thomson reuters streetevents edited transcript · edited transcript. r - q3 2012 ryder system, inc....

1

THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us © 2012 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

THOMSON REUTERS STREETEVENTS

EDITED TRANSCRIPT R - Q3 2012 Ryder System, Inc. Earnings Conference Call

EVENT DATE/TIME: OCTOBER 23, 2012 / 03:00PM GMT OVERVIEW: R reported YTD comparable EPS from continuing operations of $2.87. 3Q12 comparable EPS, excluding certain items, was $1.28. Co. expects full-year 2012 comparable EPS to be $3.93-3.98 and 4Q12 comparable EPS to be $1.06-1.11.

http://www.streetevents.com/�

http://www010.streetevents.com/contact.asp�

OCTOBER 23, 2012 / 03:00PM GMT, R - Q3 2012 Ryder System, Inc. Earnings Conference Call

2


C O R P O R A T E P A R T I C I P A N T S Bob Brunn Ryder System Inc - VP Corporate Strategy & IR

Greg Swienton Ryder System Inc - CEO, Chairman

Art Garcia Ryder System Inc - CFO and EVP

Robert Sanchez Ryder System Inc - President and COO

John Williford Ryder System Inc - President - Global Supply Chain Solutions

Dennis Cooke Ryder System Inc - President - Global Fleet Management Solutions

C O N F E R E N C E C A L L P A R T I C I P A N T S Alex Brand SunTrust Robinson Humphrey - Analyst

John Mims FBR Capital Markets - Analyst

Todd Fowler KeyBanc Capital Markets - Analyst

David Ross Stifel Nicolaus - Analyst

Kevin Sterling BB&T Capital Markets - Analyst

Ben Hartford Robert W. Baird & Company, Inc. - Analyst

Scott Group Wolfe Trahan & Co. - Analyst

Derek Rabe Raymond James - Analyst

Peter Nesvold Jefferies & Company - Analyst

Matt Brooklier Longbow Research - Analyst

Jeff Kauffman Sterne, Agee & Leach, Inc. - Analyst

Anthony Gallo Wells Fargo Securities, LLC - Analyst

Justin Long Stephens Inc. - Analyst

David Campbell Thompson Davis & Company - Analyst

Thomas Kim Goldman Sachs - Analyst

P R E S E N T A T I O N

Operator Good morning and welcome to the Ryder System Incorporated third-quarter 2012 earnings release conference call. (Operator Instructions) Today's call is being recorded. If you have any objections please disconnect at this time. I would like to introduce Mr. Bob Brunn, Vice President Corporate Strategy and Investor Relations for Ryder. Mr. Brunn, you may begin.

Bob Brunn - Ryder System Inc - VP Corporate Strategy & IR Thank you very much. Good morning and welcome to Ryder's third-quarter 2012 earnings conference call. I'd like to remind you that, during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on Management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic,




3


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; Robert Sanchez, President and Chief Operating Officer; and Art Garcia, Executive Vice President and Chief Financial Officer. Additionally, Dennis Cooke, President of Global Fleet Management Solutions, and John Williford, President of Global Supply Chain Solutions are on the call today and available for questions following the presentation. With that, let me turn it over to Greg.

Greg Swienton - Ryder System Inc - CEO, Chairman Thank you, Bob, and good morning, everyone. This morning we'll recap our third-quarter 2012 results, review the asset management area, and discuss our current outlook for the Business. In addition, we'll introduce an enhancement to our financial reporting that we plan to implement in 2013. And, after our initial remarks, we'll open the call for questions. Let me get right into the overview of our third-quarter results. On the PowerPoint slides, turning to page 4, net earnings per diluted share from continuing operations we're $1.26 for the third quarter 2012, up from $1.10 in the prior year period. Third-quarter results included a $0.02 charge from a tax law change in the UK. The prior year's third quarter included a $0.01 tax benefit from acquisition related transaction costs. Excluding these items, in each period, comparable EPS was $1.28 in the third quarter 2012, up from $1.09 in the prior year. This is an improvement of $0.19 or 17% over the prior year period. Our results also represent an out-performance of $0.06 to $0.13 versus our third-quarter forecast of $1.15 to $1.22. Our out-performance this quarter reflects contractual revenue growth and strong used vehicle sales. Results were also supported by the timely actions we took a few months ago to adjust both our cost structure and the rental fleet size, given current market conditions. Although total revenue was unchanged from the prior year, operating revenue, which excludes FMS fuel and all subcontracted transportation revenue, increased 2%. And the increase in operating revenue reflects organic growth in full service lease. Page 5 includes some additional financial statistics for the third quarter. The average number of diluted shares outstanding for the quarter declined slightly to 50.6 million. During the third quarter, we purchased approximately 87,000 shares at an average price of $39.86 under our 2 million share anti-dilutive program, which expires in December 2013. As of September 30, there were 51.1 million shares outstanding, of which 50.6 million are included in the diluted share calculation. The third-quarter 2012 tax rate was 35.6%. This tax rate reflects the negative impact from a tax law change in the UK. Excluding this item, the comparable tax rate would be 34.7%. The prior year's tax rate of 35% reflects the benefit from acquisition related transaction costs. Excluding this item in 2011, the comparable tax rate would have been 35.7% last year. Earnings per share, excluding the non operating portion of pension expense, was $1.37, up by $0.22 or 19% over third-quarter 2011. Page 6 highlights key financial statistics for the year-to-date period. Operating revenue is up 6%. Comparable EPS from continuing operations were $2.87, up by 14% from $2.52 in the prior year. Adjusted return on capital was 5.6% versus 5.5% in the prior year. And the spread between adjusted return on capital and cost of capital is 70 basis points for the trailing 12-month period and continues to be forecast at 80 basis points for the full year. Earnings per share, excluding non-operating pension costs, were $3.15 versus $2.68 last year, up by $0.47 or 18%. I'll now turn to page 7 to discuss some of the key trends we saw during the third quarter in the business segment. In Fleet Management, total revenue grew 1% versus the prior year. Total FMS revenue includes a 3% decrease in fuel services revenue, reflecting fewer gallons sold, partially offset by higher fuel prices. FMS operating revenue, which excludes fuel, grew 3%, and this increase reflects organic growth in full service lease. Contractual revenue, which includes both full service lease and contract maintenance, was up by 4%. Full service lease revenue grew 5% versus the prior year, due to higher rates on replacement vehicles and organic fleet growth. At quarter end, the lease fleet size increased organically by approximately 2,500 vehicles or 2% versus the prior year. On a sequential basis, the organic lease fleet increased by over 500 units from the end of the second quarter this year, and was up by 1,100 units, including the Euroway acquisition. In addition, the contract maintenance fleet grew organically on a sequential basis by 700 units this quarter and was up by 1,200 units, including Euroway. As we discussed on our last call, the lease fleet age began to improve late in the second quarter, which was earlier than we had initially planned. The lease fleet age continued to modestly improve in the third quarter, due to the use of new vehicles on higher renewals of expiring leases. Miles driven per vehicle per day on US leased power units, increased 2% compared to the prior year. Commercial rental revenue was down 1% reflecting lower demand. Rental demand was down 3% compared to the prior year, which was slightly below our expectations. The average rental fleet decreased 1% versus the prior year. As a result of lower demand, rental utilization on power units declined 190 basis points to 77.4% from 79.3% in the prior year. Year-over-year rental utilization comparisons improved significantly over the first half of the year. The first half of the year we were down by around 360 basis points. These better results were due to our timely actions to adjust the size of the rental fleet and more closely align it with current demand conditions. Global pricing on power units was up 3%, which was in




4


line with our expectation. In the used vehicle area, we saw a continued strong pricing and demand environment. Robert Sanchez will discuss those results separately in a few minutes. Overall, improved FMS results were positively impacted by lower compensation related expenses and organic growth in the lease fleet. These benefits were partially offset by lower commercial rental results. Earnings before tax and Fleet Management were up 21%. FMS earnings as a percent of operating revenue were 11.1%, up 160 basis points from the prior year. Turning to page 8, the Supply Chain Solutions segment. Total revenue was unchanged versus the prior year, as higher operating revenue was offset by lower subcontracted transportation. SCS operating revenue was up 2% due to higher fuel costs pass-throughs, and both increased volumes and new business in the automotive sector. Included in higher operating revenue was an 8% increase in revenue from our dedicated services. Improved earnings in the segment were driven by lower compensation related expenses and higher revenue in our automotive vertical segment. The improvements were partially offset by higher medical benefit costs and lower performance in the consumer packaged goods and high-tech sectors. Supply Chain's earnings before tax as a percent of operating revenue were 6.6%, unchanged from the prior year. In total, SCS earnings before tax were up 2% from the prior year. Please note that in the third quarter of 2011, SCS earnings benefited by $2 million from favorable insurance developments, foreign exchange gains, and a facility sale. If you exclude these items from the third quarter of last year, SCS earnings would be up by 10%. Page 9 shows the business segment view of our income statement, which I just discussed, and is included here for your reference. Page 10 highlights our year-to-date results by business segment, and in the interest of time, I won't review these results in detail but will just highlight the bottom line results. Comparable year-to-date earnings from continuing operations were $147.3 million up by 13% from $130.5 million in the prior year period. So at this point I'll turn the call over to our Chief Financial Officer, Art Garcia, to cover several items beginning with capital expenditures.

Art Garcia - Ryder System Inc - CFO and EVP Thanks, Greg. Turning to page 11, year-to-date gross capital expenditures were $1.7 billion, up $468 million from the prior year. This growth reflects an increase of $530 million for purchases of new lease vehicles to fulfill sales to customers for renewal and growth of their long-term contracted fleets. This capital spending reflects an increase in the number of leases renewed, growth in the fleet size, and a higher investment cost per vehicle, which is being priced in to customer rates. Capital spending on commercial rental vehicles was down $53 million. Our full year gross capital expenditures are expected to be near the low end of the $2.1 billion to $2.2 billion range we communicated at the beginning of the year, reflecting somewhat lower spending in rental. We realized proceeds primarily from sales of revenue earning equipment of $310 million, up by $86 million from the prior year. This increase reflects more units sold versus last year, as well as higher pricing. We also executed a $130 million sale-lease back transaction on vehicles during the second quarter, due to attractive lease financing rates. Including these items, net capital expenditures increased by just over $250 million to almost $1.3 billion. Turning to the next page, we generated cash from operating activities of $768 million year-to-date. That's $15 million below the prior year as higher cash based earnings were partially offset by increased pension contributions. We generated almost $1.3 billion of total cash year-to-date. This was up by just over $200 million and included the proceeds from the sale-lease back, as well as higher used vehicle sales. Cash payments for capital expenditures increased by $530 million to approximately $1.7 billion. The Company had negative free cash flow of $436 million year-to-date. Free cash flow was down around $300 million from the prior year's negative free cash flow, due mainly to higher planned investments in vehicles that will generate revenue and earnings in 2012 and future years. This was partially offset by the sale-lease back proceeds. As a reminder, last quarter we adjusted our full year free cash flow forecast to a range of negative $270 million to $330 million, in order to reflect the sale-lease back transaction, which was not included in our initial plan. We continue to anticipate our full year free cash flow will be around this forecast level. Page 13 addresses our debt to equity position. Total obligations of just over $4 billion are up by approximate $600 million compared to year-end 2011. The increased debt level is largely due to higher lease capital spending. Total obligations as a percent to equity at the end of the quarter were 274%. That's up from 261% at the end of the year. As expected, our leverage ratio declined from 284% in the second quarter, which was elevated due to our seasonal purchase of rental vehicles. We expect leverage to continue to decline for the balance of the year towards the lower end of our forecast range of 261% to 265%, excluding any year-end pension adjustment. This forecast leverage is at the lower end of our target range of 250% to 300%. Our equity balance at the end of the quarter was $1.5 billion. That's up by $160 million versus year end 2011. The equity increase was driven by higher earnings.




5


At this point I'll hand the call to our President and COO, Robert Sanchez, to provide an asset management update.

Robert Sanchez - Ryder System Inc - President and COO Thanks, Art. Page 15 summarizes key results for our asset management area globally. At the end of the quarter, our used vehicle inventory for sale was 9,100 vehicles, up from 5,100 units in the third quarter of 2011, but in line with our expectations coming into the quarter. On a sequential basis from the second quarter 2012, ending inventory declined by 100 units. Used vehicle inventories are elevated beyond our typical target range of approximately 6,000 to 8,000 vehicles. This reflects a planned increase in lease replacement activity. It also reflects a planned refreshment of our rental fleet, as well as out-servicing of rental units related to our recent rental fleet down-sizing. Used vehicle inventories are expected to remain in the 9,000 to 10,000 range during the balance of the year. We sold 6,200 vehicles during the quarter, up 35% compared to prior year, reflecting continued strong market demand for used vehicles. Pricing for used vehicles remained strong and was slightly ahead of our expectations. Proceeds per unit comparisons were negatively impacted by increased use of wholesaling to manage inventory levels as we discussed coming into the quarter. Compared to the third quarter of 2011, proceeds from all vehicles sold, including wholesaled units, were down 2% for tractors and 4% for trucks. From a sequential standpoint, tractor pricing was up 4% and truck pricing was down 7%, again, including the increased wholesaling activity. Retail pricing was up by around 6% on a year-to-year basis. Given our current inventory levels, as well as anticipated strength and lease replacement activity, we expect to continue somewhat higher use of wholesale channels next year. The number of leased vehicles that were extended beyond their original lease term increased versus last year by about 440 units. This reflects, and is consistent with, the higher volume of renewal activity this year, due to a heavier lease replacement cycle. Early termination of leased vehicles declined by about 500 units or 21%. Early lease termination remained at the lowest level in the past decade. Our average commercial rental fleet was down by 1% versus the prior year and was down by 3% or 1,400 units since the second quarter of this year. With the seasonal de-fleeting during the fourth quarter, we expect the ending rental fleet to come down by another 3% or 1,200 units to end the year at approximately 38,000 units. This is about 4% below the prior year end and also below our initial forecast for the year. At this point I'll hand the call back over to Greg to cover our outlook and forecast.

Greg Swienton - Ryder System Inc - CEO, Chairman

Thank you, Robert. On page 17, a few comments about the outlook and forecast. Results in Fleet Management benefited from continued growth in full service lease, as well as solid used vehicle performance. We expect continued growth in lease based on recent sales and renewal activity, as well as increased acceptance of new engine technology by our customers. Additionally, the lease fleet age has continued to come down, which is expected to benefit FMS margins again in the fourth quarter. Rental demand was slightly lower than expected during the third quarter, and we expect these trends to continue in the near term. We also expect some future softening in the used vehicle pricing. We took timely actions to reduce the size of our rental fleet, which enabled us to significantly narrow the gap between year-over-year rental utilization comparisons. We still need to dispose of some additional used vehicles to get our inventories closer in line with our target levels, and we plan to continue to have somewhat elevated levels of wholesaling next year in order to do so. In Supply Chain, volumes have been mixed by industry segment, and this is likely to continue in the near term given the current economic environment. We've had strong new sales activity in logistics, including Dedicated Services, and this positions SCS well for solid growth next year. Given these factors, we're providing a fourth-quarter comparable EPS forecast of $1.06 to $1.11 versus prior year EPS of $0.97. This represents an improvement of 9% to 14%. With this fourth-quarter outlook, we're raising our full year comparable EPS forecast from a previous range of $3.75 to $3.90 to a new range of $3.93 to $3.98, and this represents an improvement of 13% to 14% from $3.49 in 2011. As I mentioned at the beginning of the call, we plan to enhance the reporting of our comparable EPS metrics starting in 2013, so I'll turn the call back over to Art Garcia so he can provide you with a brief overview of this future change.

Art Garcia - Ryder System Inc - CFO and EVP Thanks, Greg. Page 19 provides a brief description of the change that we plan to make regarding our comparable EPS metric. Beginning in 2013, comparable EPS will exclude non-operating pension costs. Non-operating pension costs represent the interest, expected return, and gain/loss amortization components of GAAP pension expense. We're implementing this change because we believe it will provide better visibility to the Company's operating performance and reduce the volatility associated with these non-cash items. As you may recall, our pension plans were frozen to all new and most existing participants several years ago. Despite this action,




6


we and many other companies continue to experience significant earnings volatility due to pension accounting and changes in the investment and discount rate environments. Companies have been addressing this issue in several ways. Some companies have moved to annual mark-to-market accounting. This approach, however, can result in large non-cash charges to earnings at year end and, as such, creates a lot of headline noise, which we think is not optimal for Ryder. Other companies have excluded the non-operating portion of pension costs from reported earnings, and this is the approach we plan to take as well. You may recall that starting this year, we improved visibility into the business segments operating results by moving non-operating pension costs below the segment line. We have also provided comparable EPS, excluding non-operating pension costs, on a memo basis for informational purposes. Starting with our fourth-quarter 2012 earnings call, we'll provide EPS forecasts, excluding non-operating pension costs, and then we'll begin reporting actual results on this basis in the first quarter of 2013. As we've done in the past, for any reporting changes, we'll provide historical information under the new format for comparative purposes. Turning to page 20, we've provided a five-year history of full year comparable EPS, excluding non-operating pension expense for your reference. An annual history back to 2005 is currently posted to our web site, and a quarterly history will be posted to our web site in January. The results shown here illustrate the significant volatility that non-cash pension expenses had in recent years. For instance, the swing in EPS from 2008 to 2009 totaled $0.75 in that one year alone from this item, which is quite significant on our base of earnings. Looking at 2012's forecast, I'd like to highlight that under the new methodology, our current 2012 EPS forecast range is just below our peak earnings year of 2008. This reflects the significant operational improvements made in our business over the past five years. At this point I'll turn the call back to Greg.


Thanks, Art, and that does conclude our prepared remarks this morning. So we'll move now to Q&A. Due to the number of callers always in queue, I'll ask that you limit yourself to two questions each, and then if you have additional questions you're welcome to get back in the queue and we'll take as many calls as we can. So at this time I'll turn it over to the operator to open up the line to questions. Q U E S T I O N A N D A N S W E R

Operator (Operator Instructions) Alex Brand, SunTrust.

Alex Brand - SunTrust Robinson Humphrey - Analyst

Good morning, guys. So, Greg, I'm wondering as you look at your transition that now kind of got accelerated in the last few months from early cycle rental to now the core lease business, what are your thoughts about how your existing customers are turning over to new trucks and signing new leases? Are you at that point of the cycle, and is this FMS lease growth accelerating to maybe a mid-single digit growth rate going forward?

Greg Swienton - Ryder System Inc - CEO, Chairman I would say that there are two relevant points that have supported our growth with existing customers as well as potential customers apart from our own expertise in selling and marketing. One is the average age of vehicles, which is still getting older, has been old and getting older, so there is a compelling need that as long as you're still operating a business and you have freight and goods to move you need to replace those units. And the other, I think, has been the stronger acceptance of the new technology because customers are finding that they're getting better fuel mileage. So I'd say that those factors would suggest continued acceleration. If you then could add on somewhat of a healthier economy, I think that will continue to help that. But even without the healthy, robust economy, I think those other two factors are playing an important role right now.




7


Alex Brand - SunTrust Robinson Humphrey - Analyst

And what about as it relates to also selling the maintenance? Are customers more interested in that because of increasingly complex engines and increasingly complex regulation?


I think that when you combine complexity, cost, and CSA scores, which now also demonstrate how companies are doing, they very much value our maintenance. So whether it's stand-alone maintenance or maintenance in conjunction with lease, I would say the receptivity is definitely accelerating.

Alex Brand - SunTrust Robinson Humphrey - Analyst Thanks for the time.

Operator

John Mims, FBR Capital Markets.

John Mims - FBR Capital Markets - Analyst Good morning. Great quarter by the way. When you look at the Supply Chain group, and my sense is there was within the retail in the CPG segment there was some exposure to food and drought related crop failures and what not in the quarter. Is there -- can you frame any potential impact that'll have on the fourth quarter, maybe bleeding into the first quarter as well or is that kind of a one-off thing that was third quarter?

Greg Swienton - Ryder System Inc - CEO, Chairman Let me turn it over to John Williford in Supply Chain. I think he can cover that for you.

John Williford - Ryder System Inc - President - Global Supply Chain Solutions

Thanks John, good question. I think that did have an impact in the third quarter, and I would say we would expect that, the drought, to continue to have an impact, at least for one to two more quarters. We are seeing very strong sales in that sector, though, so certainly after one to two quarters we would expect the growth in CPG to really pick up.

John Mims - FBR Capital Markets - Analyst Okay. And how big was that impact in the third quarter? Just kind of drought related?


We didn't point out the drought itself. You can see from the CPG numbers they were down -- CPG/retail was down about 5% year-over-year in the third quarter. I don't know, order of magnitude, most of that is CPG and not retail, and I'd say about half of that or maybe a little less than half is related to declines in volumes associated with the growing season.

John Mims - FBR Capital Markets - Analyst




8


Okay. And then just as a quick follow-up, can you give some parameters as far as obviously the lease age is coming down. You're starting to see that show up in margins, et cetera, but kind of where you are on a monthly basis for the lease portfolio as far as average age, and where -- how far that can trend over the next three or four quarters?


All right. Let me turn it over to Dennis Cooke who heads-up FMS to talk about the fleet age.

Dennis Cooke - Ryder System Inc - President - Global Fleet Management Solutions What I'll say is it's come down about three months year-over-year, and we're about 12 months from where we were back in 2008, which is when it was at its youngest age. So we still got a ways to go, but the age has come down more rapidly than we had predicted, so, again, we're three months younger year-over-year.

John Mims - FBR Capital Markets - Analyst You're probably I'd say that's, what, 45 months-ish? Is that right? On an average age?

Dennis Cooke - Ryder System Inc - President - Global Fleet Management Solutions A little higher than that.

John Mims - FBR Capital Markets - Analyst A little higher. Okay.

Greg Swienton - Ryder System Inc - CEO, Chairman Maybe 50 or more.

John Mims - FBR Capital Markets - Analyst

Yes, 50 or more. Okay. Yes, cool. All right, thanks for the time.

Operator Todd Fowler, KeyBanc Capital Markets.

Todd Fowler - KeyBanc Capital Markets - Analyst Good morning. Thank you. Greg, I want to make sure I understand the comments on rental utilization here in the quarter. It sounds like that demand was a little bit weaker than what you were expecting, but utilization was still in the high 70s. Historically my impression has been that you've been targeting in the mid-70s as a normalized run rate or normalized utilization rate for the fleet. Has that changed or how should we think about the sweet spot for rental utilization and then any commentary for expectations for rental utilization over the fourth quarter would be helpful as well.





9


I think where we are right now in utilization is really pretty strong at 77, but you compare that to what was happening last year when the market was really hot and that's why you see that difference. So we'd be very pleased with 77, and I think your earlier comments were right, in the mid-70s. As long as you're in balance that's very good utilization in terms of demand and pricing and everything else. Anything you wanted to add to that Dennis?

Dennis Cooke - Ryder System Inc - President - Global Fleet Management Solutions

No, I think you can expect a similar utilization heading into the fourth quarter, and you know, we focused on being able to respond quickly to what we see with market demand, and I think we did that pretty effectively in the second and third quarters. So that high 70s is what we're going to target and we should hit it.

Robert Sanchez - Ryder System Inc - President and COO

Let me just add one thing. The high 70s is really for the third and fourth quarter. For the full year the target is mid-70s. So it's that usually utilization is a little lower in the first and second quarter.

Todd Fowler - KeyBanc Capital Markets - Analyst Okay, I guess all of that makes sense. But just to clarify the comments about saying that rental demand wasn't as strong as what you expected in the quarter, that's kind of an overall comment but with where the fleet is, you've got the fleet to the right size to match with where industry-wide demand is. Is that the right way to think about it?

Greg Swienton - Ryder System Inc - CEO, Chairman Absolutely, and in fact you've heard the numbers about the de-fleeting. So I think being able to do that expeditiously and timely is really important.

Todd Fowler - KeyBanc Capital Markets - Analyst Got it. Okay. That helps. And then just for my follow-up. I think that there were comments both in FMS and in Supply Chain about seeing a reduction in compensation related expense in the quarter. Does that relate to the headcount actions that you took mid year, or is there anything that's related to reversing incentive compensation or bonus accruals here in the quarter?

Greg Swienton - Ryder System Inc - CEO, Chairman Yes, both of those would be factors. So there were some obviously compensation from some reduction, but management incentives and bonuses are self-adjusting based on the performance of the Company. And although we've recently raised our guidance again and are coming in just under $4, you'll recall that when we put out our plans at the start of the year we were at $4 to $4.10. All things considered, to be as close as we are to $4 I think is great, but that also means that we were short of our original plans.

Todd Fowler - KeyBanc Capital Markets - Analyst Sure. That makes sense. Do your care to quantify how much the bonus related amount was in the quarter?

Greg Swienton - Ryder System Inc - CEO, Chairman No, that's too much detail.

Todd Fowler - KeyBanc Capital Markets - Analyst

Okay. I tried. Thanks for the time.




10


Operator

David Ross, Stifel Nicholas.

David Ross - Stifel Nicolaus - Analyst The 8% increase in Dedicated revenue, how are the margins in that business? And can you comment on the driver recruiting and availability in the Dedicated segment?

John Williford - Ryder System Inc - President - Global Supply Chain Solutions The margins are comparable, and some of that I'll point out is Dedicated business for what we would call integrated projects with Supply Chain that probably would have showed up in the old Supply Chain numbers. We changed all that when we changed the reporting. And so the margins are comparable. In terms of drivers, the driver openings and time to fill are both up a little bit, maybe about 15% on a year-over-year basis. They're up mainly because of new business that we've sold, right? So I'll just remind you, we've probably mentioned this before, we have a pretty low turnover relative to the trucking industry in general where we're under 25% in our Dedicated business, and so when you see openings go up, it's usually because of growth.

David Ross - Stifel Nicolaus - Analyst Excellent. And Robert, when you were commenting on the used vehicle inventory levels I couldn't quite write fast enough. You were talking about remaining above the target range of 6,000 to 8,000 vehicles for a few reasons. Could you just kind of I guess restate those reasons?

Robert Sanchez - Ryder System Inc - President and COO Yes, the primary reason we think we're going to stay at those elevated levels is really because of the amount of lease replacement that we have over the next call it, 15 to 18 months. So as those vehicles get replaced with new ones, the old ones go to the used truck center, we're going to have more than our normal amount coming in. So we've stated that we're going to be in that 9,000 to 10,000 range for a period of time.

David Ross - Stifel Nicolaus - Analyst Okay, so it's coming in faster than you can sell them, basically.


Correct. That's why we're having to do a little more wholesaling than we normally would.

David Ross - Stifel Nicolaus - Analyst I would say that's a good problem to have rather than the other way around.

Robert Sanchez - Ryder System Inc - President and COO You go it.

David Ross - Stifel Nicolaus - Analyst




11


And then just a question for John Williford maybe on the high-tech slow down. Are you seeing that in any specific segment of the high-tech industry, is that consumer product related? Is it B2C? Is that B2B? What's going on in the high-tech market?

John Williford - Ryder System Inc - President - Global Supply Chain Solutions I'd say generally it's across the board. It's probably strongest in consumer product type of high-tech products like laptops, but it is -- and it's not concentrated in one or two customers. It's a slowdown in high-tech that we've seen kind of accelerate a little bit, and it's fairly broad.

David Ross - Stifel Nicolaus - Analyst And when did that acceleration start or the slowdown really begin?

John Williford - Ryder System Inc - President - Global Supply Chain Solutions Well, at least in the consumer part of high-tech, the peak season is, for us, if you're doing the logistics for it, it's kind of September, October. And so it's slowed down a little more there, and the impact is a little stronger there because you have more business concentrated in those months.

David Ross - Stifel Nicolaus - Analyst Okay. Thank you very much.

Operator Kevin Sterling, BB&T Capital Markets.

Kevin Sterling - BB&T Capital Markets - Analyst Thank you, operator. Good morning, gentlemen. Quick housekeeping question, what is your end-of-period full service lease fleet count and the end-of-period commercial rental fleet count?

Greg Swienton - Ryder System Inc - CEO, Chairman I know we have that noted here. I'll let Dennis Cooke answer that.


Yes, so for full service lease globally it's 122,700.

Kevin Sterling - BB&T Capital Markets - Analyst Okay.

Dennis Cooke - Ryder System Inc - President - Global Fleet Management Solutions And then in our rental fleet, end of period, finished at 40,000.

Kevin Sterling - BB&T Capital Markets - Analyst




12


Okay. All right.

Dennis Cooke - Ryder System Inc - President - Global Fleet Management Solutions I'm sorry. 39,200.

Kevin Sterling - BB&T Capital Markets - Analyst 39,200. Okay. Thank you. Greg, you talked about your CapEx for this year kind of coming at the lower end of that $2.1 billion to $2.2 billion range. Could you help us think directionally how should we think of CapEx for 2013? Could you briefly talk about that if possible?

Greg Swienton - Ryder System Inc - CEO, Chairman Directionally but without specificity.

Kevin Sterling - BB&T Capital Markets - Analyst Yes.


I think that due to the heavy replacement cycle, age of equipment, and unless you have an economic meltdown, I think you can expect to see a lot more units being renewed, and therefore, that's going to be capital that we will spend after the contracts are signed so that we'll have future revenue and earnings that we can count on. I think that if you continue to see rental be less vibrant and slowing down, we'd spend less on rental than we did in the last couple of years. So I think you still may have some strength in lease capital, but softer in rental. I think directionally that's probably broad enough or give you an idea.

Kevin Sterling - BB&T Capital Markets - Analyst It does. Thank you. That's very helpful. And then, I guess you talked about commercial rental, the weakness, are you seeing these customers move into leasing at all?

Greg Swienton - Ryder System Inc - CEO, Chairman Dennis, you want to comment?

Dennis Cooke - Ryder System Inc - President - Global Fleet Management Solutions Yes, I think as -- the answer is yes, we're seeing some conversions, that's been strong this year where customers do see the value proposition, the total cost to ownership benefit with leasing. We are seeing some conversions.

Kevin Sterling - BB&T Capital Markets - Analyst All right. Great. And thanks for your time, and Greg I know you're glad the Bears won last night.

Greg Swienton - Ryder System Inc - CEO, Chairman Yes, I had to bounce between that and the debate.




13


Operator

Ben Hartford, Robert W. Baird.

Ben Hartford - Robert W. Baird & Company, Inc. - Analyst Good morning. Could you talk, maybe Greg, just if I can conceptualize the incremental margins within FMS, during the third quarter relative to the second quarter, it was almost 100% pass-though if we look at EBT sequentially. Can you help me think about the contributions from utilization, commercial rental utilization, stabilizing some of the cost reduction actions that you took in the second quarter, having an impact and then the lower lease fleet age as well? Can you rank those in order of magnitude to think about how we should think about incremental margins?

Greg Swienton - Ryder System Inc - CEO, Chairman I think Dennis can do that by order of magnitude but without necessarily specificity.

Dennis Cooke - Ryder System Inc - President - Global Fleet Management Solutions Yes, I would say that the cost reduction, the cost impact would probably be number one. But number two, close behind it, would be the full service lease margin benefit. And then the actions that we took in rental mitigated the downside that we saw from demand. And I think going forward, as the lease age continues to decline and we see our operational initiatives make an impact, which they already are, I think we will continue to see a benefit in lease margins.

Ben Hartford - Robert W. Baird & Company, Inc. - Analyst Now that we've gotten to the double-digit threshold, I guess, it's reasonable to assume if volumes remain stable and the lease fleet expands, utilization remains stable, that this 10% threshold is a new run rate as we think about '13 and beyond. Is that fair?

Dennis Cooke - Ryder System Inc - President - Global Fleet Management Solutions I think that's fair. Yes, that's fair.

Ben Hartford - Robert W. Baird & Company, Inc. - Analyst Good. And then, John, on the Supply Chain side, can you talk about in the context of kind of weaker volumes specifically on the high-tech side, but generally speaking, forwarding volumes have been challenged. How competitive have the bids been in contract logistics over the course of the past six months? Can you talk about a little bit about the competitive dynamics specific to that segment?


Well, the issue we faced in -- I'll answer that as a two-part question. The issue we faced in high-tech in terms of existing volumes, is independent from the issue of our competitiveness and winning bids. You know, what we're seeing is existing customers' volumes dropping, softening during the year. And that effect, at the same time -- and I don't have this broken out even in my head by vertical, but we are -- this year we will set a record for new sales. So that -- I don't know if all of our competitors are setting records for new sales as well. That I don't know. But I know that we're winning a lot of bids, and those bids now, we're signing them up now and throughout the fourth quarter. So we'll see a lot of startups in the first half of next year, and our growth rates will come up to our target levels by the end of the year next year. So -- and that's in -- some of that's going on in high-tech, and it's really going on across our business, so it's very encouraging to see. I guess I don't see softening volumes in high-tech or CPG, where we also see that, making the bids more competitive or more difficult to win or where we have to bid at a lower margin or something like that. I haven't seen that.




14


Ben Hartford - Robert W. Baird & Company, Inc. - Analyst

Okay. That's helpful. Thanks guys.

Operator Scott Group, Wolfe Trahan.

Scott Group - Wolfe Trahan & Co. - Analyst Just to follow up on that earlier CapEx question, Greg. Is it a fair thought that given what's going on in rental that rental CapEx could come all the way down pretty close to zero next year? And just with your CapEx views in mind overall and what your thoughts are on used truck pricing and wholesale versus retail, can you give us maybe some directional thoughts on gains on sale and depreciation for next year?


Well, you have a few things there. Your first question was about rental going down to zero. I think that would be much too extreme. I think we'll have to have some replacement CapEx for rental. We may be at the lower ends of normal for that replacement, but I would not expect it would go to zero unless we had a cataclysmic financial meltdown in the environment. On used vehicle sales, I think that we mentioned that over time some of that pricing may soften, but we still see this as a pretty strong robust market with good pricing. In terms of the wholesaling, we're going to continue that through 2013 as our expectation, because as I think as Robert had said earlier, we've got a lot of replacements coming at us, and we want to be able to move the equipment out rapidly and not have increasing inventory. So although we might prefer an 80% retail, 20% wholesale, it might be more like 70%/30% kind of directionally for next year, perhaps. Was there another piece in your question?

Scott Group - Wolfe Trahan & Co. - Analyst

Yes, I guess when you add those two things up, how do you think that -- what do you think that means directionally for gains on sale next year up or down? And to follow up on your earlier point about rental, what's your view of rental maintenance CapEx? That's probably a better way to think about it, you're right.

Greg Swienton - Ryder System Inc - CEO, Chairman Robert or Dennis.


I think on the gain side we don't have that mapped out yet, but we're expecting a similar picture as to what you saw in 2012. Still a lot of volume going through, pricing continues to remain strong, so unless there's a change in that we're expecting that through next year. We're still selling pre '07 engine vehicles, which are highly desirable and we're still going to be selling a lot of those through next year. We expect that to continue to be a positive part of the story. As we look at rental, I think rental -- we probably saw in the second quarter and the first quarter we saw a step down. We're seeing it kind of moving flat at this point. You said a little bit below our expectation, but not significantly. So we'll see as we get into next year what the economy holds, but right now that's what we're seeing.


And just to elaborate a bit, in the appendix if you go back to the pages on page 41. We had, obviously in 2009, that was a very soft environment during that financial environment. And then you go to the end of 2010, we had $29 million in gains, net gains in vehicle sales, $63 million at the end of -- by the end of last year, and we've got $68 million through nine months. So these are still pretty strong net sales gains numbers. What they will be precisely we'll let you know when we do the business plan, or give you a better idea of the business plan, but they're going to still be quite healthy in terms of contribution to our bottom line.




15


Scott Group - Wolfe Trahan & Co. - Analyst

Okay, that's very helpful. And if I can just squeeze in one last, just real quick one for Art. What's your thought on what the pension headwind would have been for 2013 that we now need to take out of the model?

Art Garcia - Ryder System Inc - CFO and EVP

Well, if you recall from last year, I provided some guidance, and I was off on that, and I was tarred and feathered from all over the country here, so I think at this point it's hard to predict what the final number is going to be. As you know, there's a lot of moving parts in there, the discount rate, what the actual assets return at by the end of the year, and then setting the expected go-forward rate, so we haven't really done that work there. I would tell you that we put a white paper out on pension. That's on our web site, that you can access that provides some sensitivities of changing -- if you make assumptions about changes in discount rates, expected return and actual return, that can be helpful for you in trying to make that determination right now.

Scott Group - Wolfe Trahan & Co. - Analyst All right. I appreciate that. Thanks guys.

Operator

Art Hatfield, Raymond James.

Derek Rabe - Raymond James - Analyst Thanks. Good morning. This is Derek Rabe in for Art. If I recall correctly the acquisition you made in August, I believe that was the first one you've done since June of 2011. Can you just talk to the dynamics in the acquisition market right now? Have you seen some of the factors that may have limited opportunities over that period start to ease a bit, and then could you just talk about the current pipeline.

Greg Swienton - Ryder System Inc - CEO, Chairman Yes, I'll let Robert talk about that.


Yes, we're, as we've said on a call before, we're always looking for opportunities and the right opportunity for acquisitions, especially around our Fleet Management business and also around Supply Chain, where we're adding new capabilities. The environment is still, I would say healthy in terms of discussions, but it does boil down to when companies are ready to sell, and when they're ready to make the move. So I would tell you there probably hasn't been much of a change from what we've seen over the last 12 months, and we're continuing to look for opportunities, and we're certainly in a position to act on them as we find them.

Derek Rabe - Raymond James - Analyst And as a quick follow-up, I was hoping to get a little bit more color on the contract related maintenance. We did see that decline a little more than we had expected. Just going forward, can you discuss some of the puts and takes in that business, just in the current environment? Should we expect to see some of the similar declines in the next couple of quarters, maybe given the tough comps and also the declining fleet age?


Well, let me make sure we got the definition right, because you said contract related?




16


Derek Rabe - Raymond James - Analyst

Yes.

Greg Swienton - Ryder System Inc - CEO, Chairman That we distinguish from contract maintenance, which is really what we proactively sell. Contract related maintenance only occurs if there might be some damage or abuse, and it's called contract related because then we do that work and then charge the customer outside the contract because of that. So that can be a little bit random, you know, in terms of is it snowy, is it icy, is it rainy, I mean what could be causing damage to vehicles. So that moves a little bit, but a big movement up or down is not due to something fundamental.

Derek Rabe - Raymond James - Analyst Okay. So do you typically see that track any of your metrics, maybe lease miles driven, something along that front?

Robert Sanchez - Ryder System Inc - President and COO Yes, no I think you saw a little bit of a -- if you look at the year-to-date number it's pretty high. Some of that is because of the acquisition that we did, and we -- that's what drove some of that growth in the first half of the year, but what you're seeing now is more of a normalized run rate when you take that out. And I think as Greg mentioned they could be up 1%. I think single digits up or down is probably what you'd expect in a normal quarter.

Derek Rabe - Raymond James - Analyst Okay. Great. Thanks guys.

Operator Peter Nesvold, Jefferies & Company.

Peter Nesvold - Jefferies & Company - Analyst Good morning. If I were to sum up the quarter in a sentence, I might say that you saw earnings growth reaccelerate to 17%, maybe split between self-help on the cost side and late-cycle leasing leverage. You mentioned that you're nearing past peak earnings this year, yet at the same time we're going into this fading macro backdrop. I don't want to try and jump ahead to the January outlook, but what can you tell us directionally about earnings growth next year if let's say we're in a 1.5% GDP type scenario next year? Can you continue to grow earnings at least high single digits?


Well, without going out on a limb and being specific, you would think so. Because, we not only count on what's going on in the economy and 1.5% would be pretty modest, but that's not to be unexpected. But we also take a look at what we're doing on contractual selling. And as you heard from our comments, from the press release, from listening to John Williford and Dennis Cooke in their respective segments, we are signing up business at a fairly healthy pace. As long as that continues, that's going to start billing at some point next year and that's going to have good flow-through. In addition, a big part of the that improvement, as you also referred to in FMS, is the fleet continuing to get younger. So when you have all of those things moving together, you tend to start seeing an acceleration on the bottom line, kind of like we had back in 2008. You remember in 2008, and there's some similarities today, in 2008 we had a rapidly growing, rising share price. Not just because we had record revenue and earnings, but we were beginning to distinguish ourselves from many transportation related companies. And that's kind of what's happening now. You've seen a lot of transports do negative pre announcements, and we've just raised our forecasts. In addition, in that 2008 period, rental was not very strong, but contractual was and continued to be solid, and that's where we're now entering. So our expectation, if you want to use history as an example, we've got a couple hundred more basis points that we expect to




17


get to just in FMS for a combination of reasons, and that is going to, I think, suggest, coupled with the strong contractual sales, that we've got very good days ahead of us, regardless of kind of the weakness or strength of the economy. And whatever it is, we're pushing to sell the value proposition. I think as being well received.

Peter Nesvold - Jefferies & Company - Analyst And then as my follow up, assuming you do grow next year, and it sounds like you have high conviction on that. You would deploy cash, and that is the model, whether it's organic through the lease fleet or through acquisition, you're at the targeted leverage ratio today. So how do you think about leverage next year if you were to use cash next year? Do you have to increase the targeted ratio, or is there some other way that the capital structure changes a little bit?


Well we naturally de-lever, so I'll let Art cover that.

Art Garcia - Ryder System Inc - CFO and EVP Yes, Peter. I mean, I would keep in mind that this year, even with the amount of spend that we talked about, right, which is at the low end, that $2.1 billion capital spend, we're actually, if you exclude any kind of year-end pension adjustment, we're saying we would have de-levered from the prior year. So when you factor in what we talked about earlier around rental, probably spending less on rental in '13 than we did this year, that would be made up. That would imply a lot of growth in lease if you kept spending at the current level it was. So I don't really see leverage being that much of an issue when it goes back to Greg's point that the business tends to de-leverage. You actually have to be fairly large negative free cash flow to lever up.

Peter Nesvold - Jefferies & Company - Analyst

Great. All right, thank you.

Operator Matt Brooklier, Longbow Research.

Matt Brooklier - Longbow Research - Analyst Good morning. Just a quick one on lease fleet average age. I think we know we're seeing some margin benefit this year as we have a greater number of older trucks within the fleet coming up for renewal and replacement. How should we think about that in 2013? Do we have kind of a similar potential rate of fleet age replacement and average age coming down? Does that quicken next year or does that decelerate? And I know there's a lot of moving parts to it but just kind of your general thoughts as we look out over the next 12 months.

Dennis Cooke - Ryder System Inc - President - Global Fleet Management Solutions Yes, Matt. In 2006 and 2007, there was a large buy before the technology change in '07 and what you're seeing now is those units come to term. So you've got a big replacement cycle that's occurring, and that's going to be significant in 2013. As we replace those units I think you're going to continue to see the fleet get younger. And as I mentioned before there's also operational initiatives that we have in place that are going to continue to drive maintenance costs in the favorable direction.

Matt Brooklier - Longbow Research - Analyst Okay. But it would be fair to categorize 2013 as being another increased year of the pace of average lease fleet age coming down on the pre-buys?





18


That's correct.

Matt Brooklier - Longbow Research - Analyst Okay. Thank you.

Operator

Jeff Kauffman, Sterne Agee.

Jeff Kauffman - Sterne, Agee & Leach, Inc. - Analyst Thank you very much. Congratulations, terrific quarter.

Greg Swienton - Ryder System Inc - CEO, Chairman Thank you, Jeff.

Jeff Kauffman - Sterne, Agee & Leach, Inc. - Analyst I have a couple questions on pension for Art. And I may have to take a number of these offline, but really just two or three I'll focus on now. Number one, what you're not going to show on the income statement you are going to have to show on the cash flow statement, right? Because you're not really changing your pension obligations, so are we going to see an increased negative operating consequence to operating cash flow because you are going to get hit for interest costs and amortization and stuff like that on --? I guess it's non-cash.

Art Garcia - Ryder System Inc - CFO and EVP Yes, it's non-cash.

Jeff Kauffman - Sterne, Agee & Leach, Inc. - Analyst

So the cash flow will be enhanced as well is what you're saying?

Art Garcia - Ryder System Inc - CFO and EVP No the cash flow we'll treat it as it is. We'll treat that pension contributions as part of free cash flow. We talked about that I think on the last call a little bit of with the -- they made some pension adjustments with the highway bill that are going to reduce pension contributions next year. So that's probably a $30 million to $50 million reduction in our required contributions for 2013.


All right. But we won't see an income statement benefit necessarily when those rates reset because we're really only counting, what, service costs?

Art Garcia - Ryder System Inc - CFO and EVP Yes. It's just service cost.




19



Okay. And then is there any effect on income tax rates as a result of this?

Art Garcia - Ryder System Inc - CFO and EVP From --? No. No. Pension is a timing difference, so it doesn't affect your tax rate.

Jeff Kauffman - Sterne, Agee & Leach, Inc. - Analyst Okay. So effective tax rate's the same.

Art Garcia - Ryder System Inc - CFO and EVP Effective tax rate is the same.


Okay, I'll ask the rest offline. Thank you.

Operator Anthony Gallo, Wells Fargo.

Anthony Gallo - Wells Fargo Securities, LLC - Analyst Thank you. Just wanted to go back to this average fleet age question. Based on your comments about '07 being the bulk buy year, is it fair to say that the -- let's call it the 50 month average is not a true average? You've got some vehicles that are -- you've got a big chunk of vehicles that are a lot older. Is that the right way to think about that?


Yes.

Anthony Gallo - Wells Fargo Securities, LLC - Analyst Okay.

Greg Swienton - Ryder System Inc - CEO, Chairman Yes, it's inappropriately leaning to the right.

Robert Sanchez - Ryder System Inc - President and COO Just one other thing, Anthony, they're '06s and '07s. There was a pre-buy right before the '07 engine came out. And those are the ones that are aging now and getting to the end of their life.




20


Anthony Gallo - Wells Fargo Securities, LLC - Analyst

Okay. And as you sell those into the used market, there's still strong demand for that vintage, is that fair to say as well?

Robert Sanchez - Ryder System Inc - President and COO Yes.

Anthony Gallo - Wells Fargo Securities, LLC - Analyst Okay. And then if I could just jump to the Dedicated market. We've heard of some successes by the for-hire carriers in replacing one of your larger competitors in some of the private fleet business. That doesn't appear to have happened in your recent results, so just a little color around what you're seeing in the competitive framework for the Dedicated business? Thank you.


Well, the Dedicated business is a very competitive segment. We're one of the leaders. We do face truckload carriers who have dedicated trucking divisions. We have positioned ourselves, I think, very effectively in areas of the market where we think we are strongest, and that tends to be integrated projects where the dedicated trucking is integrated with our other services. Or projects that require specialized handling or specialized equipment where the truckload carriers don't have quite the advantage. We do compete broadly in the market, though, but in those areas that we're really targeting we feel like we have a very strong competitive position. We haven't seen any major change in that. What we've been doing is just focusing more on that area and that is helping us grow.

Anthony Gallo - Wells Fargo Securities, LLC - Analyst

Thank you.

Operator Brad Delco, Stephens.

Justin Long - Stephens Inc. - Analyst Hi, this is actually Justin Long in for Brad. Good morning. I had a quick question on the trends you're seeing in rental. Just curious how those progress throughout the quarter. I know if you look back earlier this year you saw some weakness in May. Things started to stabilize in June and July, but just curious what you saw in August and October -- or August, September and thus far in October? Has there been continued volatility in that segment or are things still just kind of stable?


I think we'd call them stable.

Justin Long - Stephens Inc. - Analyst Okay. Great. And then on the cost savings, for my second question, you guys have outlined the $0.18 of EPS savings you expect in the second half of this year. I would assume most of that is headcount driven, but as we look into next year, are any of those savings sustainable, if we see an environment where demand starts to accelerate?





21


Yes, and first it's not just headcount driven. There are other costs as well. And I think when we spoke about it, we expected over a 12-month or four-quarter period about $0.36. So it'd be $0.18 in the last two quarters of '12 and $0.18 in the first two quarters of '13.

Justin Long - Stephens Inc. - Analyst

Okay. That's great. That's helpful. That's all for me. I appreciate the time.

Operator David Campbell, Thompson Davis & Company.

David Campbell - Thompson Davis & Company - Analyst Yes, good morning. I just wanted to ask a -- related to the decision to take non operating pension costs off the comparable earnings per share next year. Why not do the same for vehicle sales, gains on vehicle sales, which have been generally up but could be also erratic?

Art Garcia - Ryder System Inc - CFO and EVP Yes, David. We view vehicle sales as core to our business. It is integral to what we do. We're -- remember we own hundreds of thousands of vehicles, we've got to sell 25,000 to 30,000 vehicles every year, so it's just a core part of the business. I look at that as really an adjustment of the depreciation at the end of the day. So, it really wouldn't make sense for us. We generate $300 million, $400 million of cash from that. So it's really core to the business.


Right. I think that is the point. It's not an issue of volatility. It's what core to the business or not.

David Campbell - Thompson Davis & Company - Analyst Okay. Thank you very much.

Operator Due to time constraints, our final question today is from Thomas Kim, Goldman Sachs.

Thomas Kim - Goldman Sachs - Analyst I just wanted to ask on the Supply Chain side, I noticed that autos continued to perform extremely well. Could you just give a little bit of color as to whether you are seeing any signs of slowing in that side of the business? And then also, also related to the Supply Chain, retail we noticed had weakened in the third quarter relative to the year-to-date performance. I was just curious as to whether you see this as a near-term trend that persists or if there's something else going on there? Thanks, very much.


Okay, well our auto business has been strong. A lot of that's new business we've won. Some of it is growth in volumes. Because the auto sector had a big decline in new car sales in the down-turn years, and that's been coming back. We do expect new car sales nationwide -- I don't have the number, it's a well publicized number. We expect continued growth in new car sales, for next year. We also expect to keep winning our share of bids next year, so we do expect to keep growing in automotive.




22


As far as your question on retail, yes the number we report is retail. We combine retail and CPG. As you'll see, it's become a very big part of our business, when you combine it and also when you combine in our Dedicated Transportation business too, into those numbers. Retail, I think what you're seeing in the combination is more of a decline on the CPG side, Consumer Packaged Goods, which is mostly food and beverage. And not so much of a decline on the retail side. And like I said, that we talked before when there was a couple of our big customers who sold business units and we knew we were going to have a little bit of headwind there, and then that was exacerbated a little bit by, especially this drought, during the growing season. There are a couple parts of our business in CPG, where we expect a spike in volume during that season, where we just didn't get this it year because of the droughts. That's really what happened there.

Thomas Kim - Goldman Sachs - Analyst

That's great. Thank you.

Operator This does conclude the question and answer session. I'd like to turn the call back over to Mr. Greg Swienton for closing remarks.

Greg Swienton - Ryder System Inc - CEO, Chairman Sure. Well, we're a little after noon time, so I appreciate everyone hanging on an extra seven or eight minutes. But, we got through at least one set of questions from each asker. So thank you for that. Thank you for your interest, and have a good safe day.

Operator This does conclude today's conference. Thank you very much for joining.

D I S C L A I M E R Thomson Reuters 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 REUTERS 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. © 2012 Thomson Reuters. All Rights Reserved.



thomson reuters streetevents edited transcript · edited transcript. r - q3 2012 ryder system, inc....

Documents