1.22 in the second quarter as part of that. Ed Wolfe - Wolfe Research - Analyst For the second half of the year, you are implying a number well below where consensus is but I don't get a sense from you going forward that that's your implication, that these trends are not keeping up. Greg Swienton - Ryder System, Inc. - Chairman - CEO That's the way the numbers work. The third quarter obviously what we are saying $1.25 to $1.30 versus $1.14. Probable up about 11% or so if that's the way the numbers work out. So the issue is probably what are we thinking or what are people interpreting we are thinking about the fourth quarter. I would say that where we have more visibility, as we do in the third quarter, we have more confidence in the numbers. In this environment where there's an awful lot of uncertainty regarding economic environment and activity, the further out you look, the less certainty we have of what may be happening more like four to six months from now. That doesn't mean we expect that things are going to fall off the edge or that it's going to be particularly problematic, but because of the longer time horizon in this environment including things like the Toyota strike that we talked about and trying to figure out what the true impact would be or the full impact would be or whatever or any other www.streetevents.com Contact Us 15 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  17. 17. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call customer may be doing in that regard, we our predisposed to give more weight in the fourth quarter to the down side we know than the upside we are not sure of. Ed Wolfe - Wolfe Research - Analyst Generally though is fourth quarter a seasonally, it's recently been a better quarter than third quarter, certainly not a dramatically worse quarter. Is that fair? Greg Swienton - Ryder System, Inc. - Chairman - CEO It's been usually about the same a little less or a little better. In fact, if you were to plot the long-term moves of activity between quarters, we always plan it to be just about the same as the third quarter or a little bit less. That is in a normal environment. In this sort of uncertain environment, again I think that what we've kind of looked at our numbers is that we put more weight on the down side that we know than the upside that we are unsure of and that is probably why the fourth quarter comes out to be shorter that way. Ed Wolfe - Wolfe Research - Analyst Do you feel any different than a quarter ago when you gave guidance because you are short and proved to be very conservative then? Has the climate gotten different so you feel less visibility or is it the the same? Greg Swienton - Ryder System, Inc. - Chairman - CEO I think that we probably feel the same about confidence and visibility more than a quarter out. I don't think that's changed a lot. We had a wider range previously because we knew there were uncertainties. We talk about strikes before. We had things happen that we knew would happen and some that didn't and some we overcame. So we tightened up the range. It's still, essentially at 465 with a tighter range, a higher bottom and lower top. I think from our standpoint that's prudent. I don't think it doesn't -- I don't see the value in going out on a bigger limb at this point considering the environment we are in. Ed Wolfe - Wolfe Research - Analyst I agree with you. Switching gears the 8.1 million drag you mentioned from Brazil on SCS, how much was related to litigation and strike that is not ongoing? Greg Swienton - Ryder System, Inc. - Chairman - CEO I think about -- let's see. I'd say that there's about a million from litigation in the second quarter. I don't know that that will require anything additional. And I think from what I just read it's more like $2 million. Then strikes are about 2 to $3 million and that wouldn't be continuing. Ed Wolfe - Wolfe Research - Analyst So 4 to $5 million? www.streetevents.com Contact Us 16 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  18. 18. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman - CEO Yes. And I think what we'll be struggling with is about a $2 million quarterly run rate on transport cost in volume issues. Ed Wolfe - Wolfe Research - Analyst And that's a matter of time is your best guess? Greg Swienton - Ryder System, Inc. - Chairman - CEO Yes. Time and focus. Ed Wolfe - Wolfe Research - Analyst Are we talking about quarters or years when you think about that? Greg Swienton - Ryder System, Inc. - Chairman - CEO Quarters. Ed Wolfe - Wolfe Research - Analyst Okay. The auto side of things, can you talk a little bit about, obviously, the axle strike has a tremendous impact as you alluded to and as you talked in your guidance. How is that different from auto sales being a atrocious ? Greg Swienton - Ryder System, Inc. - Chairman - CEO It's an issue of what particular plant you serve. So I think the one you mentioned and a couple of others were very plant specification and that cost us about $0.03 a share in the second quarter. That was about the range that we had anticipated. Since it ended in May, that was the end of it. When we talk in the first quarter, we said it would be $0.03 a month in the quarter. So that is why we didn't take the hit in June. For sales generally, I think what you see from all the manufacturers is that they are all moving away from SUVs and trucks. That in fact was the impetus of the Toyota announcement. They are all going to try to go to cars, smaller and hybrid that clearly will sell in the marketplace. I think as those conversions occur and people are going to be wanting to drive more fuel efficient vehicles at these prices, you are going to see volumes pick up again notwithstanding people's level of disposal income to buy cars, but I think again, it's a matter of longer-term direction and the cars that people want to buy and the plants we serve. And a number of the plants we serve are still for the several manufacturers that we serve are largely those that are associated with vehicles that are being built that I think the public would want to buy in the long-term. Ed Wolfe - Wolfe Research - Analyst So if I look at auto volume in terms of railroad volumes, there's been no improvement since the strikes were solved that is noticeable. But it sounds from your view there has been improvement both in volume and in cost. Is that a way to think about it? Greg Swienton - Ryder System, Inc. - Chairman - CEO I think there will be over time but I don't think we are there yet. www.streetevents.com Contact Us 17 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  19. 19. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Ed Wolfe - Wolfe Research - Analyst Okay. Because why? There's slow to get back to where they were? Greg Swienton - Ryder System, Inc. - Chairman - CEO It takes a while to retool, plans to put in a different line. Ed Wolfe - Wolfe Research - Analyst What is the timing on that? Greg Swienton - Ryder System, Inc. - Chairman - CEO It could be three months or more. Ed Wolfe - Wolfe Research - Analyst Okay. When I think about ongoing SCS and FMS margins, is there anything in this quarter? Obviously with supply chain we have to add back one timers in Brazil and over time the tool up and -- that we just talked about with the strikes in the US. What is the right -- this margin has been moving around a little bit. There are different things. Is the NBT margin for supply chain closer to 4, 5%? How do we think about it versus the less than 2% that you printed? Greg Swienton - Ryder System, Inc. - Chairman - CEO I think that's sort of the floor that we'd like to operate at. That's where we've been, and over time we like to move that up by 1 or 200 basis points as well. I think depending on the economy and depending on our ability to sell not only to additional industries but to gain more incremental sales I think all of that when you leverage that over existing technology and work force and process, that's what over time will get the overall NBT as a percent of operating revenue moving up. But at least as a floor it ought to be 4 to 5% and that's where we had been in somewhat recent past, except for this environment and special events. Ed Wolfe - Wolfe Research - Analyst How quickly can you get back to 4%, do you think? Greg Swienton - Ryder System, Inc. - Chairman - CEO Well, if I was too aggressive I wouldn't match my last comment about the fourth quarter. I think we'll take a hard look at that and see what level improvement we can have as we go into 2009. But we haven't put that plan together yet. Ed Wolfe - Wolfe Research - Analyst Fair enough. And the almost 15% NBT at FMS this quarter, is that sustainable? We have to get a little bit for fuel, but is that something -- is there anything else unusual here? www.streetevents.com Contact Us 18 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  20. 20. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman - CEO I'd let Tony comment on his segment. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions I think you do need to take a little bit out for fuel but generally speaking, with the tuck-in acquisitions we've talk about and the productivity improvements and productivity programs that we have in place in our operating locations, we are seeing expanded margins. But you would have to take a little bit out for fuel but there's a lot good work being done in productivity improvement with our technicians. Ed Wolfe - Wolfe Research - Analyst The average length of a lease extension is about how long? Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions It's about 12 to 18 months generally. Varies by the condition of the vehicle and also the customers asset plan. Typically 18 months. Ed Wolfe - Wolfe Research - Analyst Are there more acquisitions? It seems like these 100 million give or take acquisitions are very incremental, as you saying to the margin. Are there more of these on the horizon? Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions Our pipeline for acquisition is very opportunistic. Individuals who own the companies as you have seen they are all private held companies. Their personal family, personal financial conditions change, sometimes we get a call, sometimes relationship from the years in the past reinvigorate. So it's very opportunistic but the pipeline is fine. Ed Wolfe - Wolfe Research - Analyst And were the floods any benefit in the quarter and going-forward with all this FEMA money going into the Midwest? Do you see some opportunity for some benefit there? Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions Unfortunately, Climatic catastrophe do help the rental business. Ed Wolfe - Wolfe Research - Analyst Did they help though in the second quarter and what your expectation for third? www.streetevents.com Contact Us 19 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  21. 21. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions The condition in the second quarter impact those regions. I can't predict any kind of activity as we go into the future from that source of revenue. Ed Wolfe - Wolfe Research - Analyst Fair enough. Thanks a lot for the time. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions You're welcome. Operator Thank you. Our next question is from Todd Fowler. You may ask your question and please state your company name. Todd Fowler - KeyBanc Capital Markets - Analyst Good morning. Keybanc Capital Markets. Let's see here. Greg, looking historically and back of the lease extensions, can you talk about how many quarters you see the growth in lease extensions? Is that something we should expect to see for four five quarters or generally a two to three quarter before people start signing the leases for the vehicles again? Greg Swienton - Ryder System, Inc. - Chairman - CEO I think it's a shorter period. I don't think we've seen -- if things start picking up, you'll see some movement away from that and people will be making longer-term commitment. So I would say it's shorter and Tony I don't know if you have any other color on that. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions I think it relates to the confidence factor on the part of the private fleet operators. If they see their business volume firm up, they will make longer-term commitment. There is a 2010 technology change coming and we believe that there will be some impact on the 2009 lease sale because of that, probable somewhat tempered from what we saw in 2006 going into 2007, but we think the extensions will be another quarter or so and then we'll have to make a decision in '09 to avoid the 2010 up lift in the higher new vehicle investment. The volume is there, they'll be more confident to make longer-term decision. Todd Fowler - KeyBanc Capital Markets - Analyst When someone does extend the lease generally they do come back after the 12 or 18 month period to pick up a new vehicle? Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions We have a very high renewal rate on extensions, yes. www.streetevents.com Contact Us 20 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  22. 22. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Todd Fowler - KeyBanc Capital Markets - Analyst What about the profitability on the lease extension versus the new leases? My sense is they are less profitable. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions No. That's not true. Our return on asset for extensions are actually a very, very high return. We don't discount or lower the price on an extension. We keep the price steady during the extension period. The book value of the asset declining interest rate interest expense relate today that unit is declining and those declines more than offset any possible increase in running cost. So there is actually improved returns and profitability on extension. We like extensions and of course it does preserve our capital. Todd Fowler - KeyBanc Capital Markets - Analyst Okay. Good. And then I don't want to focus too much on the blurb but there was a comment in the dedicated business about the nonrenewal of certain customer contracts. I was hoping you could provide color around what you saw here in the quarter and what the issues were with people not renewing the dedicated business. Is that something that should subside here, one-time issue or something that you can see as the environment remains soft and higher fuel cost persist? Greg Swienton - Ryder System, Inc. - Chairman - CEO I think that comment refers to what sometimes happens in certain period of time. You sometimes have some churn, you have business that you - - upon time of renewal and sometimes they come up for renewal that based on the return or the profitability or the decision, the decision impacting the customer you may have some turn over. Sometimes there are customers that you don't want to lose and sometimes you end up by renegotiation not renewing. That is just what happened here. I don't think it's not a significant comment other than one occurred during the quarter and happens in various quarters over time. Todd Fowler - KeyBanc Capital Markets - Analyst And that was one customer that was multiple customers during the quarter? Greg Swienton - Ryder System, Inc. - Chairman - CEO I think there were probably a couple. Todd Fowler - KeyBanc Capital Markets - Analyst And then just lastly here with the guidance, what is the tax rate that we should think about with the guidance going forward? Greg Swienton - Ryder System, Inc. - Chairman - CEO Robert? Robert Sanchez - Ryder System, Inc. - CFO Yes. Going forward what slightly lower than the 391 that we had originally put out. www.streetevents.com Contact Us 21 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  23. 23. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Todd Fowler - KeyBanc Capital Markets - Analyst And on the share count? Robert Sanchez - Ryder System, Inc. - CFO Well, 55, 56 million. Greg Swienton - Ryder System, Inc. - Chairman - CEO That assumes we continue to purchase at the rate we did this quarter and we did 925,000 in the discretionary plan. Todd Fowler - KeyBanc Capital Markets - Analyst Okay. Thanks a lot. Operator Thank you. Our next question is from John Barnes. You may ask your question and please state your company's name. John Barnes - BB&T Capital Markets - Analyst BB&T Capital Markets. Looking at the extensions and the early terminations, first on the extensions, can you give us a feeling for, you said it was more profitable because you got depreciation I guess coming off interest expense coming off. Can you talk a little bit about the magnitude of the incremental margins on that? Do you expect the level of extensions to continue at this pace or do you think they'll moderate through the balance of the year? Greg Swienton - Ryder System, Inc. - Chairman - CEO The first part of the question we won't answer for competitive reasons. The second part of the question I'll let Tony answer. Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions I think you'll see that moderate in probably the first quarter, second quarter of next year. Something like that. You may see it continue throughout the rest of this year. It also is a factor of the leases that are actually coming to term. So we do have dramatically fewer leases coming to term this year, but yet the extensions are still quite a bit higher. So the terms, the contracts coming to term in third and fourth quarter have to do a lot with the rate of extension. But the economic drivers I think you'll see depending on how the economic environment firms up for those customers. If it weakens, you will see more extensions. If it strengthens you will see make a longer-term commitment. John Barnes - BB&T Capital Markets - Analyst And then on the early terminations, it looks like a fairly stable number versus a year ago. Can you just talk about -- is that a function of the economy? Do you expect it to kind of -- to stay at around this 2300 level or do you anticipate that maybe it begins to improve? Is it very much similar to your comments just now on the extensions? www.streetevents.com Contact Us 22 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  24. 24. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions I think the early terminations do continue to decline. We'd like to get it to a lower level than it is but we are not concerned about it. We have had a very high success rate on the redeploy and typically the early terminations that you are seeing now are negotiated and worked out with existing customers who have needs to reduce the size of their fleet.. We turn that into an opportunity solidify that customer relationship.. We'll take a few units back from that customer, solidify the relationship do an exchange for future commitment when their business comes back. We very quickly redeploy those units, you can see our redeploy went up. We like the profitability on the redeploy. It gives us an opportunity to win over a new customer with less expensive unit because it isn't brand new and overall Ryder comes out quite well. Preserves our capital, solidifies our relationship with that customer and we almost always trade a early term fleet reduction with a future commitment with that customer. John Barnes - BB&T Capital Markets - Analyst All right. Very good. Thanks for your time guys. Greg Swienton - Ryder System, Inc. - Chairman - CEO Sure. Operator Thank you. Our next question is from David Campbell. You may ask your question and please state your company name. David Campbell - Thompson Davis & Company - Analyst Thomson Davis & Company. Good afternoon, everybody. What did Gator add to the second quarter, operating revenues and pre-tax if you can say? Greg Swienton - Ryder System, Inc. - Chairman - CEO Tony, I'll let you -- Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions Generally speaking, Gator will be accretive to us this year. It did come in during the quarter. And we were very pleased with that acquisition. They have an excellent reputation in the Florida market. They are a very good player. We like their rates. They have very excellent real estate locations which will become part of our network. They have many employees that we've held in high regard for long period of time. So they will be accretive for us this year and we are pleased to have them as part of our portfolio. David Campbell - Thompson Davis & Company - Analyst They might have added 4 million in revenue? www.streetevents.com Contact Us 23 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  25. 25. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Tony Tegnelia - Ryder System, Inc. - President US Fleet Management Solutions No. The portion of our contractual growth came from acquisitions in the quarter was really the previously negotiated acquisition, Lily and [Poly] last year. David Campbell - Thompson Davis & Company - Analyst That 50% includes them. But Gator alone would have added some revenue -- Greg Swienton - Ryder System, Inc. - Chairman - CEO It did add revenue. It did not add meaningful NBT in the quarter because of the transaction closing costs that were incurred at the same time. The real profitability from the acquisition typically come in subsequent quarters when we have the margin expansion from the tuck-in concept and also do not incur the transportation -- transaction cost at the same time. David Campbell - Thompson Davis & Company - Analyst Okay. Thanks. And foreign exchange, you mentioned 1% of FMS revenues growth in the quarter. What about the Supply Chain Solutions division? Greg Swienton - Ryder System, Inc. - Chairman - CEO Go ahead. Robert Sanchez - Ryder System, Inc. - CFO On supply change FX was given 2, 2.5%. David Campbell - Thompson Davis & Company - Analyst Okay. 2.5% of the revenue growth? Robert Sanchez - Ryder System, Inc. - CFO Of gross. David Campbell - Thompson Davis & Company - Analyst Gross revenue growth. Okay. And the full year tax rate that you mentioned, the 39 I guess that is the full year includes 44 in the second quarter? Robert Sanchez - Ryder System, Inc. - CFO That is taking out the out of period portion of the 44 which gets you to 41. So 41 for the second quarter and then the full year would be slightly below 39. www.streetevents.com Contact Us 24 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  26. 26. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call David Campbell - Thompson Davis & Company - Analyst Okay. Robert Sanchez - Ryder System, Inc. - CFO The second half would be slightly below 39. The full year around 39. David Campbell - Thompson Davis & Company - Analyst Second half less than 39. Okay. Less than 39. Okay. And in a general sense, you mentioned the fourth quarter, your forecasts are relatively flat fourth quarter earnings. What does it say -- does it say anything about 2009. In order to get growth in earnings you need a better economy next year or should we not look at this fourth quarter forecast means anything for 2009? Greg Swienton - Ryder System, Inc. - Chairman - CEO You really can't extrapolate any meaning yet into 2009 because in 2007, we didn't have a good economy, and we had a growth in revenue and a growth in earnings. We don't have a good economy in 2008 and we have a growth in revenue and growth in earnings. We like to think there might be some recovery in 2009, but until we get later in the year we'll determine what that business plan is. Clearly our intention is because of the value proposition of outsourcing that we are selling throughout all of our segments, we believe that we will grind it out and work on getting good contractual revenue and earnings from that. But it's too early to say what our predict will be on 2009 economic environment. David Campbell - Thompson Davis & Company - Analyst Okay. And in your prepared remarks you mentioned there was a $3 million cost of North American strikes included in the second quarter. I didn't remember if that is revenue or pre-tax. Robert Sanchez - Ryder System, Inc. - CFO Earnings. So $0.03 EPS, earnings per share. David Campbell - Thompson Davis & Company - Analyst That is earnings per share of $0.03. But you didn't give us a revenue impact then. Greg Swienton - Ryder System, Inc. - Chairman - CEO About $7 million loss revenue. David Campbell - Thompson Davis & Company - Analyst Okay. Good. Let me see. And I think I'm trying to go through all my notes here. I think that is it. Most of my other questions have been asked. Thank you very much. www.streetevents.com Contact Us 25 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  27. 27. FINAL TRANSCRIPT Jul. 23. 2008 / 11:00AM, R - Q2 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman - CEO You're welcome. Normally, I'd continue taking calls but we are almost 20 minutes over time and I actually have to head to a TV studio to do some interviews on the quarter. So if there are any additional callers in queue for questions we'll ask them to get in touch with Bob Brunn our Director of Investor Relations, 305-500-4210 and you can follow up with him. We have a lot of questions and a lot of discussion and we are considerably over time so we'll have to ask the operator to wrap it up. Operator Thank you. At this time, I would like to turn the conference over to Greg Swienton. Greg Swienton - Ryder System, Inc. - Chairman - CEO Well, we are done, you've heard my summary. For those of you who hung on this long, thank you. For those calls we couldn't get to, we apologize but again, you can follow up with Bob Brunn. Thanks for your attendance, and have a good safe day. DISCLAIMER Thomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. ©2008, Thomson Financial. All Rights Reserved. 1434366-2008-07-23T21:44:07.593 www.streetevents.com Contact Us 26 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

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