Morningstar DBRS Confirms Ryder System, Inc.'s Long-Term Credit Rating of A (low); Trend Remains Stable

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Ryder System, Inc. (Ryder or the Company) and its related entity, Ryder Truck Rental Canada LTD., including its Long-Term Issuer Rating at A (low). The trend for all credit ratings is Stable. The Company's Intrinsic Assessment (IA) is A (low), while its Support Assessment is SA3, resulting in Ryder's final credit ratings being equal with its IA. The credit rating of Ryder Truck Rental Canada LTD.'s Guaranteed Short-Term Promissory Notes benefit from a guarantee from Ryder, and as a result, is equalized to the R-1 (low) Short-Term Issuer Rating of the Company.

KEY CREDIT RATING CONSIDERATIONS
Ryder's credit ratings reflect the Company's substantial North American commercial fleet management franchise, underpinned by its three soundly run businesses, including Supply Chain Solutions (SCS), Fleet Management Solutions (FMS), and Dedicated Transportation Solutions (DTS). Notwithstanding the challenging freight environment and pressured used truck and tractor markets, Ryder's earnings generation has been resilient. In 2024, net earnings totaled $489 million, up from $406 million in 2023, reflecting the non-recurrence of a significant 2023 non-cash currency translation adjustment charge, along with an increase in revenues primarily higher services revenues. Ryder's risk position is sound and well managed with operational risk and asset risk as its key risks. Lastly, funding is predominantly unsecured, while capitalization is good reflecting a moderate level of balance sheet leverage.

The Stable trend reflects our view that Ryder's credit fundamentals will remain sound and within our expectations despite the sustained downturn in the freight environment and decreasing used truck and tractor values. The downside risks include the potential for tariffs and trade disputes to negatively impact the economy, delay customer decisions, reduce border crossings, and drive-up new vehicle prices.

CREDIT RATING DRIVERS
A material improvement in earnings generation, including sustained larger contributions from the Company's SCS and DTS business segments, while maintaining similar balance sheet fundamentals, would result in an upgrade of the credit ratings. Conversely, a sustained significant decline in earnings generation, a weakening franchise reflecting notable customer attrition or a prolonged significant increase in balance sheet leverage, would result in a downgrade of the credit ratings.

CREDIT RATING RATIONALE

Franchise Building Block (BB) Assessment: Strong / Good
Ryder maintains a strong deeply rooted North American commercial fleet management franchise. The Company provides a wide array of vehicles and services through its three business segments, SCS, FMS, and DTS. The SCS business segment provides logistics management services that are designed to improve a client's supply chain efficiencies of operations and productivity. The FMS segment offers corporate clients full-service leasing, short-term commercial rental, and fleet maintenance programs. The DTS segment provides clients with solutions to meet their fleet needs, including equipment, drivers, fleet sizing, scheduling, and regulatory compliance. Lastly, the Company's management team is highly seasoned and maintains substantial industry and institutional knowledge.

Earnings Building Block (BB) Assessment: Good
Earnings generation capacity remains good despite the downturn in the freight environment and declining used truck and tractor values. Earnings totaled $489 million in 2024, up 20% from the prior year, reflecting the non-recurrence of a $188 million currency translation adjustment charge in 2023, along with solid 7.0% revenue growth, year-on-year (YoY). The non-cash currency translation charge in 2023 was related to Ryder's exit from the U.K. markets. Meanwhile, improved revenue generation was driven by higher services revenues (up 14% YoY), partially offset by lower lease, related maintenance, and rental revenues (down 3% YoY) pressured by the downturn in the freight environment. Used vehicle sale revenues (net) totaled $72 million in 2024, down 63% YoY reflecting lower sale proceeds per unit.

The Company continues to diversify its earning streams with increasing contributions from its SCS and DTS business segments. Indeed, the earnings before taxes (EBT) for these two business segments, in aggregate represented 47% of total EBT in 2024, up from 35% in 2023. Nonetheless, the FMS business segment continues to anchor earnings, representing 53% of total EBT in 2024, down from 65% in 2023. Going forward, we anticipate further diversification in the Company's earnings with a lower dependence on the FMS business segment. Lastly, selling, general & administration expenses were stable YoY, driven by sound cost management.

Risk Building Block (BB) Assessment: Good
Given its significant scale of operations, we consider operational risk to be a key risk for the Company. Overall, we see this risk as being well-managed as Ryder has not reported a significant operational issue over the last few years. We view Ryder's asset risk as elevated due to sustained declining used truck and tractor values. Partially mitigating this risk is the Company's conservative vehicle portfolio residual value estimates which are set at historically low levels. Meanwhile, credit risk is sound, with write-offs totaling a modest 1.6% of average gross receivables in 2024, up slightly from 1.2% in 2023. Ryder does have some client concentrations within its SCS and DTS business segments, where a loss of one or more clients could have a notable impact on each of these segment's earnings. However, and offsetting this risk, clients within these segments operate in a diverse set of industries and many are investment grade.

Funding and Liquidity Building Block (BB) Assessment: Good / Moderate
The overwhelming majority of funding is comprised of unsecured debt, that is diverse by source and well-aligned with the asset base. Ryder maintains a significant amount of unencumbered assets that provides if necessary financial flexibility during stressful periods. Lastly, the Company's liquidity profile is sound and well managed.

Capitalization Building Block (BB) Assessment: Good
Capitalization is good given the Company's sound risk profile and solid earnings generation capacity. Balance sheet leverage is well managed and totaled a moderate 2.5x (Ryder calculated) which was at the lower end of the Company's target range of between 2.5x to 3.0x. Lastly, the quality of the Company's capital is good, including only common equity and retained earnings.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in US dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (November 19, 2024) https://dbrs.morningstar.com/research/443208. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The following methodology has also been applied:

Morningstar DBRS Global Corporate Criteria (February 03, 2025)
https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar, Inc. and Company documents.

Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to our Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's trends and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.

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