Ryder’s Stalls Are Testing Wall St.’s Patience

Ryder System Inc., the giant truck-leasing and logistics concern, unexpectedly went into reverse again this year, and its chairman, M. Anthony “Tony” Burns, is the first to admit he’s feeling the heat from stockholders and Wall Street.

“I am not in denial” about Ryder’s setback in this year’s first quarter, when the Miami-based company startled investors by posting earnings well below forecasts, Burns said Thursday.

But “we’re very pleased with the strategic direction the company is taking,” and that strategy “ultimately is going to be proven out,” he said.

Ryder, though, is testing Wall Street’s patience with its inability to reach high gear. Burns has been Ryder’s chief executive for 16 years, during which he’s engineered a number of restructurings that have dramatically changed the company’s makeup. Yet Ryder is still coming up short.

Ryder’s once-familiar, yellow rental trucks for consumers were jettisoned long ago, as were its big auto-trucking and aviation-services lines. Burns let them go because all yielded low profit margins and because they were constantly buffeted by the economy’s ups and downs.

Ryder’s emphasis now is on commercial-truck leasing and logistics, an obscure but thriving industry that provides other companies the equipment and personnel to handle the shipment, warehousing and packaging of their products and supplies.

Both those sectors are growing nicely and Burns, 56, has built Ryder into one of the world’s biggest players in each field. The company added more than $400 million in new logistics contracts in just the last 18 months, he noted.

But Ryder, with total revenue of more than $5 billion a year, still isn’t turning the profit that Burns or Wall Street expect. The shortfall again occurred in this year’s first quarter, when Ryder reported net income that dropped 41% from a year earlier, to $22 million, on a 6% gain in revenue to $1.3 billion.

To be sure, Burns’ business is a highly complex, capital-intensive operation with 45,000 employees that requires exquisite planning and coordination to work well. But Ryder must hit on all cylinders right now while its key industries are flourishing, analysts said.

“If they could just improve profitability levels, Ryder would be in a very good position,” said analyst Thomas Kmiotek of Duff & Phelps Credit Rating Co. in Chicago.

Instead, Ryder’s setbacks again have hobbled its stock, which closed Friday at $27.94 a share, up 6 cents on the day, in New York Stock Exchange composite trading. The stock, which got as high as $40 a share in early 1998 before retreating again, now trades barely above its level of a decade ago.

“We did disappoint the Street in the first quarter,” Burns acknowledged. “We need to be more consistent, and we need to hit the [earnings] estimates on the Street.”

And Ryder will, he predicted, because of several steps he’s recently taken to bolster the company’s performance. The most recent one: hiring an outsider to take over Burns’ role as president of the company.

Ryder tapped Gregory Swienton as president and chief operating officer, and the former Burlington Northern Santa Fe Corp. executive will be in charge of Ryder’s daily operations. His mandate: find ways for Ryder to execute its leasing and logistics contracts at a higher profit, mainly by being more efficient.

In logistics, for instance, that means cutting Ryder’s costs throughout each project, which typically involves designing the service, hiring supervisors and truck drivers, acquiring trucks and other equipment, and delivering and storing goods.

Ryder’s logistics customers include Pacific Bell parent SBC Communications Inc., Apple Computer Inc., the Target and Mervyn’s chains of retailer Dayton Hudson Corp. and AT&T; Corp.

“The major objective we have right now is better execution, to improve the [profit] margins,” Burns said.

Ryder’s truck-leasing operation also is overcoming its recent problems, which included its inability to get enough trucks from manufacturers to meet strong leasing demand from customers, Burns said. In 1999, Ryder expects to receive 35,000 new trucks, raising its fleet size to about 180,000 vehicles.

Burns also is mulling plans to reduce Ryder’s heavy debt load by striking an alliance with a financial institution that would take over the financing of Ryder’s truck-leasing operation. A decision is likely this year, he said.

The various steps mean Ryder, which also provides bus services for schools and municipalities, “will continue to show improvement in 1999” and should meet or exceed analysts’ earnings forecasts for the rest of the year, Burns said.

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Uneasy Ryder

Truck-leasing and transportation logistics provider Ryder System Inc. is again struggling to boost its earnings and stock price despite several restructurings over the years. Quarterly closes and latest on the NYSE:

Friday: $27.94, up 6 cents

Source: Bridge