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Q12008transcript

  1. 1. FINAL TRANSCRIPT R - Q1 2008 Ryder System, Inc. Earnings Conference Call Event Date/Time: Apr. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call CORPORATE PARTICIPANTS Bob Brunn Ryder - VP of IR and Public Affairs Greg Swienton Ryder - Chairman and CEO Robert Sanchez Ryder - EVP, CFO Tony Tegnelia Ryder - President of US Fleet Management Solutions CONFERENCE CALL PARTICIPANTS Alex Brand Stephens, Inc. - Analyst John Mims BB&T Capital Markets - Analyst Jon Langeneld Robert W. Baird - Analyst John Larkin Stifel Nicolaus - Analyst Ed Wolfe Wolfe Research - Analyst Art Hatfield Morgan Keegan - Analyst Todd Fowler KeyBanc Capital Markets - Analyst David Campbell Thomson Davis & Company - Analyst PRESENTATION Operator Good morning, and welcome to Ryder System, Inc. first quarter 2008 earnings release conference call. All lines are in a listen only mode until after the presentation. (OPERATOR INSTRUCTIONS) Today's 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 - VP of IR and Public Affairs Thanks very much. Good morning, and welcome to Ryder's first quarter 2008 earnings conference call. I would like to begin with a reminder that in this 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. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call 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 US Fleet Management Solutions, is on the call today and available for questions following the presentation. With that, let me turn it over to Greg. Greg Swienton - Ryder - Chairman and CEO Thank you, Bob, and good morning, everyone. This morning, we'll recap our first quarter 2008 results, review our asset management area and provide our current outlook for the business. After our initial remarks, we'll then open up the call for questions, so let me begin with our first quarter results. In the overview, for those of you following on the Power Point, we'll start at Page 4. Reported net earnings per diluted share were $0.96 for the first quarter 2008, as compared to $0.84 in the prior year period. Earnings for the quarter exceed the forecast we provided on our last earnings call of $0.84 to $0.87. The better than anticipated performance came in our Fleet Management Solutions segment through continued contractual revenue growth, improved commercial rental operations, and from our used vehicle sales results. Total revenue for the company was down 3% in the quarter, due to the previously announced change from gross to net revenue reporting for subcontracted transportation with one supply chain customer. Operating revenue, which excludes FMS fuel and all subcontracted transportation revenue, was up 5% due to contractual revenue growth, as well as favorable foreign exchange rate movements. Fleet Management total revenue was up 12%, while operating revenue was up 5% versus the prior year. Contractual revenue, which includes both full service lease and contract maintenance, was up 6%. Lease and contract maintenance revenue growth reflects our sales activity over the past few quarters, while lease revenue also benefited from the Pollock and Lily acquisitions. Full service lease revenue was up 6%. Lease growth reflects our organic sales activity over the past few quarters, as well as the impact of the Pollock and Lily acquisitions. Contract maintenance revenue was up 9%, reflecting organic sales activity and the conversion of customers from the private fleet market. Total FMS revenue was impacted by a 31% 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 first time in six quarters we have seen rental revenue growth. U.S. rental revenue was modestly down in the quarter, but the rate of decline slowed and the domestic decline was more than offset by growth in the Canadian and UK markets. Gains from the sale of used vehicles were down by $2.6 million, due to a lower volume of used vehicle sales -- used vehicles sold. Gains were better than our forecast however, and the decline in gains were largely offset by lower carrying costs on a smaller used vehicle inventory. Net before-tax earnings in Fleet Management were up by 13%. Fleet Management earnings as a percent of operating revenue were up by 90 basis points to 12.2%. FMS earnings benefited from contractual business performance, lower sales and marketing costs, and the two recently closed acquisitions. Turning to the Supply Chain Solutions segment on Page 5, total revenue was down 27% 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. Growth was partially offset by the previously disclosed closure of a significant automotive plant during the second quarter of 2007, and reduced activity with certain high tech customers. First quarter net before-tax earnings, in Supply Chain were down 27% versus the prior year. Net before-tax earnings as a percent of operating revenue were down 120 basis points to 2.4%. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Supply Chain's earnings were below our expectations and were impacted by reduced activity with certain high tech customers, investments in sales, marketing and technology initiatives, facility relocation costs, and the impact of an automotive supplier strike. SCS earnings were also hurt by higher fuel costs, primarily with one customer, due to a timing issue in passing on fuel cost increases. This customer's contract has been modified effective April 1st to mitigate this issue going forward. In Dedicated Contract Carriage, total revenue and operating revenue were down 1% due to non-renewed contracts, partially offset by higher fuel costs. Net before-tax earnings in DCC were up by 9%, and as a percent to operating revenue, were up by 80 basis points to 8.4%. Earnings increased in the quarter due to improved operating performance and lower safety and insurance costs. Page 6 highlights key financial statistics for the first quarter. Operating revenue was up by 5%, mainly due to growth in multi-year contractual business. Earnings per share were up by 14%, reflecting net earnings growth of 9% 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 three million shares to 58.2 million. In December 2008, we announced both a $300 million discretionary share repurchase program and a $2 million -- two million share antidilutive repurchase program. No shares were purchased under these programs until after the release of our fourth quarter 2007 earnings on February 1, 2008, due to our company policy prohibiting such purchases during a blackout period for the company. During the first quarter, we repurchased 840,000 shares at an average price of $59.02 per share under the $300 million program, and we purchased an additional 751,000 shares at an average price of $58.83, under the two million antidilutive share program. Combined purchases under the two programs totaled almost 1.6 million shares during the quarter, and as of March 31, there were 57.5 million shares outstanding. First quarter 2008 tax rate was 39.1% compared to the prior year tax rate of 39.6%. Return on capital, which is calculated on a rolling 12-month basis, was 7.5% versus 7.8% in the prior year's first quarter. Return on capital was up, however, from 7.4% in the fourth quarter 2007, reflecting the actions we've taken to reduce the size of the rental and used vehicle fleets. We expect these comparisons to continue to improve throughout the year. I would like to now turn to Page 7 to discuss our first quarter results for the individual business segments. In Fleet Management Solutions, operating revenue was up by 5%, driven by 6% contractual revenue growth, partially offset by 1% growth in the smaller commercial rental product line. Total revenue increased by 12% due both to this operating revenue growth and higher fuel costs passed through to customers. Total FMS revenue also included a 1% favorable foreign exchange impact. Fleet Management Solutions earnings were up by $10.6 million, or 13%. In lease, we continued solid revenue growth as a result of new vehicles being placed in revenue earnings service related to sales made in recent quarters. Miles driven per vehicle per workday on U.S. lease power units were up 5% versus the first quarter 2007 and were seasonally down 2% as compared to last quarter. Contract maintenance continued the strong performance we've seen in recent periods. Contract maintenance revenue growth of 9% largely reflects continued success in sales of this asset light product line to the private fleet market. U.S. commercial rental utilization on power units was 69.4%, up 520 basis points from 64.2% in the first quarter 2007, due to our actions to reduce the size and change the mix of the rental fleet. This is the second consecutive quarter of improving rental utilization comparisons. U.S. rental pricing on power units was stable in the quarter compared to the first quarter 2007. This represents an improvement from the fourth quarter 2007, where rental pricing was down by around 3%. In Supply Chain Solutions, total revenue was down 27% in the quarter, due to the change from the gross to the net revenue reporting, I previously discussed. SCS operating revenue excludes subcontracted transportation and therefore excludes the impact of this reporting change. SCS operating revenue was up 6%, reflecting the impact of foreign exchange rates, higher fuel costs, as well as new and expanded customer contracts. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Operating revenue growth was partially offset by the previously disclosed second quarter 2007 shutdown of an automotive plant that generated $55 to $60 million of annual revenue, as well as reduced activity with certain high tech customers. SCS net before-tax earnings were down $3.1 million for the quarter. Earnings were negatively impacted by several items, including reduced activity with certain high tech customers, higher fuel costs, primarily with one customer, and investments in sales, marketing and technology initiatives. SCS earnings were also down due to facility relocation costs and the impact of an automotive supplier strike. In dedicated contract carriage, total revenue and operating revenue were both down by 1% due to non-renewed contracts, partially offset by higher fuel costs. ECC's net before-tax earnings improved by $900,000, or 9%, due to improved operating performance and lower safety and insurance costs. Our total central support service costs were up by $2.4 million, due partly to increased information technology investments. A portion of central support costs allocated to the business segments and included in segment net earnings was down by $800,000. The unallocated share, which is shown separately on the P & L, increased by 3.2 million. Net earnings were $56.1 million, up by $4.8 million or 9%. 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. Robert Sanchez - Ryder - EVP, CFO Thanks, Greg. Turning to Page 8, first quarter gross capital expenditures totaled $332 million, down by $143 million from the prior year. Capital expenditures were generally in line with our forecast for the quarter. Full service lease vehicle spending was down by over $100 million, 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. While we continue to see some customers shrink their existing fleet sizes when their leases expire, and also to defer some decisions on new sales opportunities due to the soft economy, at the same time we continued to sign new outsourcing contracts with lease customers. As a result at this time, we do not expect a material change from our full year lease capital expenditures forecast. We may see some switch from new vehicle orders into term extensions with existing vehicles, due to customer uncertainty in the market. As such, while our lease revenue forecast remains on track for the year, our capital expenditures may be marginally lower than originally forecast. Commercial rental vehicle spending was down by $45 million from the prior year and was in line with our forecast. We realized proceeds primarily from sales of revenue-earning equipment of $75 million, down by $19 million from the prior year, reflecting fewer units sold as a result of having a smaller used vehicle inventory. Including proceeds from sales, net capital expenditures were $257 million, down by $124 million from the prior year. We also spent $93 million on Fleet Management's acquisition of Lily in the northeast U.S. Turning to the next page, you'll see that we generated cash from operating activity of $300 million in the first quarter, up by $47 million from the prior year. This increase was due primarily to reduced working capital needs and increased depreciation. The change in working capital reflects improved collections on accounts receivable. Increased depreciation was largely due to foreign exchange rate changes and spending on new contractual lease vehicles in recent periods. Including the impact of our used vehicle sales activity, we generated $393 million of total cash, up by $29 million from the prior year. This strong recurring cash generation is important to the business, as it supports our future anticipated growth in assets under management. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Cash payments for capital expenditures were $274 million, down by $219 million versus the prior year. Including our capital spending, the company generated $119 million of positive free cash flow this quarter, up by $242 million from last year. On Page 10, you can see the total obligations have increased modestly compared to the year end 2007. The increased debt level is largely due to spending on contractual vehicles, acquisitions, and net stock repurchases. Ryder's total obligations of approximately $3 billion are up by $19 million as compared to the year end 2007. Balance sheet debt to equity was 149% 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 159% versus 157%, at the end of 2007. Our leverage ratios, of course, do not include the impact of the recently announced Gator Leasing acquisition, as this deal is not expected to close until May. We also continue to have a healthy pipeline of acquisition candidates. We continue to have a significant balance sheet capacity as the total obligations to equity ratio of 159 is well below our target of 250 to 300, for our current mix of businesses. We remain committed to increasing our financial leverage in a balanced way over the next few years through organic growth, acquisition, and share repurchase. Our equity balance at the end of the quarter was almost 1.9 billion, down by 19 -- by 14 million versus the prior year. Our ending equity balance reflects net share repurchases and dividends, which more than offset our net earnings. At this point, I'll hand the call back over to Greg to provide an asset management update. Greg Swienton - Ryder - Chairman and CEO Thanks, Robert. Page 12 summarizes the key results in our U.S. asset management area. At quarter end, our used vehicle inventory for sale was approximately 5300 vehicles, down 17% from 6400 units, at the end of the fourth quarter. Used inventories were almost half the nearly 10,000 units we held for sale at the end of the first quarter last year. The lower used fleet balance reflects the actions we took last year to bring inventories down and in line with our targeted levels. We sold approximately 4900 used vehicles during the quarter, down 19% from the prior year, and in line with our expectations. Because our inventories are now more in line with our targets, we've returned to our normal process of selling the large majority of our vehicles at retail prices through our own used vehicle sales centers. Proceeds per vehicle on sales of used tractors were up by 1%, while proceeds per vehicle on sales of used trucks were down by 12%, as compared to the first quarter last year. Comparisons versus the fourth quarter were more favorable, however, with tractor proceeds up 11% and truck proceeds up 2%, largely due to the reducing the amount of wholesale activity this quarter. At the end of the quarter, approximately 6500 units were classified as no longer earning revenue. This number is down by 900 units from the fourth quarter, primarily due to a decrease in the number of units available for sale. For those of you who follow the statistics, starting with this quarter, we've changed the definition of no longer earning units to be more inclusive. These units now include all vehicles available for sale and units that have not earned any revenue in the past 30 days. Our total U.S. commercial rental fleet in the first quarter, was down on average by 10% from the prior year, with the power fleet down by 12%. The rental fleet reductions we made last year have accomplished their objective by significantly improving rental utilization levels by over 500 basis points in this first quarter versus the prior year. As I mentioned earlier, this is the second consecutive quarter of significantly improved rental utilization levels. Turning to Page 14, we are increasing our full year 2008 EPS forecast from a previous range of $4.50 to $4.65 to a new range of $4.55 to $4.75. We're also establishing a second quarter EPS forecast of $1.10 to $1.20. Our forecast contemplates the potential continuation of current automotive strikes in our Supply Chain business. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call The impact of one strike was fairly modest in the first quarter, as it was limited to one auto supplier and impacted a limited number of facilities during the quarter. The potential impact on the second quarter will be more significant if the strikes continue, as there are now several strikes under way and the number of facilities impacted has expanded. As a result, the low end of our forecast range includes the impact of current auto strikes continuing through the end of the second quarter. The upper end of the forecast range assumes the strikes will be concluded by the end of April. In either case, we're pleased to increase our full year forecast range by $0.05 to $0.10 and believe this is particularly noteworthy in the current market environment, which is severely impacting many other companies and certainly those in the transport industry. As with our original business plan, our current forecast does not assume an improving economic or transportation environment. Our strong results and expectations for the year are driven by continued sales of new long-term contractual business, improving results in our commercial rental and used vehicle operations versus a very difficult 2007, the successful implementation of the recently closed acquisitions, the continuation of our share repurchase program, and continued focused tactical execution by our teams. That does conclude our prepared remarks for the morning, and at this time, I'll turn it over to the operator, who can open up the line for questions. QUESTIONS AND ANSWERS Operator Thank you. (OPERATOR INSTRUCTIONS) Our first question today is from Alex Brand. You may ask your question, and please state your company name. Alex Brand - Stephens, Inc. - Analyst Hi, Stephens, Inc. Good morning guys. Greg Swienton - Ryder - Chairman and CEO Good morning, Alex. Alex Brand - Stephens, Inc. - Analyst Greg, I guess I am curious on the fleet, I think you said 5% increase in miles per vehicle per day. What do you think accounts for the increased utilization despite the economy? I guess that seems sort of contrary to what I would think would be happening. Greg Swienton - Ryder - Chairman and CEO I believe that customers who lease their fleets also have other supplemental activities that they engage in. It could be commercial rental from us. It could be from other, more common carriers, but when you get to the core, I think that when they are leasing equipment, that is the equipment that they are first going to be obviously committed to utilize and not want to park. So I think when, when they are trying to focus on and make sure they do a good job of efficiency and delivering products and services to their customers, probably even managing down some of the quantity of pieces of equipment they are moving due to costs and fuel prices, that the fleets they have, I believe, they are trying to use to their fullest capacity. That would be my impression and, Tony, if you thought anything different, you might add from FMS as well. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Tony Tegnelia - Ryder - President of US Fleet Management Solutions No, I think that's very clear. What you're seeing, and as we had discussed in the last couple of quarters, a number of our customers have requested fleet size reductions at the time of renewal and as a result, the remaining units left in their fleet, they are running at much, much higher utilization rates, and that's why you're seeing the average mileage really grow. They are very, very cost competitive, very, very cost conscious, and they are driving those economies on basically smaller fleets. Alex Brand - Stephens, Inc. - Analyst Okay. Now, on the currency, I think you talked -- you quantified the impact on your revenue. Is there any impact to be aware of on operating profit? Greg Swienton - Ryder - Chairman and CEO I -- go ahead. Robert? Robert Sanchez - Ryder - EVP, CFO The impact is slightly under a $0.01. Is the impact to profit on -- of FX. Alex Brand - Stephens, Inc. - Analyst Okay. And, Robert, you talked about CapEx, that you didn't think it would change much based on the current plan, but your free cash flow was a pretty big number for the first quarter. Is that -- is it realistic to think you can do that kind of free cash flow on a quarterly basis in '08? Robert Sanchez - Ryder - EVP, CFO Yeah, we're sticking to what we had in the original plan, and really what we're expecting is obviously as the year goes on, CapEx will increase per what we had in the plan, with the exception of we are seeing some more term extensions. You can see on the asset management charts in the back, that we saw an increase in term extensions, which could modestly bring down some of the lease CapEx early in the year. Alex Brand - Stephens, Inc. - Analyst Okay, and I think you said in your comments that the -- you still had a pretty healthy acquisition pipeline out there, and I'm wondering, on the stock buyback, I mean it's a discretionary plan, so are you -- is there a commitment to spend the $300 million, or are stocks moving up a lot? Does that kind of mean you pare back the buyback program a bit? Robert Sanchez - Ryder - EVP, CFO No, we're, remember, our goal here is to really get to our target leverage over the next 2 1/2 years, so we are going to continue with that program. We do have enough, as you know, we've got enough head room to do the share repurchase and the acquisitions that we've got in the pipeline. We know we can do also. So we're not planning on paring that back in the next few months. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Alex Brand - Stephens, Inc. - Analyst Okay. That's all I have. Great quarter, guys. Thanks a lot. Greg Swienton - Ryder - Chairman and CEO Thank you. Operator Thank you. Our next question is from John Mims. You may ask your question, and please state your company name. John Mims - BB&T Capital Markets - Analyst It's BB&T Capital Markets. I'm standing in for John Barnes. Good morning, guys. Greg Swienton - Ryder - Chairman and CEO Good morning. John Mims - BB&T Capital Markets - Analyst Kind of following up on Alex's comment a little bit, if you look at the interest expense, it was down about 5% year-over-year, despite the increased leverage. Is that a product as kind of the financial markets and lower interest rates now, or is that something we should kind of look at going forward? Greg Swienton - Ryder - Chairman and CEO Yeah, it's a combination of the volume being down, debt levels being down from last year same time, and the rate. It's about, a little bit more than 50/50 on the rate side, so I would say about 60% of it is coming from rate and the 40% is coming from volumes. John Mims - BB&T Capital Markets - Analyst Okay, okay. That makes sense. And can y'all provide us some details on the Gator acquisition, what sort of revenue stream you're looking at or any integration issues you may see? Robert Sanchez - Ryder - EVP, CFO It's been our -- as has been our process, we really don't comment in greater detail until we actually close it, which we expect to happen in May. We've revealed the number of units at about 2300 in the number of customers. We don't obviously really expect any integration issues. We're both Miami-based companies, the facilities are not only here in South Florida, but throughout the state, and I think has been reflected in the most recent acquisitions we did with Lily and Pollock. We expect those to be well and smoothly integrated. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call These are things that we do, and it's fairly, fairly efficient for us to work those into our existing network, which is one of the key points of the value of these acquisitions. John Mims - BB&T Capital Markets - Analyst Right, perfect. So no, like, nagging, IT stuff on the horizon or any of that? Greg Swienton - Ryder - Chairman and CEO No, certainly not, no. John Mims - BB&T Capital Markets - Analyst Great, great. And one last question, you look -- I saw on your chart on Page 22, there was kind of an uptick of early terminations from last year. Is that, a risk that we may see more of if the economy stays weak, or, is that just kind of a one-time thing that, is a nonissue? Greg Swienton - Ryder - Chairman and CEO For those of you who may not have that page right in front of you, in the supplement of the Power Point, in the appendix on Page 22, as he's referring to, one of the categories is early terminations. Before I may ask Tony to comment on that, what you'll also notice is the big uptick on the previous two categories of redeployments and extensions. And that's a big plus, because it means that we're maintaining a revenue stream, we're getting the equipment extended and still into service. The early terminations are up a little from last year, but they are certainly not at the levels that they were in '04 and '03 even. So that just gives you a little bit of perspective. Tony, if you want to add anything on the question, please go ahead. Tony Tegnelia - Ryder - President of US Fleet Management Solutions Yes. As I had said earlier in the call, and as we also said in the call for the last quarter, we are working with a number of customers for some of their requests for fleet reductions during this economic environment, and we typically do that on a very select basis in exchange for other future commitments with those customers. But what is very important here is we've been extremely successful in redeploying a number of those units within the lease fleet. And you can see our redeploys are up really handsomely quite as well. So, we have not had a difficult time redeploying those units and what we find is we solidify our relationship with those customers who may be in a more challenged environment today, but also maintaining a revenue stream with other customers on the redeploys and saving the capital relative to the cost of a new piece of equipment. So we feel so far in the marketplace and even on our balance sheet returns, it's been a win-win for us and we are not really particularly concerned about that. John Mims - BB&T Capital Markets - Analyst Okay, okay, great. I appreciate the explanation and congratulations on a nice quarter. Greg Swienton - Ryder - Chairman and CEO Thank you. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Operator Thank you. Our next question is from Jon Langenfeld. You may ask your question, and please state your company name. Jon Langeneld - Robert W. Baird - Analyst Robert W. Baird. Good morning, Greg and all. Greg Swienton - Ryder - Chairman and CEO Good morning, Jon. Jon Langeneld - Robert W. Baird - Analyst Can you talk about kind of the upside in the quarter. Looks to me Supply Chain, as you mentioned, came in a little bit less than expected, so you probably on FMS probably got $0.12, $0.13 of upside there. Half of it being used truck sales, better performance there, half of it being contractual business. I guess first off, am I characterizing that right? Greg Swienton - Ryder - Chairman and CEO Roughly, yes. I think that the big positives come from several things going on, particularly in Fleet Management. You got contractual revenue growth, which continues. In addition, the acquisitions that we had already announced, Lily and Pollock, are contributing and doing well. Commercial rental, we've got the fleet sized right. The utilization is good. That's not a big anchor we're dragging anymore, and better than forecasted used vehicle sales. So especially we've got the right quantity, we've got the expected forecast, and as I mentioned in the comments on the call, the pricing is better because we're doing more of our retailing through our used vehicle sales centers. So I think you, what you characterize that principally correct and I would just reiterate those. Jon Langeneld - Robert W. Baird - Analyst Sure, okay. And then on the commercial rental side, I'm assuming that has changed from a year ago being a profit drag to this year, I guess you're at close to 70% utilization. That's a positive profit contributor. Any reason to think that that would reverse itself here in the near term? Greg Swienton - Ryder - Chairman and CEO Well, first, that is a very correct assumption. On the -- whether it's a drag or a gain, and it is, compared to last year, a huge difference, as you pointed out. We don't see anything right now that would cause that to change. You know, we went into this year and we've reiterated again today that we're not counting on any economic recovery, so it's kind of status quo, still a tough environment, but we believe that as much as anything through our own efforts and trying to balance the right quantity of fleet with the type and size of vehicles and the right markets, that, we expect to continue to still make progress. So I wouldn't, I wouldn't forecast any change from what we see from that right now. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Jon Langeneld - Robert W. Baird - Analyst And would you look at that at all, probably too early to tell, but, roughly flattish growth in the U.S. You made it sound like is that a sense of a leading indicator that you've hit some stability there? Greg Swienton - Ryder - Chairman and CEO We -- when we did our forecast for the year, we said overall that it would be just about flat to maybe up 1% or 2%, so anything hovering around flat revenue growth we think is still the right way to look at it. In this past quarter, we still had a little bit of decline in the U.S. That was offset by Canada and the UK, I think, and I maybe hope a little bit, but I expect and think that over time, even the U.S. will inch up a bit. Jon Langeneld - Robert W. Baird - Analyst And then as far as the Supply Chain side goes, sounds like it cost you a penny or two in the quarter with regards to those strikes. I guess I'm a little bit surprised that the strikes would be upwards of $0.10 in the second quarter if they lasted the whole quarter. Am I looking at that correctly? Greg Swienton - Ryder - Chairman and CEO Yeah, in the first quarter, it probably was more like $0.01 impact, and we're forecasting -- it's already in our expectations in the second quarter, but the fact is that there really are three strikes going on right now. And that means it's more pervasive than it was in March, and if they are not settled, if these continue, they could impact us $0.03 to $0.04 per month in the months of May and June, and that's what we have forecasted. Jon Langeneld - Robert W. Baird - Analyst Okay. That's good. Now, outside of that, I guess just trying to react to the lack of taking the guidance up and I understand there's a lot of uncertainty out there, but the thought process, and back on FMS, I guess there's probably not a lot of change coming on the contractual side or commercial rental side. So the variable, I guess I see there is just the used truck sales and what happens there. Is that how you kind of addressed it when you looked at your full year guidance? Greg Swienton - Ryder - Chairman and CEO Well, we know what the downsides are for sure. Things that we're aware of like the strike, like the strikes, like other things going on in the business that are head winds, and, there's volume challenges. There are still freight impacts, and, we took up the full year guidance that is largely reflective of the excess that we gained in the first quarter, and I think that to take that higher at this point would be a little bit premature. Jon Langeneld - Robert W. Baird - Analyst Okay, okay. Last question along those same lines, are there -- is there anything you're seeing on your FMS side that gets you more concerned about the external environment today than maybe what you saw three or six months ago, setting aside the headlines and all that noise, just more looking at your own business? 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder - Chairman and CEO From my point of view, the simple answer is no, but I'll ask Tony, who heads up that segment. Tony Tegnelia - Ryder - President of US Fleet Management Solutions Okay. No, actually, Jon, we feel very positive going into the future. We, we know that there will be more technology change next year and also that will impact us this year as well somewhat latter part of the year and those vehicles will cost more. They will be more complex to maintain, so we think that the motivation to outsource the maintenance and go to full service leasing remains very, very strong in the intermediate and also in the long-term. Our pipelines are still very, very strong. Our retention ratios continue to improve. Our closing ratios continue to improve. As we stated for the last couple of quarters, we maintain steady state, with the strong sales force head count. So we're going into the marketplace with that kind of strength, and we feel very good that we'll be fine with the projections that we made earlier in the year on our contractual revenue growth. Jon Langeneld - Robert W. Baird - Analyst Okay. Thank you. Great quarter. Greg Swienton - Ryder - Chairman and CEO Thank you. Operator Thank you. Our next question is from John Larkin. You may ask your question, and please state your company name. John Larkin - Stifel Nicolaus - Analyst Company name is Stifel Nicolaus. Good morning, gentlemen. Greg Swienton - Ryder - Chairman and CEO Hello, John. John Larkin - Stifel Nicolaus - Analyst I was really impressed with the amount of capital you put to work during the quarter to first of all, acquire Lily, which seals to be a great fit, and then also under the two share repurchase programs, it looks like you spent close to $100 million there. So with Lily, that's about $200 million above and beyond what you need to kind of run the business that you're spending. Yet the total obligations to equity ratio only ticked up from 157 to 159. So if the objective is to reach the leverage targets by, let's say the end of 2010, which I read into some of the comments, then does that imply that you're going to have to perhaps increase the pace from what appeared to be a fairly, fairly strong pace in the first quarter in order to reach that objective? 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder - Chairman and CEO Well, first, you're right, that it only inched up a little from 157% to 159%, so it doesn't seem like much at this point, but also recognize that the impact of the share repurchase was not in a full quarter, and the impact of the acquisitions made at the end of last year and the start of this year, you still weren't getting the full impact. So that will be cumulative and that will be a positive factor. We also expect to continue the pace both for share repurchase and acquisitions, and we, we expect for you to see, as the quarters go by, a greater impact on that leverage moving up. It's not enough of an exact science to say what that number would be by the end of the year, but I think over the next three quarters, what you should see by the end of the year is maybe something like 20 basis points or north of that, in terms of that leverage movement, and I think that will continue. John Larkin - Stifel Nicolaus - Analyst Okay. That's very helpful. You talked also about the good pricing environment, a relatively good pricing environment, I guess, with the sale of used power units in particular. We hear a lot from the truckload carriers that there's a very active market in eastern Europe and Russia. Do you have a conduit into that market, or is that one of the reasons why your pricing is holding up so well there? Greg Swienton - Ryder - Chairman and CEO We, we have a conduit, should we need it, to other parts of the world. Our big preference is to perform in a retail pricing environment through our used vehicle sales networks. Last year, when we had so many units to move, we did move more units offshore and outside of the, of North America. We would like to do, again, as little of that as possible. I think the positive results in the first quarter were a reflection of the fact that we did very little wholesaling. We don't feel that at these quantities we need to do significant wholesaling, and we expect our proceeds to stay up because of the utilization of the retail pricing in our existing retail used vehicle network. John Larkin - Stifel Nicolaus - Analyst Okay. That's very helpful. And lastly, I think you're being smart and being conservative in your economic assumptions going forward. But, at some point with as much fiscal and monetary policy stimulus that is being thrust out there in the marketplace, you would expect the economy to gain traction at some point. What sort of factors should we look for to, kind of determine when Ryder will be going through that inflection point, what parts of your business are most leveraged to an uptick in demand? Would it be commercial rental and perhaps used vehicle sales that would be most leveraged, or is it something else? Greg Swienton - Ryder - Chairman and CEO I think a real uptick in commercial rental due primarily from demand as opposed to our more managing the environment, that would be a sure sign. I think the quarter that Tony and his team and FMS say that customers are no longer delaying their decisions and all of these good, solid pipeline contracts are getting ink on them, that would be a big indicator. In Supply Chain, when a number of accounts suddenly, or more precipitously or pro actively and aggressively start seeing more volume moving, that will be a big indicator, and I think those would be some of the big ones. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call John Larkin - Stifel Nicolaus - Analyst All right. Greg Swienton - Ryder - Chairman and CEO And certainly used vehicle sales may be a part of it, but less so from the other three that I just mentioned. John Larkin - Stifel Nicolaus - Analyst Got it. That's extremely helpful. Really appreciate it. Nice job on the quarter. Greg Swienton - Ryder - Chairman and CEO Thank you. Operator Thank you. Our next question is from Ed Wolfe. You may ask your question, and please state your company name. Ed Wolfe - Wolfe Research - Analyst Thank you. Wolfe Research. Good morning, guys. Greg Swienton - Ryder - Chairman and CEO Good morning, and we noticed the new name attached. Congratulations. Ed Wolfe - Wolfe Research - Analyst Thank you very much. It's exciting. Hey, just a little more color on the gains on sales. I was surprised to see that your tractor pricing was up 1%, because we've heard from some others that they are seeing that not up year-over-year and more recently a little bit more pressure. Is there something about the years of your vehicles, or have you seen a change in the last month or two directionally on the pricing of the tractors? Can you talk to that? Greg Swienton - Ryder - Chairman and CEO Yeah, I'll give you a comment and I'll turn it over to Tony. He can comment whether there's any years. I don't think there are. I think a lot of it has to do with, that something that's embedded and a value in our fundamental business model, and that is our used vehicle sales centers have a lot of repeat customers who come to Ryder used truck locations because they have been maintained by Ryder, they have an entire maintenance history, and when they hit the road or hit that truck lot, they are Ryder road ready and I think that has some value. I think that has value in terms of pricing. With that, I'll turn it over to Tony. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Tony Tegnelia - Ryder - President of US Fleet Management Solutions Yes, thank you, Greg. And I think fundamentally, with the actions that we took last year to dramatically reduce our used vehicle inventory level and also the asset base there, we're just being much more particular about the channel where we're selling the units. We are much higher now in our retail sales, and more firm on our pricing in that regard as well. And relying much, much less on wholesale. There hasn't been any dramatic change in the mileage on the vehicles, no dramatic change in, within the tractor mix of what they are, as well as the vintage in general. They are all road-ready, Ryder road-ready, Ryder tested, which is branded in the marketplace for our used vehicles and they typically do command a better used price from that perspective. And we're just seeing a better job by our used vehicle sales network team doing more retailing with those units. Ed Wolfe - Wolfe Research - Analyst Have you assumed in your guidance going forward that trucks are flat, up, down, in terms of pricing going forward? Tony Tegnelia - Ryder - President of US Fleet Management Solutions For the most part on our UVS, we're seeing that the tractor pricing actually is beginning to firm a bit and rise a bit in our used market. The truck pricing is still pretty stable and that will remain flattish for the rest of the year. Ed Wolfe - Wolfe Research - Analyst And then tractors, what are the main years? How old are the trucks that you're selling generally? Tony Tegnelia - Ryder - President of US Fleet Management Solutions They are about seven to nine years old, in that range, generally speaking. Ed Wolfe - Wolfe Research - Analyst Okay. The auto strike, can you talk a little bit, Greg, about the impact. First of all, on Supply Chain, in terms of the NBT was down a bit, how much of that specifically do you think is related to auto, and then did the auto strike and the larger strikes now impact other units besides Supply Chain? Greg Swienton - Ryder - Chairman and CEO In the first quarter, it was about $0.01 a share impact. Going forward and especially in May and June, if all three strikes continue, we again expect about $0.03 to $0.04 per month impact. I think it's largely focused in Supply Chain, although if, if in a worst case they just lasted longer and continued to spread, it is possible there could be some other impact on fleet units, in Fleet Management that serve those locations, but at this stage for the second quarter forecast, that $0.03 to $0.04potential per month downside is largely with Supply Chain. Ed Wolfe - Wolfe Research - Analyst And the $0.03 to $0.04 is per month, not per quarter, and the $0.01, was that per month or per quarter that you mentioned in first quarter? 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder - Chairman and CEO The $0.03 to $0.04 for the second quarter is per month. And the $0.01 that I mentioned was for the totality of the first quarter, which really was only in the month of March. Ed Wolfe - Wolfe Research - Analyst Okay, that's helpful. The rental turnaround is pretty phenomenal if you look at the revenue. Can you talk to maybe what the utilization rates were, if you could take us through, if you have a monthly and versus a year ago? Greg Swienton - Ryder - Chairman and CEO Yes. Just to kind of give you a direction of where they had been, in -- if you go back to the fourth quarter of '06, they declined 550 basis points. So the fourth quarter '05 was 77.3. Fourth quarter '06 was 71.8. In the first quarter of last year in '07, we lost 490 basis points and went down to 64.2. In the second quarter of '07, we lost 200 basis -- 250 basis points and went down to 70.6 from 73.1 the year before. In the third quarter of '07, we essentially began to go flat. We are only down 20 basis points, because we are at 73 versus 73.2 in the prior year. Last quarter of '07, we were up 490 basis points at 76.7, versus 71.8 in the prior year, which was near the fourth quarter '05 level and then this quarter, you saw the 525 basis point improvement, as we went from 64.2 last year to 69.4 this year. So that may give you a thorough chart. Ed Wolfe - Wolfe Research - Analyst That's pretty impressive. Let me-- Greg Swienton - Ryder - Chairman and CEO I'll ask Tony if he wants to comment additionally. Ed Wolfe - Wolfe Research - Analyst Oh, sure. Tony Tegnelia - Ryder - President of US Fleet Management Solutions Yes, I would just like to say we are extremely proud of our rental team and the great job they have done really driving this fleet over the last number of quarters. They have really worked very, very hard driving these utilization rates. A number of our vehicle classes are at 80% or even higher as a matter of fact. And we're extremely pleased with the great work that they have really done. That's also driven up our return on this asset class as well, and as we stated in our last conference call, and I will reiterate that again today, we see this kind of utilization improvement for every quarter year-over-year, as we go throughout the year, and also a return on assets for the rental fleet being -- improving every quarter this year as we go throughout the year as well. So you'll continue to see these improved utilization rates. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call The team has done a spectacular job driving that utilization and the returns, and we also feel that this is great momentum going into the peak rental season. Our first quarter performance, as good as it was over last year, we're still not in the peak season, so this is great momentum going into the peak season. We think the team is going to continue to do a great job and we think rental will have an excellent year. Ed Wolfe - Wolfe Research - Analyst At what point, at what utilization do you have to start to now add back to the fleet and how far away are we from that, do you think? Tony Tegnelia - Ryder - President of US Fleet Management Solutions Well the low and mid-80s typically suggest that you may be turning down some customers a bit too frequently than we would like in the marketplace, particularly if they go to our competitors to rent and they're full service lease customers. So we're about there in a number of classes right now. But we still are staying very conservative in our capital expenditures, and for '08 they will still be lower than '07, and '07 was lower than '06. So we're staying conservative on CapEx, but within certain classes, we're about there, where we're in the mid to low 80s utilization rates. Ed Wolfe - Wolfe Research - Analyst That's great, and then I was going to be a little nitpicky on a terrific quarter. Central Support Services now have been at 11.5 million two quarters in a row, that's up quite a bit from last year at this time. Is there anything that we should think about in terms of that going forward? Greg Swienton - Ryder - Chairman and CEO Well, you're right. We, we certainly need to spend money on information technology, and some other central initiatives. We think that in the last couple of quarters, these are items that were important to continue to keep the momentum on, to keep our place in the market. It is not -- I wouldn't say it's a significant long-term deviation or trend and certainly not different than our normal approach to being careful about costs. Normal operating expenses we're really, really pretty careful with, as always, but we do have some areas that for investments and timing we think are just important to do for the long-term value of the organization. Ed Wolfe - Wolfe Research - Analyst Thank you very much for the time. I really appreciate it. Greg Swienton - Ryder - Chairman and CEO You're welcome. Operator Thank you. Our next question is from Art Hatfield. You may ask your question, and please state your company name. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Art Hatfield - Morgan Keegan - Analyst Thank you. Morgan Keegan. Greg, you had mentioned on -- just one quick question on commercial rental, but you had mentioned your guidance referring back to fourth quarter earnings release. Your guidance for commercial rental growth of 0% to 2%, and obviously first quarter was in that range. Was first quarter better than you had expected, and should we think differently about the rest of the year, or was it in line with your expectations? Greg Swienton - Ryder - Chairman and CEO I think it was a little better than, than the forecast that we put out when we did the 2008 plan. I'm not sure that I'm ready to suggest that that will change the entire year look. The environment that we're in is just so uncertain and shaky that I think it's a little early to make that call, but clearly in the first quarter, it was a bit stronger than we had forecast. Art Hatfield - Morgan Keegan - Analyst Okay. No, that's helpful. Secondly, when you had talked about -- you were pretty clear on second quarter guidance, that if the strikes last throughout the quarter, that for both full year and second quarter guidance, that you would be at the lower end of the range, ranges that you had given. Is it fair to say that these go on into third quarter, that you may have to reevaluate the year or am I getting ahead of myself a little bit there? Greg Swienton - Ryder - Chairman and CEO I think that if they continue at this pace and they are not settled by the time we get into third quarter, I think we would have to revisit and see if we had enough upside to offset that new downside. Art Hatfield - Morgan Keegan - Analyst Okay. Thank you. And the other thing -- I wanted to go back to Page 22, because when I looked at that this morning and saw the extensions in the first quarter really jump up to a level they haven't been at since really before '03, how, how -- what are our customers saying by doing that? My initial read on that is that they see a flattish economy and they don't want to commit to any new vehicles until they see growth. Is that a fair assessment? Greg Swienton - Ryder - Chairman and CEO I think that is very fair. I think that's a customer from seeing those numbers, customers saying we still need some equipment, we need it in the near term, it would be premature to give it up because we've got deliveries to make to customers, but when you look beyond, you know, three to six months or 12, we're not sure how long this will last, how much downturn there will be, and don't want to make that firmer, longer-term commitment. So I think that's an accurate assessment. Art Hatfield - Morgan Keegan - Analyst Yeah, thank you. And also, those vehicles, too, as you extend them, the returns that you generate over the life of that vehicle become extremely positive, correct? 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder - Chairman and CEO Yes, yes, that's true, because the capital's already been expended. The, the revenue stream continues, and it's extended, so, yes, that is short-term positive. Art Hatfield - Morgan Keegan - Analyst Now, you had had a lot of questions about the pricing, particularly on your power units being up 1%, and as I look at your ability to redeploy early terminations and the extensions that you're getting, that seems to me that internally you're not getting a lot more volume coming into your used truck fleet. As such, that's going to allow you to be more disciplined over the next three to six months on pricing than maybe you would normally be as you had normal kind of replacement occurring? Greg Swienton - Ryder - Chairman and CEO I would say yes, and I'll let Tony comment further. Tony Tegnelia - Ryder - President of US Fleet Management Solutions Yes, that's exactly right. What we're seeing with the extensions, and you're correct, the returns are very attractive on those, that those units are not coming into the UTC at this point in time, nor are the redeployments as well at the same time. So right now, the flow of vehicles coming into our used vehicle network is extremely manageable and we still believe that at year end, and we're confident of this that the inventory of the used vehicles will be lower than it was at the beginning of the year. So that allows us to maintain our retail strategy in contrast to what we used more in '07 and we think that will continue to prop up prices and gains, and as a result, the disciplines will be there. Art Hatfield - Morgan Keegan - Analyst Great. Then finally, Greg, historically you've talked about your contract maintenance business as being a good precursor to potential conversions to full service lease, and you had a great year last year in the contract maintenance. Are you starting -- are you seeing any of those customers convert to full service leasing at this point? Greg Swienton - Ryder - Chairman and CEO Some. If Tony has more detail, he could comment. But, yes, I think directionally, some. Tony Tegnelia - Ryder - President of US Fleet Management Solutions No, I think a number of them are converting over. We do market that hard, and we will see in the future, we believe, a lot of growth and strength in this area as people do not want to take on the burden of maintaining the very complex EPA-compliant units. So we see this product line as a very nice growth offering for us in the future and we always have the sales and marketing group pushing for conversion of those into full service lease and we have been successful doing that. Art Hatfield - Morgan Keegan - Analyst Tony, do you have a conversion metric that you follow with regards to that? 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Tony Tegnelia - Ryder - President of US Fleet Management Solutions Generally, yes, but we, we watch it pretty steadily and we are seeing some success in that area. Art Hatfield - Morgan Keegan - Analyst Great, thank you very much. Great quarter, guys. Greg Swienton - Ryder - Chairman and CEO Thank you. Operator Thank you. Todd Fowler, you may ask your question, and please state your company name. Todd Fowler - KeyBanc Capital Markets - Analyst Hi, good morning. KeyBanc Capital Markets. Greg Swienton - Ryder - Chairman and CEO Good morning. Todd Fowler - KeyBanc Capital Markets - Analyst Greg, could you -- did you mention what the organic revenue growth was for full service lease in the quarter? Greg Swienton - Ryder - Chairman and CEO I'm not sure if we mentioned it, but I think it was 2% or 3% for organic, apart from the acquisitions and apart from FX, yeah. Three, I think is the number. Todd Fowler - KeyBanc Capital Markets - Analyst Okay. Tony Tegnelia - Ryder - President of US Fleet Management Solutions Half the growth came from organic, yes. Todd Fowler - KeyBanc Capital Markets - Analyst Okay, perfect. That's helpful. And then with the gains on vehicle sales that you experienced here in the quarter, is that a decent run rate to think about going forward, given the fact that the rental fleet is probably closer to being right-sized and we haven't placed as many vehicles into service, but the gains taper off throughout the year, or is that a sustainable run rate? 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Tony Tegnelia - Ryder - President of US Fleet Management Solutions This is Tony. We will have fewer units to sell this year, as the year goes on, so you will see the gains taper down as we go throughout the quarters. We've been very successful reducing the size of that fleet, and even though proceeds will be higher, there will be fewer units to sell fortunately, and then the gains will be lower in each quarter as we go throughout the year. Greg Swienton - Ryder - Chairman and CEO But I would also add what you saw in the first quarter is we also have a lot less carrying costs that go with carrying that extra fleet. Todd Fowler - KeyBanc Capital Markets - Analyst Okay. That's a fair point. And then I guess just lastly, one of the areas that probably hasn't been touched on yet, on the DCC business, Greg, if you could talk a little bit about you had some commentary about some nonrenewal of some customer contracts during the quarter and revenue was basically down maybe a percent or so, but it looks like the margins held in pretty well. Can you talk a little bit about the trends you're seeing that that business, and then secondly the cost control aspect and maintaining the margins in kind of a softish revenue environment? Greg Swienton - Ryder - Chairman and CEO Yeah, I think DCC is a reflection of a lot of challenge and head wind and competitiveness in the freight transportation market, and while we're down about a percent, some of that was made up by the pegs in the pass-through in the fuel costs, so that helped keep revenue up a bit. The earnings were up I think 9% or $900,000, which is a good sign, which means that our efficiency, our operating efficiency, our continuing focus on safety and security and all of the other things that go with running that operation have continued to improve. So while basically revenue has been flat or down, the earnings have continued to improve and, you know, that's not the ultimate model, but in the interim, while things are tougher, I think that the cost control has worked to offset more robust growth. Todd Fowler - KeyBanc Capital Markets - Analyst And is that sustainable? I mean if revenue continues to slip, are you able to continue to squeeze efficiencies out of that segment? Greg Swienton - Ryder - Chairman and CEO Somewhat. I mean obviously you can't be gutted, but it, you know, it needs its, it needs its operational capacity, technology, people, and expertise to adequately run a good service. Remember, this is a high value-added niche service for customers, and it needs a certain service level. And it tends to get a higher value in the marketplace, so we need to maintain that as well. Todd Fowler - KeyBanc Capital Markets - Analyst And then just one last question on that, and the same line. For the loss or the nonrenewal contracts, do you have any sort of sense of where that business goes? 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder - Chairman and CEO It could just go away. It could be customers who just might be cutting back significantly. Sometimes it might go back to lease, so it might be even in sometimes utilizing their own drivers and taking some of that sort of in-house, but leasing from us. So it can go a variety of places. Todd Fowler - KeyBanc Capital Markets - Analyst Okay, good. Thanks a lot for the color. Nice quarter. Greg Swienton - Ryder - Chairman and CEO Sure, thank you. Operator Thank you. Our final question today is from David Campbell. You may ask your question, and please state your company name. David Campbell - Thomson Davis & Company - Analyst Thompson, Davis & Company. Good morning, everybody. Greg Swienton - Ryder - Chairman and CEO Good morning, David. David Campbell - Thomson Davis & Company - Analyst I'm sorry if I'm asking questions that have been answered. I had to get off the call briefly to answer some phone calls. For example, the estimated earnings for the second quarter and year are based on how many fully diluted shares? Greg Swienton - Ryder - Chairman and CEO We ended I think at 57.5. David Campbell - Thomson Davis & Company - Analyst Fully diluted? Greg Swienton - Ryder - Chairman and CEO Yes. Robert Sanchez - Ryder - EVP, CFO Yeah, the forecast is based on 57. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder - Chairman and CEO 57, okay. David Campbell - Thomson Davis & Company - Analyst It's 57 million. For both the second quarter and year? Greg Swienton - Ryder - Chairman and CEO Yeah, approximately, approximately for the year. For the second quarter, it's 57. It will be slightly lower than that for the year. David Campbell - Thomson Davis & Company - Analyst Okay. Okay. And the last question is, we've heard a lot about the vehicle gains and so forth and how they were stronger than expected in the first quarter. Now you have fewer vehicles for sale, so what kind of gains should we be modeling in our forecast the rest of the year? Greg Swienton - Ryder - Chairman and CEO Tony, do you want to cover that? Tony Tegnelia - Ryder - President of US Fleet Management Solutions Well, I think as we had stated, the gains will be lower as we go on throughout the quarter, but I think far more important than the gains is the dramatic reduction that you'll see in the carrying costs for the fleet. That fleet was twice as large in the number of the months as we went through '07 and the asset level from a depreciation and interest point of view was much, much higher. So, so the dramatic savings in carrying costs will outweigh the reduction in the gains because of fewer vehicles to sell. David Campbell - Thomson Davis & Company - Analyst And that reduction in costs, carrying costs, was not fully reflected in the first quarter? Tony Tegnelia - Ryder - President of US Fleet Management Solutions Yes, it was in the first quarter, and we did have a benefit for at least $0.01 a share as a result of the reduction in carrying costs being greater than the reduction in gains year-over-year for the quarter. David Campbell - Thomson Davis & Company - Analyst Mm-hmm. Tony Tegnelia - Ryder - President of US Fleet Management Solutions And that, we will continue to see. 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 Apr. 23. 2008 / 11:00AM, R - Q1 2008 Ryder System, Inc. Earnings Conference Call David Campbell - Thomson Davis & Company - Analyst Right, right. The gains will still be down from last year? Tony Tegnelia - Ryder - President of US Fleet Management Solutions Yes, they will, but to a lesser extent, as I said, than a very favorable reduction in the carrying costs for that idle fleet. David Campbell - Thomson Davis & Company - Analyst Right, right. Well, thank you very much. All my other questions have been answered. Thank you very much. Greg Swienton - Ryder - Chairman and CEO You're welcome. Operator Thank you. I would now like to turn the call over to Mr. Greg Swienton. Greg Swienton - Ryder - Chairman and CEO Well, I think all questions in queue have been answered. We're also a few minutes over time. Thank you, everyone, for your participation. Have a good safe day. Bye, now. Operator Thank you. This concludes today's conference. Thank you for participating. You may disconnect at this time. 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. 1434361-2008-04-30T19:25:13.977 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.

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