RYDER SYSTEM, INC.
At the same time, DBRS Morningstar confirmed the ratings of Ryder and its related entity, including its Long-Term Issuer Rating of A (low). The Company's Intrinsic Assessment (IA) is A (low), while its Support Assessment is SA3, resulting in Ryder's final ratings being equal with its IA. The rating of
KEY RATING CONSIDERATIONS
The ratings confirmation and trend change to Stable consider Ryder's resilient operating performance over the last year during the global Coronavirus Disease (COVID-19) pandemic following a very difficult 1Q20. Subsequently, the Company's earnings generation has improved, reflecting moderating levels of additional depreciation expense related to prior residual value estimate changes, increasing cost savings related to its ongoing maintenance expense reduction initiative, enhanced commercial rental vehicle pricing and utilization, and wider margins on used vehicle sales. Meanwhile, Ryder's balance sheet fundamentals remain sound, including moderate credit risk, stabilizing asset risk, a solid funding profile, and a sound capital position reflecting improved balance sheet leverage. The ratings also consider a level of customer concentration in certain business segments that is partially mitigated by the quality of the customer base. While Ryder has reported losses the past two fiscal years, we expect earnings to be solid in 2021.
The Stable trend reflects our view that Ryder's credit fundamentals will remain solid over the medium-term, especially given the improving business environment, moderating headwinds related to the pandemic and the favorable long-term trends in e-commerce. In our analysis, we utilized the macroeconomic scenarios discussed within the DBRS Morningstar commentary 'Global Macroeconomic Scenarios:
RATING DRIVERS
Over the longer term, material improvement in earnings including larger contributions from the Company's SCS and DTS business segments, while maintaining its strong operating platform would result in an upgrade of the ratings. Failure to restore earnings to pre-pandemic levels, a weakening franchise reflecting notable customer attrition or a prolonged significant increase in balance sheet leverage, would result in a downgrade of the ratings.
RATING RATIONALE
The ratings consider the Company's top-tier
Overall, the Company remains focused on growing its higher performing SCS and DTS businesses, which are both asset light. Indeed, Ryder continues to invest in new technologies for these segments to leverage secular outsourcing trends. In 2Q20, Ryder launched RyderShare, a service that provides clients with visibility on goods moving across supply chains across all participants, and allows the participants the opportunity to share data and communicate with one another, improving labor efficiencies and on-time performance. Overall, RyderShare's business has tracked approximately 2 million shipments for SCS and DTS customers. Meanwhile, e-commerce has been a tailwind, and Ryder continues to grow its e-commerce footprint, including e-fulfillment centers where unsold products are stored. When orders are received at the e-fulfillment center they are picked, packaged and shipped. Finally, the Company continues to invest in its Last
Although the Company's 2020 bottom line was significantly pressured by residual value adjustments and coronavirus induced headwinds, we see solid tailwinds for 2021. Overall, Ryder reported a
Importantly, we view Ryder's three sequential quarters of sound earnings generation since 1H20, as a positive indicator for future results. Indeed, the Company's 1Q21 earnings totaled
The Company's risk profile remains sound and is well-managed. Asset risk is stabilizing due to the strong rebound in the used truck and tractor markets. Meanwhile, credit risk remains sound, reflecting moderate losses. Indeed, in 2020, accounts receivable write-offs, as a percentage of average accounts receivables totaled a highly manageable 1.2% in 2020, down from 1.4% in 2019, and as a percentage of revenue generating assets was a very low 0.13% in 2020. During 2020, Ryder assisted a number of its customers by granting payment extensions. The majority of these clients have since returned back to their original standard payment terms. We note that that the Company does have some customer concentrations in certain business segments, which could constrain its earnings, especially if a number of these customers were to have financial difficulties. Specifically, within the SCS segment, the top 10 customers accounted for 53% of total segment revenue, and in the DTS segment, the top 10 customers accounted for 44% of total segment revenues in 2020. However, a majority of these customers are investment grade companies, which mitigates concentration risk.
The Company's funding profile is solid, primarily consisting of unsecured senior debt, as well as a large global committed bank facility. Funding is well aligned with Ryder's earning assets, and is diverse by source and investor. With its large amount of unsecured debt, the Company's assets are overwhelmingly unencumbered, providing it with robust financial flexibility for stressful periods. Liquidity remains solid with
ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
Notes:
All figures are in
The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The primary sources of information used for this rating include Company Documents and
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com.
Tel. +1 212 806-3277
Ratings
Date Issued Debt Rated Action Rating Trend Attributes
i
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU endorsed
U =
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-participating
13-May-21 Long-Term Issuer Rating Trend Change A (low) Stb US
13-May-21 Short-Term Issuer Rating Trend Change R-1 (low) Stb US
13-May-21 Long-Term Senior Debt Trend Change A (low) Stb US
13-May-21 Short-Term Instruments Trend Change R-1 (low) Stb US
Date Issued Debt Rated Action Rating Trend Attributes
i
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU endorsed
U =
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-participating
13-May-21 Guaranteed Short-Term Promissory Notes Trend Change R-1 (low) Stb US
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