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RTranscript20070725

  1. 1. FINAL TRANSCRIPT R - Q2 2007 Ryder System, Inc. Earnings Conference Call Event Date/Time: Jul. 25. 2007 / 11:00AM ET www.streetevents.com Contact Us © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call CORPORATE PARTICIPANTS Bob Brunn Ryder System, Inc. - VP of IR and Public Affairs Greg Swienton Ryder System, Inc. - Chairman, CEO Mark Jamieson Ryder System, Inc. - EVP, CFO Tony Tegnelia Ryder System, Inc. - President, US Fleet Management Solutions CONFERENCE CALL PARTICIPANTS Jon Langenfeld Robert W. Baird & Company, Inc. - Analyst John Larkin Stifel Nicolaus - Analyst Todd Fowler KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst George Pickral Stephens, Inc. - Analyst Ed Wolfe Bear, Stearns & Co. - Analyst Brannon Cook JPMorgan Chase & Co. - Analyst David Campbell Thompson Davis & Company - Analyst PRESENTATION Operator Good morning, and welcome to Ryder System Incorporated second quarter 2007 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 System, Inc. - VP of IR and Public Affairs Thanks very much. Good morning and welcome to Ryder's second quarter 2007 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. Presenting on today's call are Greg Swienton, Chairman and Chief Executive Officer; and Mark Jamieson, Executive Vice President and Chief Financial Officer. Additionally, Tony Tegnelia, President of the U.S. Fleet Management Solutions, is on the call today and available for questions following the presentation. With that, let me turn it over to Greg. www.streetevents.com Contact Us 1 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman, CEO Thanks, Bob, and good morning, everyone. This morning, we will recap our second quarter results. We will provide our current outlook, both for the third quarter and remainder of the year, and then we will open up the call for questions. Let me begin with our second quarter results and on page 4 for those of you who have the PowerPoint presentation. Reported net earnings per diluted share were $1.07 for the second quarter 2007, as compared to $1.13 in the prior year period. In the second quarter 2006, our reported results included an $0.11 income tax benefit related to changes in Texas and Canadian income tax laws. Comparable earnings per share in the quarter, therefore, were $1.07, up 5% from $1.02 in the prior year. Second quarter 2007's results included a $0.01 restructuring charge related to the early retirement of debt. The impact of this charge is included in the $1.07 comparable EPS number for the quarter. Total revenue for the company was up 4% in the quarter. Operating revenue, which excludes fuel and subcontracted transportation revenue, was also up 4%, due to growth in contractual revenues in supply chain and fleet management solutions. Fleet management total revenue was down 1%, while operating revenue was up 2% versus the prior year. Total FMS revenue was impacted by an 8% reduction in fuel revenue, reflecting fewer gallons pumped for customers this past quarter. Contractual revenue, which includes both full service lease and contract maintenance was up 7%, reflecting our strong sales activity over the past few quarters. Full service lease revenue was up 6%. This growth is primarily due to the continuation of new vehicles being put into service associated with sales contracts signed in recent periods. Contract maintenance revenue is up 18%, reflecting our heightened focus on growing this long-term contractual business with customers. A weak freight demand environment during the quarter resulted in a 15% reduction in commercial rental revenue. Soft markets demand conditions negatively impacted both rental utilization and pricing levels in our North American markets. However, we are taking the appropriate mitigating actions to address the soft market conditions and have seen an improvement in our recent utilization comparisons corresponding with the reductions we have made in our rental fleet size. Gains from the sales of used vehicles were lower than last year primarily due to lower pricing levels on a higher volume of used tractors sold. Pricing on trucks was more stable on than tractors. We also incurred significant carrying costs on a larger used vehicle inventory held for sale. Net before tax earnings in fleet management were up by 3%. Fleet management earnings as a percent of operating revenue were up 10 basis points to 13.1%. From an earnings standpoint, fleet management benefited from improved results in full service lease and contract maintenance, as well as lower pension and incentive-based compensation costs. These earnings improvements were partially offset by lower commercial rental results in North America and used vehicle sales results. On page 5, moving to the supply chain solutions segment, we had a 16% increase in total revenue, including the impact of managed subcontracted transportation. Operating revenue was up 13%, reflecting new and expanded customer contracts. Second quarter net before tax earnings and supply chain were down 14% versus the prior year. The prior's year second quarter included a $2.5 million benefit related to a contract termination. Excluding this item, supply chains earnings were flat in the quarter. Net before tax earnings as a percent of operating revenue was 4.7%, down 150 basis points, or down 60 basis points excluding the prior year contract termination. Supply chain's earnings benefited from new business wins, but were negatively impacted by the closure of a significant plant we served for an automotive customer. We expect that the closure of this plant by our customer will negatively impact supply chain's revenue growth rate for the next few quarters. We do anticipate, however, continued growth in supply chain's earnings through continued margin improvement. In dedicated contract carriage, total revenue was down 2% and operating revenue was down 1%, due to lower volumes of managed subcontracted transportation, and lower fuel cost passthroughs. DCC volumes were relatively unchanged on a total basis, with increases in some locations offsetting decreases in other operations. Net before tax earnings in DCC were up by 12%, and as a percent of operating revenue were up by 110 basis points to 9.1%. Earnings increased in the quarter due to improved safety and insurance costs, as well as better overall operating performance and a higher overall quality portfolio of dedicated contracts. Our total central support services costs were down by 2% for the quarter. Central support costs including a one-time negative impact of $1.8 million due to the acceleration of the amortization period of restricted stock units. www.streetevents.com Contact Us 2 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Page 6 highlights key financial statistics for the second quarter. On 4% operating revenue growth, comparable earnings per share were up 5% to $1.07. The average number of diluted shares outstanding was down by approximately 900,000 shares, to 61.1 million shares. In May of this year, we announced a $200 million share repurchase program, and during the second quarter, we purchased 1.6 million shares at an average price per share of $53.21 for a total cost of $87 million. At June 30th, there were 59.8 million shares outstanding. Our second quarter tax rate was 37.6%, as compared to 32.8% in the prior year period. The prior year's tax rate was favorably impacted by the Texas and the Canadian tax law changes I mentioned earlier. The current year's second quarter tax rate was below our full-year projected rate due to changes in the tax system in New York, which benefited net earnings by $1.3 million. Page 7 highlights the key financial statistics for the year-to-date period. Operating revenue growth was up 5%. Comparable earnings per share were $1.90, up 6% from $1.80 in the prior year. The average number of diluted shares outstanding was 61.1 million, down by 600,000 as compared to 61.7 million shares in the prior year. Our tax rate was 38.5%, as compared with 35.9% in the prior year period, which was impacted by the tax law changes I mentioned previously. I will now move to page 8 to discuss our second quarter results for the business segments. In fleet management solutions, operating revenue was up by 2%, driven by 7% contractual revenue growth, but partially offset by a decline in commercial rental revenue of 15%. Total revenue decreased by 1% due to a lower volume of fuel sales. Fleet management solutions earnings were up by $2.6 million or 3%, driven by stronger full service lease and contract maintenance results, as well as lower pension and incentive-based compensation costs. These improvements were partially offset by lower commercial rental results in North America and used vehicle sales results. In lease, we continued solid revenue growth as a result of placing into revenue-producing service new vehicles from sales made in recent quarters. Miles driven per unit on equivalent lease vehicles in the U.S. were up 2%, versus the second quarter 2006, and were up 8% compared to last quarter. The growth rate of contract maintenance accelerated again to 18%, as we continued to have good success in emphasizing sales of this asset-like product line. U.S. commercial rental utilization on power units was 70.6%, down from 73.1% in the second quarter 2006, due to a weak freight demand environment. As planned, we saw improvement in rental utilization comparisons towards the end of the quarter as we continued to reduce the rental fleet size. In early July, our utilization levels have pulled even with the prior year. U.S. rental pricing on power units was down by 3% in the second quarter, which represents a modest improvement from the 5% decline we saw in the first quarter. And I will discuss our rental fleet planning in more detail in a few minutes. In supply chain solutions, total revenue was up 16% in the quarter and operating revenue, which excludes subcontracted transportation, was up 13% due to new and expanded contracts in all of our major geographic markets. The growth in operating revenue was driven by our international supply chain business, which was up very strongly, by over 30%. U.S. revenue was up, but was negatively impacted by the closure of a significant automotive plant which generated $55 million to $60 million of annual revenue. We therefore expect U.S. supply chain revenue to continue to be impacted by this plant closure for the next few quarters. SCS net before tax earnings were down by $2.6 million for the quarter, due to the impact of a contract termination benefit recognized in the prior year. Excluding this impact, SCS net before tax earnings were flat compared to the prior year. Earnings improvements from new business were offset by the automotive plant closure. In dedicated contract carriage, total revenue was down 2% and operating revenue was down 1% due to lower subcontracted transportation activity and fuel cost passthroughs. DCC's net before tax earnings improved by $1.3 million, or 12% due to lower safety and insurance costs. DCC also realized improved operating performance as we replaced lower margin accounts with new higher margin contracts in our portfolio. Total central support services costs were down by $700,000 or 2%, due to lower incentive-based compensation expense. Unallocated central support services costs not charged to the business segments were up by $700,000 or 6% reflecting the impact of the $1.8 million charge related to the change in the amortization period of restricted stock units. Comparable net earnings excluded the prior year tax law changes were $65.1 million, up $1.6 million or 3%. Page 9 highlights our year-to-date results by business segment, and in the interest of time, I won't review these results in full detail. But comparable year-to-date net earnings, excluding the tax changes, were $116.4 million, as compared to $111.1 million www.streetevents.com Contact Us 3 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call in the prior year, up $5.3 million or 5%. And at this point, I will turn the call over to Mark Jamieson, our CFO, to cover a number of items, beginning with capital expenditures. Mark Jamieson - Ryder System, Inc. - EVP, CFO Thanks, Greg. Turning to page 10, year-to-date gross capital expenditures totaled $788 million, down by $27 million from the prior year. Lower CapEx was driven by reduced spending on full-service lease vehicles of $45 million. This lower spending reflects fewer vehicle replacements, as well as lower new sales following last year's prebuy activity as anticipated in our business plan. Initial rental vehicle spending was unchanged from the prior year. The year-to-date rental capital reflects lower spending in North America, offset by higher spending in the UK. The UK spending reflects improved rental results in that market and also allows us to refresh the UK rental fleet after spending virtually no rental capital in the UK last year. On a full-year basis, the original 2007 rental capital plan we communicated in February, called for an increase of approximately $75 million over the prior year. Based on our revised fleet plan, we now expect our global capital spending on rental to be approximately flat with the prior year. We realized proceeds from sales of primarily revenue-earning equipment on a year-to-date basis of $195 million, up by $15 million from last year, reflecting a higher number of units sold. We also executed a $150 million sale leaseback of revenue earning equipment during the second quarter. Deducting sales proceeds and the sale leaseback from gross capital spending, our year-to-date net capital expenditures were $443 million, down by $192 million from the prior year. Turning to the next page, you will see that we generated cash from operating activities of $505 million on a year-to-date basis, primarily through our earnings and the depreciation addback. Depreciation increased due to the heavy replacement activity and fleet growth in lease last year. Including the impact of our used vehicle sales activity and the sale leaseback, we generated $883 million of total cash, up by $370 million from last year. This strong recurring cash generation is important to the business as it supports our future anticipated growth and assets under management. The additional cash generated was used to invest in revenue earning equipment primarily under long-term contracts. Cash payments for capital expenditures were $885 million, up by $109 million versus the prior year, reflecting this investment in lease activities. Including our capital spending, the company's free cash flow was approximately break even this year, as compared to using $267 million last year. On page 12, you can see total debt has increased modestly as compared to year-end 2006. The increased debt level is largely due to spending on contractual vehicles and stock repurchases. Ryder's total obligations of $3.1 billion are up by approximately $200 million as compared to the year-end 2006. Balance sheet debt to equity was 161%, as compared to 164% at the end of 2006. Total obligations as a percent to equity at the end of the quarter were 172% versus 168% at the end of 2006. We continue to have significant balance sheet capacity, as this well below our long-term target of 250 to 300%. Our equity balance at the end of the quarter was $1.8 billion, up by $78 million versus year-end 2006, reflecting our net earnings offset by dividends and net share repurchases. The next page outlines our financial indicators. The forecast for these items has been updated from our original business plan presented on February 2nd, and we are reflecting two key changes. The first change is a reduction in our anticipated rental capital spending from the original $270 million to our current forecast of $200 million. The lower rental spending is a reflection of the soft market demand in North America. Most of the rental capital for '07 has already been spent in the first half, which is the standard timing for our rental capital expenditures. The second change is to incorporate the impact of our $200 million share repurchase plan. The projections here assume full implementation of the buyback by year-end 2007. Based on these changes, we expect our total capital spending to be approximately $1.26 billion, below the prior forecast of $1.33 billion. Our free cash flow is now projected to be $305 million, above the previously forecasted $235 million, and assets [under] management are forecast to increase to $8.2 billion, which is $100 million below the prior number. On the basis of total obligations equity, our financial leverage is now projected to be 157%, up from the 140% previously projected, and this is due to the share repurchase impact. At this point, I will hand the call back over to Greg to provide an asset management update. www.streetevents.com Contact Us 4 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman, CEO Thanks, Mark. On page 15 it summarizes the key results in our asset management area. We really are very pleased with the results of our used vehicle sales operation, where we sold 6,500 used vehicles during the quarter. This is a record number of units sold in a quarter, and represents a 22% increase from the prior year. Retail sales prices for used tractors were down 11%, partially due to the mix of vehicle types sold and partially due to lower pricing as we worked on moving a significant number of tractors out of our inventory this past quarter. Pricing on tractors of a similar vehicle type was down about 8%. Retail sales prices on used trucks were down a more modest 2% in the quarter. At the end of the quarter, approximately 10,700 units were classified as no longer earning revenue. This number was up by approximately 5,000 units, compared to the second quarter last year, primarily due to an increase in the number of units available for sale. At quarter end, our used vehicle inventory for sale was approximately 10,400 vehicles. Our used vehicle inventory has increased from the prior year due to the higher than average number of leased vehicle replacements we had last year and the reductions we're making this year in our commercial rental fleet. We saw a monthly decline in used inventory levels from May to June and we believe our used vehicle inventory peaked during the second quarter. Based on our current fleet plans, we anticipate our used vehicle inventory will continue to decline in the second half of this year, and will end the year in December with approximately the same inventory level we started with in January. Our U.S. commercial rental fleet size in the second quarter was down on average by 10% from the prior year. This reduction will allow to us improve utilization levels and returns on the rental fleet going forward. During the first quarter earnings call, we advised that we expected to reach our targeted rental fleet level by late in the third quarter. We have been able to accelerate our action plans during the second quarter, and as such, we have already reached our targeted fleet reduction level. Based on the steps already taken in the rental fleet, we anticipate that the total rental fleet will be down by approximately 13% year-over-year in the third quarter. The greatest reductions have been made in the more costly power fleet, which was down 14% in the second quarter and will be down by 18% in the third quarter. Page 17 outlines our current EPS forecast. And at this time, we are narrowing the full year EPS forecast from a previous range of $4.30 to $4.40 per share to a new range of $4.30 to $4.35 per share. And this represents an increase of 8 to 9% as compared to the comparable $3.99 we earned in 2006, when excluding some tax changes and a pension charge we had last year. We are also establishing for first time an EPS forecast for the third quarter of $1.20 to $1.23 per share. I would also like to note that the state of Michigan earlier this month approved some changes to their tax laws, including the creation of a corporate income tax. Our third quarter forecast excludes any one-time costs related to these tax law changes as we are currently evaluating their potential impact. That concludes our prepared remarks for this morning, and at this time, I will turn it over to the operator to open up the line for questions. QUESTIONS AND ANSWERS Operator (OPERATOR INSTRUCTIONS) Our first question is from Jon Langenfeld. You may ask your question and please state your company's name. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst Robert W. Baird. I guess first off on the guidance, Greg, I mean -- what is kind of the thought process here? I understand the environment is weaker, but it seems like FMS is a trend --they're actually going pretty well on the contractual side. Commercial rental -- looks like you are a little bit ahead of plan there. So can you just kind of help us through your thought process on narrowing the guidance range? www.streetevents.com Contact Us 5 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman, CEO Sure. I think -- I think that we only lowered the upper end because we don't have a reason to see some more upside. We have held the bottom end, which means that on balance, we still expect that for all of the actions we can take, we believe we can offset any negatives or some additional head winds we might face. I think that in spite of good performance and strength in the contractual business, we still expect continued decline in the rental performance and commercial rental. We are not of the opinion that we expect some economic recovery in the second half of this year. We are not counting on that. In fact, we are expecting it to still be soft. A lot of that is driven by housing and from all that we can see, considering the housing stock that has to be absorbed before new stock is built, and then all the knock-on industries that sell tile, carpets, windows, doors, appliances, furniture, I just don't see them -- we just don't see that recovering significantly or at all in the second half of this year. And therefore, we are taking, in spite of what you have indicated about the contractual strength, I think we are on balance maintaining a more conservative posture with what I think is a reasonable expectation for the second half of year. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst Got you. Now with all the headwind that you talked about and all the weakness we're seeing from the freight and the trucking companies, why do you think your leasing miles per tractor is actually up and improving over where it was year-over-year, versus first quarter? Greg Swienton - Ryder System, Inc. - Chairman, CEO I think the fleet size that the customers now have sort of settled into and, again, taking out the flexible capacity of commercial rental -- the units they have, they are utilizing. So I think that they -- there tends to be a move over time of sort of downsizing to fit the demand levels and that doesn't happen all in one fell swoop. I think that happens over time as some leases may come due and they decide that they may not renew them. Which again is a headwind on contractual performance. But in answer to your specific question, I think that customers now, as we have seen in the stats for two quarters, the units they have are the units they need and they are utilizing them. And if -- Tony Tegnelia, you want to add any other perspective? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions I would just add that in first half of the year, about midway into the second quarter, we did see overall freight tonnage down about 3%. And our mileage for the customers, same units year-over-year really reflected that and the privatization of overall fleets was down about 3% midway into the second quarter. But we have seen some firming up of that utilization on their private fleet and that will add to the mileage as we go on out into the future. And to the point that Greg has made, one of the areas of our rental business -- as you know, half of our rental businesses lease support. Those units have been returned. So therefore the utilization and mileage on the full service contractual fleet is rising. And we like seeing that because that means when those miles start to rise, and with the utilization rise on the private fleet that they have leased from us, we will see more rental business from the lease support point of view. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst Very good. Can you comment a little bit on the sales, new sales activity, how the '07 engine has been, how those sales are going? And if there are any left in the '06 that were sold in the quarter? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions Well, Jon, we are very pleased with how our new sales have been. Our new sales are greater than planned. We have more commissionable salespeople in the market place right now than we did last year at this time. So we are very pleased with our www.streetevents.com Contact Us 6 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call increase in market penetration. Their per capita quotas are higher, our total pipeline is higher, our closing ratio is improving. And as we have discussed in the past, the portion of our total pipeline that represents larger deals is much higher, and we like our retention rate. So we feel that that increased head count in the sales force is generating those dividends that we really did want. We are not seeing resistance to the '07 engines. There is a view that they are being accepted. We have a large number of them on order for full service lease. And the EDA pricing is holding firm. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst Now, those are all great -- great comments. Are there any statistics that you look at on the sales side that you are not as pleased with? It sounds like across the board, many of those stats have improved? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions No, there is one area and we are seeing some of the customers defer some of their decisions. So even though, as I said, we are extremely pleased with the growth in our pipeline, to some extent, with some selected customers, we are seeing the pipeline move a bit to the right as far as timing is concerned. Because as Greg has mentioned, they are seeing the same economic environment that we are seeing and they are in a bit of a wait-and-see attitude, relative to where they see freight levels. That's something that we are very watchful on -- not the total level of opportunity, but the timing of when those units would be leased and revenue would be generated. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst And retention is tracking? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions Yes, our retention ratio was solid. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst Okay. So that has actually continued to come down from where it was over the last couple of years? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions No, we like where our retention rate is right now. It's -- our objective, of course, is to have it increase more than where it is, but it's solid right now, not declining. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst Okay. That's what I meant. Improved. Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions Yes, it is improving. Yes. www.streetevents.com Contact Us 7 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst Great. And then, Greg, just turning over to the balance sheet, I know you guys have been kind of systemically deploying the capital, but I look out there and see some of the private equity that's out there. I saw United Rentals get taken out this week, a similar type company. You arguably have a couple of billion of dollars of unused capital or underlevered capital on your balance sheet. What concerns do you have that if you don't use it in a more expedited way, someone may come in and use it for you? Greg Swienton - Ryder System, Inc. - Chairman, CEO Well, I wouldn't speculate because I have no idea what people think about and what they look at and what their screens are. I would say that as we have publicly indicated, we want to keep moving the leverage ratio up. It makes absolute sense and it's logical because of our leasing business. I think that as -- as we have said with the recent share repurchase program, that's, again, another significant one. And it's been accelerated in its performance. We also have multiple constituencies to be aware of and think about. In our case, because of that rental leverage and business, we also care a great deal about how we move from the perspective of rating agencies. And we have had good and improved ratings. We want to maintain those for access to capital and for good interest rates. So in -- in determining what we do and how fast regarding our leverage and balance sheet, I weigh all the factors and all the constituencies -- owners, analysts, rating agencies -- as well as wanting to make sure that we have the ability as acquisitions might become available, that we've got the right amount of dry powder to do those in either segment as necessary. So we are trying to really always have the right balance, yet keep moving that leverage up on the balance sheet. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst Okay. Sure. Fair enough. And I know you have not disclosed kind of the timing of getting to your leverage point, nor will I ask you. But has -- over the last two or three years, as you kind of talked about this, have you modified at all in terms of the pace as a company, as you look out, how fast you want to get to that leverage point? Greg Swienton - Ryder System, Inc. - Chairman, CEO No, we weren't specific, but we look out over a several year time horizon. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst So nothing has changed in terms of that? Greg Swienton - Ryder System, Inc. - Chairman, CEO That's correct. Jon Langenfeld - Robert W. Baird & Company, Inc. - Analyst Okay. Very good. Thanks a lot. Greg Swienton - Ryder System, Inc. - Chairman, CEO You're welcome. www.streetevents.com Contact Us 8 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Operator Thank you. Your next question is from John Larkin. You may ask your question and please state your company name. John Larkin - Stifel Nicolaus - Analyst It's John Larkin with Stifel Nicolaus. I had a couple of questions. One, on the inventory of used trucks, that looks like it peaked during the second quarter. It sounds like the real pricing pressure has been on used tractors, I guess, not surprisingly. Could you share with us some sense for the composition of the inventory as it currently stands? Is that still slanted towards tractors or are you in a safer position with a higher proportion of what I would call straight trucks. Greg Swienton - Ryder System, Inc. - Chairman, CEO John, I will ask Tony to take that question. Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions Well, right now, John, as Greg had mentioned, we did a lot of outservicing of our rental fleet very early in the year. And those units are trucks for the most part. But I say overall, our inventory is pretty steady right now. The same mix -- trucks and tractors -- as we go on out into the year. We did have a heavy replacement cycle coming off of '06, and a lot of pre-buy for the '07 technology, which did put some tractors into the UTC. But for the most part, we had a lot of trucks coming off rental, as I said, to rightsize and calibrate the rental fleet with demand. Overall, the balance of the inventory between tractors, trucks and trailers is pretty much the same balance that we have always had. John Larkin - Stifel Nicolaus - Analyst Is that roughly 50/50 or would you prefer not to share that with us? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions It's not quite 50/50, but approaching it. John Larkin - Stifel Nicolaus - Analyst Also, you made a comment that the fuel sales on the full service leasing side of the business were down, I guess year-over-year. Even though, I guess the contractual activity, even with all the new business coming on stream has been growing. I guess that surprised me a little bit. Would it be fair to assume that you are selling some of this contract business without fuel services included or what is it that's going on here? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions No, John, this is Tony. Let me try to walk you through that. First of all, the fuel information that we provide to you is for all product lines. John Larkin - Stifel Nicolaus - Analyst Okay. www.streetevents.com Contact Us 9 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions And actually, the decline that we saw on fuel gallonage for the second quarter, and actually predominantly for the entire first half really related to the lease support side for the rental product line. So as you can see, the mileage is up for our full service leadoff operators on those vehicles. So we are fine with gallonage. But almost entirely, the decline in gallonage within the company was for the rental portion of lease support -- the await new lease and also lease extras. It really wasn't for the hard core contractual lease fleet. And there's also some outside fuel as well that declined, which has nothing to do with our contractual lease fleet. John Larkin - Stifel Nicolaus - Analyst Okay. Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions And as rental grows, and restores itself, we will see that gallonage rise again. John Larkin - Stifel Nicolaus - Analyst That's very helpful in clarifying that point. Thirdly, the auto plant that shut down -- when roughly during the quarter did that shut down, and is it safe to say that the impact of that shutdown will be quite a bit greater in the third quarter and the fourth quarter going forward? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions It will be slightly greater in the upcoming quarters because I think the actual shutdown date was in the latter part of April. So you didn't have three full months of the quarter, which you would in the future. John Larkin - Stifel Nicolaus - Analyst Okay. Got it. And then with all the new business coming onstream, especially internationally in supply chain solutions, are you incurring some start-up expenses and did that have something to do with the slight detraction in margins on supply chain solutions? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions There still are some start-ups. They were not as significant as they were in the last two quarters, which is why I don't think we specifically commented on it. But in addition to the revenue impact on the plant closure and the corresponding decline in earnings, there are also one-time costs that you have to absorb when there is a significant closure like that, because we do have to redeploy people. We do have to redeploy equipment and that also had an impact. John Larkin - Stifel Nicolaus - Analyst That's very helpful. www.streetevents.com Contact Us 10 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions And then just a final question. I notice that you generated $150 million with a sales and leaseback transaction, which struck me as being a bit odd that a leasing company was doing a sale leaseback. What was it that drove the economics that made that an attractive transaction for you? Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes, this is Mark. We slipped into AMT tax position. And the biggest driver of that is our depreciation -- accelerated depreciation of the tax return. So to optimize the whole business equation, it's better to shave off some assets and move to someone who can use that tax benefit. John Larkin - Stifel Nicolaus - Analyst Now, were these assets that had already leased out to one of your customers? Mark Jamieson - Ryder System, Inc. - EVP, CFO Well, they were assets that would have a -- they are new trucks but they did have an underlying contract with the customer. John Larkin - Stifel Nicolaus - Analyst I understand. So on a net present value basis this was the way to go? Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. John Larkin - Stifel Nicolaus - Analyst Okay. I got it. Thank you very much. Mark Jamieson - Ryder System, Inc. - EVP, CFO Okay. Operator Thank you. Todd Fowler, you may ask your question and please state your company name. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst KeyBanc Capital Markets. Greg, just a point of clarification. When you talk about the miles driven in a quarter, I think you said that was up 8% and that was over the second quarter of '06? www.streetevents.com Contact Us 11 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman, CEO Yes. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst And -- I'm sorry. Greg Swienton - Ryder System, Inc. - Chairman, CEO 2%, I think for the second quarter '06. Mark Jamieson - Ryder System, Inc. - EVP, CFO June. Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions June was about 8. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst Okay. Greg Swienton - Ryder System, Inc. - Chairman, CEO It rose during the quarter. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst Okay. Good. And is that apples-to-apples? Are those vehicles that were in service from second quarter '06 to second quarter 07? Or is that for the entire fleet? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions Those are comparable units for the customers year over year. The total gallonage we look at from the standpoint in mileage relative to the total fleet. So we do a comparable units operated this month this year versus this month last year. So we make sure that we make a comparable when we do the calculation. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst Okay, good. That's good clarification. Mark, you made a comment with the share buybacks and the change in the cashflow guidance. I think that you indicated that the full buyback now is going to be priced in by the end of 2007, was that correct? www.streetevents.com Contact Us 12 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst Should I read through that you are accelerating going to market and buying back shares or what is kind of the thought process there? Mark Jamieson - Ryder System, Inc. - EVP, CFO Well, it was a two-year program, but as typically we go in and do it much more expeditiously than the board-approved two-year plan. We are just steadily -- we think the price is a value right now, we are steadily buying it in the market, buying it until we exhaust the $200 million. Greg Swienton - Ryder System, Inc. - Chairman, CEO I think from a previous question, as is typical, these authorizations allow a longer period of time, but if we perceive that we have a slippage in our leverage, we don't want that to happen. So we keep buying the shares more aggressively. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst Okay, so you have the leverage and the price is right. Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst And then in the presentation, in the asset management update slide, which I think is towards the end but you have the early terminations numbers laid out. And I think if I do the math correctly, it looks like there was a little bit of an increase in early terms here in the second quarter on a year-over-year basis. Is there anything to read through on that? I think in the past you spoke about the three things you look at. You look at commercial rental being soft, you look at early terminations, you look at miles driven. I guess, am I looking at that the right way? Is there any read through on your business or the overall economy with kind of the spike here in terminations in the second quarter? Greg Swienton - Ryder System, Inc. - Chairman, CEO First, for people that are following along and actually have the presentation, it is in the appendix and it's on page 29, and I will let Tony comment on that. Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions Yes, the early terminations were up on those comparable periods of time, and that also would include the automotive shutdown that Greg had mentioned. There was, as you know, 100% of the power is leased from its sister division, SMS, within the supply www.streetevents.com Contact Us 13 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call chain organization and when they made the adjustments for fleet levels as a result of that automotive shutdown, then that impacted our early termination. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst And Tony, how many vehicles would that add to the automotive shutdown? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions That was several hundred overall. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst So that was the lion's share, right? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions Predominantly, yes. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst And then just lastly, Mark, with regard to the tax rate, what should we think about going forward for the third quarter and the fourth quarter? I think that previously you talked about a little bit north of 39 for the full year. Is that still a pretty good range for 3Q and 4Q or some of the benefits we saw here in the second quarter. Does that carry over to the back half of the year? Mark Jamieson - Ryder System, Inc. - EVP, CFO We did mention the Michigan state tax issue which is outside of our forecast. That's one, but that would be the biggest driver. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst Okay. Mark Jamieson - Ryder System, Inc. - EVP, CFO And those -- that has not been finalized, but that could be significant. $0.05, $0.07, but they haven't clarified the details yet. We're waiting before we put that in our forecast. Other than that, we would expect tax rate to be about nominal. Background to plan levels. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst Okay. Very good. www.streetevents.com Contact Us 14 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Mark Jamieson - Ryder System, Inc. - EVP, CFO Ex Michigan. Todd Fowler - KeyBanc Capital Markets/McDonald Investments, Inc. - Analyst Okay. Thanks a lot. Operator Thank you. Our next question is from Alex Brand. Please ask your question and state your company name. George Pickral - Stephens, Inc. - Analyst Hi, this is actually George Pickral in for Alex with Stephens. Just to clarify on John's question about commercial rentals, I believe you guided down 6 to 8% for the year. Are we throwing that out the window or is that still applicable? Greg Swienton - Ryder System, Inc. - Chairman, CEO That was the original forecast when we did the business plan, when we announced that at the start of the year. We have obviously had a decline rate of double that the first two quarters. So that that full-year rate is not going to happen. It will be considerably lower. George Pickral - Stephens, Inc. - Analyst Okay. Okay. I just wanted to clarify that. Thank you. And also, in the FMS side, in the leasing division, can you give a little color to the market right now in terms of pricing? Are you seeing -- is it strong? Are there people out there being aggressive, trying to take share? What's going on with the leasing division there? Greg Swienton - Ryder System, Inc. - Chairman, CEO Well, there's always people trying to take share, as you know, and the market is always very highly competitive, as it is today. But overall, we see our pricing very stable. As I have said, we have significantly added to our sales force as commissionable and so we are getting more market penetration and growth from that perspective. The pricing is pretty stable. Everyone needs to recapture the uplift on the '07 engine. So in that regard, the '07 engine pricing is very stable as well. It is competitive, but we are working through the market place by getting more penetration and improving some new shop locations to be more convenient for customers and things of that nature. Mark Jamieson - Ryder System, Inc. - EVP, CFO And as you know, we measure every deal, every unit with an economic value-added calculation and Tony mentioned earlier that the EVA calculations have held up, which is for us, the best indicator of good value and pricing performance. Greg Swienton - Ryder System, Inc. - Chairman, CEO Yes. And our retention rate is very good also. So we are not losing business to the competition. www.streetevents.com Contact Us 15 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call George Pickral - Stephens, Inc. - Analyst Great. Lastly then, can you just give a little color on what you are doing now to control or lower your costs? Mark Jamieson - Ryder System, Inc. - EVP, CFO Well, that's -- that's something we always pay attention to. I would say that right now because of the headwinds that we are facing in several parts of the business, with a generally softer freight environment, what we particularly want to make sure we pay attention to is efficiency, overhead costs, backroom costs that makes sure that we remain competitive and we keep our margins where they need to be. So it's kind of a constant area we had over the years for continuous improvement and attention, but as you could expect, we have extra attention focused on that right now, because we do have -- we do have headwinds that we are facing in several of the divisions just because of the freight environment. Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions And Greg, on the FMS side, we are seeing a lot of productivity improvement because of our standard repair order time disciplines we put into place and that's also dramatically improving our truck-to-tech ratio at the same time. On the operation side for maintenance, we are seeing a lot of leverage and an awful lot of productivity improvement there. One area that we watch very closely by location of all 800 of them is our truck-to-tech ratio staff. George Pickral - Stephens, Inc. - Analyst Great. Thanks so much, guys. Operator Thank you. Ed Wolfe, you may ask your question and please state your company name. Ed Wolfe - Bear, Stearns & Co. - Analyst Thanks. Ed Wolfe, Bear Stearns. Good morning. Greg Swienton - Ryder System, Inc. - Chairman, CEO Good morning. Ed Wolfe - Bear, Stearns & Co. - Analyst A couple different things. Just a final clarification on the tax rate, I hope. So the guidance prior to this was around -- a little less than 39.5, 39.4 that I have in my model. Is that what it should be going forward, assuming no impact? Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. We mentioned Michigan State as the cloud on the tax rates and, of course, we will adjust with -- state taxes are the ones that fluctuating on us quite a bit. We could have a couple cents, $0.02 or $0.03 coming from tax rate in the second half, but it www.streetevents.com Contact Us 16 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call will be noise. We are trying to get the forecasted numbers from operations not tax rate but there could be a couple cents show up. Ed Wolfe - Bear, Stearns & Co. - Analyst But the prior guidance was around 39.5; is that correct? Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. Ed Wolfe - Bear, Stearns & Co. - Analyst So you are saying for now -- keep that and your guidance is based off of that? Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. Ed Wolfe - Bear, Stearns & Co. - Analyst Okay. Mark Jamieson - Ryder System, Inc. - EVP, CFO $0.02 would be -- $1.2 million, 0.5 point to 1 point off the tax rate. Ed Wolfe - Bear, Stearns & Co. - Analyst Yep. Mark Jamieson - Ryder System, Inc. - EVP, CFO As a possible. Ed Wolfe - Bear, Stearns & Co. - Analyst But in your guidance range that you gave, you are saying we assume the 39.5? Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. www.streetevents.com Contact Us 17 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Ed Wolfe - Bear, Stearns & Co. - Analyst Okay. On the used equipment side, so I have heard there's -- I was a little confused because there are a lot of puts and takes in terms of -- it feels like the market for pricing is a little softer, but you have had a lot of equipment because of the prebuy and last year's work and now reducing the rental fleet. The gains on sales of equipment of $13.5 million in the quarter -- how should we look at that going out with all the puts and takes. Has that kind of peaked for a while? Is that what you're saying? Or would you get it even stronger in this quarter because there's more in the pipeline? Mark Jamieson - Ryder System, Inc. - EVP, CFO The number is $10.6 million in the third quarter, so it'd be down from second quarter run rate. That is more units being sold but at lower prices. Ed Wolfe - Bear, Stearns & Co. - Analyst The $10.5 million (sic) number you just gave me is a third quarter estimate? Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. Ed Wolfe - Bear, Stearns & Co. - Analyst Okay, I hadn't heard that. Have you given a fourth quarter estimate? Mark Jamieson - Ryder System, Inc. - EVP, CFO No. Ed Wolfe - Bear, Stearns & Co. - Analyst Okay. You had mentioned about the GM plant shutdown, which you had mentioned last quarter. For what -- was it down for the entire second quarter? And what is your expectation for when that comes back online? Greg Swienton - Ryder System, Inc. - Chairman, CEO First, we didn't specify which customer it was. Ed Wolfe - Bear, Stearns & Co. - Analyst Oh, I apologize. Greg Swienton - Ryder System, Inc. - Chairman, CEO Everybody can make their own speculation, make their educated guesses. But the answer to the question is that late April -- late April. www.streetevents.com Contact Us 18 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Ed Wolfe - Bear, Stearns & Co. - Analyst Late April is when it went down, and when do you expect it to come up? Greg Swienton - Ryder System, Inc. - Chairman, CEO I don't know. That's not in our prerogative. Ed Wolfe - Bear, Stearns & Co. - Analyst Would they give you some form of -- I guessing you need to ramp up a little bit. Is it fair to say that it's not a third quarter event at this point? Greg Swienton - Ryder System, Inc. - Chairman, CEO Oh, absolutely not. Ed Wolfe - Bear, Stearns & Co. - Analyst Okay. Greg Swienton - Ryder System, Inc. - Chairman, CEO When you close a plant for retooling or design, not shut down, but closure for retooling and design, that will be out for quite some period of time. I mean, that could take three or four quarters. And then you will see what it's going to be, what needs to be done, and then obviously you have an opportunity to bid on that. So that's way out in '08. Ed Wolfe - Bear, Stearns & Co. - Analyst Okay. And there's a chance you might walk from it at that point? Greg Swienton - Ryder System, Inc. - Chairman, CEO No, I didn't say that we would. I said if they decide what they are going to do in their facility and they open it up again for outsourcing, as it has been done in the past, we would expect to be competing for it. Ed Wolfe - Bear, Stearns & Co. - Analyst Okay. Just changing gears again. For unallocated central support, you have got $12 million this quarter which is up from $10 million a year ago, excluding a benefit, and yet in your release, you talked about total central support is down $700,000. Why is there a greater part that's unallocated and how do we think about that going forward? www.streetevents.com Contact Us 19 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Greg Swienton - Ryder System, Inc. - Chairman, CEO The greater part of the unallocated was the $1.8 million that came from the P&L charge for the accrual of the restricted share units. And that is not spread over the business units. That stays in the central unallocated. Ed Wolfe - Bear, Stearns & Co. - Analyst How do we think of that $1.8 million going forward? Greg Swienton - Ryder System, Inc. - Chairman, CEO It's done. There will be no such adjustment in the future. Ed Wolfe - Bear, Stearns & Co. - Analyst Okay. And in terms of incentives, is this where incentive pay would come out too for management? Greg Swienton - Ryder System, Inc. - Chairman, CEO It depends. For those of us who are unallocated to a business segment, it would remain in the unallocated central support. For those individuals who support business segments, that allocation would go to the business segment. So you have a combination of both. Ed Wolfe - Bear, Stearns & Co. - Analyst Okay. That's helpful. Can you break down roughly the major buckets that are in this $12 million? Greg Swienton - Ryder System, Inc. - Chairman, CEO We usually don't get to that level of detail, but maybe some very broad -- some very broad items. I will just turn to Mark to take a look. Mark Jamieson - Ryder System, Inc. - EVP, CFO Would it be costs like Greg Swienton's admin, investor relations, our foundation for charitable giving, communications, press releases, et cetera. So the things that the businesses don't benefit directly from. Ed Wolfe - Bear, Stearns & Co. - Analyst Thank you very much. Very helpful. Operator Thank you. Our next question is from Brannon Cook. You may ask your question and please state your company name. www.streetevents.com Contact Us 20 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Brannon Cook - JPMorgan Chase & Co. - Analyst JPMorgan. Good morning. Greg Swienton - Ryder System, Inc. - Chairman, CEO Good morning. Brannon Cook - JPMorgan Chase & Co. - Analyst I had a question about your outlook or pipeline of sales in the dedicated business. It sounds like you are somewhat upbeat on the full service lease pipeline. Are you a bit more cautious on the dedicated outlook going forward? Have you seen a bit of softer pipeline looking out in the back half of the year, given the softer trucking environment? Greg Swienton - Ryder System, Inc. - Chairman, CEO I think I wouldn't necessarily say that the pipeline is softer. I would give the same answer that Tony provided in lease and that is some customers may be holding off on decisions. They are trying to determine what kind of network size they want to create and we are helping them to engineer that. So I don't think there's a softer quantity or lower quantity of people contemplating, but they are giving more time and thought to deciding what those networks ought to look like. Brannon Cook - JPMorgan Chase & Co. - Analyst Any change in the pricing dynamics in the dedicated business going forward? Is it -- is it getting a bit more price competitive? Greg Swienton - Ryder System, Inc. - Chairman, CEO I think it's been a little more price competitive as we indicated since the end of last year. I think that that remains the same, but no precipitous further decline that I think is worthy of comment. Brannon Cook - JPMorgan Chase & Co. - Analyst Okay. And then a question on the contract maintenance growth. Very strong in the quarter, up 18%. Is that something that you can continue to grow in the double digit rates? Can you give more color on what's driving that? Greg Swienton - Ryder System, Inc. - Chairman, CEO Well, we believe that the value proposition is largely the fact that as you go to the new engine technologies, even for companies who want to own their own fleet and maybe not lease it, they still face all of the issues for new technology, new engines, getting technicians, making sure you've got the right supplies and capabilities for new engine filters that I think for the long term, that's a growth area. I wouldn't predict that you would have strong high double digits, but you can have high single digits or low double digits. I think that would be strong growth but maybe not quite this strong. www.streetevents.com Contact Us 21 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Brannon Cook - JPMorgan Chase & Co. - Analyst Okay. And then a final question, as you are looking to bring down your vehicles no longer earning revenue, how should we think about that? What kind of measures you are taking? Are you shifting more of those sales to fleet sales versus selling through your own dealer network? What kind of actions are you taking there? Tony Tegnelia - Ryder System, Inc. - President, US Fleet Management Solutions Brannon, this is Tony Tegnelia. We are doing a number of things in that area. As you know, we have 52 locations of our own that are owned and operated and do really very well. That helps us penetrate the market well during these time of high inventory. We also have an established network of a number of consignees as well, which helps us distribute those units throughout the country for disposition, without any discounting. And also we do some international trades as well in offshoring so we alleviate this market with the heavy amount of inventories that we have. But we continue to have incentives placed on the sales. We will be doing more wholesaling, or fleet sales if you will, in the second half of the year. It is our objective to get the inventory level down towards the end of the year as to where it was at the beginning of the year. There will be some selected discounting; however, the pricing is stable. Notwithstanding, as Greg had mentioned, on some of them being 700 basis points of a lower level, they are very stable that we're working off of. So there will be some selective discounted pricing in order to move the units out. But we feel very good about it. I believe I have the best used vehicle team in the industry and we believe we will get that inventory level down, very expeditiously without hurting the company's earnings. Brannon Cook - JPMorgan Chase & Co. - Analyst Okay. Great. Thanks for the time. Greg Swienton - Ryder System, Inc. - Chairman, CEO Sure. Operator Thanks you. Our final question today comes from David Campbell. You may ask your question and please state your company's name. David Campbell - Thompson Davis & Company - Analyst Thompson Davis & Company. Greg, do you have any forecast revenues to go along with your third quarter estimate of $1.20 to $1.23 in earnings? Greg Swienton - Ryder System, Inc. - Chairman, CEO No. We -- we haven't provided it. It's an issue of mix and we're still trying to make a determination on what we expect, what revenue we expect to hit from what segment. I think it could be similar to what we did in the second quarter, but we haven't broken what are the pluses and the minuses or specified. www.streetevents.com Contact Us 22 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call David Campbell - Thompson Davis & Company - Analyst Okay. Based on your comments, however, about commercial rental utilization, I guess I could assume that there would be less of a decrease in revenues there than there was in the second quarter. Greg Swienton - Ryder System, Inc. - Chairman, CEO There might be somewhat of a lessening decrease than in the second quarter. We think we have gotten the fleet now to where it should be. It will still be down considerably compared to last year. I think you may not see a kind of catch-the-tail improvement until you get to the fourth quarter, though. David Campbell - Thompson Davis & Company - Analyst Right. Speaking of the fourth quarter, it was September of '06, when apparently based on what trucking companies say is when their business really started to fall year to year, and largely because there wasn't the usual seasonal pickup in demand. Do you see that continuing, that is no seasonal pickup in demand this year? Greg Swienton - Ryder System, Inc. - Chairman, CEO We are forecasting no demonstrable improvement. So we may have a better peak season and maybe more of a Christmas season by comparison, especially because of the softer comparison, but we are not counting on, we are not banking on a great big improvement. There could be some, but I think when you look at the overall totality of everything going on in the market place, we are not counting on a big freight demand for the last half of the year. David Campbell - Thompson Davis & Company - Analyst Okay. And what are the number of shares you use in your third quarter calculation for estimated earnings per share? Greg Swienton - Ryder System, Inc. - Chairman, CEO Mark, do you know this? The number of shares in the third quarter? Mark Jamieson - Ryder System, Inc. - EVP, CFO Oh, yes. Sorry. It's 58.9. David Campbell - Thompson Davis & Company - Analyst That's outstanding or fully diluted? Mark Jamieson - Ryder System, Inc. - EVP, CFO Fully diluted. www.streetevents.com Contact Us 23 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call David Campbell - Thompson Davis & Company - Analyst Fully diluted. And is that -- there were 60 -- let's see, there were how many shares then at the end of June fully diluted? Mark Jamieson - Ryder System, Inc. - EVP, CFO We're looking for the answer. We will get that to you when we get to the right page. 61.1. David Campbell - Thompson Davis & Company - Analyst At the end of June. Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. David Campbell - Thompson Davis & Company - Analyst Okay. Mark Jamieson - Ryder System, Inc. - EVP, CFO Q2. David Campbell - Thompson Davis & Company - Analyst And on page 10 of your presentation, I just want to make sure we got this right. We talked about capital expenditures for the year at ending up at your new forecast $1.260 billion? Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes, sir. David Campbell - Thompson Davis & Company - Analyst That's comparable to the gross CapEx of $788 million for the first six months on page 10? Mark Jamieson - Ryder System, Inc. - EVP, CFO Yes. Yes, that's the same set of numbers. David Campbell - Thompson Davis & Company - Analyst Good. And let's see if there's anything else I have. I think that's about it. All of my other questions have been asked. Thank you very much and for doing such a good job as well. www.streetevents.com Contact Us 24 © 2007 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. 25. 2007 / 11:00AM, R - Q2 2007 Ryder System, Inc. Earnings Conference Call Mark Jamieson - Ryder System, Inc. - EVP, CFO Well, you are welcome and thanks for your comments. Operator Thank you. This concludes the question-and-answer session. I would now like to turn the call over to Mr. Greg Swienton. Greg Swienton - Ryder System, Inc. - Chairman, CEO All right. I think we have taken all the calls that were in queue, so we are completed. Thank you for joining us and have a good, safe rest of the summer. 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. ©2007, Thomson Financial. All Rights Reserved. 1434347-2007-07-25T19:09:54.477 www.streetevents.com Contact Us 25 © 2007 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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