Ryder (R)

Commercial rental vehicle and delivery company Ryder (NYSE:R) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 1.1% year on year to $3.13 billion. Its GAAP profit of $2.27 per share was 0.6% above analysts’ consensus estimates.

Company Overview

As one of the first companies to introduce the idea of leasing trucks, Ryder (NYSE:R) provides rental vehicles to businesses and delivers packages directly to homes or businesses.

The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Competitors offering similar products include U-Haul (NYSE:UHAL), Penske (NYSE:PAG), and Enterprise (private)

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Ryder’s sales grew at a mediocre 7.3% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Ryder’s recent performance shows its demand has slowed as its annualized revenue growth of 2.3% over the last two years was below its five-year trend. We also note many other Ground Transportation businesses have faced declining sales because of cyclical headwinds. While Ryder grew slower than we’d like, it did do better than its peers.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Fleet Management Solutions and Supply Chain Solutions, which are 46.2% and 42.5% of revenue. Over the last two years, Ryder’s Fleet Management Solutions revenue (leasing and rental) averaged 3.3% year-on-year declines. On the other hand, its Supply Chain Solutions revenue ( designing and managing customers' distribution) averaged 5.1% growth.

This quarter, Ryder grew its revenue by 1.1% year on year, and its $3.13 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.7% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its newer products and services will not accelerate its top-line performance yet.

Ryder has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 19.3% gross margin over the last five years. Said differently, Ryder had to pay a chunky $80.75 to its suppliers for every $100 in revenue.

In Q1, Ryder produced a 19.4% gross profit margin, up 1.1 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Ryder was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.6% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Ryder’s operating margin rose by 3 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Ryder generated an operating profit margin of 7.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Ryder’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Ryder, its EPS declined by 16.9% annually over the last two years while its revenue grew by 2.3%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q1, Ryder reported EPS at $2.27, up from $1.89 in the same quarter last year. This print was close to analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Ryder broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, we can see that Ryder’s margin dropped by 13.1 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the longer-term trend returns, it could signal it’s becoming a more capital-intensive business.

Ryder’s free cash flow clocked in at $259 million in Q1, equivalent to a 8.3% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Ryder historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.9%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Ryder’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Ryder reported $151 million of cash and $7.77 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.81 billion of EBITDA over the last 12 months, we view Ryder’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $194 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Ryder beat analysts’ EBITDA and EPS expectations this quarter. On the other hand, its revenue was just in line. Zooming out, we think this was a mixed quarter. The stock remained flat at $138 immediately after reporting.

Updated: July 9, 2025 at 11:03 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Ryder.

Ryder doesn’t pass our quality test. First off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its cash profitability fell over the last five years. On top of that, its low free cash flow margins give it little breathing room.

Ryder’s P/E ratio based on the next 12 months is 12.6x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $171.50 on the company (compared to the current share price of $170.06).