Ryder System Aktie

Ryder Systems, Inc. With us is CEO, John Diez; as well as Nicole Dominguez, who's in the front row. John is going to provide a couple of minutes of prepared remarks, and then we're going to jump into the fireside discussion. So thanks...

Sure. Great. Well, it's good to be here, John Diez with Ryder, and I'll give you an overview on Ryder, a quick overview, and then we'll jump into it. So for those of you that may not know Ryder, we're a $13 billion company in the outsourced transportation and logistics space. We are a leader in the outsourced market. Everything that our customers outsource to us, they could do on their own.

So we typically work behind the scenes, and we're an extension of their business. We're North America focused. 93% of our revenue comes from the U.S. alone. So very high concentration to the U.S. with Canada and Mexico footprint. And we're organized around 3 segments, which you're going to hear about today. So our fleet management segment is the -- if you think about the outsourcing or the leasing of trucks and renting of trucks, we provide the maintenance on those trucks.

We manage about 240,000 trucks, which you see on the screen and through 800 locations across the U.S. and Canada with over 4,000 diesel mechanics that do the service on those trucks each and every day. Dedicated Transportation, if you think about outsourcing of the truck, it's outsourcing of the truck plus the driver, along with the engineering transportation network design that we offer.

We do that in a large way. We're the second largest dedicated provider in that space. And we like to do dedicated -- much of our Dedicated 70% is specialized. So our drivers do facilitate and participate in the actual delivery and unloading of the goods that are sitting on the back of the truck. And then we have our supply chain business, which is the largest segment of the business, a big part of our transformation, which I'll touch on here in a second, where we provide end-to-end logistics solutions.

So anywhere from port activity, inbound to manufacturing, distribution to final mile, we could handle it for our customers in the U.S., Canada and Mexico. You see there our customer base on the far right. Good distribution across a number of industries. Food and bev is our largest retail and the industrials account for the majority of the portfolio that we serve.

We serve nearly 40,000 businesses in North America. A big part of the story, which you'll hear about today is our transformation. Prior to 2019, at the peak of the cycle, things were going fairly well for Ryder. And then we reached an extended used vehicle market, and we decided we needed to make some changes in 2019. That triggered a 2-part approach to our transformation.

One was really derisking the business, our Fleet Management business, where we're underwriting leases. We were highly dependent on the used vehicle market on the backside to get the returns we needed for that business. And that used vehicle market volatility was significant. So we addressed that. What did we do? We reduced residual values from a pricing perspective, along with taking some charges from an accounting perspective.

And we raised prices to our customer. That's been a 6-year journey. We're on the tail end of that. We've been very successful being able to deliver the value at a higher price for our customers, and we've retained the majority of that business. And obviously, post-COVID, we were able to grow that business as well successfully.

We also look to grow and expand our margins, and we set out to initially take out $100 million of maintenance costs from our fleet management business by becoming more efficient, operating smarter and introducing technology. We're on the path now to deliver $150 million of annual savings, which is the new target for us from maintenance activities. So between the pricing initiative and the maintenance initiative, we're on path to be over $200 million of incremental earnings from that business.

Second part of the story for us was to diversify away from our asset-intensive business and grow our asset-light businesses. So Supply Chain and Dedicated have grown meaningfully. You see there our revenue base grew from $8 billion to about $13 billion today. And then if you look at the mix of our business that supply chain Dedicated business used to be 40%, now it's 60% of our overall business.

The health of the business is much different. We are today in the tail end of a freight cycle downturn, so very difficult used vehicle market conditions that we experienced last year, and we were able to deliver substantial improvements in our return on equity measure. You see there, we're targeting 17% to 18% this year compared to 13% at its peak. And then cash flow improved by nearly 60% through the transformation.

So what's current today and what's to come? On the left side, you see our strategic initiatives, which have been really the catalyst for Ryder for the last several years. Those are the structural changes we made in the business. We still feel in '26, there's about another $70 million of incremental benefits from our pricing actions, maintenance initiatives and some other initiatives around our omnichannel network and supply chain that we could improve the overall earnings power of our business by $70 million.

The freight market has been depressed, as I mentioned. We think when the market turns, that cyclical lift will be about $250 million to earnings, which we haven't seen yet. So we posted in Q1 that we think the used vehicle market has turned. That will contribute $10 million of incremental this year, but really the vast majority of it, we're expecting that to come in over the next couple of years.

And then lastly, we continue to work on growing the contractual side of our portfolio. 90% of our business is contractual relationships with businesses, 3 to 7 years. We've had great success there. We'll touch on it, but supply chain continues to grow. We expect that business to grow low double digits organically and with some acquisitions over time. The DTS business should get back up to high single digits and then the fleet management business at mid-single digits. So that's a quick recap on Ryder where we've been, where we're going. And then I'll turn it over to you, Rob.

Yes. Thanks, John. The $70 million that you called out for this year in terms of company-specific initiatives that will be boosting earnings. How much of that did you guys realize in the first quarter? And you noted you're on track to realize it for the first year, but maybe you could give us a little bit of perspective on the cadence.

Yes. The cadence is -- it's not very lumpy. It should be almost linear as we get through the year. The pricing initiatives will be front-loaded to the first half primarily where you'll see the incremental benefits, but the maintenance activity will be more oriented towards the second half. But on balance, I would say, of that $70 million, we're expecting to realize a consistent amount each quarter. So we're not counting on a big hockey stick. We're seeing the benefits already come in Q1 and into Q2. And obviously, that will continue.

And obviously, the biggest piece of Ryder's revenue and earnings stream is the contractual business...

Yes.

You had sounded a little bit more upbeat than you have in a while on the first quarter call. And you had noted that customers are starting to make commitments in FMS and in Dedicated. Maybe could you give us an update? There's been a lot of changing dynamics, cyclical uplift that we've been seeing in the trucking market. Has that accelerated as we push through the second quarter?

Yes. So the tone for us changed a little bit in Q1 from what we've been saying in that supply chain has been growing. Sales activity there last year was a record level. But Fleet Management and Dedicated, we had not seen any sort of firm commitments from customers at a meaningful level.

In Q1, and we've been seeing dedicated supply chain pipelines grow, which usually is an early indication of pent-up demand. We did see that in the latter stages of last year in both those businesses. And then in Q1 that started converting and customers started making commitments. We saw sales activity for Q1 of '26 in Fleet Management and Dedicated be at levels we hadn't seen in 2 to 3 years. Fleet Management have been like 3 years and Dedicated about 2 years since we last saw that.

And then we saw customers signs that things were improving as well. Outside of that, extensions were up, which is a good indication that they want to hang on to fleet as opposed to reduce their fleet. That was at elevated levels. Customers were looking to us to take advantage of on-ground equipment. So our redeployments were up to near record levels in the quarter. And then our miles run on our customers' fleets. They were up 2% to 3% as well, which is also a good sign for the momentum and some of the acceleration we saw in Q1. But that was just one quarter. We'll continue to see, obviously, since then, we're dealing with the macroeconomic conditions and energy pricing that's elevated today, and we'll see how demand continues to play out over the course of the year.

Have miles driven -- because I know you guys look at a lot of metrics across the fleet. How far are we below kind of historical averages today given that 2% to 3% improvement we saw in 1Q?

Yes, great question. So we were down almost 14%, 15% a year ago. Obviously, we're seeing that come back. So we're still -- even though we saw that sequential improvement in Q1, we're still well below, I would say, high single digits below kind of historical peak levels. That will hopefully continue to move up, and that will translate then into growth for the business.

So high single digit off of peak.

Off of peak...

Relative to [indiscernible] cycle?

Normalized cycle. Yes. I would say to normalized levels, it's probably mid-single digits for us. So we're getting close, but we need to see continued momentum there.

You had noted that you're seeing extensions kind of improve a moment ago. Maybe you could talk a little bit about customer vehicle churn, right? I would imagine that's also getting better, but I'm curious kind of where we're falling out.

So if you think about our lease portfolio, over 100,000 vehicles on lease, 7-year contract terms, you're seeing about 13% to 17% of the portfolio turnover each year. Every time there's a lease expiration, we have a decision or the customer has a decision to make, do they need the truck, downsize the fleet. If they're not so confident in their business, they may just extend the truck.

And then typically, when we see them getting real confidence and they see growth in their underlying business, they're going to add to the fleet. Well, over the course of the last 3 years, we've been seeing customers, actually, reduce their fleet with every one of these events and tightening their fleet further. What we saw in Q1 was a clear indication now they're looking to extend. And then we would look to -- as we get deeper into the year, they're going to look to hopefully start adding to the fleet as market conditions continue to improve.

So that was a good indication for us. Churn in the business has improved in that you're seeing better stability from our existing customers. We're finding new customers as well. And then you're seeing some reduction in the number of bankruptcies, which is the health of the overall market. We had seen a great number of bankruptcies in the last 2 years. First quarter was at a good level for us. So if that could continue, that would be a good indication for us.

Maybe could you talk a little bit about bankruptcies and how much of a drag they were to the fleet in the past couple of years, which has been declining a little bit?

Yes. So clearly, that's a big portion of the decline. I would say the decline in the fleet, the majority of it was just fleet downsizings from existing customers, but easily 1/3 to 40% was from credit pools and bankruptcies. So as long as that continues to get better, I think that's going to provide some support and uplift into the fleet going into the future.

And as you kind of initiated on your pricing -- your new pricing philosophy, you've tempered the fleet growth expectation to 2,000 to 4,000. Obviously, there have been cyclical factors that have been headwinds, some of the credit dynamics you had just mentioned as well as reduced overall freight activity. We've been seeing the FMS fleet contract over the past couple of years. It sounds like we're getting close to stabilization, then we'll see growth. As we think about growth, is the 2,000 to 4,000 net adds kind of the right level for Ryder? Or have dynamics changed? Is pricing different where maybe that number isn't the right growth for us to put in our model?

Yes. The pricing is not a limiter on our growth. We would love to grow at a higher level because the returns in that business are really good now. They've been the catalyst for the return on equity improvement in the overall business. We just got to find more opportunities to serve customers and new customers. So the 2,000 to 4,000, I would say, early cycle behaviors will be more like 2,000 at the peak of the cycle like we saw in '22 and into '23, we'll probably do more than 4,000. The question is what can we do consistent over the cycle? And that 2,000 to 4,000 seems like a good number as we look forward, but there will be a few years where we're going to get above the 4,000 without a doubt.

We're looking forward to seeing that. And then as we think of some of the more cyclical pieces of the business, you noted over $250 million potential tailwind, I think $10 million coming this year. And is that entirely on the UVS side?

So the $250 million, 90% of our business is contractual in nature. Our commercial rental and used vehicle business is the transactional pieces of the business about -- of the $250 million, we always say normalized gains for Ryder are going to be in that $75 million to $100 million. Last year, we did about $20 million in used vehicle gains. So you could count on $80 million of the $250 million more or less will be coming from UVS.

The majority of it and the balance of that $250 million plus will come from rental. So our commercial rental fleet, which supports our lease customers as well as the market at large was as much as 40,000 units at the peak of the cycle. We're now around 30,000 units, just to give you ballpark numbers. So we're down nearly 1/3 of the fleet. We're going to add to the fleet as we see market demand pick up.

And as that market demand picks up, you're going to see the earnings power of that contractual business, which is very robust. Typically, the returns on that business are better than our contractual lease business over the cycle. So the earnings power of that business is pretty robust. So that's how you get to the $250 million plus that we've called out.

And maybe you could give us some perspective of how much opportunity you have to grow the earnings with the existing fleet before we start adding incremental trucks because utilization is below your target range today.

Yes. So great observation. Today, we're sitting in utilization on a full year basis in the low 70s. Typically, we're in the mid-70s to high 70% range. So if you think about that 300 to 400 or even 500 basis point, there's quite a bit of capacity of demand that we could absorb in our existing fleet before we start adding capital.

So you probably -- once we get to a consistent number of mid to high 70s levels, and we've been as high as 83% under our measure. So we're going to start adding fleet what we can do in the short run, if we see demand start picking up, we could obviously take advantage of on-ground equipment. We'll reduce the number of outservicing we do of our existing fleet, run it a little bit longer and then start adding to the fleet as quickly as we can. So that gives us a lot of levers. Obviously, the biggest lever there is we need demand to start coming back.

Yes. And we're seeing the improvement in terms of the utilization of your existing miles driven across the FMS fleet. How much has -- have we seen any improvement in terms of the rental demand from your FMS fleet customers? Or is that still basically nonexistent and it's third party?

Yes. So rental demand from our existing lease customers is a big portion of the business. Typically, it's about 40% of the demand level. And we haven't seen that come back. We have seen pure rental activity move up. What we did see in the first quarter, which we felt good about was we had been below normalized seasonal trends for the last several quarters.

And the sequential trend we saw from Q4 to Q1, that pickup that we -- or that movement that we typically see in demand was in line with historical levels where we've been below historical levels the previous 2 quarters. So that was an indication at least to us that things were normalizing in the demand side of the equation. We just haven't seen an acceleration as of yet. And once we see it, we'll be ready to take advantage of it.

Historically, spot rates have been a good leading indicator in terms of the utilization.

Yes.

Obviously, the mix has changed a little bit where you're now much more weighted toward the truck. But are you seeing any noticeable utilization difference in truck versus tractor?

Not a big difference. So our tractor utilization figures are typically higher than our straight truck market. And we still see that kind of differential there. We would like to see the tractor market pick up, and we could add capacity as we see demand come into the space without a doubt.

The truck demand levels have been more consistent, I would say, than tractors, which we've been seeing that for some time. But both -- on both trucks and tractors, as we see demand pick up, we're more than capable of adding the capacity to meet the demand. Longer term, I do think the truck activity will continue to stay fairly consistent. We'll continue to grow as we continue to see more last mile delivery and folks moving closer to that consumer for that final mile delivery that will continue to provide support for that straight truck market over time.

We should think about kind of the incremental margin returns, very, very high as utilization is improving and then above average relative to FMS in rental as you're adding trucks. But obviously, there's some CapEx that we should be thinking about and incremental depreciation that flows through the balance sheet.

That's correct. So to put it in perspective, today, our quality of earnings for this business earnings before taxes as a percentage of our revenues is about 10% last year. That number will continue to grow. Our target over the cycle is to be in the mid-teens, if you will, there or low teens, I should say. And then as you get to the peak of the cycle, you should be in that mid- to high teens level.

So back to your point on the leverage of that business is pretty significant. And we're hopefully starting to see that now. So that will continue to move up and 10% being at the trough of the cycle is still very good for Ryder that we posted last year. So if that's the floor, good things are ahead for us.

And so the building blocks are coming there and then the used vehicle side of the business, too. You're sounding better there as well. Kind of 1Q, roughly 60% was retail. Can you give us a sense of how that compares to like your internal targets and what typical seasonality would be for the first quarter?

So we raised the guidance for the full year after following Q1. Some of that was better-than-anticipated performance in Q1, but we also saw used vehicle pricing stabilize sooner in the year than we had anticipated. And then to Rob's point, what we did see was higher retail volumes. And we typically get a 30% premium if we sell a truck through a retail channel as opposed to a wholesale channel. And seeing more demand on that side of the house is really encouraging for us and part of the reason why we kind of lifted the overall expectations.

We are seeing market conditions continue to get better. Later on in the year, we're going to have the introduction of technology change, the 2027 engine technology will start hitting the marketplace, which is going to lift the price on new equipment. So if you're a fleet operator, you're trying to make a decision, do I buy used or do I jump into a new equipment, you're going to have to pay a lot more for that new equipment and used equipment with the service quality we could afford them may be more attractive.

So we think the momentum we're seeing right now for used vehicle sales is upward momentum on pricing, which should bode well for the second half of the year. You asked about what is the mix around retail, wholesale. The 50% is clearly below our target levels. We typically like to be in the 70s, 70% to 80% level. When things are really humming, you're going to be in that 78%, 79% retail level.

So we're still doing some wholesaling to manage inventory levels, but that should -- as we get into next year that should continue to -- the retail percentage should continue to move up and the wholesaling move downward. So we still got some wholesale activity to do later in the year, and we'll continue to manage that based on what the market dynamics introduce.

Earlier, you had mentioned emissions change. Typically, I would think that, that's a good thing.

Yes. It is typically not only good for our used vehicle market, but it creates a front-loading of demand for us and our lease customers looking to get ahead of it. I think market conditions with this market is a little bit different in that the demand side of the equation is still not robust. We're not projecting any sort of prebuy activity ahead of the engine technology change, which we've seen in previous versions. So it's kind of a muted environment with regards to that today. But from a used vehicle perspective, we are seeing -- we do expect an uplift from the engine technology change as you get deeper into the year.

And then we also get a benefit on the FMS side because the sticker price is higher.

Yes.

For the used, do you think about raising prices kind of to keep the used to new relationship constant? Or you say, "Hey, I'd rather get more retail throughput, so I need to keep prices where they are as OEMs announce these increases?"

Typically, they move together. We typically see -- as demand starts accelerating, we'll be able to not only take price up but you'll also see your mix change quite a bit. And we've seen it over multiple cycles, that's the case. First, you see the volumes move up, which we saw in Q1 and stable pricing, which we saw higher volume, then you'll see both start moving upward. And that's part of the reason why we lifted the guidance. We do expect now pricing to start moving up based on what we're seeing in the trends.

That makes sense. And we've heard that from our channel checks as well. There's also -- as we talked to some dealers, they noted that financing has gotten a little bit tougher for some fleets. Is that providing an incremental opportunity for Ryder to help fleets kind of increase their truck count on the leasing side. It's typically a smaller piece that does transportation, but...

Yes. On the leasing side, we still do quite a bit with transports, even though it's not a meaningful part of the portfolio. That space has been, as you noted, challenged by financing and higher financing costs. But the customers we serve today are well-capitalized customers. Typically, if we have a customer that can't afford a lease opportunity, we'll put them into rental and let them rent in the interim until they get healthy.

We're in the early innings here with the spot rate market up, it was up 30% year-over-year in Q1. It's continued to move up to 50% now. And as these carriers start printing some cash flow, I think they're going to get stronger and hopefully, their balance sheets get a little bit better.

That will work itself out.

Yes.

Today, we had another announcement out of Amazon.

Yes.

It's impacted the less-than-truckload market. A couple of weeks ago, they got into supply chain services saying we're going to target third parties. I'd be curious just to get your perspective of what business that Ryder has where you see is potentially at risk, what part of the book of business is really not impacted by the announcement. And just how you think about SCS' kind of double-digit revenue growth targets as well as its high single-digit PBT target in light of the announcement.

Yes. So the Amazon announcements, where they impact us is really around our supply chain business. However, our supply chain business, we don't run an LTL network. So today's announcement doesn't really impact us. What we provide for our customers are really customized, bespoke solutions, highly engineered solutions for large supply chain operators. Those we don't expect to be impacted, and there's very little overlap with what Amazon can offer.

I think when you look at some of our smaller businesses within supply chain, so e-commerce, and our last mile business, so big and bulky. Combined, they account for about 6% of our overall Ryder revenue. So it's not a big portion of Ryder or even our supply chain business. There is some overlap there. And clearly, we'll compete with them as we have competed with them.

What we have seen from the e-commerce side, some of our customers do business with Amazon today. Many of them have elected to do their own fulfillment and not go through the Amazon network. So I do expect a vast majority of those customers will continue to operate in that fashion. We provide competitive and great service to them. So that's the area of the business that there is some overlap. Not something that today, we're concerned with. Obviously, today's announcement really has no impact to us. If anything, hopefully, we could help them grow their fleet and help Amazon grow their trucking activity and rent from us. That would be great.

That makes sense. And in terms of the SCS, it sounds like a very small piece of the business with Amazon's expansion into third-party supply chain services that could be a headwind to Ryder and maybe you get additional kind of truck growth out of today's announcement.

Yes.

In the first quarter, margins contracted a little under 200 basis points on a year-over-year basis. We had -- I think you called out some automotive headwinds as well as some of the omnichannel initiatives that you've got. I'd imagine weather kind of played into that. Maybe you could talk a little bit about the SCS margins and how we should think about the progression of the year and some of those headwinds.

Yes. So Rob called out our Supply Chain business. Year-over-year, we did see contraction in the margin profile of that business. Despite that, our supply chain business last year operated at a record level. Our first quarter 2026 performance for supply chain was the second best in our history. So you are seeing kind of a bounce from the peak with regards to that. We did call out automotive. Automotive volumes are down, and we did have some lost business in automotive where they traded some dedicated activity.

They went to the for-hire carrier market away from our dedicated solution. We think some of that will come back as obviously, spot rate market lifts up. So that may be something that we could win back here in time. But that business continues to perform. Our target for that business is high single digits. We're on path to deliver that again this year. And again, like I mentioned, even though first quarter was not at last year's level, we're not disappointed with the first quarter performance being the second best in the company's history.

And you're talking about kind of getting to the run rate of the double digits exiting the year...

Yes, on growth.

Any start-up costs we should be thinking about as the revenue ramps?

Yes. Clearly, any time we're growing at that double-digit level, there's going to be some level of start-up disruption. We've invested heavily in our start-up effectiveness teams where we mitigate and minimize the impact of that. But we're going to see some level of disruption as we grow. What's really exciting for us is not only last year did we have a record year. First quarter, we came out of the blocks with another robust growth number for us.

So as we think about the growth rate for that business, we're probably going to be in the mid-single digits in Q2, getting to the high single digits as you get into Q3 and then low double digits as we exit the year, and then that will -- that should continue to build as we get into 2027.

So acceleration off of low double digits in 2027?

I think you will see a little bit of an acceleration off of where we exit in 2026, yes.

That's exciting. How about Dedicated? Maybe you could talk a little bit about how you see margins evolving there?

Yes. So Dedicated, Q1 seasonally is probably the most challenging margin environment. I think that number was around 5%. We also target there high single digits, so 7.5% plus. We're on path to still deliver high single digits. I think we called out we've been able to deliver that 8 out of the last 10 years. Second quarter, typically, we see our margin profile expand 200 to 300 basis points.

That continues into Q3. And then Q4 tapers off a little bit. What we're excited about on Dedicated is we have taken some cost actions there to improve the earnings profile of the business, but we're hopeful that we continue to see our sales activity replicate what we saw in Q1. So Q1 was a very good sales quarter. If that continues, then we should be getting back on track to growth for 2027.

Well, we're at the time. John, really appreciate it.

Terrific.

Jump right in. We welcome Ryder Systems' CEO, John Diez. John has been CEO for 3 months, after having served as EVP and CFO for nearly 5 years, President of Ryder's Fleet Management Solutions business unit from 2019 to 2021. He's been with the company for 24 years. But given the rapid changes in the truck market, Ryder's exposure to dedicated transport solutions, fleet management solutions and supply chain solutions, provides great insight into the state of the market from its various perspectives. So we welcome Ryder back. If you can believe it's your first time since 2005 when we had your former CEO, Swienton, join us. So a while back, but we're happy to have you with us today. Also joining John is Calene Candela from Investor Relations in the audience. So I guess you're going to send all the tough questions over there.

Yes.

Okay. So with that, John, I know you've got a few slides to kick us off here. So I'll turn it over to you. And hopefully, within that, maybe you can kind of throw in maybe 3 key takeaways that you want us to take away with as well along with your slides.

Sure. Fantastic. Thank you, Ken, and good morning, everyone. If you go to that next slide, let me just give you a quick overview. One more. Let me give you a quick overview on Ryder, who we are and the customers we serve. So Ryder is a leader in the outsourced transportation and logistics space. We're strictly focused in North America. So we operate primarily in the U.S., Mexico and Canada. What I would say is we're organized around 3 businesses: our Fleet Management business, our Supply Chain business and our Dedicated transportation. Everything we do, the customer could do on their own.

So if you think about our Fleet business, which is 43% (sic) [ 38% ] of our revenues, customer could go out and finance their own vehicle. They could choose to do their own maintenance on their commercial fleet. In our case, we offer a compelling value for our customers. We have 800 maintenance locations as you see on the screen that helps serve the needs of our customers, whether it's at a local level, regionally or across the country in the U.S. and Canada. Our fleet management business, really the advantages we offer is better procurement on the front end, compelling financing and a much better maintenance experience with better uptime than our customers could do it on their own.

Dedicated transportation is an extension of our fleet management business. So if you think about outsourcing the truck, this is outsourcing the truck and the driver. So we take over the delivery of our customers' products from their warehouse or their manufacturing facility to either their distribution network, their end customer, whatever the case may be. We operate 13,000 professional drivers. So we have great drivers that execute on our -- for our customers each and every day. Our advantage is not only the engineering that we bring forward in designing these solutions, the asset flexibility we could offer, but most importantly, our ability to recruit, retain and manage drivers more effectively than they can do it on their own. And then lastly, our largest segment today, which is our Supply Chain business.

Our Supply Chain business, excuse me, is 43%. Fleet Management is 38% of the overall revenue. Our Supply Chain business today is the outsourcing of broader supply chain capabilities. That includes primarily warehousing, but it could be warehousing and transportation through a dedicated and warehousing solution. It could be things like e-commerce and last mile. So if you're looking for support and help in delivering your product to your customer directly to their home, we could do that. Our last mile business is the delivery of large, big and bulky. Our e-commerce business supports customers and businesses and delivering their product not only online and grabbing those orders online, but also fulfilling those orders and sending them out to either stores or to the customer directly.

We serve a great number of customers. You see them there. Our customer base is very diversified. Food and bev, retail and the industrial space are really where we do most of our work and we have a great number of customers, 14,000 customers in our leasing business alone that we have an opportunity to serve and create value for them each and every day. Go to the next slide. So a big part of what we've been focused on over the last several years in 2019, we launched the transformation. We call it our balanced growth strategy, and you see the results of the transformation here with KPIs comparing pre-transformation 2018, which was the peak of the freight cycle and then post transformation today in 2026. The key elements of that transformation for you to take away is we launched to derisk our fleet management lease portfolio in a meaningful way. I'll get into that in a second.

We also look to enhance the returns of our fleet management business. Those were structural changes that we made as well as repositioning the business and accelerating the growth of our asset-light businesses, Supply Chain and Dedicated. So you see there our revenue mix went from 44% Supply Chain dedicated to today, 60%. More importantly for us is we've also grown the business from $8 billion to $13 billion, but grew it more profitably even though we're executing today in these challenging freight conditions. Return on equity with the structural changes we made to the business was 13% in the prior peak. Here in 2026, we're going to deliver 17% to 18%. And you see our operating cash flow grew 60% over that time period.

So if you go to the next slide, really, these are the takeaways for all of you. It's threefold is really the resiliency of the model today is performing at a very high level. The structural changes we've made have not only elevated our earnings profile, but there's even more that we think we could enhance and deliver in the years ahead. Secondly, we're well positioned for the cycle upturn. So we saw the down cycle begin with interest rates moving up in 2022. That has continued. We think we're in -- at the bottom of the cycle with the opportunity for some earnings recovery as the cycle takes an upturn here. That's what we highlight here in the center, $250 million is what we believe we can deliver over the next several years as the cycle upturn takes hold. And then the third thing is we've added significant number of capabilities. We're happy to serve the market from port to door.

So we have capabilities from drayage on the port side, warehousing and fulfillment, and dedicated and final mile, which are all capabilities we could package together discretely for our customers, which we think is going to help us grow our contractual relationships in a meaningful way going forward. I think that's it. Is there -- yes. So that's a quick takeaway.

All right. Great. Thanks for that, John. Appreciate it.

So let's start maybe high level. Where are we from your perspective on a freight cycle recovery today? Are we past the bottom? Are we seeing early stages? Or is it just capacity has come out, the government keeps cracking down on the regulatory side, and it's really a supply side?

Right now, clearly, we see the supply side helping and we've seen plenty of capacity taken out of the market. We saw the early signs of that last year. That has continued. What we did see in Q1 for us, which we think we're in the -- there were early signs and encouraging signs of a cycle upturn for us was, we saw for the first time our Fleet Management and Dedicated customers make commitments. So what we've been seeing is they've been kicking the can down the road on long-term contracts, 90% of our business are long-term contracts from 3 to 7 years. We saw strong sales in Fleet Management and Dedicated. And our Supply Chain business which came out of a great 2025 record sales year, Q1 was another record quarter for us. So we're seeing higher levels of commitment from our customers. On the heels of the fact that we continue to see the market indicators which is the FTR truck utilization, a measure of capacity in the marketplace, that's elevated which is a good sign. Spot rates continue to climb, up 30-plus percent year-over-year.

And then we're seeing, even in our business, we're seeing good activity. We saw retail used vehicle sales volumes go up and we saw good pricing. In fact, pricing came in and kind of came in a little bit stronger than what we had expected. We were expecting that level of pricing to come in later in the year that came in earlier in the year.

For used equipment.

For used equipment. And then we're seeing good upward momentum with regards to the second half for used vehicle sales from a pricing standpoint as capacity continues to exit. And we expect new vehicles, the price increases to be substantial as we get to the latter half of the year.

Because of fuel? Because of new technology? What's the...

Yes. So there's -- in our space for new vehicles, we're expecting a new emission standards that's going to trigger a significant technology investment. We believe that technology investment, absent the warranty component of that, is going to be in the neighborhood of $10,000 to $15,000, so it's quite substantial on a new piece of equipment. Add on top of that, inflation with regards to tariffs and even some of the energy prices that you're seeing funnel through to the consumer. That's also going to play through. So we're expecting a large increase later this year for the new equipment.

So no changes to that '07 emission standard change. The administration is keeping as is, there's no delay to that.

We don't believe there's a delay. I think all of us are expecting now in the industry that it will go through. The one change that is happening is originally they were also looking to add a 10-year warranty period, which would raise the price of the equipment significantly. We think they're going to scale that back and they're not going to move forward with the warranty component.

Meaning that the OEMs have to guarantee you a 10-year...

They have to guarantee a 10-year product for the consumer. And obviously, that was going to come at a price.

Yes. All right. So 90% of revenue is contractual, sounds like pretty long term. Maybe talk about market pricing here, right, and seeing the shifts in the market. How does that -- how quick can that translate to contract gains? Because obviously, you mentioned the rise in spot rates. How do we think about that to contract gains?

Yes. So we typically see about a 6-month lag from the early signs of market recovery to good market activity. So the Q1 performance came in maybe a little bit sooner. We'll see if it's sustained as we get through the year. Typically, we see about a 6-month cycle from beginning a process with a customer to ultimate signing. So as we get deeper into the year, our expectations are that customers are going to be willing to commit at higher levels and we should see stronger sales through the year.

So you mentioned -- I think you noted 5% to 25% of the market is outsourced. You're talking on the truckload side?

No. So the markets we serve, we're not a truckload carrier, even though we provide dedicated activity for our customers, 5% of the outsourced market is in the Warehousing side, 15% roughly is on the Dedicated transportation side and 25% on the Fleet side, that kind of gives you an idea of the markets we serve. What we continue to see is that outsourced supply chain space continues to grow at a rapid pace. That has been growing high-single digits, and we've been growing organically double-digits for the last 5 years. We've added some acquisitions that have really elevated our growth levels. But even on an organic basis, we continue to grow that business double-digits.

Perfect. So given that outsourcing is increasing, and then given the labor challenges that we're seeing given the difficulty in getting access to labor right now, what is that doing on -- I mean, how quickly are we seeing driver pay? And what is that doing to cost?

Great question. So spot rates have been moving up. Capacity has been taken out of the market. Driver pay, in particular, typically, you first see signs of an improving freight environment. You're going to see it on the driver side with turnover and activity move up. We have seen some of that as we exited Q1. You'll then see sign-on bonuses to attract drivers in the marketplace. Sign-on bonuses are not broad spread, but in select markets, we are seeing sign-on bonus. And then later on, you're going to see wage inflation, which will be the next part of the market dynamic.

So given that, I guess, tightness of labor, do we see an acceleration of -- are you testing autonomous? Is that something that's squeezing into the your use of capacity?

Well, right now, and as you look forward, we do think there's going to be tightening labor capacity, and it's going to become more challenging, which is good for our dedicated business, we should see good growth. We are leaning into autonomous. I think we're still a few years out. We do need...

A few years being what?

Great question. We've been saying 5 years for each of the last 5 years. So I would think certainly 5 years is not out of the question. You're seeing on the passenger side, more autonomous vehicles. So that will carry through for the commercial side. But we do need regulation to catch up.

So for it to really take hold, you're going to need to see regulation change. I think the technology by and large, has seen evidence of improvement, evidence of success in select applications. Certainly, there's good activity. We have partnered up with a number of providers, both OEMs with their autonomous platforms as well as other providers like Gatik and Aurora that we have pilots in place. So we are seeing the technology improve over time. But clearly, there's still a little bit of ways to go before we see that in the marketplace.

Does seem like we're moving from theoretical to commercial reality. We're still very early, but okay. Great detail on the transformation program. So talk to us about changes that are structural at Ryder versus maybe cyclical like you were talking about used truck pricing.

Yes. That's probably the most exciting part for us. So if you think about the derisking actions we took and improving the overall returns, we set out to remove about $100 million of annual maintenance costs from our leasing model and we delivered that. We just came out and said we were going to go and get another $50 million, those are structural changes...

How are you doing -- how did you do that?

A few things. One, process redesign, buying smarter with regards to our parts and adding technology. Those have been the catalysts for us to deliver that $100 million. The second component, which probably was the most challenging for us in that we were dependent on the market dynamics as we reduced our residual values and raised pricing. Each of those came with price uplift to the customer. So if you think about the first step was reducing our residual values for pricing of our leases, and then we raised the expectations on our spread on our lease equipment. We did that over a number of years. We're on the tail end of that. We've repriced the entire portfolio, the last piece is this year, that has delivered or will deliver $125 million of annual savings. So that business structurally it's about $200 million plus improve in the margin profile, less dependent on used vehicles to deliver on earnings.

We lifted also our earnings profile for the Fleet Management business, that business typically would do low-double digits in a normal market conditions in the best of times. And now we said over the cycle of that business, you could expect it to deliver low teens over the cycle.

So if you're increasing the residual values, are you getting better -- reducing residual value. Are you getting better gains on sale when you go to sell?

We are. Obviously, we're in the heart of the freight market recession right now. Used vehicle performance has not been great, but we're on track to deliver $20 million to $30 million of gains this year. Our typical gains, as we've called out in a normal cycle will be more like $75 million to $100 million.

Okay. And then you've talked about -- a lot about a balanced growth strategy. So what does that mean today versus what it was 5 years ago?

Yes. So the second component of that balanced growth strategy, we made the structural changes on our Fleet Management business. We diversified to more of the asset-light businesses. Those businesses are performing at a very good level. Those are contractual businesses. So if you look at the earnings profile of the company today, very dependent on those contractual models. They continue to perform at a very high level. What's next? Well, we're going to get to see this model perform for the first time through the up cycle. We think we can do 2 things. One, deliver on that $250 million of earnings uplift. We still have $70 million to deliver on our structural changes. And as exciting for us is all the capabilities we've added over the last couple of years should help accelerate growth in our contractual businesses over the cycle.

All right. So given the transformation, how is the capital intensity in this capital business as you shift to SCS and lighter-asset business?

We continue to look to grow our Fleet Management business. So if you look at the capital intensity, it's all allocated towards that fleet management business. The Supply Chain, Dedicated businesses don't require a lot of capital. We have seen some capital deployed on supply chain for automation, but it pales in comparison to the vehicle capital expenditures we have there. We do expect with this freight recovery, we're going to have to spend more capital to upsize our rental fleet in particular, and then we expect our lease customers to start coming back and adding fleet which will add additional capital requirements for the business.

Okay. I think you just had the -- you don't have the -- you had the margin targets, right? So if you look at SCS going from 7% to -- from 8.7% a year ago, Dedicated 5.2% to 5.9%. Kind of talk about how you're looking at targeting high-single digits in each of the segments. What gets you from where we are now to those levels?

So I think the numbers you are quoting are Q1. So seasonally, Q1 is our lowest-performing quarter. So that's okay. If you look longer term, last year, each of the businesses delivered at those target levels, both Supply chain and Dedicated at high-single digits and Ken has them there for us. So Supply Chain and Dedicated last year delivered high-single digits. Fleet Management was just around 10% last year. As this freight market recovery comes back, we expect that fleet management business to get into the double digits, mid -- low teens. And then in the peak of the cycle, it should deliver mid- to high-teens levels. So that Fleet Management is dependent on the freight cycle. Supply Chain, Dedicated continues to deliver at target levels last year and continuing into this year.

Okay. So Fleet Management Solutions benefited from the stronger used vehicle sales. Is that shifting in this market in terms of gains?

Well, we have seen gains improve year-over-year. So last year, we saw gains in that $20 million range. We're expecting it to be about $30 million this year. So a slight uptick. As we get through the cycle, we would expect that number to climb to that $75 million to $100 million. And at the peak of the cycle, it should be above that $100 million level over time.

Okay. All right. So let's take a step back, right, the thesis of supply chain is becoming more complex. We just had Amazon announce their supply chain services business opening to third parties. They're going to try and simplify for shippers, lower cost. What do you think about that capability? What is it -- does it affect Ryder?

Yes. So Amazon has been providing or access to their supply chain network to their existing vendors for some time. This is not a big departure from that in that most of the people that we deal with on our customers, they've elected either to move away from Amazon and have chosen to do it themselves or those that work with Amazon continue to work with folks like ourselves as well. I do think our e-commerce and last mile business is where you may have some overlap. But those are very small parts and components of our overall business. Our e-commerce and last mile overall is about 4% of the total revenue.

So over time, you may see some impact there, but from what we do, most of what we do on the supply chain side is customized, tailored solutions highly engineered for our customers with the automation and technology, really customized for the solution that had for that particular customer. That is not being impacted by this. And certainly, it's a big part of our growth strategy for supply chain. That's where we continue to see growth.

So you said the opportunity is to make it simpler for the drivers or to outsource, right? You've -- I presume you're paying a little bit more for that. So are you winning share from the asset-based carriers, the 3PLs that lack the asset depth, where are you gaining the share from?

Well, I think people are going to see that capacity is very tight and they're going to look for capacity to continue to grow and deliver the products that they sell. And we're well positioned because we have the assets on the ground to serve their needs. So that's one. We do see over time when spot rate market moves up, a number of retailers switch from for-hire carrier solutions to a better service and a more competitive rate on the Dedicated side. So they'll trade service for rate when the market is sloping down. When the market comes back up, they'll come back and get the better capacity.

Yes, yes. So you quickly raised your full year guide in the first quarter after setting it just a few months earlier, right up to $14.05 to $14.80 from $13.45 to $14.45. What shifted quickly in your outlook? Was it used sale prices? Was it contracts that you've renewed? What was the leading the gain?

Well, when we set out our guidance for the year, that's highly dependent on executing on our strategic initiatives. So $70 million of our strategic initiatives, coming out of Q1, we felt good about delivering on that. So that was reinforced in the guidance. Number two, we saw Q1 come in a little bit better. The catalyst there being used vehicle sales performance. What we're seeing there, Ken, is we saw, relative to our expectations, we saw kind of pricing level off sooner in the year than what we had expected. And that's really the reason for lifting the overall guidance for the full year. Q1 was a little bit better and then UVS expectations improving.

I'm sorry, you said used sales pricing leveling off earlier.

Yes. So there were -- we had seen, especially on the tractor side, a slide, and we expect that -- that slide to continue in Q1 into Q2. But we saw as we exited Q1, better pricing coming out of the quarter, and we expect upward pressure to be there for better tractor pricing in the second half due to the new pricing of equipment as well as capacity continuing to be taken out of the market.

Okay. Let me just see if there's any questions, otherwise I'll keep going. Hang on, we've got a mic.

If autonomous becomes real in 5 years, how do you think that impacts your business?

Yes. So we've been working with a number of players where we could add value through that process. One, we have a few pilots right now. One is maintaining that equipment. We have a great large network across the country where we can provide maintenance services not only to the vehicle itself, but also the technology that's equipped on that vehicle. Number two, leveraging our network, we think many of these autonomous networks will be redesigned and they're going to need space, and they're going to need someone to operate them. So clearly, we're well positioned to do that. And then thirdly, I would tell you from a transportation management perspective, that final mile delivery is still going to be required, and it's not as simple to do that.

So we're really well positioned to be able to take that autonomous vehicle trailer and deliver to its final destination through our capabilities on final mile.

Do you envision that you're putting capital into these assets and growing your business? Or are you an outsourced provider for someone else that puts the capital in for all this equipment?

I don't know. We're going to be prepared to either put capital in if we see the opportunity there. We deployed a significant amount of capital on equipment that's extremely expensive. The price of a new tractor going into next year will be close to $200,000 or $200,000 plus. So deploying capital for -- to meet the needs of the marketplace is not something we're afraid of. But it's still early to tell. That's a great question.

Are you using AI currently in your operations? And are you seeing any near-term sort of uplift or earnings from it?

Yes. So from an AI perspective, the question was, are we utilizing AI and the answer is yes. Obviously, we're -- one of the great things we've done over the last couple of years is investing in technology. We have our own proprietary technology, one of which is RyderShare, which provides visibility and control to our customers about their delivery. We're embedding AI there. We're embedding AI in our Ryder guide, which is our Fleet Management solution as well. What that does is it creates a more proactive solution for our customers where they can have early indicators of what's happening in their network, take action automatically for them.

So those AI solutions are being embedded in each of those proprietary technology solutions. Number two, we have invested. We have a venture fund, a Ryder venture fund where we invest in different AI technologies. We've probably looked at more than 100 of these. We've made some investments in a few that have created good yield and momentum for us. HappyRobot is one. Agentic AI technology, we've deployed that in our transportation management. And brokerage business where they do the negotiation with carriers at a better, higher yield than what we were doing traditionally. We have seen that also from an effectiveness and efficiency perspective, we're having to use less labor to support that business as a result of some of these technologies. And then longer term, we've got a number of use cases that we're tackling through AI which we think can be significant value longer term. No breakthroughs there.

But when you look at our maintenance spend, our warehouse efficiencies and some of the things we're doing on a customer acquisition side, we think there's great opportunities going forward from an AI perspective.

Any others? That was great. Those were 2 of my next 4 questions, was the AI and the autonomous. So I guess if we think about the -- where was I, the -- an improving freight recovery. Where do you benefit? Where do you get pinched? What are the guideposts to measure your success in that market?

Yes. So the clear benefits for us, which we've laid out, $250 million, most of that's going to come via rental and used vehicle sales. That -- those 2 businesses will scale up pretty quickly when we see the market recovery. Longer term, you will see higher levels of growth, we think with the capabilities we've added, we could accelerate that growth relative to other cycles. So those are the things we're looking for. What are the guideposts? To your question, we clearly need to see higher levels of demand. Our rental orders were promising as we exited Q1, but they're still below normalized levels, I would say.

So once we see our order intake on the rental side, I think we're going to see us deploy more capital towards rental, and you're going to see that product line grow. Overall, I think market pressures are that capacity will continue to come out in the first half. That should be good for used vehicle pricing as we get deeper into the year. And you need a good economy. And so we're still dealing with the Iran conflict. I think there's a level of uncertainty that comes with that. Hopefully, we get through that quickly so that customers and our businesses that we support will start investing and committing to long-term solutions.

So the Fleet Management solutions, that's where you're seeing the increase and decrease of used truck prices where that can kind of flex that business, Dedicated where you're outsourcing and managing capacity for drivers and becoming the full driver for them. And then you've got Supply Chain, which includes the warehousing where you're also...

In Dedicated, we're starting to see evidence of a tighter driver market as soon as that becomes really an acute point for people to deal with. We're going to see Dedicated start taking off and you're going to see good revenue growth from that business. So we're -- there were early signs in Q1 for Dedicated. We're hopeful that will continue.

Does that -- how do you adjust in that market in a rapidly rising market to ensure you're covering for the cost of the driver, future cost of the driver, inflationary cost in that relative to what Werner or J.B. Hunt is doing on their Dedicated side?

So we saw this during COVID, and we went out and -- really, we had to look at all of our contracts. We introduced in our contracts kind of a labor index that allows us to, as market conditions change, to serve our customers the right way. We have protection for some of this wage inflation as we move through the market. So from that perspective, we should be in a good place. And obviously, the more exciting piece of that is we should see better growth overall from a dedicated perspective.

Okay. Great. Any other questions? Well, I think if I sum up, it sounds like you've got a good used truck market pricing right now, which can accelerate going into the '07 emission standards change, right, that can make pricing really tight. You've got an improving backdrop, although more supply-side driven than demand, you are seeing some of the demand creep in, it sounded like, and that good pricing, which you can balance out with costs with the way your contracts are structured. And anything I'm missing?

No. And more importantly for us is our port-to-door solutions give customers an opportunity to deal with any supply chain challenge they may have. So if they're looking for warehousing, transportation or an integrated solution, we can deliver that. So I think we're well positioned for what's to come.

Great job on the overview. Thank you very much. I appreciate the time.

Thank you. I appreciate it.

Good morning, and welcome to the Ryder System First Quarter 2026 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. [Operator Instructions].

I would now like to introduce Ms. Calene Candela, Vice President, Investor Relations for Ryder. Ms. Candela, you may begin.

Thank you. Good morning, and welcome to Ryder's First Quarter 2026 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, business, competitive, market, political and regulatory factors.

More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website.

Presenting on today's call are John Diez, Chief Executive Officer; and Cristy Gallo-Aquino, Executive Vice President and Chief Financial Officer. Additionally, Tom Havens, President of Fleet Management Solutions; and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solutions, are on the call today and available for questions following the presentation.

At this time, I'll turn the call over to John.

Good morning, everyone, and thanks for joining us. The Ryder team delivered solid first quarter results that exceeded our expectations. Our performance was driven by better-than-expected used vehicle sales results in fleet management.

I'll begin today's call by providing an update on our balanced growth strategy, and an overview of our Port-to-door logistics offering. I'll also provide you with key highlights from our first quarter performance. Cristy will then provide you with an overview of our segment performance, and we'll discuss our capital spending and capital deployment capacity. I'll then review our raised outlook for 2026.

Let's begin with a strategic update. I'm proud of the team's ongoing execution and our balanced growth strategy, which remains consistent and focused on clear priorities. We're building upon our transformed business model and the actions taken to derisk the portfolio, enhance returns and cash flow and strengthen the model's resiliency.

Derisking actions included significantly reducing our reliance on used vehicle proceeds to achieve our targeted returns. Our multiyear lease pricing and maintenance cost savings initiatives continue to contribute meaningfully to our increased return profile and positive free cash flow over the cycle.

Accelerated growth in our asset-light supply chain and dedicated businesses, has resulted in a more resilient business mix that is less capital intensive. We remain focused executing on our strategic priorities of operational excellence, customer-centric innovation and profitable growth.

Operational excellence is where we stand out and what enables us to leverage our full end-to-end capabilities to solve our customers' toughest logistics and transportation challenges. We're investing in customer-centric innovation that enables a proactive supply chain. Giving our customers a competitive advantage. In RyderShare and RyderGyde, we're embedding a genetic AI in order to enhance capabilities and drive the evolution of these proprietary platforms.

We're also leveraging AI use cases across the company, including FMS customer service and roadside assistance where Gentek AI is enhancing the customer experience while improving effectiveness. Additionally, we continue to deploy automation and robotics in our warehouses to drive operating efficiencies. We remain focused on profitably growing our contractual relationships. Over 90% of our revenue is generated by long-term contracts.

Our high-quality contractual portfolio has proven to be a key driver of business model resilience over the cycle. Our transform model has demonstrated the effectiveness of our balance growth strategy by outperforming prior cycles. Our 3 complementary business segments are leaders in North American logistics and transportation with secular trends that support further growth opportunities.

We're encouraged by the earnings power and resilient performance of our transformed business model. And believe that executing on our balanced growth strategy will continue to enable us to outperform prior cycles and position us well to benefit from a cycle upturn. Our scaled port-to-door logistics and transportation offerings provide rider with significant opportunities for long-term revenue and earnings growth by addressing many of our customers' toughest challenges. Our port-to-door solutions give customers end-to-end control from pickup at any North American port to final delivery.

We combine warehousing, fulfillment, cross-border cross stocking, lease and maintenance, transportation logistics, contract packaging and last mile delivery with powerful technology and our supply chain experts to give real-time visibility, flexibility and speed. Whether our customer needs a complete solution or support at any discrete step, Ryder can provide a solution that aims to perfect their supply chain.

As we continue to pursue profitable growth opportunities, we're focused on higher-return segments and verticals and increasing our share of wallet with our port-to-door offerings. By executing relentlessly, investing in our future, and growing our contractual relationships, we're well positioned to profitably grow our businesses, creating value for customers and shareholders.

Turning to Page 6. Key financial and operating metrics have improved since 2018, reflecting the execution of our strategy. In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from FMS. Ryder generated comparable EPS of $5.95 and return on equity of 13%. Operating cash flow was $1.7 billion. This was during peak freight cycle conditions.

Now let's look at Ryder today. In 2026, we expect our transformed business model to deliver meaningfully higher earnings and returns than it did during the 2018 peak. Through organic growth, strategic acquisitions and innovative technology, we shifted our revenue mix towards supply chain and dedicated, with approximately 60% of 2026 expected revenue generated by these asset-light businesses compared to 44% in 2018.

Our 2026 updated comparable EPS forecast range of $14.05 to $14.80 is more than double 2018 comparable EPS of $5.95. Our return on equity forecast of 17% to 18% is also well above the 13% generated during the 2018 cycle peak. As a result of profitable growth in our contractual lease, dedicated and supply chain businesses, forecasted operating cash flow of $2.7 billion is up approximately 60% from 2018.

In 2026, the business is expected to outperform prior cycles, even when comparing the pre-transformation peak to the current market environment.

Moving to key performance highlights from the first quarter. The Ryder team delivered our sixth consecutive quarter of comparable EPS growth in a challenging freight environment. Comparable EPS for the quarter was up 3%. Results reflect the strength of our contractual portfolio and resiliency of our transformed model.

Return on equity was solid at 17%, in line with our expectations given where we are in the freight cycle. We're on track to deliver $70 million in incremental benefits from strategic initiatives during 2026. These initiatives are part of a $170 million multiyear program launched in 2024. Consistent execution on these initiatives is the key driver of expected earnings growth in 2026.

And finally, freight cycle conditions in the first quarter were better than our expectations. Used vehicle sales results were higher year-over-year for the first time since third quarter of 2022. Out performance was driven by higher retail volumes relative to our expectations and retail pricing was stable sequentially. The sequential change in commercial rental demand was in line with historical seasonal trends for the first time in 3 years.

We also experienced improved contractual sales activity. Supply Chain generated record sales in the first quarter, continuing the momentum from prior year record sales and reflecting the value of our solutions. We're also encouraged by stronger sales in fleet management and dedicated, segments which have been experiencing sales headwinds reflecting freight market conditions.

Sales for both segments during the quarter were above prior year and ahead of expectations. That said, these conditions remain below normalized levels and geopolitical and macroeconomic factors continue to influence the pace and durability of the recovery.

I'll now turn the call over to Cristy to further review our first quarter performance.

Thanks, John. Total company operating revenue of $2.6 billion in the first quarter was in line with prior year as contractual revenue growth in supply chain was offset by lower revenue in Dedicated. Comparable earnings per share from continuing operations were $2.54 in the first quarter, up 3% from the prior year, reflecting benefits from share repurchases, partially offset by lower earnings.

The decline in earnings was due to lower supply chain performance compared to a robust prior year, partially offset by a lower tax rate driven by discrete items in the quarter from stock-based compensation tax benefits. Return on equity, our primary financial metric was 17%, in line with the prior year. Free cash flow increased to $273 million from $259 million in the prior year, reflecting reduced capital expenditures, partially offset by higher working capital needs.

In Fleet Management Solutions, operating revenue was consistent with prior year. Earnings before taxes were $99 million up versus prior year, reflecting continued execution on our strategic initiatives.

Used vehicle results reflect a year-over-year improvement and better-than-expected performance. In rental, demand remained below prior year, but we are encouraged that the sequential seasonal decline was in line with historical trends, as mentioned earlier.

Lower rental activity was partially offset by higher rental power fleet pricing, which was up 3% year-over-year. Rental utilization on the power fleet, was 68% and up from the prior year of 66% on an average fleet that was 13% smaller.

Fleet Management EBT as a percent of operating revenue was 7.9% in the first quarter, up from prior year, but below our long-term target of low teens over the cycle. In used vehicle sales, year-over-year used tractor pricing increased 6% and truck pricing declined 5%.

On a sequential basis, pricing decreased for both tractors and trucks, with tractors down 3% and trucks down 4%. Sequential pricing reflected a lower retail sales mix as retail pricing remained stable. In the first quarter, 61% of our sales volume went through our retail channel, down from 69% in the fourth quarter.

Our retail mix was above prior year levels of 56%. During the quarter, we sold 4,600 used vehicles, up 1,000 units sequentially and down versus the prior year. However, volumes for trucks, our largest inventory class were up year-over-year. Used vehicle inventory of 9,500 vehicles is slightly above our targeted inventory range. Used vehicle pricing remained above residual value estimates used for depreciation purposes.

Slide 21 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information. In supply chain, operating revenue increased 3%, driven by new business in omnichannel retail, partially offset by lost business and lower volumes in automotive.

Earnings before taxes decreased 17% from prior year due to lower automotive results and, to a lesser extent, productivity of new business ramping up. Year-over-year comparisons were challenging in supply chain due to record first quarter performance in the prior year. Supply Chain EBT as a percent of operating revenue was 7% in the quarter at the segment's long-term target of high single digits.

In Dedicated, operating revenue decreased 5% due to lower fleet count reflecting the prolonged freight downturn. Earnings before taxes were below prior year, reflecting lower operating revenue, partially offset by strategic initiatives [indiscernible] Dedicated EBT single-digit target.

Next, let me cover capital expenditures. First quarter lease capital spending of $314 million was below prior year, reflecting the timing of replacement activity. In 2026, we're forecasting lease spending to be $1.9 billion, reflecting higher replacement activity versus the prior year. First quarter rental capital spending of $37 million was below prior year as expected. In 2026, we're forecasting rental capital spending of approximately $100 million. reflecting lower planned replacement activity.

Our ending rental fleet is now expected to decrease 3% during 2026, and our average rental fleet is now expected to be down 11%. The rental fleet remains well below peak levels as we manage through an extended market slowdown. We continue to closely monitor market conditions and may increase our planned capital expenditures if improved market conditions persist.

In rental, in recent years, we shifted capital spending to trucks versus tractors as trucks have historically benefited from relatively stable demand and pricing trends. At quarter end, trucks represented approximately 60% of our rental fleet. Our full year 2026 capital expenditures forecast of approximately $2.4 billion is above prior year.

We expect approximately $500 million in proceeds from the sale of used vehicles in 2026, in line with prior year. Full year 2026 net capital expenditures are expected to be approximately $1.9 billion. In addition to increasing the earnings and return profile of the business, our transformed contractual portfolio is also generating significant operating cash flow.

Improving the overall cash generation profile of the business is one of the essential elements of our balanced growth strategy. Better earnings performance is driving higher cash flow generation and, in turn, is delevering our balance sheet at a more rapid pace. This momentum is creating incremental debt capacity given our target leverage range of between 2.5 and 3x.

As shown on the slide, over a 3-year period, we expect to generate approximately $10.5 billion from operating cash flow and used vehicle sales proceeds. Our operating cash flow will benefit from increased contractual earnings. This creates approximately $3.5 billion of incremental debt capacity, resulting in $14 billion available for capital deployment.

Over the same 3-year period, we estimate approximately $9.5 billion will be deployed for the replacement of lease and rental vehicles and for dividends. This leaves around $4.5 billion, which equates to approximately 60% of our quarter end market cap available for flexible deployment to support growth and return capital to shareholders.

We estimate about half of our flexible deployment capacity will be used for growth CapEx, and the remaining will be available for discretionary share repurchases and strategic acquisitions and investments. Our capital allocation priorities remain focused on profitable growth, strategic investments and returning capital to our shareholders.

Our top priority is to invest in organic growth. Aligned with these priorities, in the first quarter, we funded lease and rental replacement CapEx of approximately $400 million and returned $272 million to shareholders through buybacks and dividends. We've been executing under our discretionary 2 million share repurchase program authorized in the fourth quarter of 2025.

Our balance sheet remains strong with leverage of 269% at quarter end, in our target range and continue to provide ample capacity to fund our capital allocation priorities.

With that, I'll turn the call over to John to discuss our outlook.

Thanks, Cristy. We've increased our full year 2026 comparable EPS forecast to a range of $14.05 to $14.80, above prior year of $12.92. Our increased forecast reflects stronger-than-expected first quarter performance, a modest improvement in used vehicle market conditions and continued strong contractual performance.

Our 2026 ROE forecast is unchanged at 17% to 18% and is in line with our expectations given current market conditions. Our free cash flow forecast of $700 million to $800 million is also unchanged from our prior forecast and reflects higher replacement capital expenditures.

Our second quarter comparable EPS forecast range is $3.50 to $3.75 above prior year of $3.32. Our transform model is well positioned for earnings growth. We continue to expect 2026 earnings growth to be driven by incremental benefits from multiyear strategic initiatives, which began in 2024, with total expected benefits of $170 million.

These initiatives represent structural changes we're making to the business and are not dependent on a cycle upturn. Through year-end 2025, we realized $100 million in benefits, leaving $70 million of incremental benefits expected in 2026.

In Fleet Management, we expect our multiyear lease pricing and maintenance cost savings initiatives to benefit 2026 results. In Dedicated, we expect benefits from margin improvement actions related to our Flex operating structure in 2026. In supply chain, we continue to focus on optimizing our omnichannel retail warehouse network through continuous improvement efforts and better aligning our warehouse footprint with the demand environment.

In 2025, we downsized and exited select locations, which will benefit future performance. In addition to driving outperformance relative to prior cycles, our transform model also provides a solid foundation for the business to meaningfully benefit from the cycle upturn. By the next cycle peak, we expect to realize meaningful improvement in pretax earnings.

We estimate that this potential benefit could be $250 million with the majority expected to come from the cyclical recovery of rental and used vehicle sales in FMS, with additional benefits from higher omnichannel retail volumes, leveraging our rationalized footprint. We expect to recognize these benefits over time as freight market conditions improve.

Based on our increased forecast, we expect to realize approximately $10 million of upterm benefits in 2026 and primarily from higher used vehicle sales results. In addition to benefiting our transactional businesses, we also expect additional opportunities for profitable contractual growth as freight conditions normalize.

We've been pleased by the business's resilience and performance during the prolonged freight market downturn and are confident each of our business segment is well positioned to benefit from the cycle upturn. Our transformed business model continues to deliver value to our customers and our shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio.

We continue to see significant opportunity for profitable growth, supported by secular trends, our operational expertise and ongoing momentum for multiyear strategic initiatives. We remain committed to investing in products, capabilities and technologies that will deliver value to our customers and our shareholders.

That concludes our prepared remarks. Please note, we expect to file our 10-Q later today. At this time, I'll turn it over to the operator to open the call for questions.

[Operator Instructions]. We will take our first question from Ravi Shanker with Morgan Stanley.

This is Nancy on for Ravi. I know you had sort of pointed to roughly $10 million of benefits in 2026 from upturn conditions. What are sort of keeping you from being able to unlock more of the $250 million that you pointed to at peak with sort of your current momentum in the year? Or is there some conservatism embedded in this $10 million expectation?

Nancy, John here. Yes, we had set out that we had about a $250 million opportunity as we saw cycle conditions to improve. We did see in the first quarter good activity from UBS from our used vehicle sales. Primarily retail volumes came in better than what we had expected, and we also saw stability I would say, in UBS pricing, that stability was a little bit sooner than what we had expected coming into the year.

So both of those components is really what's taken us to a higher expectations for the balance of the year and part of the reason for the raise in the guide. As to your question, what is, I guess, preventing us from raising it further at this point. Clearly, a big component of the $250 million is attributed to rental and another component attributed to used vehicle sales. There may be opportunities with used vehicle sales to continue moving up.

Obviously, we're seeing capacity continue to exit the market. We have also seen that -- we do expect later on this year that we're going to see significant increases on new equipment, which will provide support for higher used vehicle sales pricing. We just haven't put that into the forecast because we need to see more development on that side to kind of get confident in that activity.

On the rental side, which is a big component of that $250 million, I would say it's probably as big, if not bigger, than the used vehicle opportunity. We continue to see rental kind of get to normalized levels. We saw a seasonal trend in the current quarter. Nothing for us to get excited about. And that's why you probably didn't see from us any sort of upside momentum on rental for the balance of the year. We do expect that as things continue to improve. And if market conditions continue to improve, customers are going to need rental activity and rental assets in the months ahead.

But none of that is -- that rental upside is contemplated because we just didn't see any breakout performance or anything in the Q1 that led us to believe that's going to hold.

That's helpful. And then one more quick question on used vehicle sales. With sort of the supply side regulations cracking down, is there a risk to use vehicle sales as trucks potentially flood the market from these carriers exiting? Or is there enough strength from an improving market to offset?

Well, I kind of mentioned I do think there's some structural changes happening in the marketplace that are going to provide upward momentum irrespective what you're seeing in the regulatory side on drivers.

The driver impact that you're seeing is primarily on the over-the-road activity and for-hire carriers, which will impact our sleeper class. We think we're well positioned with our used truck inventory. If you look at it, 60% of it is comprised of trucks with 40% being tractors. And I would say a bigger portion of our inventory on the tractor side is CAPS, which is a different application than the over-the-road activity.

So I think we're pretty well calibrated there. We don't think that's going to be a meaningful impact even if things continue to or there's pressure on the sleeper class moving forward.

[Operator Instructions]. We'll take our next question from Jordan Alliger with Goldman Sachs.

Question on Dedicated. Sorry, getting back to this capacity and trucking is tightening driver situations tightening, I'm just sort of curious, have you or do you expect to see a significant step-up in inquiries around the Dedicated business, the dedicated pipeline, I would think that this could work to that business operations advantage.

With regards to what we're seeing in the marketplace and Dedicated, clearly, we've talked about the fact that a tighter driver market is good for dedicated long term. We did see in the quarter, and we mentioned that on Slide 7.

We did see stronger sales activity in both Dedicated and Fleet Management. We have seen a number of inquiries and the level of commitment and activity from customers to sign up for longer-term contracts up in the quarter. which was very encouraging. So clearly, there are signs out there that we are seeing pressure on that side. That's going to bring more demand for us.

So we're pretty excited if, in fact, the market changes from a driver perspective and driver availability has shown even as we exited the quarter, the level of activity and turnover and also increase has gone up, but certainly, we're excited about the opportunity to be able to sign more dedicated activity as the market becomes more challenging.

And just as a dedicated follow-up, given where margins start at the first quarter, started at the first quarter and then sort of the the longer-term high single-digit sort of target. I mean, can you maybe give a little thought or color around potential step-up trajectory in Dedicated as we look ahead to the balance of 2026 from a margin standpoint?

Yes. So typically, Dedicated does have some seasonality when you look at the quality of earnings. Second and third quarter are typically our strongest quarter. So you should see a meaningful step-up of 200 to 300 basis points as we get through the middle part of the year.

And then Q4 typically has a little bit of a step back. We do expect to get to the high single-digit level for the full year. And that business has consistently done that. In fact, I think 8 out of the last 10 years, the Dedicated business has delivered to high single digits, and we're confident that we're going to get back to that level as we get through the year.

We'll take our next question from Harrison Bauer with Susquehanna.

Great. I was curious if either John or Tom, if you could provide some maybe demand commentary as it relates to trucks versus tractors -- you mentioned some strengthening and maybe some lease signage on the FMS front. So curious if that's truck or tractor base.

Yes. I'll make some general comments here, Harris, and I'll turn it over to Tom. I will tell you One of the things that we did see in the quarter was on the used vehicle side, we saw better pricing on the tractor side. So retail pricing was up both sequentially, which was very encouraging for us. And then when you look at the activity across the different classes and the different services that we offer, -- we continue to see good demand across the truck class in both rental and lease, but I'll let Tom maybe give you a little bit more color on what he's seeing within the lease space.

Yes. So as we mentioned earlier, demand and the fleet were both down year-over-year. But as Christie mentioned earlier, we are seeing a trend that's a little bit better than what we had expected. And particularly on the truck classes, the demand was higher than what we had expected. So that was the a bigger driver of the uplift versus what we had expected.

We also saw pricing up in rental was up about 3% year-over-year as well, which was coming from both classes really, but that was good to see that our pricing discipline held as we saw the demand maybe tick up just slightly versus our expectations and as mentioned earlier, kind of in line with what we would typically see historically.

And then maybe could you provide some updated thoughts on any potential prebuy for either tractors or truck, how that might be affecting your business and then what's contemplated in your guide for this year? And then maybe even potentially some early thoughts on how that could affect 2027 and your investment next year.

Yes. I'll make some comments and have Tom weigh in as well. With regards to the prebuy in our guidance, we don't have any meaningful pre-buy activity contemplated. Typically, where the pre-buy comes into play for us is on the sales side, we'll typically see a front-loading of sales activity for lease. And then you'll see the benefits of that play out a little bit sooner.

Obviously, with used vehicles, we do expect, and we haven't seen yet what the OEM's price increase will look like. We do think that price increase will be meaningful, certainly in that 10% to 15% range at a minimum, which will provide some support for used vehicle sales. But I'll let Tom add some additional color on the prebuy activity.

Yes. We've been obviously out talking with our customers about this and the potential price uplift that are expected in 2027. But as John mentioned, those aren't in the marketplace yet. and our customers, very few some have, some have looked and have taken advantage of what you would expect to be lower pricing than going into 2027 and have ordered vehicles, but we haven't seen any like large uptake in any way or any large volumes in that area.

And then maybe just one other point for us, if we do see things starting to turn, particularly in rental, we still -- we would expect to potentially place an order and believe we have slots to be able to get vehicles, maybe not necessarily driven by a pre-buy but driven by any demand that we would see coming here in the second quarter if things change.

We'll take our next question from Rob Salmon with Wells Fargo.

A quick follow-up in terms of the contractual sales activity that you had noted the improvement in FMS and DTS. Could you give us some kind of color about what that's up and when you'd expect to see kind of the fleet to start to grow in those 2 end markets? Obviously, the cyclical factors are continuing to pressure fleet sizes here. So just curious for some color on the activity, how that's compared to recent quarters and when we can kind of inflect a positive growth.

Yes, Rob, the contractual sales, a few highlights there, which I think are meaningful. Number one, we did see strong sales activity across all 3 segments. And I know your question was aimed at DTS and FMS, but our supply chain business really saw robust sales activity with another record performance in the quarter, which really demonstrates the value from our solutions that the customers are seeing as most of the activity came from expansion business. So our existing customers are seeing the value we deliver for them. and are awarding us accordingly.

On the Fleet Management and Dedicated side, we did see a reversal trend. If you look at where we've been the last several quarters with stronger sales across the board. We saw some numbers we haven't seen in several years. So that's really encouraging for us. Whether or not that will continue, obviously, we would like to see that continue, but the start of the year was stronger than what we had expected.

And the more important piece for us is we started seeing customers begin to commit to long-term leases at a higher rate. And then we did see, as I mentioned earlier, more dedicated activity with our pipeline and dedicated being at the highest levels we've seen. So we did see good activity. First quarter was strong. And we're hopeful that will continue.

As far as lease fleet growth at both dedicated and fleet management, these have significant lead cycles, I would say, so as we start putting together a few quarters back to back, you'll start seeing the fleet level off at the end of the year and into next year, you should start seeing the growth assigned to those wins. So that's the trajectory of how we see the fleet growth moving.

Really helpful. And in your prepared comments, I didn't hear you mentioned kind of the SCS. You talked about the momentum in terms of the business, but I didn't hear you reiterating kind of getting back to the double-digit targets towards the end of the year. Maybe can you give us an update on that? -- what you saw from the lost customer that was alluded to in the presentation and how we should think about margins trending from 1Q.

Yes. I'll let Steve comment on what he's seen. We did make mention of the record sales. We do expect, as we exit the year, we're going to get back to near low double-digit target levels on growth. And clearly, based on the last quarter's performance, Q4 of last year and Q1 of this year, as we look ahead to 2027, I think we're well positioned to hit our target growth levels. But I'll let Steve add a little bit of color what you're seeing on sales and the progression of the revenue base.

Yes, Rob. Again, a healthy pipeline continues to strengthen. As I said last quarter, it's all about our relationships from our vertical leads all the way through our sales team and more importantly, the frontline operators and how they execute, focus on continuous improvement and innovation. So those deep relationships allow us to expand with our customers. As John said, last year was a record sales year. Q1 was record this year. We should be exiting at low double digits or we're approaching in Q4 of this year. So we feel really good about that.

You also asked about margins. Last year, Q1 was 8.7%. That was a record quarter. While we had some challenges last quarter due to -- we did have some lost business in automotive where a customer was trading dedicated service for truckload. As that tightens back up, we could see that come back around in the upcoming years.

We still were challenged with volumes across OEMs as they retool and balance through EV and ice production. So that will continue here through the first half, and we expect that to return close to normal in the back half. So we feel really good about that. And again, Q1 of this past year was the second highest Q1. So still performing in a high single-digit range.

We'll take our next question from Ben Mohr with Citi.

Wanted to just ask more about your guide raise, which is on the used vehicle sales and strong contractual performance. you had guided last quarter to -- for 2026, UBS having kind of being flat versus the $22 million from last year -- congrats on the strong $12 million in 1Q. How do you expect used gains to trend through the rest of the year? And what would you see as an updated target for the full year?

Yes, Ben, with regards to our used vehicle sales and the guide, a few things. Number one, really excited about the fact that we came out of the box really strong with our initiatives are really on track for the $70 million. So the majority of the year-over-year improvement is still tied to our strategic initiatives and the execution on the team.

As far as used vehicle sales, which is part of the reason for the rate, I would say we do expect used vehicle gains to come in about $10 million higher. We pointed to that in our slide with regards to the $250 million, we put in $10 million in the current 2026 year. How that will play out over the course of the year. It really depends on the level of wholesale activity.

There may be quarters where we may do more wholesaling than retailing. So it's not going to be a linear, I would say, progression and be a little bit lumpy. You saw a pretty strong print in the first quarter. That may stay at that level or if not may come down a little bit as wholesale activity goes up in the latter part of the year, but we do expect the full year to be up about $10 million, up from the $20 million that we gave last year.

Great. And on the other part, the strong FMS contractual business performance, can you parse out what part of that is volume? What part of that is price what part of it is the strategic initiatives in 1Q and then maybe a similar kind of parse out for the remainder of the year?

Yes, I would say the majority is going to be driven by the strategic initiatives. Tom, I'll let Tom give you a little bit more color. But if you look at the 2 biggest components are pricing initiative that continues to deliver strong results coming into 2027. That was the reason why we upsized our strategic initiative overall target and the catalyst for raising it to $70 million in 2026. So that's behaving as we would expect.

And then if you look at our maintenance initiatives, that continues to be a big part of the story. As far as volumes, we haven't seen outside of the volumes we saw in used vehicle sales, we haven't seen a big move there from our original expectations, but I'll let Tom give you a little bit of color here.

Yes. John is right on it. There's no fleet increases that impacted the results in FMS, it's all related to the strategic initiatives around pricing and maintenance. And I think your specific question was around how much of each, and it was about of each. 50% of the benefit was from price, 50% of the benefit from the maintenance initiatives.

Great. Appreciate the time and insights.

We'll take our next question from Scott Group with Wolfe Research.

So can you help us think about the progression from Q1 to Q2? I think you said dedicated margins should improve 200 to 300 basis points sequentially, but -- how should we think about the other 2 businesses sequentially within the guide? And I don't know any thoughts on how fuel is impacting the the P&L right now, I think it's generally a pass-through, but I don't know if there's a big wholesale retail spread. I don't know if that's sort of helping the numbers right now or not.

Yes. So Scott, a few points there. I think you could expect all 3 businesses are going to continue to get better as we get through the year. Clearly, our fleet management business in rental, in particular, a return to seasonal progressions will help that business, and that's a part of it. If you look at our fleet, our lease portfolio, certainly, the pricing and maintenance initiatives are playing a big part in that as well.

So you should expect all 3 of the businesses, fleet management, dedicated and our supply chain business as volumes typically are stronger in the middle part of the year. for all 3 of those businesses, they're going to benefit from higher revenue base going into the year.

As far as Steel, we did see a few, which is generally a pass-through for us, not be a meaningful part of the story. We do benefit every now and then when we have rapid changes in energy prices, and we saw that in Q1. So that benefited a little bit the Q1 results, but nothing meaningful as we look forward.

Okay. Helpful. And then I just want to follow up on rental. I don't know if you -- maybe I missed this, but can you just talk about the utilization trends throughout the quarter, what you're seeing so far to start Q1. And then just looking at the rental fleet, it's about as small as a percentage of the relative to the full-service lease fleet as I think we've ever seen. How do you think about starting to grow the rental fleet again in an up cycle? just that's the question.

Yes. So on the -- I'll pick up where you left off, the rental fleet clearly is significantly lower than the peak fleet levels I think we're down nearly 10,000 units from peak levels. So as demand comes back, we're more than ready to implement our asset management actions. I'll let Tom talk through those. And then clearly, even if we see activity rise here over the next several weeks, we have the ability to go out and put some orders in and take advantage of vehicles that can be delivered later in the year and meet that demand. But I'll let Tom make a few comments with regards to that and utilization.

Yes. So from an asset management perspective, the first lever you pull is you stop sending trucks to the UTC to our used truck centers, so you can immediately increase the fleet and capture demand with existing fleet that you have in the business, which gives you time then to place orders and allow the OEMs to deliver new vehicles to you. So we're obviously looking for those trigger points to to start making those decisions.

As we said, we haven't started to do that yet. Hopefully, we'll have to. And then just looking at the utilization trends. You asked about the utilization trends. So I will point out, and we've mentioned it on the call that demand and fleet obviously down quite a bit, double digits on both year-over-year. But the utilization was better than what we had anticipated in -- so the January, February, March number is just the trend. We started in January at 67%. And that went to 79% in February and then just slightly above 70% in March. -- the Sorry, today. So 67%, 69% to 70%, sorry, I misstated that. And that was about 270 bps above prior year in the quarter.

And then here going into April, we're still about at that 270 number better than last year going into April. So that's what we're seeing. So we're kind of seeing that same trend rolling into April.

We will take our next question from Brian Ossenbeck with JPMorgan.

Just coming back to the sales in SCS, it sounded like a lot of that was just expansion of business with existing customers. you could share some color in terms of what verticals those would be?

And then what is it taker, you're expecting to see some pickup and maybe some new customers, new logos. Is that in the pipeline? Do you have visibility to that?

Yes. Brian, I'll let Steve add color. The majority was expansion, but we did see a number of new names also added to the portfolio.

Yes. Last year was about 80% expansion. So you had 20% of new names. We've had several new names that have started here in Q2 that we sold late last year. So we'll continue to do that. I think the great story there is any time we get a new name in within the next 2 to 4 years, because of our execution, innovation, continuous improvement, we expand with those. So those numbers are typically expansion is typically about 70%. So last year, it was just a tad bit higher than normal.

Any vertical...

Yes. The majority of it was coming out of the omnichannel retail over the past, call it, 6 months. We're still seeing good pipeline activity in CPG and solid pipeline activity in our transactional businesses. That's our co-pack co-man type business. We're seeing good activity in our e-com I'd say last mile right now is a little slower than normal, but good diversification there.

Okay. Steve, just to make sure I understand the outlook and expectations for UBS for the rest of the year. It sounds like the first quarter was a little bit better and you're expecting some improvement from here, but it doesn't I didn't hear that you're expecting some big ramp-up from here on out. But I just wanted to make sure I understood what the -- what your guidance assumes right now and if there's any distinction between truck and tractor considering your mix is a little bit different than it has been in prior years.

Yes. What we guided to here is a modest improvement, and we did exit Q1 with higher pricing than what we had expected. So we reached stability on pricing a little bit sooner relative to our previous guide. And we are seeing improved pricing across both tractors and trucks relative to where we expected to exit Q1 originally. So a little modest improvement for the balance of the year, driven by higher levels of pricing across both tractors and trucks.

We'll take our next question from Jeff Kauffman with Vertical Research Partners.

And John, congratulations Pleasure to have you leading our call. So a lot of questions have been asked, but I want to go back and kind of hammer a little bit on what gives you confidence? And you talked a little bit about customers are coming back for longer contracts. Some things like that. But in terms of metrics, I mean, the rental fleet utilization was up 200 basis points in the first quarter, but 6% is a pretty low number historically for the first quarter.

And the rental state is down 11%, you've shifted the mix to trucks from tractors. So one of the questions I have is does this give you a little less bounce into the up cycle than you would traditionally have. So it was a little safer on the downside, but does it rob some of the potential upside to both gains on equipment sales and operating margins in the next up cycle. So I guess my 2 questions are, what metrics can you look at that tell you hey, things really, really feel like they're turning here. I mean the truckload guys are pointing to a lot of things. What can you point to?

And then does this strategic shift to favor trucks more. Is that more a function of the environment, and that's just the way it is? Or did you make that decision? And is it going to cost us a little bit of upside when the cycle does turn?

Yes. So I think I think a few points to take stock of before I get into our metrics specifically, we are looking at broad market conditions. And when we look at what's happening with capacity, and active truck utilization, we've seen 3 consecutive months of truck utilization above 95%. We haven't seen that in some time since 2021.

And so that's a great indicator that capacity is coming out of the broad market. We are seeing and we do expect higher costs for new equipment later in the year, which is going to put a premium on existing units and I think we're well positioned to deal with that with our rental fleet, as you called out, a very low utilization levels.

So I have plenty of upside there to take advantage of the equipment that's sitting today and deploy that for customers. As far as evidence that things are turning, we to normalized levels, I would say, in rental, but it's still soft as you indicated, and we agree with that. But the things we could point to, clearly for us are UBS, we saw retail producing sequentially stabilize with tractors up 1%. We did see rental even though it's still below normal levels.

Sequentially, kind of we saw that seasonal uplift that we would see coming out of Q4 into Q1. Contractual sales was the best we've seen in a few years. That really gave us some confidence and encouragement that, hey, customers are coming back in. They're looking to add fleet and make commitments. You see if you go to our stats in the back in the presentation, if you look at redeployments and extensions, they were built up. That's a good indication for us.

So I would encourage all to take a look at those statistics, which really pop when you start seeing things move up. And then lease power models, even though not a meaningful improvement, we're up in the quarter year-over-year. We did see our lease power miles start coming back up. So those are all great indicators for us that things seem to be looking to get some steam. Obviously, we would need to see that progress as we get into the year before we could start making decisions on adding fleet, especially to our rental fleet over time.

And the second part of the question on leverage this cycle with a larger percentage of trucks versus tractors.

Okay. Yes. With regards to rental, clearly, for trucks, we've seen that market activity. It's kind of more of a secular move with last mile coming out of COVID. We're seeing more truck demand. That has moved us to reshape some of the things we do on our rental fleet and even as we go to market with our lease activity.

With regards to tractors, obviously, there's going to be a little bit of pressure there with what we're seeing on the over-the-road space with drivers, regulations, et cetera. that may put a little bit of pressure. But clearly, if the tractor market comes back, that's the 1 asset class that we can order and get the equipment quickly. So that is something that will participate in that space as well. But I think we're well positioned to take advantage of the secular trends and what we're seeing on the truck side.

Thank you. At this time, there are no additional questions. I'd like to turn the call back over to Mr. John Diez for closing remarks.

All right. Thank you, everyone. Appreciate everyone joining us today, and we look forward to seeing you out on the road. Take care.

That concludes today's call. We appreciate your participation.

Okay. Welcome back from lunch break. We're going to go ahead and get started in the afternoon here with Ryder. We have CFO, Cristy Gallo-Aquino, and we're going to go through some slides she's going to have first, and then we're going to get into some of the Q&A. So we have opportunity to ask questions in the room, so please feel free to raise your hand and get involved. I have a little iPad here in front of me to take questions as well.

So Cristy, thanks very much for being here.

All right, thank you.

I appreciate it. Glad you can make with the weather. But let's go ahead and maybe you can set the stage for a little bit for us for here before we get into the Q&A.

Absolutely. Well, good afternoon, everybody. I thought I'd start first by just -- for those of you that may not be as familiar with Ryder, giving you a little background of our company and who we are. So Ryder is a leading provider of outsourced transportation and logistics solutions here in North America, 90% of our business is actually in the U.S. We've been around for over 90 years. We just under $13 billion of revenues last year. We operate in three different segments. The first one being Fleet Management Solutions, or FMS, and that is our rental and leasing division. So here, we provide full service lease to our customers. Our contracts are typically 5- to 7-year terms. We do everything from acquiring the vehicle, maintaining it throughout its life. We have over 800 shops in North America, where we maintain these vehicles. We have a fleet of about 240,000 vehicles. So when you see Ryder trucks out there, that's typically our rental fleet. Those are the only ones that have our name on them. The rest of our fleet just has a little logo by the driver side that says Ryder, but it's our customers' name on the trucks. So there's 240,000 of them out there.

The fleet management business is about 40% of our company. Over the years, we've shifted the mix to be more asset light. So we've grown the supply chain and Dedicated segments quite a bit. But on the leasing side, we procure the vehicle. We have purchasing power just based on the number of fleets that we acquired. And we are able to leverage our maintenance shops for all the maintenance needs throughout that vehicle's life. And then on the back end, we have 60 used truck centers where we're able to sell these vehicles on the retail market as opposed to having to wholesale or auction them. So that's typically the value prop of our leasing business.

Then from the leasing business, our customers can actually transition to a dedicated, which is everything that we do for our lease customers, but you just add a driver to the mix. And so about 50% of the sales from a dedicated -- from our Dedicated business are coming from our lease customers, converting them to Dedicated, and that's Dedicated is about 20% of our revenue.

And then the last segment of our business is the supply chain side, and that's the remaining 40%. And on there, we do everything what we call our port-to-door logistics. So we do everything from drayage to transportation management. We have distribution management. So we manage over 100 million square feet of space -- of warehouse space in North America. And then we do e-commerce and last-mile delivery. So that's basically our contracts there are typically about 3- to 5-year contracts on the supply chain side.

So 90% of our business is contracted. The remaining 10% is sitting in that rental and transactional business, which really helps predict our business over a period of time. And then you could see our customer base is fairly diverse. Food and beverage being our #1 industry, but that's 23% of the business and then followed by retail, industrial and then transportation, logistics and so on. So that's Ryder in a nutshell.

As far as our journey and where we have been? We have been in a transformation phase over the last 6 years and have really done everything that we can to transform the business model and focus on being less dependent on a cycle. And what you can see here, we've done a couple of things in order to do that. I mentioned how our leasing business is 40% of our business today, but it used to be if you look here in 2018, it used to be about 56% of the business. And a couple of things that we've done as part of our balanced growth strategy that we embarked on back in 2019.

We did three things. The first thing is we said we really need to derisk this business. Our performance was very dependent on what was happening in the used truck market. And when you looked at our pricing of our residuals in our lease contracts, we were pricing to an average over a cycle. Well, what happens when you price to an average, is that 50% of the time, you're going to be on the upside and 50% of the time, you're not. And we didn't really like that profile. So we decided that we were going to start pricing our leases to be at the bottom quartile of a 20-year history. In our 20-year history, we had only been at that bottom quartile twice at the time. And so really, that meant that most of the time, you're going to be generating gains. So that was the first part of our balanced growth strategy was to derisk the business. We also got out of some underperforming markets in international and some product lines that weren't profitable.

The second phase of the strategy was to enhance the returns of the business. So what we did there was we started by saying, "Okay, on these leases that we have, we're not getting enough return for the amount of work that we're doing, right?" We're taking on residual risk. We're taking on the risk of the maintenance throughout its life. And so we felt that we needed a higher return on that business. So in that phase, we said, we were getting about a 50 to 80 basis point spread above our cost of capital. And we said we need to move that to be 100 to 150 basis point spread.

We knew we would lose some market share at the time. We were growing at 10,000 units a year. And we said, we're okay. We can grow at maybe 2,000 to 4,000 units a year, but we want to make sure that what we're growing is good contracts with the customers we want to be in business with. So that was the first one. That was our pricing initiative on the lease side. That has already generated over $125 million of margin improvement in our business during that time period.

The second thing we did to improve the returns of the business was our maintenance -- our cost savings initiatives around maintenance. And this was all about productivity of our technicians and the workforce in the shops. I talked about the 800 shops that we had. We spent over $1 billion on maintenance a year. So we challenged our maintenance organization with doing things more efficiently, and they stepped up to the plate and we're able to deliver $100 million during that first phase of savings in our maintenance infrastructure. And now they're on the second phase of that journey with another $50 million of initiatives that they're targeting to get. So that was the enhancing the returns of the business.

And then the last thing that we did was to shift the mix of the business, right? I talked about how we moved from being more asset-intensive to asset-light. So we did that one by saying just we're not going to grow the asset business as much as we were because we want to get the growth in the areas that we want. But we also did that by investing in significant acquisitions in the supply chain and dedicated space. We invested over $1 billion in acquisitions that enhanced our capabilities or added new capabilities. So during that time, we added a last mile business. We added e-commerce. We acquired a co-packaging co-manufacturing. We also had some tuck-in acquisitions in the dedicated space with our Cardinal acquisition, and we're able to generate significant amount of savings from synergies on that acquisition.

So all that said and done, you can see here our revenue grew from $8.4 billion, with 56% of it concentrated in FMS, and now we're a $12.7 billion company with 62% of it sitting in the supply chain dedicated space. And not only that, but everything I talked about also led to our comparable EPS doubling during that same time frame. And let me remind you, 2018 is what we would have considered a cycle peak. And we're comparing that to 2025, which -- knock on wood, maybe the trough or at least near the trough, right? So 2x earnings growth and our return on equity is up 400 basis points. Back then, we were generating 13% return on equity, and now we're at 17%.

So it's been quite the journey. We're really excited about the results that we've generated with these initiatives, and we still have more to go, which is my next slide here on what else is coming. And so back in 2024, when we were already well through this balanced growth strategy, we said what are the initiatives that we have in place. And we felt that at the time, we had $150 million of initiatives still coming from the lease pricing that I mentioned because our lease contracts are 5 to 7 years. So it takes us a full 7 years to reprice the whole portfolio. So we still had a little bit left of the pricing initiative. We embarked on another phase of the maintenance cost savings. So this is that second $50 million that I mentioned. Then we had the synergies from the acquisition on Cardinal. In Dedicated, we also have a flex operating model that we're creating, which is going to create a lot of back office savings as well as just providing our operations, the tools that they need to be able to optimize the driver dwell time and routes.

And then finally, on the supply chain side, we've got the optimization of our omnichannel retail network, which was primarily in our e-commerce and Ryder Last Mile space, where we're consolidating facilities and just making sure our facilities are utilized as much as possible. So all in all, at the time, we thought it was $150 million. At the end of last year, we decided, no, we still got more to squeeze out of this. There's $170 million. We've achieved $100 million of that through the end of last year. And in 2026, we expect to achieve $70 million of initiatives -- of those initiatives. So that $70 million is sitting in the guidance that we've provided for this year, which is EPS of $13.45 to $14.45. That's an 8% to 12% growth in earnings next year, and it's primarily driven by these strategic initiatives because our forecast for 2026 does not assume any significant improvement in the market, which leads me to the upturn conditions.

And this is when the market does come back, we feel that there's about $250 million of earnings that Ryder can still achieve when that happens. And that's primarily coming from the improved freight market where rental and our used vehicle sales results will benefit mostly. And then you're going to get some of that also from the dedicated side and the tightening driver market as well as the recovery of volumes in some of our omnichannel business. So we feel that, that upside is there. None of that $250 million is sitting in that guidance that we have provided for 2026. So we're excited about that. If any of that does start to materialize this year, then that will be upside to what we've provided.

And then finally, on all that, you've got growth opportunities. So just general growth in the market we haven't even quantified that here, but just being able to grow our supply chain, Dedicated and lease business at a healthy growth rate. Right now, supply chain is expected to grow 3% in 2026. But our target is really that, that should be growing at low double digits. And FMS and Dedicated should be growing at -- well, FMS at mid-single digits and Dedicated growing at high single digits. So right now, the only growth we have in supply chain at a 3% growth for next year. So a lot of opportunity for growth when the market does come back.

And then the last thing I wanted to hit on here was just our capital capacity. And what does this mean? So with the transformation of our business, we've really created a resilient -- a portfolio that is resilient, generates significant amount of cash and has shown to be resilient in this downturn. And so what that means is that we're generating over a 3-year period. This chart is a 3-year view. We expect to generate about $10.5 billion of cash flow from operations. And right now, we're operating at the low end of our leverage target. So our target is 2.5 to 3x. In 2025, we ended the year at 2.5x. This year, we're expecting to end at about 2.3. So slightly below our target, which means we have a lot more capacity if we needed it. And that brings us to $14 billion of capital to be able to deploy into our business.

Our first avenue for that deployment is going to be to replace the existing fleet. That's about $9 billion of CapEx just on a replacement cycle. $9 billion of CapEx, $0.5 billion of dividends that will always be part of the use of our capital. But that leaves $5 billion of flexible deployment. And what do we do with the $5 billion? Well, it's going to be two areas. One is M&A. We're going to continue to look for strategic acquisitions that enhance our capabilities or add capabilities. Like I mentioned, tuck-in acquisitions are always a favorite. But if there aren't any M&A candidates, then we're going to be returning capital to shareholders. And that's really what we've been doing over the last few years. The M&A market, we haven't really seen anything worth buying for us. We're looking for well-run companies that really complement our business. So we're not looking for fixer uppers. And so for lack of that, we've been returning capital to shareholders. And last year alone, we returned over $0.5 billion. And you can see here since 2021, we've returned $2.4 billion through share buybacks and dividends. And we've returned average capital of 9%, pretty significant numbers, but that's where we've been, and we're excited about what's to come.

All right. I think that's it.

All right. Great. Thanks, Cristy, for providing that overview. I've been covering the company for a while, and it's still hard to believe all these changes have been enacted. And so while we used to talk about used trucks all the time now, it's a little bit different conversation, which I think we can both appreciate.

That was the point, yes.

So -- in terms of, I mean, focus on the short term for a second, like obviously, the energy price volatility uncertainty is in the headlines. And are you seeing it in any of your businesses? And how does like the fuel pass through typically work in some of these contracts or in the rental, so maybe just some thoughts there to start us off.

Yes. All right. So fuel for us is primarily a pass-through to our customers. So on the dedicated business and supply chain to the extent it has it, it's a fuel surcharge, right? So it just gets passed through at cost plus. On the FMS side of the house, it is also -- we have fueling. We have about 600 fueling locations throughout the U.S. So we are a big buyer of fuel, our customers can fuel with us at contracted rates, but they're typically market rates. And so really, the fuel doesn't really impact us. We do see volatility when there are high spikes up or down, we'll see some volatility. But for the most part, it's just a pass-through for us.

Okay. Anything in the portfolio of business that's -- I mean, obviously, higher fuel price is probably not good for consumer demand and everything else. But beyond that, are there anything specific that you have from customer base or book of business that could be impacted, good or bad from this?

Yes. Nothing specific, but it is more of just what is the impact on the overall demand, right? And is it -- it's tough. Last year, I think around this time, we had a lot of positive indicators heading into the year and then we had Liberation Day and that kind of put the brakes on things. It almost feels like we're in the same spot this year where PMI has been up. There's been some positive indicators, but now we've got the war and the fuel prices. So cautiously looking at all that and just what the impact is going to be overall on demand.

So you mentioned not much of a recovery in the guidance. Maybe it's not a bad thing considering what happened here, but you did mention last year kind of a similar position. We do have two PMI positive prints. Truckload rates starting to move up. So when do those things really start to show up in, I guess, rental utilization would be the first place you would see it. Is that still to be expected? Or do you think there's other factors that might keep that a little bit slower?

Right. So typically, we look at spot rates. Spot rates is an indicator for us. And what we've seen in our history. And again, it's hard to say whether history will always be a good predictor for this. But the best I could say is in the past, it's been about a 6-month lag between when spot rates start to increase, and we see a meaningful recovery in rental demand. That's the biggest area. I think some of the other indicators that you mentioned, for example, PMI, those are positives for us because industrial production is one of the big drivers. The other one is housing starts, that one is not up. And so I think that's one of the key ones for the trucking industry in general that's going to drive demand. And so right now, what we have is a mixed bag, right? You've got the spot rates increasing, that should be a positive.

The housing hasn't shown. On the industrial production or PMI, 2 straight months of over 50 is great. I think we peeled back the onion a little bit there, and it's almost like everything else is what is actually driving the PMI to be up, and it's not necessarily -- it's not the housing or the construction, it's more of the data center infrastructure type. So that's the tough part of using these indicators from the past to predict what's going on. But nonetheless, positive, right? And so we're cautiously looking at all of them. But for our guidance this year, we have not factored in any meaningful recovery in rental or used vehicles. Last year, we did have a second half recovery, right? Because we all thought second half would be the year and that didn't happen. So I think we learned our lesson after a few years of saying there's going to be a second half recovery. We're not ready to say that again.

Well, there could potentially still be one. So in terms of figuring out the sensitivity for those two things you just mentioned, the rental and the used vehicles, is there any way -- I mean, I think it was in the $250 million. So is there any way to put some context around a point of utilization or point -- percentage point of used vehicle prices in terms of calibrating what the sensitivity could be?

I mean it's hard to give the sensitivity per se because it all depends on when it happens and how steep it is. But what I can say is in the $250 million, if you break that down between rental and used vehicles. Last year, we generated about $20 million of gains from used vehicles. In a normal environment, you would expect to be around $75 million. So I think it's safe to say, $50 million of the $250 million is related to a used vehicle recovery and the remaining $200 million is going to be driven by rental.

On the rental side, there's two avenues to that. First, you have our existing fleet. And last year, we were operating at 70% utilization, right? Our target utilization is typically in the mid-70s to upper 70s. So we still have room to grow with our existing fleet. We've even pushed utilization up into 80s or very low 80s percent during robust market. So we've got room to use our existing fleet. And as you start to see that utilization spiking up, we're going to be looking at it to make decisions on whether we start investing in the rental fleet. Right now, our rental fleet is down about 10,000 units from maybe a normal fleet size. So we have a ways to go on growing that back and intend to do so as soon as we start to see a stable recovery multiple months of sustained -- not stable, but sustained recovery.

Well, one of the factors we're all watching now is the Class 8 truck orders. What's the thought process behind what's driving that right now? Is it EPA '27? Is it just higher spot rates? And maybe you can walk through how a prebuy or at least a more favorable truck order environment would really impact Ryder?

Yes. All right. So I think what's driving that is the cost of new vehicles is significantly higher. Forget even the technology change, right, between aluminum and steel tariffs as well as just tariffs 232, 131, whatever number we want to assign to it, but tariffs in general are pushing up the price of new vehicles as well as then the impending technology changes. So there's going to be a pretty significant shift -- change in the price of new vehicles. And I think that is probably driving some of the larger companies, private fleets to make a decision, at least to place the order, maybe not for deliveries until later in the year, but it's probably driving some of that increased order activity that we're seeing.

For Ryder itself, we have not seen our customers making those decisions just yet. Our customers are more middle to smaller sized companies, right? And I think there's still a lot of hesitation on that side to make the decisions. We are pointing it all out to them to show them how much of a price increase could be coming. And I think it's sparking a lot more conversations and people are thinking more about it now than they were before. But we haven't really seen the shift to make a decision and preorder. So our guidance does not assume any preorder activity. For us, that's just pushing up a sale that would have happened in 2027 into 2026, so it's just timing of when it occurs. Obviously, the sooner it occurs, we prefer it. But right now, we haven't seen that commitment from the customer to make that decision.

Got it. Another big factor in the truck market is all the regulatory focus and enforcement on over the road primarily. But what -- if we do get the capacity exit in any material amount, there certainly seems to be more coming out. The question we always get is, well, what happens to used vehicle prices and how does that affect Ryder? So I think there's a couple of ways -- different ways to look at that. If things are getting pushed out, rates are probably going up. So that has a different impact than more used vehicles just sitting on the sidelines. So there's a couple of different factors there, but would like to hear how that scenario would play out for you guys financially?

Yes. No, a lot of dynamics going on there, but we do think that there's more positives that are impacting our used truck market right now than anything else. So first, I'd say just the price of the new vehicle going up as significantly as it is. We've seen in history that as that new vehicle pricing goes up, it's going to drive used vehicle pricing to increase as well. And so as those prices start to get realized in the market, I think we're going to see a benefit on the used truck side.

The other thing that we've seen also for the past 2 years is that the OEMs have been producing at less than replacement level of production. So the fact that is definitely capacity coming out of the market. And so we think we're finally getting to a point of equilibrium on that, and that's going to bode well for our business. So I think there's a lot of positive indicators on the used truck market side, leading to potential upside and pricing recovery.

We have seen -- the fourth quarter, we still saw slight declines on retail pricing, but we're expecting this year to just be more of a stable environment. And that's kind of what we started the year with is a stable market environment. As far as the drivers and what's happening there, so a lot of activity. I mean, at the end, we're talking about maybe 5% of the driver market coming out. Capacity tightening for the drivers is a positive for our Dedicated business. We view that as a positive for Dedicated growth. We think it's going to push companies to go for a dedicated option because when there's lack of drivers, we have drivers. We know how to retain -- how to hire them, retain them and we train them. And so we're -- we think that positions us really well for the Dedicated business.

As far as what happens to that driver's truck, I know a lot of discussions about what does that then mean for the used truck market. Our thoughts on that are that these drivers that are coming out of the market are primarily your long haul over-the-road drivers, and that's impacting more of your Class 8, particularly the sleeper tractors. And with the transformation that we've had in our business, we have actually shifted more of the business to be trucks than tractors. And so if you were to look at the composition of our inventory, at the used truck center, maybe 40% of it is sitting in that tractor class and even a much smaller percent of that is sleeper. So even if there was an impact on sleeper pricing, we don't think it would be a significant impact to us. But then at the same time, you have these dynamics around the other factors that could be driving used vehicle prices up. So it's hard to say how the two are going to work together. I think it's just hard -- it's hard to predict what it's going to be. But net-net, we feel that for used vehicle prices, the factors are more positive.

Okay. Yes, there are certainly a lot of moving pieces there. Any questions in the audience, feel free to raise your hand. We'll get a mic out to you. I did have a couple of segment-related questions in the meantime. So DTS, it looks like revenue growth is a little bit lower than the long-term target this year, at least. So maybe you can talk a little bit about is that fleet mix? Is it pricing? Is it growth strategy? And then we do hear a lot more mentioned about competition or at least others trying to grow into Dedicated, not all Dedicated is the same. So I would like to hear your thoughts on DTS in particular.

Right. So our Dedicated business is primarily specialized dedicated, right? So our customers require special handling, whether it's like the way we deliver or put the freight on the truck. So we do concentrate on specialized Dedicated. What we're seeing from a revenue growth perspective, the headwinds that we have are more about the lost business over the last few years. So our business, if you go back to pre-COVID, like '21 -- just before COVID, was probably about 70% specialized and -- I'm sorry, 80% specialized and 20% nonspecialized. Well, COVID came, extreme tightness in the market, we started to get a lot of more conversion of spot market to dedicated back then. And that's what drove some of the increases in our dedicated business over those years. So what we've seen now that the -- there was a shift back in the last 2 years, we started to lose those customers back to the spot market, right? So that's where the dynamic has been in our business. We really focus on the specialized dedicated and that's where we intend to continue to move forward. So the headwinds that we have on the revenue growth rate are really just from those -- that small portion of our dedicated business that is switching between spot and market versus dedicated.

Is that mostly you're going to run its course the rest of this year?

Yes. So the impacts that -- absolutely, yes. So we're not -- we're expecting to be at the low end of our growth for Dedicated this year, and that's going to be through the end of this year, especially based on our pipeline and what we're seeing.

On SCS, also it looks like it's a little bit slower in terms of the growth this year. I know there's the network reoptimization going on there as well. But also a lot of wins, like record number of wins last year. So it also seems more like a transition period. Maybe you can walk through some of the puts and takes there.

Yes. On the supply chain side, we've actually been very excited with our sales. Last year, we had a record number of sales, as you mentioned, particularly in that omnichannel retail area is where we experienced some of those sales. And those start-ups are happening now and through the second quarter. So what you're going to see is an increasing rate of growth throughout this year, and we intend to exit the fourth quarter at our target growth rates. So we're excited about what we're seeing there.

80% of our wins are all coming from existing customers. So this is where we've proven our operational excellence. We've had successful start-ups with our customers. The word spreads are reputation spreads and their -- they start up, they start with us by starting up one operation and are happy with what they get and now they're expanding to additional operations that they're transitioning to us. So it's been a great story.

In terms of some of the other areas that I think have driven SCS or automotive, in the past has been Mexico, in particular. So the company has been there for quite a while. Maybe you can elaborate on what the role is, how that's grown and sort of what you're seeing right now because there's also no shortage of headlines and volatility cross-border as well.

Yes, right. So our -- as I mentioned, our operations are in North America, but we have a fairly large cross-border operation. We do about over 300,000 moves a year from cross-border, whether it's Mexico or Canada. So a lot of activity happening there. We primarily have concentrated. Historically, our supply chain business was automotive logistics. That was our core. Over the years, we've expanded to CPG and omnichannel retail. So we've expanded our industry base, but automotive still remains at the core of who we are. And so we have a lot of customers in Mexico that with all the regulations and everything going on, have engaged in lots of conversations with us because they see us as a provider, both in Mexico and in the U.S. to be able to make decisions about their operations. I think a lot of those -- a lot of conversations, but no decisions being made. I think everyone is still waiting to understand exactly what the impact is going to be here and moving a manufacturing plant to the U.S. is a big costly move, and I think companies are still hesitant to make that switch. But a lot of conversations going on, and I think we're uniquely positioned because of our experience in Mexico as well as in the U.S. to help some of our customers that are trying to balance and understand which is the best decision for them. So we're engaged in a lot of those consulting engagements with them.

Can you talk a little bit more about technology and how you're applying it across different areas of Ryder. You got a lot of different initiatives. You bought Baton and brought them in-house. So like there's always been quite a few things to talk about with technology in Ryder. So what's kind of being implemented right now? And like what are you excited about in the next couple of years?

Yes. No, we have a lot of technology projects going on. And I'd start first by talking about our customer-facing technology. And so we have two key products there. The first one is RyderShare, which is used primarily in our supply chain business, and it provides our customers with visibility and the tools that they need to see where their freight is at any point in time. Right now, we are working on embedding AI into that technology. So it's the next phase of RyderShare, embedding AI so that now our customers will be able to see AI ETAs of their freight, they'd be able to optimize their freight a little bit better and make different decisions that they didn't have access to before. So Baton is one of the -- is a company, I always say it's a company, it was technology experts that we hired and work out of California, and it's the engine out there that is feeding all these enhancements to our existing technology. And right now, their focus is to enable it with AI.

So the second part of our customer-facing technology is on the FMS, the leasing side, where we have Ryder Guide. It's a fleet management tool that we have that provides them the ability to schedule appointments and see the status of their fleet at any point in time. Right now, we are embedding AI into that tool to be able to allow them to optimize the mix of the fleet that they have. So are you using the right asset for the right application, that's the next phase of that technology. Then other technology that we're deploying, we have a Ryder Ventures fund that we invest in different companies or we get to see a lot of different companies and that always keeps us at the forefront of what's next and what's happening. And as you can imagine, there is a lot going on, whether it's AI, automation in the warehouse robotics. There's a lot of activity, and we're uniquely positioned to be able to use these companies that we've made investments in to test their technology in our warehouses or with our customers. And so that allows us to decide if we're going to continue with that technology and also helps us see the next wave, the wave of the future and how we can make better decisions for our customers when we are engineering their supply chain solution. So really excited about that.

We invested in one company called Happy Robot, which is -- it's a -- it's helping us right now with our brokerage business, and it's -- you call and you're actually speaking to the robot. And -- it's going through there and making decisions on loads and matching customer -- negotiating rates and what have you. It's pretty impressive. You can't even tell you're speaking to. I'm sure all of you have had some experience with that, but it's pretty impressive.

And then the last phase of technology is just maximizing the tools we already use but making sure we understand what AI enablement they have and how that can help. And so we're seeing opportunities there for our call centers to be able to just run our call centers more efficiently, also looking at diagnostic tools for our technicians to be able to assess what's going on with the trucks. So a lot of opportunities. I think we're still in the early phases. I don't want to oversell it. It's early, and there's a lot to be explored there, but we're definitely at the forefront. And with Baton in-house, it's an amazing capability we have to be able to leverage them and maximize the existing technology we've got.

Okay. Well, we covered a lot of ground, but we are out of time. I think it's a good place to end now. So thanks very much, Cristy, for the update.

Thank you.

Appreciate you being here.

All right. Thanks, everyone.

Good afternoon, everyone. And again, welcome to day 2 of Barclays' 43rd Annual Industrial Select Conference. I'm Brandon Oglenski, airline and transport analyst joined by Dave Zazula here on our team as well. And very happy, I think, for the first time ever to have Ryder Systems at our conference. And I know we've been doing this conference in Miami a long time. We probably should have done this many years ago, Robert. But we are joined by Robert Sanchez, Chairman and Chief Executive Officer, and almost on your way out. So congratulations on that.

I spent years knocking on the door here trying to get in. And finally, I'm in. So, yes.

Well, I'm glad we got you in here for one. But hopefully, the first of many for your company. So like we've done in the past, for those in the audience here, if you could just pick up the little keypad in front of you, we'll queue up question one. Do you currently own Ryder, yes, overweight; 2, market weight; 3, underweight or 4, no ownership. And thanks, everyone, for participating. Again, we do compile these and publish them post conference.

Okay. And question number two, please. What's your general bias towards Ryder right now, positive, negative or neutral? All right. And then please, question number three. In your opinion, through-cycle EPS growth for Ryder will be above peers, in line with peers or below peers.

And Robert, again, thank you for coming down here. If we can vote there. Thank you. Appreciate you coming again. Can you just give us your perspective here as you've really driven a lot of change at the company, just where do you -- what are you most proud of? And where do you see it heading?

Yes. I think those who have followed the company for the last probably 5 or 6 years, you've probably seen the transformation we've been on. We called it our balanced growth strategy. We really adopted this back in 2019. It have been around for over 90 years. So it's not like we're new to the business. But certainly, as we got into 2015, '16, '17 and '18, we went into a period of an extended used truck downturn and really forced us to reevaluate our business model and understand how do we derisk this business and be less -- not be so reliant on the used truck market, which a lot of investors were looking at Ryder almost like a proxy for the used truck market, which was kind of crazy considering all the other things that we do. And then how do we improve the returns, make it less reliant? And then what should the portfolio look like?

So we focused on from a derisking of the business, we said, look, one of the key issues here that's driving all this reliance on the used truck market has been the way that we price our leases. We were pricing our leases to an average residual value. We look at the last 6 years and say, what's the average used truck price spend? That's what we're assuming it's going to sell 6 years from now. Some years, you were better, some years you were worse. When the used truck market was within a certain band, you were over 50% of the time and below 50% of the time.

But as we got into that 2015, '16, '17 time period, we spent 3 years on the bottom end of that. And that meant that all these leases that we had signed 6 years prior that we had done all this great work, maintain the truck, done all the road calls in the middle of the night, taking care of the customer. All those deals ended up being negative return deals. It's kind of crazy that we do all this work and at the end, it all relies on that final used truck price.

So we reduced the assumption that we were making on that residual value to be really bottom quartile to the average. And that way, most of the time, we were going to at least get the return that we expected. So that in and of itself created a significant derisking. We also exited some geographies and services that we were in that weren't giving us a good return.

And how do we improve the returns? Well, we historically have been targeting a 60 basis point spread on those leases. We increased that target to 150 basis points. So now we're making more money on each of those leases. We also went and challenged our organization with $1.2 billion maintaining trucks. Can we find $100 million by improving the efficiencies of these 4,500 diesel technicians at locations that we're working, targeted that went after that. Those initiatives, really the maintenance initiative and the pricing initiatives are the big drivers, equated to over a multiyear period, end up being $300 million of annual cost savings that we were able to take out of the business.

So if you consider a business that we were -- we -- our earnings before tax were about $300 million, $400 million, but the volatility of rental and used trucks is about $200 million, you had a lot of volatility in that earnings. Now the business is making $700 million. You could still have that $200 million, but it's obviously a much smaller piece. So that was the derisking and the improving of the returns. Then we looked at our logistics and dedicated business, asset, more asset-light, good return contractual business. How do we disproportionately look to grow that, made some acquisitions, spent some money on sales and marketing and really being able to grow it organically.

And then those 2 businesses who were -- if you go back 10 years ago, we were about 35% of the revenues of the company are now 60% of the revenues of the company. So moved more towards the contractual parts of the business, more towards the asset-light, and that's the portfolio that we're running today.

We just had Patrick Kelleher up here, the new CEO of GXO, actually gave you guys a shot at as a competitor that he looks towards matching or beating in the future, but definitely giving some respect. So I think you've gotten some recognition in the market.

I guess in the near term, though, folks have been really focused on used truck values again, right, because that does impact your earnings, which has been a little bit more challenged in the current environment. I don't know, we've been asking all the companies up here, are there any potential green shoots because short-cycle industrial measures have gotten better, PMI is obviously better. We've seen truckload spot rates come up. From your perspective, is the market improving? Or is it more of the same this year?

Yes. We just gave our full year forecast, and we're going to show earnings improvement again this year. But without a whole lot of help from the market, it's mostly these initiatives and self-help programs, about $70 million improvement there. We're not assuming a pickup in the second half necessarily only because we assume that the last 2 years and it didn't happen. So we figured this year, we won't assume and see if it does happen. But the guidance that we gave really didn't account for that. If there is a pickup, obviously, we should do better than the range that we gave.

Are we seeing anything? Not yet. The PMI being above 50% is always a good thing. That helps manufacturing should help the freight market. Spot rates being up is a good thing also. It's an early indicator. The FTR truck utilization being over 95% is a good indicator. That's also up. So these are all good things. It usually takes about 6 months for us to see it in our rental and used truck business. So if these things stick towards the second half of the year, we should see some improvement, but we haven't seen it as of yet. We're seeing just kind of stable bumping along the bottom type activity.

So just doing the math, right, on the center of where it is in the 1Q guidance versus the full year, it does imply some acceleration in earnings. You're saying that's not due to the market, it's due to some other things that are going on.

Primarily due to our initiatives and our self-help. So we identified $70 million coming from some lease pricing still trickling into '26, some maintenance cost initiatives that we've got line of sight to that we feel good about and also rationalizing some of our omnichannel retail network, and we got line of sight to that.

And then also the layering in of our new supply chain accounts. So we had a really strong sales here in our logistics and supply chain business, record actually. Those deals will start layering in here in '26 and really hitting their stride in the second half. So we expect to start to see the benefits of that in the second half.

And that's about a 6-month ramp from the time.

It's about 6 months, yes.

Right. And is there some start-up costs associated where the margin initially is lower and then that further ramps from that.

Margin -- -- there's a little bit, but that's not the bigger issue. The bigger issue is just really getting those ramped. Also, I should mention in automotive, we had a really strong first quarter last year with a lot of auto production. Some of those plants are extending their shutdowns this year. We had a little bit of lost business, too. So that also created some headwind year-over-year with the first quarter.

And we talked on the earnings call, it sounds like the outlook for that is still pretty tepid, the manufacturers you're talking to are at least fairly cautious in the near term.

On the -- again, on the truck leasing and on the dedicated side, yes. On the supply chain side, we are seeing customers making decisions. We have -- as I mentioned, we had a record sales year last year, new contracts being signed, especially in the omnichannel retail sector. And we feel really good about the prospects. Our target for that business is double-digit top line growth, and we expect to end the year really approaching that level as all these new contracts layer in.

So you used to growth prior to this change plan have fleet growth that was a little bit higher. You've reduced down to 2,000 to 4,000. What has that allowed you to do? How has that allowed you to have more stable earnings with that type of fleet growth?

Well, I think it's been the trade-off of price versus volume, right? So we were growing prior to balanced growth, we were growing our lease fleet about 10,000, 11,000 units a year. So when we made the decision to increase the spread, we knew there'd be some impact on that growth. That trade-off works for us. I'd rather grow 2,000 to 4,000 at the spread that we're at 150 and then growing 11,000 at the 60 basis point spread. So that's really been the trade-off. I think overall in the marketplace, there was a little bit of market share loss initially, but that has -- as the market has kind of moved with us, it's stabilized.

And you think 1% loss last year in terms of revenue growth, the long-term target of mid-single-digit growth for fleet management, even up to 2,000 to 4,000 units per year, you think that's comfortable you can get there?

2,000 to 4,000 gets us to that mid-single-digit growth rate. Now if the market really takes off and we -- at the pricing that we're at, and we see that we can grow more than that, we will. But we want to -- I think it's important for us to make sure we maintain our pricing discipline.

And maybe a bigger issue too, just on tariffs and truck pricing going forward. How has that impacted the new truck market?

So we're one of the largest buyers of commercial trucks in the country. So as these tariffs, there has been already some impact from tariffs, especially initially some of the steel and aluminum tariffs. So as those get layered in, we build them into any new leases. So we pass it through as we do with any cost that comes in. We're competing against a truck buyer having being able to buy the truck on their own. They're going to have the same issue.

So they do get passed through. I think we'll see how that goes. I think right now, some of these OEs are a little tepid to pass them through knowing that the market is soft. But as the market picks back up, I would assume some of that's going to start coming through.

I think we've heard from some of the trucking type providers that supply is coming out of the market due to government regulation that's helped on the rate side. Are you seeing/hearing anything from your customers about it hurting you on the demand side just in that there's fewer drivers out there in the market, less demand for trucks? Or is that a different segment of the market maybe that you think?

Most of our customer base are private fleets. So these are folks that are not in the trucking business, but they have -- they need trucks to deliver their products to their customers or pick up. So they're more -- the private fleets really ramped up during COVID, and they've had to now scale down. So we've seen that in our lease fleet has come down. Our dedicated business hasn't been growing at the pace that we want. We think that's kind of getting to its equilibrium. It usually happens once the freight market stabilizes, and then we'll see that move back up.

But we haven't yet. We -- I mean the driver market is still relatively loose. I think as that tightens, you're going to see more companies, private fleets looking for companies like Ryder to help them as they struggle with hiring new truck drivers.

And the EPA 2027 standards, has that impacted the market one way or another?

Not yet. We haven't had a lot of prebuy requests yet from our customers. We have some, but not -- there's not a big push like we've seen in other technology changes. I think if the market starts to come back and the market begins to tighten, you may see more companies wanting to jump in prior to the change.

Are we keeping those EPA standards or...

Yes. The bulk of the standards are staying. What I think is changing is the need to -- for the OEs to provide a warranty throughout the entire life of the vehicle. I think that's being rolled back, which was a significant cost factor for them.

With respect to Dedicated, we hear a lot of companies talk about having a dedicated offering. But you guys surveyed different segment of the market, maybe a little bit more specialized. Maybe just give us an overview of what you've done with the Dedicated segment and where you think it can grow from here?

Right. So Ryder has been in the dedicated business, I think, since 1945 when we first started delivering newspapers for the Miami Herald. So what we do is more specialized dedicated. There's very few of our accounts where we're taking a product from one dock door and delivering it to another dock door. It typically requires our driver to do something beyond just drive the truck.

So you think about -- we do a lot in the metals industry. Metals are being run on a flatbed. There's a crane that the driver needs to operate to be able to move the metals off. That's the kind of business we do. Deliveries even to stores where it's not a dock door, it might be in a strip mall and we have to -- driver has to get out and bring totes into a store, we do that type of business. So that's the segment that we have always been in. We're the second largest provider in that segment, and we've got a very competitive service offering there.

And I think your long-term target, high single digits. I mean you set the company up pretty well over your time. Do you think that's the right target going forward, even though the market has been a little tougher lately?

This being my last conference, I'm in a position to start raising all the long-term targets. But I guess I should probably just stick with what I got, which is high single digits, I think, is a reasonable target for that industry and the business that we're in.

And you think this year is maybe a little tougher? Is that more going to be where you're trying to get to next year? Or do you think?

Yes. If you think about it, that business benefits from -- all of our businesses, we're in the outsourcing business. So anything that makes what we do difficult is good for us. So in a tight market where private fleets are struggling with their equipment or struggling with getting drivers, that's a positive for Ryder. They're more likely to then look for somebody like Ryder to help them. So right now, driver market has been pretty loose. As that begins to tighten, I think you're going to see more companies look for help.

Another area is safety. Companies who don't do trucking or transportation for a living, maybe don't have the same safety programs and -- that Ryder has. So we have had other customers now getting into big insurance claims over accidents and they decide, you know what, why am I in this business? Let me go find somebody who does it. We've got a very robust safety program. We got in-cab cameras. We got all kinds of stuff to better manage that, and we're seeing companies look to outsource because of that.

If I can just ask one on that, Robert, I guess we've seen with a lot of our coverage in the trucking and freight space, like insurance costs have just been through the roof. Is that something you guys are experiencing, too? And how are you mitigating that?

Across different areas. So clearly, on the BIPD side and on the vehicle insurance side, it's our safety programs, right? That's what we -- safety is the #1 priority at Ryder. We got 50,000 employees. We have a very strong safety culture. So we implemented in-cab cameras probably before most people did. We've had them in place, I think, since 2016. It's been a big game changer for us in helping us coach our drivers and really drive the safety culture.

We are seeing as many companies across the industry, medical costs for our employees really come up. We're doing what every other company is trying to do, figure out different ways of managing through that, but that is a real challenge, I think, for all of us.

You made an acquisition somewhat recently, Cardinal Logistics. I think you've targeted $40 million to $60 million in synergies. What's the breakdown there? Is there a risk to not getting there by the end of the year? And is there maybe some upside or additional things you're learning as you've integrated them?

Yes. That was a good acquisition. We're very selective about our acquisitions. That was a company that is, I think, well run, good contracts. We identified $40 million to $60 million of initiatives. We've delivered on that through 2025, a little bit trickling in this year, but most of that is already executed on.

A lot of it was for those contracts, they were outsourcing their equipment to third parties or doing it themselves, doing their own maintenance, putting that through the Ryder network brought a lot of savings because we buy a lot of trucks. We're very efficient in how we manage them and maintain them, and we're able to bring a lot of savings to the operations that way, along with some overhead and things that we did there.

And that maintenance product, you can leverage that across the businesses, not just for dedicated as well, the turnaround strategy.

Yes.

Sure. I mean Supply Chain Solutions, I think you already mentioned ramping up towards the high -- low double-digit target in 2022. Just what are the puts and takes? What are the different subcomponents of the business we should be thinking about? And what do you want to grow within supply chain long after you've gone?

So the key with supply chain across whoever is doing it is execution. You have to be able to execute well if you're going to expect a company to hand over an important part of their supply chain to you. So we've been in the business for a long time. We've learned. Sometimes I think we paid a lot of tuition to over the many years. We're very good at execution.

We have a -- start-ups are probably the toughest part when you start up a new account. We have start-up effectiveness teams that just fly around and only do start-ups to make sure we are able to flawlessly execute on that. So we feel really good about that, and we feel really good about the capabilities that we have there. That's why we win.

That business, though, is evolving where we operate in 4 industry verticals. So we don't try to do everything for everybody. We're very good in automotive, inbound automotive, logistics, one of the leaders. Omnichannel retail, which is our fastest-growing segment now, where we're doing business with a lot of the retail companies and running distribution centers for them. We're in the CPG business, CPG vertical. So think about food logistics, we do a lot of business with CPG type companies. And then we're also in the high-tech and health care verticals.

So continuing to focus on the port-to-door services that we provide. We're able to run the facilities, the warehouses. We have over 100 million square feet of warehouse space that we run. We have a transportation management service that we can manage not just riders trucks, but also third-party freight. We -- I think it's over $10 billion of freight that we manage for our customers act as a traffic department. We have final mile delivery capabilities, especially the big and bulky products. And we also have an e-commerce fulfillment capability there. We're able to do consulting services. So anything that you need port-to-door in North America, we can provide through our supply chain and services.

I think that's a differentiating point in your business offering, isn't it?

It is today, yes.

[indiscernible] as you run up against or just doing everything inside the building, right?

Correct. Correct. So we're able to offer all the services. Once you get to the port, we're able to offer all the services all the way to the end consumer.

And the margin in that business has actually really come up even though it's been a pretty bad environment in terms of freight. I mean should investors -- how do they think about that when looking at history? Is this something where you actually get a little bit of better margin in times of lower demand? Or is it something where due to your self-help initiatives, that's really what's been driving the margin?

Yes, it's a contractual business, right? So it's not so much volume driven. There is some volume to it, but mostly it's contractual cost-plus type business. So I think it's been the discipline over time of making sure you're signing good contracts and then your ability to execute on those contracts. That's what allows you to achieve the returns that we're achieving. And our target returns there are high single digits, which is kind of where we've been at.

And just the U.S. business? Are you targeting global opportunities as well?

We made the decision years ago to focus solely on North America. We've been in different parts of the world in South America, Europe and really struggled. We struggled being great everywhere, and we said, let's just be great in North America. This business -- this economy is very large. In that business, probably 75% of the business is still not outsourced. So to the extent we can chip away at that, that's plenty of business for us to be -- to get.

On the warehousing side, you've done pretty well in terms of revenue. I mean how much has that been due to new customer wins? What has the commercial team been focusing on in that area of supply chain?

Yes. So we've had some new customer wins, but a significant number -- amount of our growth comes from existing customers. So we may go into -- by the way, most of our customers there are large Fortune 500 type companies. So we could go into an account where we win one location out of -- maybe these are customers that have 10 distribution centers around the country. We win one. We prove ourselves with our start-up effectiveness with our ability to execute and our ability to bring continuous improvement even when compared to the other 9. And then the customer says, okay, well, I'm going to give you the second one. I'm going to give you the third one.

So typically, that's how we grow is by continuing being able to expand and then expand services. So if you're doing the warehousing, I also -- let me do the transportation. Or if I'm doing the transportation, let me try the warehouse.

Dave, we should probably get to -- can we do ARS question #4, please? Because we're running out of time here. So for those in the room, if you don't mind picking up the keypad. In your opinion, what should Ryder do with excess cash, bolt-on M&A, larger M&A, share repurchases, dividends, debt paydown or internal investment? Share repurchases.

No one thinks we should pay down debt, I'm surprised.

Question #5, please. In your opinion, what multiple of '26 earnings should Ryder trade? You see the range there. I appreciate the vote.

They just think with your...

Can I vote or...

We've yet to get remote up here.

I guess with your earnings, I just think debt capacity, they saw that slide in the slide deck.

And then if you all don't mind, question #6, what do you see as the most significant share price headwind facing Ryder, core growth, margin performance, capital deployment or execution and strategy? And again, thank you for participating.

Well, you mentioned debt. I think you targeted range 2.5x to 3x. Certainly, what you do on the FMS side, very capital intensive. How does that play into the cycle? When do you think about 2.5x? When do you think about 3x? Do you think now is the time to go near the high end of the cycle with potentially some growth coming next year?

Yes. No, we -- I think in order for us -- first of all, our business based on the earnings power of the business right now, and we're talking debt to equity. We tend to delever on any given year. Even if we're growing at this point, the amount of earnings that we're generating, if we were growing our lease fleet by 10,000, 11,000 units, we would still delever.

So from an organic standpoint, short of significant acquisitions, the business is likely to continue to delever. So what we would do then is look to do share buybacks and continue to drive -- keep us close to that leverage ratio, right? So we're on the low end of that. And unless there's a big acquisition opportunity that we see that would move us there, we're likely to stay in that range.

It sounds like you're in line with what your investors are looking for here. I guess short-term net capital expenditures, I think, $1.9 billion this year. What's the breakdown there? What do you think in terms of power equipment? What can we expect on the CapEx side?

So the capital that we're expecting this year for leases is almost entirely -- I think it's entirely replacement. So we're not assuming any growth in our lease. We're actually seeing a slight decline. In rental, a very minimal purchase, I think we were doing $100 million of rental. On a good year, we could be doing $600 million, $700 million of rental CapEx. So until we see really a pickup in rental, we're not going to pull the trigger on that. And then on the lease, it would be -- we don't buy a truck until we have a signed lease. So when customers are ready to sign up to more fleet is when we'll be ready to buy more vehicles.

And from what you were saying earlier, it sounds like customers are at least on the cautious side right now in terms of expanding the fleet.

Correct. We're not seeing a lot of expansion yet. But I've been through -- I've been with the company 33 years. I've been doing up of these cycles until the light switch turns on and then everybody wants trucks immediately. So we're waiting for that opportunity.

And that replacement cycle that you're going through this year, that's going to maintain your average equipment age kind of similar to?

It's a little bit long for us right now. So even with this replacement, we'll still be a little bit longer than we prefer. But again, we typically run on the lease business, we match the first life of the vehicle with the lease. So at the end of that lease, it's ready to go to the used truck center. If it still has life, we do have an asset management process to redeploy it into another application. But generally, it's -- the replacement cycle happens as the leases term out.

And that's really a big advantage to the business model is you have so many different ways that you can make use deploy.

We can put it in our dedicated business. We can redeploy it to supply chain. We can deploy it to rental. So there's a lot of asset management moves we can make.

Robert, we only have less than 2 minutes left here. Really appreciate you being here. But as you get set to leave Ryder, I mean, what legacy do you want at the company? And what's most exciting that you think is going to be 5 years from now?

Yes. Look, I mean, the nice thing about -- I've been with the company, as I said, for 33 years. I turned 60 last year. I had always had a goal of once I hit 60, I wanted to be able to move on. If things were going well, things are going well. I think we have positioned the company well. We've got $250 million of earnings uplift between here and the next peak of rental and used vehicles coming back. We have a strong contractual portfolio.

We've got great leadership that's really in place and coming up. John has been with the company for over 20 years. I've worked very closely with him for most of that time, along with Cristy, our CFO; Steve Sensing, who runs our supply chain business; Tom Regan runs Dedicated and Tom Havens, our fleet management business. These are all folks who have been with the company a long time, understand the business really well, have all actively participated in the development and execution of this balanced growth strategy.

I'm confident they're going to continue and take it to the next -- there'll be another chapter, and they're going to write that chapter well and make sure that we're getting -- continuing to grow the company and continue to have good returns for shareholders.

Thank you very much for coming. Really appreciate it.

Thank you for having me.

Congrats on retirement.

Thank you.

My name is Ben Mohr. I cover transportation equipment, shipping and transportation at Citigroup. I am very delighted and honored to host Robert Sanchez, CEO and Chairman of Ryder. We also have CFO, Cristy Gallo-Aquino of Ryder; and Ryder's Head of IR, Calene Candela here.

So Robert, thank you for joining us at Citi's Industrial Conference. I'd like to explain to kind of newcomers to Ryder that Ryder is not your mom or dad's Ryder anymore. So Robert, if you could introduce yourself and kind of intro Ryder, especially your very favorable transformation over the last few years, that would be great.

Okay. Great. Well, my name is Robert Sanchez, as Ben mentioned, Chairman and CEO of Ryder. So thank you for having us, and welcome all to Miami. This is our hometown. So Calene, Cristy and I had probably the shortest commute of anybody to get here and glad to be here.

So a little bit about Ryder. Ryder has been around for a long time, founded in 1933 right here in Miami by a gentleman named Jim Ryder, one man and one truck, built the company into a publicly traded company. We went public in 1960, 1955, I think it was. We traded under the stock symbol R. We're one of the longest tenured publicly traded companies, at least part of the NYSE. I think we're in the top 5% in terms of tenure. We're just under -- just under $13 billion of revenue.

We are an outsourced transportation logistics provider here in North America. What that means that everything we do for a company, a company could do up their own. We operate in 3 segments. Our fleet -- I'd like to divide it as the outsourcing of a truck, the outsourcing of a truck and a driver and the outsourcing of broader supply chain activities. So the outsourcing of the truck is our fleet management solutions business, represents about 43% of the revenues of the company. We have a fleet of just under 240,000 vehicles that are in that segment.

And if you think about it, if you own a business and you need a fleet of trucks to deliver your product, whether you're a baker or you're a food distributor or you're in some type of industrial type business and you need a fleet of trucks to deliver your product and pick it from your suppliers. You can go out and buy that fleet of trucks. You can figure out what you need, which is complicated. You can order them through a dealer, and then you can worry about the maintenance and keeping up with all the regulatory issues that occurred during the life of a vehicle.

And then at the end, you can try to resell it yourself or you can come to Ryder and we'll do all that for you for a flat monthly fee and a mileage fee. We have a network of just about 800 maintenance locations where we full service all the vehicles that our customers lease from us.

The next is the outsourcing of the truck and the driver. That's about 19% of the revenue. So that's -- not only do you want Ryder to take over the truck, but we'll also provide the drivers. We have about 13,000 professional drivers who work for Ryder and run these operations for us and these customers. So you'll see in these types of operations, you won't know it's a Ryder truck. It has a customer's logo on it, but it's got a -- it's our driver and it's our truck actually running that private fleet for the customer.

And then the third one is Supply Chain Solutions, which is the outsourcing of broader supply chain activities, mostly warehousing operations. It could be transportation networks will act as a traffic department for a customer. We have over 330 warehouses, over 100 million square feet of warehouse space that we operate for customers, optimize and run those operations.

And then we also have a final mile delivery business of big and bulky product and an e-commerce fulfillment business that we -- that we brought into the fold a few years ago, where we're doing e-commerce fulfillment for companies. And then more recently, we purchased a co-manufacturing, co-packaging operation, mostly in the CPG business that's part of that also. So those are the services we provide. They're mostly contractual. 90% of our revenues are contractual, multiyear contracts, so relatively sticky and stable. And again, operating here in North America.

So you mentioned the transformation over the last several years. In 2019, we pivoted towards what we call balanced growth strategy that was really focused on 3 things. The first one was really trying to derisk our business model. We've been around for 90-plus years. A big part of that business, the outsourcing of the truck where we basically buy a truck and we full service lease it to the customer. We make an assumption on that residual value, what it's going to sell for in 6 years in determining a lease just like you would for your car lease, along with all the maintenance costs.

That residual value for many years, we had been determining it by doing a 5-year, 6-year look back at what we've been selling used trucks for and assuming that in 6 years, that vehicle is going to sell for about that price, inflation adjusted. Kind of had worked for a long time. But coming out of the Great Recession, the volatility of used trucks started to move up and down a lot more due to several factors. And we realized that, that was after being really the used truck market being below our residual assumptions for multiple years decided this probably wasn't good.

We were very reliant on that final sale of that vehicle in order to make our targeted returns. So we made the decision to lower the residual assumptions on all of our new leases going forward and that was really going to derisk that lease. So we knew that unless the used truck market really collapsed for a long period of time, we were going to at least make the returns that we had targeted and most likely do better.

So we started doing that in 2019, derisking the business, got out of some businesses that we had and services that we were providing that were profitable. So different geographies we exited really focused in North America and then also got out of some services that were less profitable. So derisked the business, improving the returns then. We raised the -- not only do we lower the residual value of the leases, but we raised the prices on the leases above and beyond it to improve the spread.

We lowered our -- we optimized our maintenance operations. We had initially targeted $100 million of savings from our maintenance initiatives and have well exceeded that. And really found ways of optimizing the operations better and improving the returns. And then the last -- the third piece of it, so you had derisking the business, improving the returns. And the third piece was that we wanted to accelerate the growth in our more asset-light businesses, our supply chain and dedicated businesses, not only through organic growth but also through acquisitions.

So what you see on this page is really the tale of the tape of what happened pre-transformation to today. So if you look at the revenue mix in 2018, our asset-intensive business was 56% of the revenues. This year, it's -- I'm sorry, last year, it was 38% of the revenue. So a lot more -- the majority of the revenue now comes from our more asset-light Supply Chain and Dedicated businesses. In 2018, which was a peak in the freight market, our comparable earnings per share was just under $6. So that was the peak earnings that we had in that cycle. In 2025, which is more of a trough in the freight cycle, we did just under $13 a share. So again, a significant improvement in the earnings profile of the company.

Return on equity at a peak of 2018 was 13%. And in 2025, when it's more trough like is 17%, and we're targeting low 20s ROE over the cycle. So certainly high -- mid-20s when we get into more of a peak and averaging somewhere in the low 20s. And then you can see what happened with operating cash flow. So overall, this is kind of the tale of the tape of the transformation we've been through. But as we like to say, there's more to come. This year, we have in those initiatives that I talked about, -- we had announced in 2024 that we had $150 million target for initiatives over multiple years.

We've actually upsized that on this last earnings call from $150 million to $170 million with the last $70 million of that really being delivered here in 2026. So we feel really good about that. We also have identified $250 million -- over $250 million of earnings lift as the market recovers. So as the freight market improves, we're going to start to see that in our rental and used vehicle segments, which have really been impacted by the used truck -- by the soft freight market. So as those really begin to improve, between now and when they get to the next peak, we're expecting $250 million plus of earnings -- pretax earnings benefit from that. And that will be just a matter of the improvement in the market.

We also have a couple of other things as the driver market tightens, we expect more growth in Dedicated and also some optimization of our omnichannel network. And then last but not least is the overall growth opportunities of our contractual businesses. We had a really strong sales year in our Supply Chain segment in contractual sales, but there's still opportunities in '25 that's going to start to bleed in '26. But our lease, contractual lease business and Dedicated have both been below their targets. So as all those start to achieve their targets, there's certainly an earnings -- ongoing earnings benefit from growth in those contractual businesses.

Wonderful. Thank you. Fantastic. What a great overview. Ryder is very much a different business as you were in 2018. Maybe starting with direction and management. At the end of this month, Robert, you'll remain as Executive Chair and John Diez will take over as CEO. What have you done to set Ryder in the right course?

Well, first of all, we've got the right team in place. I think that's really important. And I've been with the company for 33 years, been the CEO now for 13 -- and I feel really proud of the team that we've put together, not just John, but the whole leadership team and the culture that we've set. I think really being in 3 contractual segments and businesses focused in North America in the outsourcing of transportation and logistics is a really good market to be in right now as more industrial business start coming back to the U.S., I think that's going to be very helpful.

So I think we're well positioned from a market standpoint. But I think we also have -- one of the things that we've changed, I think, over the last several years in addition to the things we talked about is having more of an innovation mindset. We have Ryder Ventures, where we invest in start-ups, being able to take new ideas and bring those into the company and being able to develop new services and new products as the market changes, I think, is an important part of the future of Ryder.

So I feel really good about the handoff to John. He's been with the company for over 20 years. I've worked with him for over 20 years. He makes great decisions, and he's a great leader for the company going forward. A real focus around innovation and technology as the market continues to evolve. And I think he's going to take -- he's going to really write Ryder's next chapter.

Wonderful. What inning would you say are Ryder is in, in terms of your overall transformation? You've got your mix of your asset-light, that's 62% SCS, the Supply Chain and DTS, the Dedicated trucking business and 38% your traditional leasing, Fleet Management, FMS -- what about in terms of capital intensity, CapEx, free cash flow? Where are you in terms of inning for your transformation there?

Yes. I think there's still a lot of room to go. There's still -- whether it's the fifth inning or the sixth inning, I don't know. But we're -- we've gotten through some of the heavy lifting of making the shift towards more supply chain and dedicated, but those businesses and those markets are evolving. So more automation, the need for those services is really expanding. And I think there's going to be a lot of work and a lot of evolution there. Now what happens with the percentages, I think as rental comes back, as the freight market comes back, you'll see the fleet management business grow a little bit more and maybe take a little bit more percent. But it's probably in that range where it's in now in that 60-40 is a good place and until the next chapter comes and we make decisions on what else we want to do.

Great. Can we go through kind of a rapid fire section with each of your 3 businesses. We'll take a look at where you are in revenue, where you are in margins. So starting with FMS, your Fleet Management Systems segment, which is your traditional leasing. Your long-term target is mid-single digits growth. You guided to below that target. We're seeing pressured lease sales, rental fleet downsizing. Last year, it was flattish. We and consensus are flattish for this year. What's your view for FMS revenue? Could it be higher? What's the potential range?

Yes. It's really -- at this point, it's more dependent on the freight market. So as the freight market comes back, that's going to drive up rental revenue, and it's going to drive up lease sales. So as the freight market comes back, we expect that to move up and cycle back up to the target range.

Great. And within the same segment, FMS, the margin, EBT as a percentage of operating revenue, your long-term target is low teens. You've guided to slightly below target. And it's being supported by stronger rental utilization as you downsize your rental fleet, your maintenance lease pricing initiative is benefiting that. Last year, the margin was about 10%. We and consensus are roughly there at 10% for this year. What are some puts and takes? What could bring it above, below?

Again, it's the same thing, freight market, right? So as the freight market tightens, you're going to get benefits in rental and used vehicle sales, which are going to improve the margin.

Great. Great. How about kind of affecting your FMS is your used truck gain on sale. You've guided to '26 being flattish to '25. The level was about $22 million in 2025. You've had more retail mix over wholesale in 4Q, so that's helped even though retail used prices are declining. You've guided 1Q to be more challenged, then it gets better throughout the balance of the year. What's your sense now? And what are some puts and takes?

Yes. I think as we said on the call, we're not expecting a big improvement in the used truck market. It's going to remain down and maybe a slight uplift towards the end of the year, but flattish year-over-year. Again, that's our assumption when we put out the guidance. What happens will depend on what happens in the market. And if used truck market comes -- if the freight market comes back sooner and the used truck market follows, there could be upside on that.

And what are you seeing in terms of the 3 kind of key policies affecting your used truck sales, the non-domiciled CDL, all the kind of the driver type policies, number two, truck tariffs; and then number three, EPA 27.

Right. So those are all -- those should all be -- well, the non-domiciled theoretically could put a little bit of pressure on used trucks, but could tighten up the market, which would actually benefit. On the EPA side, will there be a prebuy? There could be. There's going to be some increase in pricing as we get into 2027. But we haven't seen it yet. I mean we certainly haven't seen a lot of fleets rushing to prebuy yet, but that could happen. And I think overall, there's been a lot of excitement over the PMI and is the PMI an indicator that the freight market is coming back. It could be.

We also follow active truck utilization that FTR puts out, that's been above 95%, which is nice, too. That's usually a pretty good indicator. Spot markets are good. So those are external leading indicators that we look at that say could be, but 1 month or reading doesn't make a trend. And typically, there is a lag of, let's say, 6 months between when the freight market really starts to pick up as the spot market picks up and we start to see people needing to come into red trucks or buy used trucks. So we'll see.

How about we'll transition to the real growth engine, your SCS segment, supply chain, which is contract warehousing. Your long-term target is low double-digits growth year-over-year. You guided to accelerating through the year with wins weighted to second quarter and third quarter. And so our view, we're modeling you at kind of low double-digit growth to exit the year, averaging maybe up 3%, up 5%, 7% is where consensus is. What's your view on kind of the cadence of SCS revenue?

Generally, that's the expectation, right, that we know we signed a lot of contracts in 2025. Those contracts start to bleed in, in 2026. So our expectation as we exit the year is that we'd be approaching that target double-digit growth rate towards the end of the year.

Maybe as a follow-up, SCS is really where you have the hugest TAM. What are you doing to win share there? What are you doing differently than other contract warehousers?

Yes. I think our -- we've been in that business for a while, and I think our key is our specialization and our ability to execute. We have a long track record of being able to take on these projects and execute them very well and drive continuous improvement for our customers. Automation has become a more important component in some of those verticals. I think if you go back 2 or 3 years ago, automation was more specific to certain applications has become more broadly available now and applicable. So we've got a big expertise in that, too, and being able to implement that automation. And that's really, I think, what helps us win accounts is -- what helps us win accounts is our ability to execute well for our customers and continue to drive continuous improvement.

And I've had the privilege along with some of our investors here to tour your Chicago SCS facility for a major consumer packaged goods company. I was kind of very pleasantly surprised at your cadence in kind of getting one facility with that customer as a foothold, doing a good job, they'll award you with the next facility and then the next and the next. Can you talk about that sort of structure or cadence of winning a new client then growing by providing good service with your multiple clients?

Yes, it's not unusual. Typically, what will happen is that most of the clients in our supply chain are large, call it, Fortune 500 type companies that have operations, they start to outsource some. And those are the ones we like where they'll outsource one facility maybe to us, and we can kind of prove ourselves against the execution of other facilities, and that allows us to start picking up more locations over time. And again, it's our process and our rigor around executing and running these facilities and always trying to find more efficiencies so that we can bring savings to the customer and over time, pick up more business.

SCS, your margin has been very resilient even in this downturn. Your long-term target is high single digits. You've guided to at target. And last year, you were at 8.7%. We and consensus are roughly 9% for this year. How have you been able to be so resilient with your SCS margin? And what's your view for this year? Could it step up?

Yes. If you think about that business, it's contractual, right? So it should be steady. It should be -- what can create issues typically is something that wasn't picked up in the contract or an execution issue. So I think when you look at the steadiness of our margin in that business, it's a reflection of the execution of our operations and our ability to continue to deliver and drive efficiencies for our customers and without hiccups that create those margin changes.

Great. Moving on to DTS, dedicated trucking. The industry has gone through a lot of changes. There's a lot of opportunities in terms of government action driving out capacity, and we've seen 11, 12 weeks of consecutive year-over-year increases of mid- to high single digits for the spot rate. Your business is completely -- pretty much entirely dedicated. Your long-term target for revenue -- operating revenue growth for DTS, high single digits. You guided to below target. There's still uncertainty over volumes and pricing cycle improvement. It's still kind of early innings when it comes to the spot rate coming up. Last year, it was down 1.6%. We and consensus roughly flattish for this year. What's your view on that relative to the spot rates being fairly strong?

Yes. I think in Dedicated, just like any of our businesses, the more complicated it becomes, the more difficult it becomes, it's really good for Ryder. So when the driver market is soft and it's easy to hire a truck driver. That's not great for Dedicated. We like it better when it's hard to hire a truck driver because that way, private fleets are more likely to outsource. So as the driver market tightens with some of these things that you mentioned, I think that's where you'll start to see sales improve in Dedicated, new sales improve in Dedicated, some of the lost business improves. And then you'll see that get back towards its target growth...

Great. And then margin for DTS, your long-term guide is high single digits. You've guided to at target. So your margins are still very resilient despite headwinds on the top line side. You're roughly through all of your Cardinal synergies for '25, not much left for '26 there. You have sort of a balance here with a headwind from the government action we talked about tightening the driver market that could raise your labor costs in DTS.

And there's your contract revenue that's lagging the spot rate coming up, but that can be roughly fully offset maybe by tailwind of tighter driver conditions, higher spot rates that drive more outsourcing in DTS. Can you talk about kind of the dynamics there? Last year, your margin was 7.6%. We and consensus roughly 8%.

So you can have a little bit of volatility, but our contracts, especially after COVID, we really tightened up our Dedicated contracts so that as there's wage increases are required to retain drivers, we can more easily pass those through to the customer because we typically will not -- we typically work very closely with the customer when we have to give wage increases. And by not giving them, you get more turnover. So we've created -- I think the contracts are much tighter now around it. So I wouldn't expect significant margin volatility, but I would expect us to see improved top line growth as the market tightens and our prospects are needing help with finding drivers and maybe want to hand that off to somebody that does it for a living, and we're there to pick that up.

The other thing we're seeing, too, is around running your own private fleet, driver hiring is one of the complexities. Safety is another complexity that private fleets are dealing with and insurance claims and those types of things. And as companies continue to go through those types of challenges, we are seeing more companies looking for companies like Ryder to help us to help them.

Wonderful. We'll bring it all together and kind of point to your EPS guide and puts and takes there. But before going there, I wanted to get your sense of what customers are saying in your conversations with them, how they differ between your 3 segments, your FMS, SCS and DTS. How are customers viewing this year maybe a little differently than each segment?

I think on the supply chain side, again, those are the large, more Fortune 500 type companies. We're seeing companies making decisions moving forward with projects and plans and what they need to do. In our dedicated and lease business, which are more small to midsized companies, we're still seeing hesitation. Now that could be because they're small to midsize and they're more hesitant. Also, those are also the parts of the business that are more tied to the freight market and the freight market is the one that continues to be soft.

So -- or has continued to be soft. So those dynamics are the same. We're seeing the large companies moving forward with projects, and we're seeing really good sales on the supply chain side. But on the small to midsize, we're still seeing more -- we're seeing pipelines grow, but decisions being put off.

Great. And so I said we'll bring it all together for your EPS guide, your midpoint reflects roughly an 8% year-over-year growth for 2026, which is roughly equivalent to the 8% growth you had in '27. The range is between 4% to 12%. You've noted on your earnings call, the top and bottom end, you assume no macro support. With the top end, you're assuming some modest improvement in used gains and rental utilization and a higher benefit from your maintenance organization and omnichannel optimization initiatives. The lower end, kind of the reverse of each of those things. What could you say about sort of are we -- am I being accurate in characterizing that? Can you offer any additional puts and takes?

No, I think you've got it right. I think we didn't assume any improvement in the macro environment. I think if it does improve, you should see -- we could -- I have to be careful what I do since I'm retiring. I could really make all kinds of commitments here that I wouldn't have to keep. But I'm sticking to what we said on the call that we did not assume any macro improvement. We talk about the $250 million of earnings benefit when the macro improves. And that benefit will accrue between now and when the market begins to turn up and the next peak. So certainly, pieces of that could be delivered as the market improves. And that was not contemplated. I'm looking at the CFOs and have to live with this. That was not contemplated in the guide for '26. So I think short term, that's the piece that could be upside.

And if you're growing at 8% midpoint in a challenged market, what's your view on what it could be in a more normalized market?

Right. That, again, all kinds of dangerous things I could say there. But look, I think what we've shown in the last 3 years is an ability to deliver significant earnings improvement on initiatives. And I don't expect that's going to end. I think you will always find ways to improve. Quantifying it, I can't. You have $250 million that we've talked about of just rising tide lifts all boats. And I think that we do have line of sight once the things improve. We'll make some investments in our rental fleet, too. That doesn't all come free. I have to buy some trucks, but we know that there's opportunities for that to come in. And then organic growth, organic growth, as we hit our targets across our contractual businesses, that should deliver $50 million plus of earnings each year. So that one just keeps accumulating each year that we're at our target contractual growth rate. So just hitting our target earnings number and our target growth rate should deliver 50-plus on top of that. So put all that together, it's a nice number.

Great. I've got many other questions, but I want to open up the floor to any audience members who might have questions for Robert. I'd like to maybe go back to management and direction, going back to John Diez. Can you talk to John's achievements? He'll be your new CEO at the end of next month, especially his achievements in Ryder's transformation over the last year.

So we had over 50,000 employees at Ryder. So getting to the position that John is in, he's been -- there's been a lot of a lot of tests and cross-training, I think, that has happened over the last 20-plus years at John. John was -- started our finance organization, ran our rental business for a period of time, ran asset management, ran our dedicated business for 5 years and really helped to transform that model, took over our lease business, our fleet management business as we began the transformation, so played a key role in some of the important things that were done in the fleet management business around the maintenance initiatives, around the lease pricing, which Cristy also played a big role in.

So John has been in the heart of all the activity that we've done has been the Chief Financial Officer and more recently, the COO. So he's intimately familiar with the operations of our business. And I am confident he's going to do a great job. He's a good friend, and I know he's a good leader who's really well supporting the organization. I'd say above and beyond that, we've got a great management team lineup as part of that, that collaborates and works really well together. And I think that cohesiveness is also an important factor for the success we've had over the last 6 years, and I expect that will continue.

It seems like the 3 of you, you, John and Cristy have been very much involved with the transformation over the last 6 years.

Absolutely. Yes. John and Cristy, and I'd add Steve Sensing and many of the folks on the leadership team, their fingerprints are all over this work.

Great. Capital allocation. You've guided to $700 million, $800 million of free cash flow this year with a step-up in your CapEx. Can you talk about free cash flow and your capital allocation plan for '26? What are you going to do with all that cash? What is John going to do with all that?

What's John going do with all...

Or Cristy?

Well, first of all, organic growth is the #1 priority. So if things do pick up strongly and heavily and we say, boy, there's an incredible need for rental or we sign up new lease contracts, you could have more of it going to organic growth. We've always talked about acquisitions. We're always in the market looking for companies like Cardinal, things that are -- companies that are well run that we could bring into the Ryder fold, whether it's a tuck-in in our lease business, a tuck-in in our dedicated business or new services for our supply chain business, we're in the market for those and have plenty of capacity to do that.

Then you're going to see us, obviously, dividend payment is important and continue to work that. And then ultimately, buybacks. I think keeping our leverage to within our -- close to our target range is important for capital efficiency and continuing to buy back. I think we bought back 23% of the company over the last 5 years. That's also part of the value that we create by giving money back to shareholders and keeping our leverage where it needs to be.

Wonderful. We'll open it up for the floor for any questions from audience members. Otherwise, we'll continue AI. We've seen AI to be a real disruptor in industrials and transports lately. And I know that Ryder is no stranger to AI. You've incorporated it in a lot of areas of your business. Can you talk about the ramp-up of the use of AI for driving revenue and margin growth?

Yes. So I'd say in several places. One is customer-facing. So we have systems that we have created, RyderShare, RyderGyde. RyderShares in our supply chain and Dedicated business, RyderGydes in our FMS business. These are proprietary systems that we run that we are incorporating AI to bring efficiencies to the way we operate for our accounts and also bring efficiencies to our customers, getting them data so that they can manage their business better. So we've got some initial applications in those customer-facing systems. We then have AI that we're building into or that we're investing in through a company we purchased Baton.

So Baton was a technology company that we invested through RyderVentures. And I guess it was 4 years ago now, we acquired the whole company. This was a company that was working on an optimization software for truckload carriers. We invested them through RyderVentures and felt they had a good product, but maybe the wrong application. So we decided to buy the company and bring it in-house and have those -- all those smart people and a lot more that we've hired since then work on optimizing for Ryder for our accounts and across our accounts.

So that group is now -- it was originally -- I always said we bought 5 guys. Now we've got about 40, 50 people out in the valley that are working on this stuff and working on software for us. They're incorporating AI into the software that they're building for us and for our accounts. And we're excited about that work. And then ultimately, we're also leveraging our partners. So back-office type systems, whether it's call centers that we run today that we're incorporating AI into to make the -- either the agents more efficient or actually replacing some of the agents as part of that also. So really opportunities across those 3 different areas.

Wonderful. I was very much amazed, I think, along with some of the investors that toured with me your Chicago SCS and FMS facilities for your FMS, your leasing business, you show your real-time KPIs for each mechanic. And I thought that was very much a value driver. And then for your SCS, your contract warehousing, you're making great use of fully automated robotic forklifts. Can you talk about kind of outside of tech, just kind of broader tech implementation along those lines?

So the first one that you mentioned in FMS, when we talk about these maintenance initiatives that delivered now, I think, $150 million of annual savings, that's been part of it, right, is we employ just over 4,500 technicians who work on our trucks, highly valued, best technicians in the industry. And we learned that they -- we weren't utilizing them to their capabilities. They were spending too much time in front of the computer, doing things that were not what they really like to do and are intended to do.

So those boards that you saw, we basically took away all the computer terminals and work that they needed to -- that they were spending time in front of that actually hated being in front of and said, your job is to work on those trucks and here you go, and we're just going to give you a display says what job you're on and what your time is and how that's going and kind of a gamification of that.

And that's generated significant productivity improvements in our shop. Around automation in the warehouses, as I mentioned, if you go back 5 years ago, I would say a very small percentage of our warehouses had automation because there wasn't really a business case for it. Automation was too expensive for the value we're getting. That has shifted. And there's more warehouses now and there's more operations where automation does create value. And where that's happening, we are implementing that and have an expertise. We have an entire engineering group that focuses on finding those automation systems that apply well to each of the different verticals that we operate in and implement them for our customers.

Wonderful. So to summarize, smooth transition with the management change, FMS very much levered to the macro. SCS, a very strong growth engine. And DTS has some sort of puts and takes from spot rates and supply and demand. Can I ask you to give us a summary and a closing statement, Robert?

No, I think as we started, Ryder has been around a long time. We're going to be around for a long time. There's not too many companies that are 93 years old that are -- that have the growth spurts that we've had over the last several years. And as I told everybody as I'm transitioning out that I am confident that the best years of this company are ahead of us with the need for the services that we provide really accelerating and the team that we have that can deliver.

Great. Thank you very much, Robert. Thanks, everyone.

Thank you.

Good morning, and welcome to the Ryder System Fourth Quarter 2025 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. [Operator Instructions]

I would now like to introduce Ms. Calene Candela, Vice President, Investor Relations for Ryder. Ms. Candela, you may begin.

Thank you. Good morning, and welcome to Ryder's fourth quarter 2025 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, business, competitive, market, political and regulatory factors. More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website.

Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer; John Diez, President and Chief Operating Officer; and Cristy Gallo-Aquino, Executive Vice President and Chief Financial Officer. Additionally, Tom Havens, President of Fleet Management Solutions; and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solutions, are on the call today and available for questions following the presentation.

At this time, I'll turn the call over to Robert.

Good morning, everyone, and thanks for joining us. Today, I'll begin by providing you with an update on our balanced growth strategy and share some highlights from our 2025 performance. Cristy will provide you with an overview of our fourth quarter results, which were in line with our expectations, and we'll also discuss our capital spending and capital deployment capacity. John will then provide you with our outlook for 2026 and discuss the strategic initiatives that are the key drivers of expected earnings growth in 2026.

Before I get started, I'd like to provide a quick overview of our CEO succession plan that was announced in December. Effective March 31, I will retire, and John Diez will assume the role of Chief Executive Officer. I will remain on Ryder's Board as Executive Chair. Many of you have had the opportunity to interact with John during his 20-plus year career at Ryder, where he has held various leadership roles across the organization, including Chief Financial Officer as well as President of FMS and President of DTS. John has been a key player in the development, execution and success of our balanced growth strategy and I am confident that he is the right leader to build upon the strength of our transformed business model and create incremental value for our customers, employees and shareholders.

So with that, let's move to the strategic update on Slide 4. We've made remarkable progress on our balanced growth strategy and I continue to be extremely proud of the Ryder team for their consistent execution. Our journey has been transformative, enabling us to outperform prior cycles even during this prolonged freight downturn and providing us with a solid foundation for future growth. In order to establish our transform foundation, we derisked the business model by significantly reducing our reliance on used vehicle proceeds to achieve our target returns. We also exited underperforming geographies and services.

Our multiyear lease pricing and initial maintenance cost savings initiatives meaningfully contributed to increasing our return profile by delivering a combined annual pretax earnings benefit of over $225 million and also contributing to positive free cash flow over the cycle. In addition, we accelerated growth in our asset-light Supply Chain and Dedicated businesses resulting in a more resilient business mix that is less capital intensive. We continue to evolve our transform foundation by executing on strategic priorities focused on operational excellence, customer-centric innovation and profitable growth. We're expecting another $50 million in benefits from the next phase of our maintenance cost savings initiatives. We're optimizing our omnichannel retail warehouse network through continuous improvement and are better aligning our footprint with the demand environment. We're also taking cost actions to increase efficiency.

We're investing in customer-centric technology aimed at delivering our customers a proactive Supply Chain that gives them a competitive advantage. We're enhancing proprietary technologies such as RyderShare and RyderGyde by embedding AI to increase functionality and effectiveness. Baton, a Ryder technology lab is developing an AI-enabled software and data platform that will power next-generation customer-facing technology at Ryder. We're leveraging AI from leading technology partners in various use cases, including increasing the effectiveness of our customer call centers. We continue to deploy automation and robotics in our warehouses to drive operating efficiencies. Technology and innovation, including how we deploy AI is a key component of our strategy, and we'll provide you with updates as our journey progresses.

We continue to pursue profitable growth opportunities and are focused on higher-return segments and verticals, increasing our share of wallet with port-to-door solutions and generating acquisition synergies. Our transform model has demonstrated the effectiveness of our balanced growth strategy by outperforming prior cycles. The earnings power and resiliency of our business continues to be supported by our high-quality contractual portfolio that generates over 90% of our revenue. Our significant flexible capital deployment capacity further strengthens our position and ability to pursue strategic opportunities. We're proud of the strong performance of our transform business model and believe that executing on our balanced growth strategy will continue to deliver higher highs and higher lows over the cycle.

Slide 5 illustrates how key financial and operating metrics have improved since 2018, reflecting the execution of our strategy. In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from FMS. Ryder generated comparable earnings per share of $5.95 and ROE of 13%. Operating cash flow was $1.7 billion. This was during peak freight cycle conditions.

Now let's look at Ryder today. In 2025, a year in which freight market conditions remain at or near trough levels. Our transform business model has once again delivered meaningfully higher earnings and returns that it did during the 2018 peak. Through organic growth, strategic acquisitions and innovative technology, we have shifted our revenue mix towards Supply Chain and Dedicated with 62% of our 2025 revenue generated by these asset-light businesses compared to 44% in 2018. 2025 comparable earnings per share of $12.92 are more than double 2018 comparable earnings per share of $5.95. ROE of 17% is well above the 13% generated during the 2018 cycle peak.

As a result of profitable growth in our contractual lease, Dedicated and Supply Chain businesses, operating cash flow of $2.6 billion is up more than 50% from 2018. As shown here, in 2025, the business outperformed prior cycles even when comparing the pre-transformation peak to the current market environment.

Turning to Slide 6. I'll share key performance highlights for full year 2025. First, our resilient business model and benefits from our strategic initiatives delivered higher year-over-year earnings and solid returns in 2025. Comparable earnings per share was up 8% and ROE was solid at 17% in line with our expectations given where we are in the freight cycle.

Next, consistent execution on multiyear strategic initiatives delivered $100 million in cumulative benefits through 2025. We now expect to outperform our initial estimate by $20 million and expect to realize another $70 million in incremental benefits in 2026. This takes the total expected annual benefit to $170 million.

Finally, the earnings power of our high-quality contractual portfolio is driving higher operating cash flow which continued to increase our capital deployment capacity in 2025. Our strong balance sheet and capital deployment capacity provide us with ample resources to support strategic growth opportunities while returning capital to shareholders. Since 2021, Ryder has generated $3 billion in free cash flow, repurchased 24% of shares outstanding and increased the quarterly dividend by 57%.

I'll now turn the call over to Cristy to review our fourth quarter performance.

Thanks, Robert. An overview of total company results for the fourth quarter is on Page 7. Operating revenue of $2.6 billion in the fourth quarter was in line with prior year as contractual revenue growth in SCS was offset by lower revenue in DTS and FMS. Comparable earnings per share from continuing operations were $3.59 in the fourth quarter, up 4% from the prior year, reflecting benefits from share repurchases. Return on equity, our primary financial metric was 17%, up from prior year as benefits from share repurchases and dividends were partially offset by lower rental demand and used vehicle sales results. Year-to-date free cash flow increased to $946 million from $133 million in the prior year, reflecting reduced capital expenditures, lower income tax payments due to the permanent reinstatement of tax bonus depreciation as well as lower working capital needs.

Turning to fleet management results on Page 8. Fleet Management Solutions operating revenue was down 1%, reflecting lower rental demand, partially offset by higher ChoiceLease revenue. Pretax earnings in Fleet Management were $136 million, down versus prior year, reflecting weaker market conditions in rental and used vehicle sales. Our pricing and maintenance cost savings initiatives continue to benefit ChoiceLease performance. Rental results for the quarter reflect market conditions that remain weak. Rental demand increased sequentially, but only in line with historical seasonal trends and not indicating any improvement in market conditions. Rental demand this quarter was below prior year. Lower rental activity was partially offset by higher rental power fleet pricing, which was up 5% year-over-year. Rental utilization on the power fleet was 72%, down slightly from prior year of 73% on an average fleet that was 8% smaller. Fleet management EBT as a percent of operating revenue was 10.5% in the fourth quarter below our long-term target of low teens over the cycle.

Page 9 highlights used vehicle sales results for the quarter. Year-over-year, used tractor pricing increased 1% and truck pricing declined 9%. On a sequential basis, pricing increased for both tractors and trucks with tractors up 6% and trucks up 4%. Sequential pricing benefited from a higher retail mix as we realize better proceeds using the retail sales channel versus the wholesale channel. In the fourth quarter, 69% of our sales volume went through our retail sales channel, up from 54% in the third quarter. Our retail mix was also above prior year levels of 64%. Pricing in our retail sales channel declined 2% sequentially for tractors and declined 8% for trucks. During the quarter, we sold 3,600 used vehicles down sequentially and versus prior year. Used vehicle inventory of 9,500 vehicles is slightly above our targeted inventory range. Used vehicle pricing remained above residual value estimates used for depreciation purposes.

Slide 23 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information.

Turning to Supply Chain on Page 10. Operating revenue increased 3%, driven by new business and volumes in omnichannel retail. Supply Chain earnings decreased 8% from prior year as the benefits from operating revenue growth were more than offset by both lost business and extended customer production shutdowns in automotive. Supply Chain EBT as a percent of operating revenue was 8% in the quarter at the segment's long-term target of high single digits.

Moving to Dedicated on Page 11. Operating revenue decreased 4% due to lower fleet count, reflecting the prolonged freight downturn. Dedicated EBT was above prior year, reflecting lower bad debt and benefits from acquisition synergies, partially offset by lower operating revenue. DTS results continue to benefit from pricing discipline as well as favorable market conditions for recruiting and retaining our professional drivers. Dedicated EBT as a percent of operating revenue was 8.9% in the quarter at the segment's long-term high single-digit target.

Turning to Slide 12. 2025 lease capital spending of $1.5 billion was below prior year, reflecting lower lease sales activity. In 2026, we are forecasting lease spending to increase to $1.9 billion, reflecting higher replacement activity. We expect the ending lease fleet to modestly decline in 2026. The 2025 rental capital spending of $300 million was below prior year as expected. In 2026, we're forecasting lower rental capital spending of $100 million, reflecting lower planned replacement activity. Our ending rental fleet is expected to decrease 7%, and our average rental fleet is expected to be down 13%. The rental fleet remains well below peak levels as we manage through an extended market slowdown.

In rental, in recent years, we shifted capital spending to trucks versus tractors as trucks have historically benefited from relatively stable demand and pricing trends. At year-end 2025, trucks represented approximately 60% of our rental fleet. Our full year 2026 capital expenditures forecast of approximately $2.4 billion is above prior year. We expect approximately $500 million in proceeds from the sale of used vehicles in 2026, in line with prior year as we do not anticipate a meaningful recovery in market conditions. Full year 2026 net capital expenditures are expected to be approximately $1.9 billion.

Turning to Page 13. In addition to increasing the earnings and return profile of the business, our transformed contractual portfolio is also generating significant operating cash flow. Improving the overall cash generation profile of the business is one of the essential elements of our balanced growth strategy. Better earnings performance is driving higher cash flow generation and, in turn, is delevering our balance sheet at a more rapid pace. This momentum is creating incremental debt capacity given our target leverage range of between 2.5 and 3x.

As shown on the slide, over a 3-year period, we expect to generate approximately $10.5 billion from operating cash flow and used vehicle sales proceeds. Our operating cash flow will benefit from improving contractual earnings. This creates approximately $3.5 billion of incremental debt capacity, resulting in $14 billion available for capital deployment.

Over the same 3-year period, we estimate approximately $9 billion will be deployed for the replacement of lease and rental vehicles and for dividends. This leaves around $5 billion, which equates to more than 60% of our year-end market cap available for flexible deployment to support growth and return capital to shareholders. We estimate about half of our flexible deployment capacity will be used for growth CapEx and the remaining will be available for discretionary share repurchases and strategic acquisitions and investments.

Our capital allocation priorities remain focused on profitable growth, strategic investments and returning capital to our shareholders. Our top priority is to invest in organic growth. Aligned with these priorities in 2025, we funded replacement CapEx of $1.8 billion and returned $664 million to shareholders through buybacks and dividends. In addition, earlier this year, we raised our quarterly dividend 12%, marking our third consecutive year with a double-digit increase. We also authorized a new discretionary repurchase program in the fourth quarter and approved our 198th consecutive dividend payment last week. Our balance sheet remains strong with leverage of 250% at year-end at the lower end of our target range and continues to provide ample capacity to fund our capital allocation priorities.

With that, I'll turn the call over to John to discuss our outlook.

Thanks, Cristy. Slide 14 highlights key aspects of our 2026 outlook. In terms of market assumptions, we're expecting modest U.S. economic growth in 2026 and no meaningful change in freight market conditions. Our outlook also assumes U.S. Class 8 production declines 4% in 2026. We remain confident that secular trends will continue to favor transportation and logistics outsourcing, and that our operational expertise and strategic investments will continue to enable us to deliver increasing value to customers and shareholders.

In terms of our financial forecast for 2026, operating revenue is expected to grow approximately 3% as revenue growth from new business and Supply Chain is offset by near-term pressures in Dedicated and Fleet Management, reflective of the freight cycle. 2026 comparable EPS is expected to increase by 12% at the high end of our $13.45 to $14.45 forecast range driven by $70 million of benefits from our strategic initiatives.

Return on equity is expected to increase to a range between 17% and 18%, reflecting earnings growth and share repurchase activity. We expect our transformed business model to deliver ROE in the low to mid-20s when market conditions improve for our transactional rental and used vehicle sales businesses which will enable us to achieve our over-the-cycle ROE target of low 20s. Free cash flow is expected to be between $700 million to $800 million, down from prior year primarily reflecting higher lease vehicle replacement CapEx. Overall, we expect to deliver earnings growth and increased returns in 2026, reflecting our upside strategic initiatives, and the strength and durability of our transform and cycle-tested business model.

Slide 15 provides outlook highlights for each of our business segments. In Fleet Management, operating revenue growth is expected to be below the segment's mid-single-digit target, reflecting freight market conditions. FMS EBT as a percent of operating revenue is expected to be up year-over-year, reflecting benefits from strategic initiatives but remains below the segment's low teens target, reflecting weak rental and used vehicle sales conditions. We're confident in our ability to reach our long-term EBT target and FMS over time based on the demonstrated earnings power of our contractual portfolio and benefits from strategic initiatives as well as the earnings uplift we expect when market conditions in rental and used vehicle sales normalize.

Supply Chain operating revenue growth is expected to accelerate throughout the year, reflecting the timing of new sales, which will begin to benefit results midyear. SCS is expected to exit 2026 with an operating revenue growth rate approaching the segment's low double-digit target. Supply Chain EBT percent is expected to be at the segment's high single-digit target, reflecting revenue growth as well as benefits from incremental operating efficiencies in our omnichannel retail network.

In Dedicated, operating revenue growth is expected to be muted and below its high single-digit target reflecting freight market conditions. DTS EBT as a percent of operating revenue is expected to be in the segment's high single-digit target range in 2026, reflecting the strength of the contractual dedicated portfolio, which we expect will continue to benefit from pricing discipline and our strategic initiatives.

We expect to continue share repurchase activity and are leveraging our zero-based budgeting process to manage discretionary spending and mitigate inflationary costs. Supply Chain is expected to be the key driver of our operating revenue growth. Overall, we expect the ongoing momentum from our strategic initiatives and high-quality contractual portfolio to drive 2026 earnings growth with segment earnings in line with our expectations.

Slide 16 outlines the key changes from 2025 to reach the high end of our 2026 comparable EPS forecast. As previously noted, benefits from our strategic initiatives are the key driver of higher comparable EPS. Fleet management contractual businesses are expected to contribute $0.70 in incremental EPS, primarily reflecting benefits from our lease pricing and maintenance cost saving initiatives. Supply Chain and Dedicated are expected to contribute $0.55 in incremental EPS reflecting improved performance in omnichannel retail and the initial benefits from the Flex operating structure in Dedicated. Our transactional used vehicle sales and rental businesses are expected to deliver a net $0.05 EPS benefit due to improved rental performance partially offset by lower used vehicle sales results.

In rental, we expect utilization to be higher than prior year on a 13% smaller average fleet. We also expect sequential demand to return to historical seasonal trends. 2026 used vehicle gains are expected to be slightly below 2025 levels. Our full year forecast assumes used vehicle prices begin to modestly improve in the second half of the year. We expect used vehicle prices to remain above residual value estimates used for depreciation purposes.

A $0.23 EPS net benefit is expected from a reduced share count, partially offset by a higher tax rate. This brings the high end of our 2026 comparable EPS forecast to $14.45 with a range of $13.45 to $14.45. The transformative changes we've made to the business model continue to deliver strong results. The earnings power of our contractual businesses and our strategic initiatives are more than offsetting near-term headwinds in the transactional parts of our business.

Turning to Page 17. We expect 2026 earnings growth to be driven by incremental benefits from multiyear strategic initiatives, which began in 2024. These initiatives represent structural changes we're making to the business and are not dependent on a cycle upturn. We now expect to surpass our initial target of $150 million in annual pretax earnings benefits from these initiatives and have upsized our target to $170 million upon completion. To date, we've realized $100 million in benefits, leaving $70 million of incremental benefits expected in 2026.

In Fleet Management, we expect our multiyear lease pricing and maintenance cost saving initiatives to benefit 2026 results. In Dedicated, we expect incremental benefits from acquisition synergies as well as initial cost savings from our Flex operating structure. In Supply Chain, we continue to focus on optimizing our omnichannel retail warehouse network through continuous improvement efforts and better aligning our warehouse footprint with the demand environment. In 2025, we downsized and exited select locations and expect to recognize incremental savings from these actions in 2026.

In addition to driving our outperformance relative to prior cycles, our transformed business model also provides a solid foundation for the business to meaningfully benefit from the eventual cycle upturn. We've increased our initial estimate for the annual pretax earnings benefit we expect to realize by the next cycle peak to at least $250 million, up from our prior estimate of at least $200 million. The majority of the $250 million benefit is expected to come from the cyclical recovery of rental and used vehicle sales in FMS with additional benefits from higher omnichannel retail volumes, leveraging our rationalized footprint. We expect to recognize these benefits over time as freight market conditions normalize.

In addition to benefiting our transactional businesses, we also expect additional opportunities for profitable contractual growth as freight conditions normalize. Supply Chain achieved record sales in 2025, which is benefiting revenue and earnings in 2026. On the other hand, lease and Dedicated have faced revenue growth headwinds as a result of the extended freight downturn. We expect contractual sales trends for these offerings to improve when the freight cycle recovers. We've been pleased by our resilience and performance during the prolonged freight market downturn and are confident each of our business segments is well positioned to benefit from the cycle upturn.

Turning to Page 18. We're forecasting a comparable EPS range of $13.45 to $14.45 versus $12.92 in 2025. We're also providing a first quarter comparable EPS forecast range of $2.10 to $2.35 versus the prior year of $2.46. As a reminder, the first quarter has historically been our lowest earnings quarter. And in 2026, we expect it will represent the most difficult year-over-year comparison. Expected first quarter results reflect used vehicle sales and rental market conditions that remain weak and did not show improvement in January. Supply Chain comparisons will also be challenged due to record first quarter performance in 2025.

We remain focused on our initiatives and expect to deliver another year of earnings growth and higher returns. We're confident that our transformed business model remains capable of performing across a range of business environments.

At this time, I'll turn the call back over to Robert.

Thanks, John. Turning to Page 19. Our transform business model continues to deliver value to our customers and our shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio. We continue to see significant opportunity for profitable growth supported by secular trends, our operational expertise and ongoing momentum from multiyear strategic initiatives. We remain committed to investing in products, capabilities and technologies that will deliver value to our customers and our shareholders.

That concludes our prepared remarks. Please note that we expect to file our 10-K later today. At this time, I'll turn it over to the operator to open the call for questions.

[Operator Instructions] And first, we'll go to Jordan Alliger with Goldman Sachs.

It's [ Andre ] on for Jordan. It's a helpful earnings walk on Slide 16 to get to the high end of your EPS guide for 2026. Just curious between the buckets you lay out in terms of the year-over-year earnings tailwind. If you could just share where the largest variability lies within those buckets with respect to getting to the low end versus the high end? And then maybe what's driving that variability just the puts and takes there would be really helpful.

Sure. [ Andre ], it's John here. If you look at Page 16, I would say the biggest favorability there is really tied to our transactional business. When you look at the improved earnings of the businesses on the FMS side. A lot of it is coming from lease pricing and another year of maintenance strategic initiatives, I would say. We feel really confident in our lease pricing based on the momentum we saw at the end of last year, and that will carry over into this year. Maintenance, there is some variability there, but we see that the business continues to execute at a better level than we were previously.

If you look at Supply Chain, clearly there, you do have the omnichannel optimization. And you heard in our prepared remarks, we took some actions last year that really set us up to deliver incremental benefits from both the omnichannel as well as the dedicated Flex structure activity that we made. So overall, I would say probably the biggest variability in our strategic initiatives is probably tied to our maintenance organization and some of it tied to our omnichannel optimization activity. Clearly, rental and UVS, we have no meaningful improvement in those transactional businesses. The low end of our range does contemplate deterioration -- further deterioration from Q4, if rental and UVS were to pull back, and that's what's contemplated in the $13.45 at the low end, but we feel really good about the strong contractual portfolio performance and obviously the confidence we have in executing again on our strategic initiatives.

[Operator Instructions] We will go next to Ben Mohr with Citibank.

Great print on the used gain of $12 million in 4Q. Wanted to ask what's your view on cadence for that? You mentioned 1Q should be softer. Should we be looking at a step down, not too much from that $12 million? And then gradually improving beyond the $12 million throughout the year, or what's your view on kind of 1Q through '26 for used gain, please?

Yes, Ben, let me make a few remarks, and then I'll turn it over to Tom. We do see the environment on the used vehicle sales side kind of gradually improving as we get through the year. We do expect Q1 to be kind of consistent with what we saw in Q4. We are expecting tractor pricing to improve as a lot of capacity keeps coming out of the market, and that will bode well for tractor pricing going into second half of the year. Trucks, which is the majority of our inventory today, we do expect trucks to continue to be kind of depressed at the current fourth quarter levels, which, as you recall, year-over-year, truck pricing was declining all of last year, so it's going to make the comparables a little bit more difficult. We do expect to improve retail mix next year, but I'll let Tom talk about kind of what he's seeing in the business.

John, thank you. Your initial read on that was right. So what we saw in the fourth quarter, and I think you see it in the gain numbers where we did a lot less wholesaling in Q4. But Cristy also mentioned that the -- in her opening comments, that the retail pricing in Q4 actually fell a little bit. We're expecting that to continue into Q1. So the kind of first part of the year, you see a little bit of decline in the pricing of retail. And then in the second quarter and beyond, you start to see that pricing improve, which then leaves you a full year that looks kind of flat in gains year-over-year. So that's what we're seeing. We're certainly not seeing any pickup in volumes or pickup in activity yet at our UTCs. We'll see how that develops throughout the quarter and the rest of the year, obviously.

Great. I really appreciate that. And maybe just a follow-up on what you mentioned with capacity coming out of the market. The kind of the sense from the market is with government enforcement of non-domiciled CDLs, English language proficiency, ELD devices, trucker schools, we may see the capacity exiting drivers, exiting, driving more used trucks flooding the market, depressing used truck pricing, but it seems like maybe there's kind of puts and takes there. And then maybe going into the second order effect, where for private and private fleets -- for hire carriers and private fleets would be buying trucks to pick up the associated freight from the operators who left, which could lift used truck prices. Could we get a sense of your views on that kind of tying in with the cadence through '26, tied in with this policy change?

Yes, Ben. I would say, look, broadly, we do see evidence that capacity is coming out of the market. And we think even independent of those macro factors you talked about, we do expect that the capacity is going to get tighter as we look at 2026. As far as what we're seeing on the driver side with immigration and some of the rules that have come out, I would just say that primarily impacts the for-hire carrier market, which is primarily impacting our sleeper tractor class. And if you look at our inventory use vehicles today, it's predominantly a truck inventory.

So the impact to used vehicles, even if we see a slight blip down, is going to be, I would say, minimal for Ryder going forward. Clearly, for us, we continue to look for sites that the market will take an upturn. We think overall capacity exiting the market will be good for us long term to not only impact our transactional businesses, but also help grow our contractual businesses in both lease and Dedicated services.

Great. Appreciate that. And maybe if I can just squeeze one more in related for your SCS division, you've noted having signed new SCS business starting 2Q, 3Q this year. Can you talk to the magnitude of that business dollar-wise or a percentage of revenue growth wise? And any new signings on for 1Q or 4Q or 2Q or 3Q since then?

Ben, this is Robert. Look, I think the good news is we had a very strong sales year in 2025 in Supply Chain. It was a record year, considering all the challenges in the economy. It's a great story. Those business -- those new wins start getting layered in throughout the year, and you'll start to see the benefits of that more. And as I had mentioned in the last earnings call, probably more end of Q2, Q3 is where you really start to see more of that layer in. But Steve, you can give additional color there.

Yes. I think as you think about it, think about omnichannel retail where we're seeing an increase in sales. I think we're off to a really good start this year. At the end of the day, it's all about our people. The relationships that we've built, not only from the vertical leads and our sales team to the frontline operators because as we execute that gains, confidence from our customers. About 80% of our sales this year was expansion sales. So I think that drives to that execution, continuous improvement and innovation that we bring to our customers. So -- and on the backbone of our port-to-door strategy, you're seeing a good expansion across many of our service offerings.

We'll go next to Jeff Kaufman with the Vertical Research Partners.

Well, first of all, congratulations, Robert, on a tremendous run, you really transformed the company. And also congratulations, John. We look forward to your leadership. So I guess two questions. All these trucking equities are going up and spot rates are up and people are enthusiastic that maybe we're starting to see a bit of a turn. And I know they're more focused on pricing and driver constriction as opposed to vehicle demand that's actually shown signs of increasing yet. But it seems like your forecast is a little more dour than that. And particularly when I look at the ratio of rental equipment to lease, normally, you have like 25% rental trucks to lease trucks because you're going to need full service lease support, but you guys are down to 22%, and it looks like you're headed towards 20% just based on the guidance. So I guess kind of what are you seeing differently than the optimism that some of the freight carriers are seeing out there?

I'll let John give you a little more color. I'll just start by telling you that clearly the range that we've given for the year, the top end of the range does not assume any significant pickup in the market. That's not because we have a different crystal ball than the rest of the market. We just haven't seen evidence of that yet in our business. So clearly, if things got better, there's an opportunity for things to get above that number. But given what we're seeing today, that's the guidance we're giving, but I'll let John give you color on that.

Yes. Jeff, if you look at rental for us and we made mention of it, we looked at January even. We have seen the spot market tighten up a little bit. We've seen capacity. I said you saw the PMI print come out a few days back, which was fairly positive. We just haven't seen it as of yet. We typically see about a 6-month lag before really market conditions improve, show up in rental. So clearly, our guidance you heard from Robert just now does not reflect that. But if market conditions do show signs of improvement. We will see that in the second half at earliest. The strength of that improvement also will dictate what we could see come through to the bottom line.

What we have done back to your question on the fleet and rental in particular is we are looking to [ tighten ] the fleet as we get through the first half of the year and then in the second half with no meaningful improvement you should see us return back to historical utilization levels of high 70s. And that's kind of where that self-improvement plan comes into play here. Clearly, if things -- if we see demand picking up, we could slow down some of that activity of de-fleeting and extend that equipment. And clearly, we could go out and buy and look to buy additional equipment to introduce into the fleet.

And just one follow-up, if I can. You guys talk about Baton from time to time. I'm not so sure the rest of us really understand what differentiates it versus going out into the market and just looking for AI solutions and tech solutions. Can you talk a little bit about the advantage of Baton, and what it means to the company?

Yes. Baton was initially a Ryder Ventures investment we made, working with them for a few years. We realized those significant value for them to really be the catalyst for us to optimize and create solutions for our customers through digital technologies and optimize fleets. So they had that business know-how and some of the technology underpinnings. We bought them. We've obviously had them look at our RyderShare platform and really improve on that platform from being just a visibility and event management tool to being an optimization, transportation optimization tool. With their capabilities, the Baton Group's capabilities, we feel we have not only the skills to take advantage of even some of the emerging technologies in AI, so that we could deliver greater value into the future for our transportation clients.

We'll go next to Rob Salmon with Wells Fargo.

Clearly -- to piggyback on what was just being asked with regard to rental, clearly, we're seeing some elevated spot rates in the market. It would be helpful if you provide just a little bit more context of what you're seeing across your rental customers, i.e. the FMS customers that traditionally are -- have equipment down, or they're having surge business and operating in the rental versus your stand-alone rental customers just to get a sense of how that business is trending here?

I'll let Tom give you some color. I'll just tell you that three, we would call more like leading-type indicators in our business are used vehicle sales, rental and our lease power miles. And we haven't really seen a meaningful move in those yet. Our used vehicle retail pricing was actually sequentially down a bit, as Tom had mentioned. Rental utilization is stable but really not improving so far. And our lease models were flattish. So that kind of gives you a bit of color on what we're seeing today. Obviously, with some of the early indicators around PMI and the tightening of the for-hire market, you could see some improvement later on in the year, but that's what we're seeing out. But Tom, do you want to give more color around rental?

Yes, I'll give you a little color on the utilization that we're seeing and the demand. I know you guys can see the year-over-year comp, but we were down 1% on utilization on a smaller fleet. So the demand in total was down. The December utilization landed at about 74%. And as we stepped off and rolled into January, that went down to 66%, which is pretty typical to what we see, but down a little bit worse than our historical seasonal trends. So what we've put in this forecast is a little bit lower seasonal trend in the first quarter and then for the balance of the year, a very normal seasonal trend that we would see. And then directly answer your question on the type of customers that we're seeing, I would say that our pure business were the non-lease customer down slightly year-over-year.

So I would say that business has been somewhat stable throughout 2025. But really, what's been impacting our demand is our lease customers have not had the need for lease extras like we've historically seen. That's a trend that we've had for a couple of years here. I think I've mentioned it on previous earnings calls, where the biggest impact to our lease fleet is, customers have been downsizing their fleets and not growing their fleets. That trend was the same in Q4. And of course, if they're downsizing their lease fleet, there's certainly no need for rental. So those are the trends we've been seeing for quite some time, and we haven't seen any change to that yet. Hopefully, at some point this year, that will change, but we have not seen it yet.

And just a quick follow-up. I think you guys measure your rental on just total days. Was January -- do we have an outsized impact in January because of storms driving that kind of worse than normal seasonality, or was it -- are you looking at on a weather-adjusted basis?

We didn't look at it as a weather-adjusted basis, but it didn't seem that the weather impacted the utilization at all.

Helpful context there. And I guess taking a step back, right now kind of at the bottom of the market, DTS margins are at the -- are at your target range over the cycle, same with SCS. Should we be thinking that there is potential upside here relative to the longer-term targets given some of the internal initiatives and acquisition cost-outs you guys have been executing on, or are there offsets that we should be thinking about as we get into a better demand environment where maybe we're seeing higher turnover, higher investment that we should be kind of cognizant of? Just your perspective on those two segments, longer-term margin opportunities.

Yes, Rob. For now, our long-term targets, I think, are still appropriate. We have seen margin even within that high single-digit target within the Supply Chain business, that business is scaled and continue to grow. Dedicated is the one part of the business that does ebb and flow depending on where we're at in the cycle. And as you called out, typically, as we're growing that business initially, we're going to see some pressures and headwinds with higher driver costs because the level of turnover and cost to acquire drivers goes up typically. But that will oscillate between the low end of the high single digits and then in a weak environment, you'll see us climb up to the high single digits. So what you should expect is kind of more of that movement that we've seen historically on dedicated and Supply Chain continues to really perform and we're seeing that it consistently has been performing at that high single-digit towards the upper end as of late.

We'll go next to David Zazula with Barclays.

Can I just ask about the Flex operating structure and the benefits you're expecting to see from that in Dedicated, and if Dedicated sales ramp up, and you start seeing some new contracts? Could some of that structure offset some of the margin headwinds we might normally expect in an upswing in the Dedicated business.

Yes, David, I think right now, what we've seen is really optimization in the back-office resources. As John talked a little bit a bit ago about the time, we are implementing some AI technology into the Flex model that should allow us to reduce driver dwell time and better allocate drivers to the right operations. So certainly, as the market comes back up, density comes into the Flex model, and there should be some upside growth on the top line.

Awesome. Very helpful. And then with respect specifically, I mean we can see the global numbers, but to your auto customers, what does the conversation been like in trying to reduce the negative auto component to SCS in 2026?

Yes. I think if you look at the diversity of our portfolio, 5, 6 years ago, we really focused on growing CPG and omnichannel retail, and we've done that. I think the diversity in our OEMs that we serve is very well balanced. What we're challenged with in Q4 was a microchip shortage that impacted a few of our customers. And we're going through a retooling effort right now with many OEMs as they're converting away from EV vehicles into more ICE vehicles. So we expect that to kind of get back to normal in the back half of the year.

We'll go next to Ravi Shanker with Morgan Stanley.

This is [ Nancy ] on for Ravi. I just wanted to touch on your January commentary a bit more. Is sort of the lackluster January you've seen so far just because you're going to see -- you're going to be seeing a delayed impact from the cycle? Just trying to hammer down the difference between what you're seeing and maybe others in the market.

Yes. I think, [ Nancy ], it's really more the service offerings and the products that we have. We're not in the spot truckload business. So there is a lag when there's a tightening of the market between when you start to see that and you start to see an increase in our rental business and our used vehicle business. So part of it could just be that, that we're just not seeing it yet. We did -- that's one of the reasons why we did not build into our full year guidance. Any meaningful improvement in the market. Obviously, if that holds and it continues to move in that direction, that could give us some benefits in the back half of the year.

Got it. And then in regards to the full year guidance, how do you think Ryder will perform if any inflection is predominantly supply-side driven rather than demand and rates go up because of supply rather than demand, sort of helpful to hear your expectations if that's the case.

Yes, Nancy, we're still going to benefit whether it's supply driven or demand driven. I would say, especially on the used vehicle sales side, if there's less vehicles out there to be had, you should see kind of a lift in used vehicle pricing over time. Clearly, the catalyst to the 250 will be dictated primarily by demand-driven improvement. But certainly, supply continuing to tighten up will also be helpful for us and really start driving hopefully sales activity in both our leased and Dedicated space.

We'll go next to Harrison Bauer with Susquehanna.

Robert, John, congrats on the upcoming transition here. I wanted to revisit UVS, but maybe in the context of what some of your fleet strategy is for the year. You discussed the dynamic where both your lease and rental fleet are likely to come down throughout or end the year -- to end of the year with maybe a little bit more punitive coming down in the beginning part of the year. And we've seen some other freight companies take some decisive actions through large impairments on some underutilized assets. Is your UVS certainly being negative and the upside to your case, does that include the potential for maybe Ryder taking some more decisive actions on moving some of that underutilized fleet into the wholesale channel in the first half of this year? And if we can potentially see something similar to the losses that we saw in 2Q of 2025.

Yes, Harrison. On the UVS environment, as we look forward, we do see a stabilizing environment. And as I mentioned earlier, we do expect actually tractor pricing to improve. So we're not expecting any sort of dramatic downturn on the upper end of our guidance. Clearly, if there is some pullback and pricing does continue to move downward. We do not expect to have to take any sort of impairment charges. We think our residual values are appropriately set. So any level of pullback that's out there will be, in our opinion, will be low single digits. That being said, we do expect UVS to kind of, I would say, perform in line with what we saw in 2025. And yes, you may see some unevenness as we go through the year, depending on the retail wholesale mix that we implement in any one quarter. But you're going to see some performance similar to what you saw in 2025. That's what's in the guide that we put out.

And maybe as a quick follow-up. Curious if maybe you can answer this, that you participated in bidding for one of your dedicated competitors made a pretty recent sizable acquisition in first fleet. I know you guys have been hunting or considering more opportunities on M&A as a way to deploy capital? Curious if that's a process that you participated in? And just maybe an updated appetite on where you might see M&A and the size of that as a potential way to deploy capital from all the cash you're driving.

Yes, we don't comment on any particular deal. But obviously, we're in the market, and we're going to continue to be looking for well-run companies in the target areas that we've outlined. And when we find the right ones, as you know, based on our balance sheet, we've got plenty of capacity to do the types of acquisitions that we're looking for.

We'll go next to Scott Group with Wolfe Research.

We've seen a pickup in the Class 8 orders the last couple of months. Are you seeing a pickup in leasing demand, leasing activity? What's your sense? Is this sort of just replacement, or is there some growth? Do you think there's a big prebuy coming this year? So that was the first question. And then just secondly, the comment on the bridge about lease pricing increases. Is that sort of -- is that an incremental tailwind this year, or is that more so carryover from last year?

Okay. Scott, let me answer the second question. I'll make a remark on the first question, and turn it over to Tom. The lease pricing and the reason for the upside from the $150 million to the $170 million, it's largely due to the pricing initiative where we've seen that has come in stronger. And obviously, the replacement cycle of our existing portfolio has extended out to 2026. So the $20 million is predominantly the pricing initiative as being incremental. And that's the reason for the upside from $150 million to $170 million. As far as what we're seeing in the Class 8 sales numbers, most of that, as we understand it, is coming from the four hired carriers that are, for the first time, kind of coming back into the market and planning ahead for 2026, they may be getting their orders in. We're not seeing any sort of prebuy activity from our customers on our lease side. So I'll let Tom maybe provide a little bit more color, but that's kind of what we're seeing.

Yes, not much more to add, really not seeing any meaningful change in customer behavior out there that maybe the only thing I could say is that our sales pipeline is at near record levels, which might suggest some pent-up activity could be coming. But other than that, I would say no change to customer behavior and no change to incremental demand or activity at this point.

At the time there are no additional questions. I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks.

Okay. The only thing I'll bring you back to is clear as we did in 2025, 2026 is another year of initiatives-based earnings growth. If we get help from the market, that will be an upside positive, but we're certainly focusing on the things that we can control, continue to do that and continue to execute on that. So thank you all for your interest in Ryder. Have a great day.

That concludes today's conference. We thank you for your participation.

Well, good afternoon, everyone. It's now my pleasure to introduce Ryder's CFO, Cristina Gallo-Aquino. We look forward to hearing about Ryder's ongoing plan execution, which we think sets the company up well for long-term growth with opportunities across Supply Chain and Dedicated, all things that are contributing to an earnings floor that's greater than prior period's peak.

And before we get into the Q&A, I think, Cristina, you had a few opening remarks.

Yes. I just wanted to briefly introduce Ryder for those of you that may not be familiar with us, but we are an outsourced logistics and transportation solutions provider, a leader in the industry here. We operate primarily in the U.S., but North America is our base. And we operate out of 3 main segments. The first one being our Fleet Management Solutions, which is offering leasing and rental truck options to customers.

Then we have our Dedicated Transportation Solutions, and that is providing the same leasing of the vehicle, but add a driver to it. And then finally, our Supply Chain Solutions, which is about port-to-door logistics anywhere from drayage to warehouse management and e-commerce and last mile. So we offer an array of services. We are a $13 billion company. We've been around for 90 years and excited to share our story today.

Great. And maybe just to sort of segue right off the top, you guys have undergone a pretty strategic transformation over the last many years and shifting your business mix, improving profitability. Can you maybe elaborate on some of what you have done? And then perhaps as you look ahead 3 or 4 years, what are the key pillars that will drive that ongoing improvement in the future?

Absolutely. Yes. So we started our journey on this balanced growth strategy back in 2018, where we decided that we just weren't getting enough return for the value that we were adding to our customers. And so really, the strategy focused around 3 main areas. The first one was around derisking our business model. And that meant, as a leasing company, we had a lot of reliance on residual values for our vehicles at the end of the lease term. And we determined that we wanted to be on the winning side of that. We were previously pricing to average residuals and determined that only being on the upside 50% of the time wasn't enough. So we switched to pricing our residuals down to the bottom quartile, historical bottom quartile. That was step 1.

Step 2 was margin improvement. And we did that, one, by saying because of the value that we're providing to our customers, we really should get higher returns. And we were previously targeting a return of 60 to 100 basis point spread above the cost of capital and determined that really what we should be getting is about 100 to 150 basis points above our cost of capital. So that was a key pricing initiative that has really helped to boost our earnings over the last few years.

On top of that, we also embarked on a maintenance cost initiative where we really revamped the way that our technicians in the field are providing service and making sure that they're focused on just fixing the vehicles and all the other administrative tasks and fueling and all that were done by other employees. So that initiative was about $100 million of cost savings from maintenance. The pricing initiative was $125 million. So between those 2, we had significant margin improvement in the years that we've undergone this strategy.

And then the last thing was we really -- we wanted to shift the mix of our business away from the leasing and more to an asset-light model. So focused on our supply chain and dedicated business. And we did that through acquisitions primarily in the last 5 years. We've invested about $1.1 billion in different companies that have really expanded the capabilities of our supply chain offerings as well as increase the scale and density of our business.

Cardinal was one of the acquisitions we did that really doubled the size of our dedicated business in the last 2 years. So all that put together, like I said, we started this back, 2019 was the first year. The pricing initiative, as you can imagine, took multiple years to get through as leases expired, we were pricing new business at our new target margins. And that's led to a result where our earnings in what I would hopefully consider to be the trough of a freight market this year to be double the size that they were from 2018 before we went on this journey. And not only that, but we've also had a return on equity of 18% or 17% in this environment compared to 13% back in 2018. So we've really been able to show that it's improved the business and has made us more resilient even during a freight recession.

Great. And before we get into more Ryder-specific steps, since it is transportation, and you touched on it a little bit the markets we're in, but given that you touch a lot of different verticals out there, can you maybe give your assessment of the overall freight environment today?

Yes. That is the question, right? That is the key question. We've been -- I think at the beginning of this year, we said, "Oh, it's going to be a second half recovery," and we kind of plan for that when we put out the guidance of our earnings for the year. Unfortunately, that hasn't materialized. I think we may have said the same thing last year. So everyone has been hoping this is the fourth year of a downturn, which is unprecedented in our times. But I think right now, what I would call it is more stable.

I think throughout the year, we had seen a lot of capacity exiting the market. There had been still sort of declining demand on the rental side, declining used vehicle pricing. But once we hit the second half of the year, what I've seen is just more steady state, no plus, but no negative, which I think hopefully indicates that we're at the bottom.

There are different metrics that we monitor all the time to see how the environment is doing. For us, rental demand and utilization is a key metric. Our business, we're lucky that we get to see that. That's the leading indicator typically of what's happening in the environment. And what we've seen there is demand has stabilized. It hasn't declined, but we're not seeing some of the seasonal uplift that we would have seen in the third quarter. And our projection for the fourth quarter was that we would just kind of be in more of the same environment, that was the thought.

So stabilizing there. We saw the same thing on used vehicle pricing, more stable pricing continuing in the third quarter and here into the fourth quarter. But then from a general market perspective, the 3 things that we look at are industrial production. And for those of you that are tracking it, 50 is the magic number. It had been declining for 9 straight months. It's kind of lingering in that same spot, right? It hasn't really improved, but it hasn't declined.

So industrial production is one indicator, which isn't doing too much. The next one is going to be housing. Housing is a big driver for our business. Housing starts, there's a lot of talk about affordability and hopefully, that will boost some of the housing, but we haven't seen it yet. And then the last one is just general consumer confidence and unemployment rates. And again, there's been concerns there on that side. So none of the indicators are telling us that we're expecting anything in the market.

The other external indicator that we do track is FTR puts out the active truck utilization, which is a measure of the demand capacity in balance. And once you hit 95% on that metric, you're in a better spot. I think we've been lingering around 94.3% and heading to 94.7%. So just barely getting to the breakeven point. So again, none of the indicators have gotten us to a spot where we're ready to say we've hit an inflection point. I think it's more just steady state.

Well, I mean -- sorry, given that, and again, before we get to the segments, sort of just thinking, I know you've come off maintenance program that saved you a bunch of money, the repricing, et cetera. So putting the economy aside, what -- I forget, what is the next phase of cost out? Can you talk to that?

Yes. So the next phase of our balanced growth strategy, I spoke to the first phase, which has gotten us to where we are today. The next phase we announced last year, and that's also three-pronged approach. First, it's driving value to our customers through operational excellence. It's also investing in customer-centric technology and innovation, which we have multiple tools out there that differentiate us in the marketplace and then continuing to provide full cycle returns to our shareholders.

And as part of that, what we announced was that we have $150 million target on initiatives from strategic initiatives. And those are driven first by another round of maintenance cost initiatives. I talked -- the first phase was around the technician and making sure the technician was focused on wrench time, what we call.

Well, now it's about all the service employees. And so the administrative efforts and really looking at the efficiencies on that side of the house, and that's what we're expecting to drive about $50 million of savings from the $150 million there. We also -- I mentioned we had the Cardinal acquisition, which was a big tuck-in acquisition for us on the Dedicated side. And we're expecting to realize $40 million to $60 million of synergies just from that acquisition.

And then the last part of this is optimizing our omnichannel network on the supply chain side. So we've purchased some companies in the past few years, and now it's just getting the right size of warehouses in the network to meet the demand that we've got. So between those 3 areas, we think we can get another $150 million of savings. By the end of this year, 2025, we will have achieved about $100 million of those already, which means we still have another $50 million to go in 2026. And that's just from strategic initiatives, right? There's still the potential of when the market comes back, the other thing that we've done is to quantify a potential $200 million of upside just from where we are today versus peak market conditions, which is primarily driven by rental and used vehicle pricing.

Okay. So maybe just sort of segueing right into that, on the rental side, you mentioned sort of more of the same as the thought right now. What rate do you look to, to say, "Hey, there's a real recovery underway?" And how quickly can you flex that capacity?

Right. So on the rental, we look at demand, but utilization of our fleet is a key metric for us. And in the third quarter, we were operating at about a 70% utilization. Our target with the composition of our fleet today is more like a 75%. So mid-70s would be a target utilization. We've been holding on to extra fleet just waiting for that recovery to happen and be able to capitalize on it immediately.

So I would tell you, with our existing fleet, we can capture it immediately, whether we get to 75% utilization or even push it to 80%, which we've done in peak times, we think that there's still potential to capitalize immediately from that. Once we start to see that utilization hitting the 75% mark, we would start making decisions on investing in capital to grow the rental fleet.

If you go back to pre-COVID, our rental fleet was probably about 7,000 or 8,000 units less than where we are today. So we know that we should have a larger fleet size. And once the demand starts coming back, we will need to start buying. And so OEMs right now, they're knocking on the door just waiting for those orders to come in. So luckily, lead times are not that long, and we feel that as soon as we start to see that utilization increase, we'll be able to place some orders and within a 3-month time frame, maybe even less have vehicles ready to go.

Okay. And then you also mentioned used vehicles and residuals and all those things that folks like to hear about. So new -- you just touched on it, too, new truck orders certainly have been well below replacement rates for months now. In light of that and the cost of new vehicles, do you have an updated outlook for used vehicle pricing as we roll through the rest of this year and into next?

Yes. I mean I think there's multiple factors out there that are driving towards a rebound on used vehicle pricing. The one that you mentioned on OEM production being below replacement level, this was the first year that we saw it be below replacement levels. And the projection for next year is that we will also be below replacement levels. So 2 straight years of below replacement level is a positive because it means we're getting the demand and capacity -- supply/demand back in balance. And so that's a leading -- that's a good indicator.

The second one is new vehicle pricing, right? So new vehicles have been hit with 2 things. It's new tariff impact, but it's also going to be hit with new technology cost. And so just the more expensive a new vehicle gets, the more attractive the used vehicle becomes. And we've seen in historical periods when we have a technology change, the used vehicle value goes up tremendously. So I don't know when to call it, but I could say new technology will come into play in 2027. So I think towards the end of 2026, we should start to see improvement in used vehicle pricing.

Okay. And maybe sort of on top of that, is there any updates around EPA 2027 and impacts that, that could have?

Yes. A lot of questions on that one. Right now, the latest thinking is the warranty cost is out. So it's really just the new technology. In the past, there's been prebuys, and I'm sure that's where your question is coming from. The prebuy is driven by a healthy demand environment as well. So right now, we're not anticipating any significant prebuy activity because of the technology change. As I mentioned, the impact to us is going to be more around the used vehicles and making those more attractive. But I'm not putting my -- it's up to our lease customers.

And right now, they're hesitating to make any decisions on vehicles. We have been speaking to them about tariff pressures, right, and the fact that pricing will go up as a result of tariffs, and that's still not getting them to make the decision. So I'm not sure how much of an impact the technology change will have.

I mean I guess keeping on the regulatory front, there's been a lot of chatter at this conference about drivers and driver pressures. It feels like there could be puts and takes, how does that affect Ryder?

Yes. So from a driver perspective, I guess, first, a tightening in the driver market is good for Ryder in our Dedicated business because that is going to push more companies to outsource when they can't find the drivers, they're not available, and we have the option of -- we do all the hiring, recruiting, training of drivers. So I think it makes the outsourcing decision more compelling.

From a used truck perspective, I know there's been a lot of discussions about that. The non-domiciled CDL drivers, I believe, is impacting more the over-the-road type market, which is not where we operate. We're a private fleet. But in that space, you're talking about primarily Class 8 sleeper long-haul vehicles.

And with the shift that we've had in our business over the years, we've really tried to transform and shift more of our mix to trucks as opposed to the sleepers. So we have a lot less exposure there. About 40% of what we sell at the used truck center are Class 8 tractors and the majority of those are day caps, not sleepers. So it's a minimal impact if it were to have one on the used truck pricing. So we're not overly concerned about that.

Got it. And you've done a good job with your lease repricing strategy. How do you think about those spreads today? And I mean, do you believe they're sustainable, again, given the increase in new truck prices, the softness in the market overall? I mean, talk a little bit about the next wave and your thoughts on pricing.

Yes. So we have been very disciplined around that pricing. And as you can imagine, when we first implemented it, it was sort of a shock to the system, right? It was tough to implement, but we're lucky that we have a rational competitor that saw what we were doing and followed. And together, we were able to raise the threshold in the market.

So we have stuck to that discipline. I think during times of COVID, I mean, we were even exceeding some of our expectations on pricing because there was a shortage of vehicles. Now we've come back to more in line with our target levels, and we expect to continue to do that. We have a very compelling value proposition, and that's what really drives people to us.

First, from a vehicle procurement perspective, because of the scale that we have, we're able to purchase at a significant discount to a dealer. The other is we have over 800 maintenance shops across the U.S. And so leveraging of our maintenance infrastructure, but also our skilled technicians is another value add that we have.

And then on the back end, you've got the resale of the vehicles through our retail sales channels. So we have over 60 used truck centers across the U.S., and we're able to sell them in the retail market as opposed to somebody who does it for themselves might have to go wholesale or auction.

So between all of that, we feel we have a very strong value proposition. We've even published a white paper last year combined together with KPMG, talking about the total cost of ownership. So somebody that chooses to do it for themselves versus outsource. And you could see that from the maintenance alone, there's about a 15% to 20% value that we're adding cost savings if you were to outsource. So we think that we're adding a lot of value and should be able to retain that pricing discipline.

Maybe that's a good segue to sort of a dedicated piece. Can you talk maybe about that outsourced opportunity and then the cross-sell between FMS and Dedicated.

Yes. So as I mentioned in my -- when I opened up, I said, leasing, you've got just -- you're leasing the vehicle, providing all the maintenance and the next step to that would be to then add a driver to it. And about 50% of all of our sales on the dedicated front come from our FMS customers. So it's -- the sales organizations work really well together to push that value prop.

And I talked about the value prop on leasing. Well, on the dedicated side, now you're adding on top of everything that I had already mentioned, you're adding the recruiting and retaining of drivers. We have a great record of that. And then on top of it, we are taking all the risk around the ownership of that vehicle, right? So you're talking about the residual value, you're talking about the insurance. All those costs really make the dedicated option a big plus for customers.

Have you seen any increase in customers' willingness to close a deal as this driver thing starts to kick in? Or has it not started yet?

I don't think it started yet. But I will say there are a lot more conversations going on. Our pipeline has been very strong on both the lease and dedicated side because it's just been building up and building up, right? It's just getting to that final step of signing. So that's been the biggest challenge. But I do think that not only the driver, but even the cost tariff impact on vehicles has been driving people to now, "Okay, maybe I do need to lock in something sooner rather than later before I run out of options here." So that's been a big discussion point there.

One other thing I wanted to mention on the cross-selling of Dedicated and FMS, I talked about the benefits to the customer. But even from a Ryder perspective, when we convert a dedicated customer from lease to Dedicated, we get 4 to 5x more revenue on that same asset and 2 to 3x more margin, earnings. So to us, it's a win-win to really get our -- these customers converted to the dedicated option.

And it's different sales forces.

It's a different sales force, but we have commission plans that incent them to work together and collaborate on deals.

Got it. A lot of, over the last years, trucking companies have talked about getting more and more into dedicated trucking. How does Ryder differentiate? Is it a different service? Is it the same service?

Yes. I mean, for us, when we talk about Dedicated, we are talking about specialized, dedicated. And what that means is our customers are typically high touch, highly engineered solutions, where our drivers are loading, unloading the specialty handling required. We're not just delivering a full truckload to a box, a retail box, right? So there's specialization involved, which differentiates us from maybe what a truckload carrier would do. And so that's how we feel. And it also creates a lot more stickiness because our driver is an extension of our customer. And they are follow -- they've been trained on how to handle that freight and what to do with it. So it really creates long-term relationships with our customers.

Turning over to supply chain, which areas of potential customer base, do you see driving the most significant opportunity in the years ahead?

Yes. So with all of the disruption in the supply chain space, there's a lot of conversations going on and discussions about it. But where we've seen the majority of our wins from people doing it themselves versus outsourcing is more on the warehousing side. So warehouse management has been a key area of growth for us in the last couple of years. Over time, we've established ourselves as a leader in that space, and we've earned our reputation. And we've implemented a lot of very highly specialized engineered solutions fit for our customers, some of which involve automation. So we're able to showcase our capabilities through other warehouses, and that's really helped us win business in the last 1.5 years, I would say, from a warehouse management perspective.

As I look further out, I think the other area where we've done a lot of work and just need some of the markets to come back is on the e-commerce side. So multiclient facilities, where we've worked now to optimize the network and now we just need to make sure we've got the right customer mix in there. But I do think that, that will be an area that will be growing in the upcoming years.

So from a customer vertical standpoint, it sounds like retail, retailing are the 2 main -- there are other focus points?

It's primarily the retail. Yes, omnichannel retail is primarily where we're experiencing the growth and expect to experience more growth going forward?

I think in the last earnings call, you highlighted a very strong sales pipeline, and it was going to start translating to revenues next year 2026. So maybe sort of touch on that, what you're thinking there? And then how do you ensure that as this rolls into actively doing the business, you don't impact your margin targets?

Yes. No, that's a great question. So with the sales that we've closed already, we typically have visibility 6 months -- 6 to 9 months out. Some of these solutions are highly complex, and so they take a while to start up. So that's why we're saying with the sales activity that we've had this year, we really expect to see supply chain revenue growth starting in the second quarter and third quarter and so on.

But yes, a start-up of a new deal is extremely critical, and there's 2 things that we focus on to make sure that it doesn't erode our margins. The first one is going to be from a diligence perspective, right? So it's just making sure we're speaking to the right people and our engineers are focused on what we need to do to deliver what the customer wants. So the diligence process is extremely important, making sure we have the right people at the table during that phase.

And then the second thing is something that we implemented probably -- we made an investment maybe 10, 15 years ago even in what we call our start-up effectiveness teams. And so this is a group of people that all they do is start-up operations, and they travel from new site to new site, setting things up. And so they're typically there for like a period of 3 months just to make sure that things kick off correctly and maintain at those levels. So between the combination of the diligence and the start-up teams, that's how we ensure that margin doesn't erode during start-ups.

Great. The other thing that strikes me with supply chain is we'll see how it all shakes out with tariffs and things along those lines and what that does to altering supply chains. But certainly, one of the opportunities one would think is reassuring and near-shoring as folks try to maybe bring things closer to home or what have you? I know in the past, you've talked about opportunities with Mexico. And can you maybe -- how is Ryder set to benefit? And how are you positioned should we start to get more reshoring, near shoring?

Yes. So we are, as I mentioned earlier, a North America company. We operate in Canada, U.S. and Mexico. About over 90% of our business is in the U.S. So for any company that is looking to bring the supply chains back to the U.S. we are well positioned for that, right? As I mentioned, even on the warehousing space, we've been gaining a lot of expertise. We have a lot of expertise there and have become a market leader. So we feel we're well positioned for any company that wants to be in the U.S.

Some of our customers expand across North America and have been having conversations with us about coming to the U.S. as an extension. So we're in a good spot there. The other area that I would say is in Mexico. So we have a very large presence in Mexico, reputationally solid over there as well. And so any company that is looking at near-shoring opportunities would be able to benefit from Ryder services right there in Mexico.

Are things in the holding pattern would you say, in terms of making decisions?

I think on the supply chain side, customers have started to make decisions, but decisions around shifting your supply chain all together, those are very big decisions and take years to move, right? When you're talking about a company that may be moving production facilities and then all the supply chain that goes with it. But there have been a lot of discussions. I haven't seen any -- there haven't been any big wins or big moves that you would say, oh, yes, this entire company is moving everything. No, but definitely, a lot of scoping and pricing and activity there.

Okay. There's been a lot of talk at this conference about technology and AI, and it would strike me as particularly the supply chain, but probably all your businesses would benefit from AI and technology, however, you want to discuss it. Maybe can you talk a little bit to how you're strategically investing in these technologies and what you're getting from it and will get from that?

Yes. So we have been investing in technology over the last few years, what we call customer-centric technology. So we have tools such as Ryder Guide in our leasing business, which provides insight to fleet owners about the status of their fleet, overall health check and when maintenance intervals are due and scheduling opportunities. So that's one technology that differentiates us in the marketplace.

On the supply chain side, we have Ryder Share, which provides visibility to your freight along the supply chain and again, has provided us opportunities as we win business because we have this capability.

And then for our e-commerce and last mile, we have Ryder Ship and other platforms that provide customer visibility as well to their products. So we've made the investments there. With AI, I would tell you, a few years back, we invested in -- we have a Ryder Ventures fund, which is kind of like an incubator for start-ups. And we use that to invest in a company called Baton, which was developing route optimization tools. And we liked what they were doing so much that we decided to buy the company out. And so now we have our own in-house team that is focused on creating these -- on the Dedicated side of the business, creating this optimization of all of our routes and they're using AI in their development as well.

So those are the things we have invested in. AI is the next wave, right, of all of this, and it's going to take all those tools to the next level. But where we have done and seen benefits from AI is sitting in our transportation management and brokerage business, where we are investing in AI to provide customer service support and then just operational effectiveness. So in the transportation management and brokerage side, we've set up agentic AI to help with call center volumes and handling calls coming in. We've also used it to get customers the best rate for their loads, and then also helping us with the freight pay audit process, bill and audit process.

So we're seeing benefits there. The brokerage part of our business is a much smaller scale. But now that we've seen what it can do there, we're looking to roll out some of this agentic AI technology to other call centers across the organization.

And then another area that we're exploring as well is on the leasing side is looking at diagnostic tools for leases. So just overall health tech and repairs that are needed. So I think early phases of the AI, we're still making investments in the places where we feel there will be a return. I think that's been the biggest challenge is just making sure you can quantify the right returns for your -- for the investment that you're making.

The Ryder ventures, right, is that something you do sell that outside of Ryder, the products or the...

So what we do is we invest in companies that are starting up, they have an idea. And that keeps our finger on the pulse, so that we know what are these emerging technologies that could. And then what we do is we -- whatever they're developing, we use our operations to test them, right? So they're being tested. And if we see that they are going to be game changing, we may choose to buy them out. But other -- they have other customers as well, right? Yes.

Okay. I wanted to make sure we talk a little bit about capital allocation. Certainly, one part of it, M&A. I mean, you guys have been acquisitive, I think, particularly in logistics, but maybe talk about your thoughts on that.

Yes. So we continue to look for opportunities on the M&A front. Our priorities there are unchanged. We're looking for companies that add scale, density and expand our capabilities, particularly on the supply chain side. There hasn't been too much activity in the last couple of years because what we're looking for is well-run companies. We want to make sure that they have -- they operate well and are going to enhance whatever Ryder has to offer.

So for us, ideal is like another Cardinal, a tuck-in acquisition, similar to Cardinal, where they come into our dedicated fleet, they get all the synergies from our maintenance organization, our purchasing power. And then we're able to just the density is huge there. So tuck-ins on the Dedicated or even on the Fleet Management side are ideal. And then on supply chain, it would be expanding into other verticals or other capabilities like maybe returns packaging or health care vertical, those are areas that we're interested in.

Yes, it seems like a lot of companies have been talking about health care as a very attractive vertical. So it sounds like that.

We would also be looking at health care, yes, absolutely.

Great. Well, we're sort of running out of time, but I would like to turn it back to you if you have any final words you'd like to leave with us before we call it.

Yes. No. I mean for me, it's more about what's next here and we're excited about getting these initiatives that we have in place underway. We're on track to achieve the $150 million that we've put out there. And we think that the potential is even bigger once you get the $200 million we've identified for an upturn benefit whenever the cycle does return. So we're really proud of everything that we've done to transform the business. We think we've developed a very resilient business that has done well during this downturn, and it's proven in the results and it could only get better.

Great. Well, thank you very much.

Thank you.

Thank you.

All right.

We're about at 10 O'clock. So we'll go ahead and get started. Pleasure to be joined by John Diez, President, COO of Ryder. Thank you for joining us this morning.

Thank you for having me. Good morning, everyone.

I think a lot of people here are very familiar with Ryder, but if you can give from a high level who Ryder is, what do you do? And where do you fit within the transportation ecosystem?

Sure. So Ryder today is a leader in the outsourced logistics and transportation market. So anything we do, customers could do on their own. We're organized around 3 segments. Our Fleet Management segment provides equipment rental and leasing for our customers. Our Dedicated segment does engineered solutions, providing not only the truck, but also the driver to execute transportation moves on behalf of our customer.

And our Supply Chain business provides port-to-door solutions. So what that means anything from drayage to fulfillment, distribution, managing warehouses to ultimate delivery to the consumer, so last mile delivery. That business today is North America focused and our businesses are North America focused. So that's the market we play in today. So yes, that's a quick recap.

Perfect. Looking at the FMS business and its mix in terms of FMS versus SCS. You've gone through quite the transformation in the past few years. Can you unpack the changes that you've made at Ryder?

Yes. So we're really proud of the transformation we've gone through. If you look at the business profile back in 2018, Ryder was predominantly dominated by our Fleet Management business, which accounted for 60-plus percent of both earnings and revenue. Today, our Fleet Management business accounts for just over 40% of the top line and about half of the earnings of the company.

One of the things we set out to do through our transformation -- or the three things we set out to do through our transformation was, one, derisk our Fleet Management business and make it less susceptible to the vagaries of the market and used vehicle pricing, in particular.

Secondly, we look to really enhance the overall margin profile of each of our businesses with a clear focus on our Fleet Management business.

And then third, we were looking to accelerate the growth in our Supply Chain Dedicated, which are asset-light businesses, which, as I highlighted, went from being 40% of the portfolio to now 60% of the portfolio while maintaining and really expanding the market, the profitability of each of those businesses.

If you look at Ryder today, just to recap, we're going to deliver close to $13 of earnings per share. The previous freight cycle peak was 2018. We did just under $6 a share. If you look at our return on equity profile during the 2018 high side was 13% return on equity. We're in the trough of the market, we're going to deliver 17% at the trough. And then if you look at our cash flow profile, operating cash flow used to be in that $1.7 billion space. Now we're going to deliver about $2.8 billion.

So the earnings power of the business, a lot stronger, 90% contractual in nature. And then we see that there's tremendous upside as this freight market -- once it turns upward, we're going to benefit from that, and there's tremendous upside from that going forward for us.

And if we can start to dig into some of those segments, starting with FMS, like you said, it's about 50% of your operating income. You also recently did a transformation within the segment in terms of your -- and I guess not recently now, it was in 2019 when you changed your residual philosophy. Can you talk about the change you made then and if you've had any customer behavior changes since you've changed the philosophy of that business?

So yes, as part of our transformation, we did two things there, Reed. One was, first, derisk the business. So we reduced the residual value assumption on our leases. We wanted to take a lower piece of that risk and share that by way of higher prices with our customer. We did start that in 2019. Shortly thereafter, we also look to enhance the margins of our lease portfolio, and we actually targeted a higher margin profile.

Initially, I would tell you, I was fortunate enough to be running the business when we were executing against that initiative early on, and we lost some share, and we saw that customers were maybe a little bit more hesitant on paying the up price that we were going to the market with.

But we saw within a 15-month cycle, we started seeing that kind of the market dynamics start catching up to us and the whole market started raising prices, and we were able to deliver great value for our customers because there's still a great value proposition to use Ryder as opposed to do it themselves.

So since then, we've had great success. We're clearly in year 5 of this journey. Most of the portfolio has now been repriced. I would say, the only market share loss we saw was early on. But since then, we've seen good activity from our customers and receptivity to the market dynamics. And we've benefited from that, right? And you see that in the results, the returns profile of the business. And we're excited about when this market turns around, how we could capitalize on that.

And on the rental side of the business, you called out on the earnings call a little bit of softness there. Can you talk about any parts of the industry that could be showing some strength and where you're seeing particular softness just as we look at the different end markets?

Yes. So we have about 30,000 unit fleet to support not only lease customers, but customers at large in the U.S. and Canadian markets for rental activity. And we serve all end-markets through our rental fleet. We kind of think of our rental fleet as the canary in the coal mine. We usually get a pretty good idea with a wide array of industries we serve, what's happening in the North American market, in particular, the U.S. economy.

I would love to tell you that we're seeing a bright spot in the economy, but really three components are the big drivers for us, housing, manufacturing and the consumer.

I think manufacturing has shown that the last couple of months, it's been down. And actually for 9 straight months, I think we've seen softer manufacturing activity. Clearly, the uncertainty in the economy driven by tariffs is putting pressure on that part of it. We did see in October kind of maybe evidence that manufacturing may start picking up based on order volumes that we -- that were posted out there. So we haven't seen it yet on the manufacturing side.

Housing is one that clearly all of us are taking a look at and what's happening in the interest rate environment. Affordability seems to be front and center on the political space right now. So if we could get housing going in the U.S., I think we'll benefit from that.

And then the consumer, it's kind of a 2-way street there. There are certain segments of the retail markets that have done well. But in general, with unemployment ticking up, the consumer is hurting.

So I'd love to tell you that we've seen good activity out there. It's kind of been a flattish sideways market for us on the rental side, and we expect that to continue through the holiday season.

And on the ChoiceLease side, you also called out some softness, but I think that is just -- that's a function of the macro that's really hard to get around. But right now, you're seeing potentially signs of a tightening truckload market just based off of the capacity enforcement that we're seeing out there in terms of ELP and CDLs, non-domiciled CDLs.

Can you tell us how that impacts Ryder's business in terms of if we have an up cycle, but it's driven by maybe capacity being taken out and demand is not quite coming back?

Yes. So we're obviously impacted by the supply-demand imbalance that occurs in the market. There's right now more supply of trucks than there is demand for them. You see that show up in freight rates, particularly the spot rate market, which has been generally flat here for some time.

As the impact -- the direct impact to Ryder, we're not a truckload carrier. We're not in that space, but where we see the impact for us is in our commercial rental and used vehicle side of the house. So if there's too many trucks, used vehicle prices come down, and we've seen evidence of pressure on used vehicle prices. Certainly, the last 2 years, this year has been kind of flattish to down.

So we are somewhat encouraged, I would say, because we -- for the first time this year, we saw new vehicle production be below replacement levels. So that's evidence that capacity on the supply side is coming out of the market.

Reed, you alluded to what's happening on the regulatory front, putting tighter regulation around drivers and what's happening in that space on the over-the-road space. So that's also going to have an impact on the supply side.

Demand, as I alluded to, we haven't seen evidence there yet that that's going to -- that's ticking up. So the supply side moving down is great for us in that we should expect used vehicle pricing and people needing trucks on the commercial rental side here, hopefully going into next year.

I would say, the other element for us is what we've seen from pricing, the tariffs. Those pricing pressures will start kicking in on new vehicle activity going into next year. So we believe that will put also downward pressure on new vehicle production, and people are going to be looking for used vehicles at much more affordable prices. And that should also drive demand for our used vehicles.

That's great. If we can talk about the used vehicle prices a little more. I think when we talked about the residual derisking, since 2019, you've seen used vehicle prices come down because of the downturn in the freight cycle. What gives you confidence that it won't come -- bump up on that lower residual level in 2026?

Well, we -- as Reed highlighted, we did reduce residual significantly. We made about a 40% correction in our residual value estimates back in 2019. We're now at historic low levels.

We've seen only twice in the last 30 years, two other times. One was early part of the century 2000. And then during COVID, we kind of -- in 2020, as you can imagine, there was no demand for some time there, and we saw pricing on used vehicles come down, which quickly turned around.

Pricing today is kind of we're near our assumption on residuals, which we thought we were -- we had dropped to historic low levels. We've been in this environment now for quite some time, and it has been bouncing along the bottom.

So our expectations here is that it will continue to bounce along the bottom. And then next year, we should start seeing some sort of uplift based on the factors I alluded to earlier, capacity coming out. And then hopefully, we'll see the pricing pressure on new equipment lift pricing on used vehicles as we've seen in prior cycles.

Can you remind us on the leasing and rental side, are more of your customers private fleets or carriers renting extra capacity?

The majority of our customers, and when I say majority, I'm talking about substantially 80% plus are private fleets on our lease portfolio; so we support about 14,000 businesses in North America today. We do support some carriers, but that's a very small piece of our portfolio.

On the Dedicated side, they're all private fleets. So we're executing transportation for companies that have traditionally done it themselves, whether it's a steel distributor, whether it's a retailer, whether it's a cabinet maker; those are all customers that we serve, and we do the transportation on their behalf.

So many of these CDL-related impacts are going to be disproportionately felt on the truckload side, which we don't participate in. What it does do is it's going to put a capacity crunch on drivers, which is going to make it more attractive for us to be able to offer a compelling value to private fleets who are looking to do it themselves.

Now they find it more difficult to find drivers, and then they're going to reach out and call us and say, "Can you help me find some drivers, execute my transportation? Because I can't continue dealing with the cost pressures the driver market and the regulatory environment that we're dealing with."

And you -- we hear a lot about the increased cost of maintaining your own fleet, maintain your private fleet and are hearing that some could look to get rid of their private fleets here in 2026. Could that be a headwind to the leasing business that maybe you pick up on the Dedicated side? But how should we think about those pressures to private fleets right now?

We always think of the more complex, the more costly it gets, the better and the more compelling value we could deliver. Even with private fleets, many of them are doing short-haul activity and specialized delivery. So that's good for our Dedicated business.

Even in our leasing side of the house, we could buy the equipment cheaper than they can, maintain it cheaper and dispose it on the backside better than they can. So the more costly it becomes, I think the greater value we could highlight for our prospects and customers.

And then staying on the Dedicated side, dedicated has become more commoditized offering, at least when you think about it within the truckload space, a lot more people are offering it, but Ryder has a differentiated offering. Can you talk about what makes it the different?

Yes. So we do compete indirectly with truckload carriers that do some Dedicated activity, especially on the retail sector. We publish our end markets that we support. We're uniquely positioned that only about 20% of our revenue on the Dedicated side is supporting that retail sector.

And why that's important is almost everything we do on the dedicated side specialized handling. So we're helping secure the load, we're offloading that load and delivering it at either a job site or to a store or to the customer directly.

So that's a high-touch activity, highly engineered, which many of the truckload carriers, what they do is support large big-box retailers. They're just taking a full truckload and going dock to dock with very little driver engagement on that front.

So our business is very different from many other dedicated providers in that regard. We like it in that the more challenging it is for our drivers and for the service that we're offering, the better off we are in not only delivering value for our customer, but sustaining that relationship over a longer period of time.

And given that you are less commoditized, does that give you less benefit on the upside when the cycle turns? Or how should we think about that?

Yes. So you see it, and we saw it during COVID. Once the market turns up and retailers start going strong and capacity gets really tight, lots of shippers will move from spot-rate market and move to a dedicated application to take advantage of the freight price arbitrage that exists in the marketplace.

We don't participate in that game nearly as much as some of our other competitors. Some of our customers will look to us to leverage our capabilities in that regard, but that's not the primary market that we're targeting.

We really enjoy the fact that most of our dedicated activity are former leasing customers of ours, over 60% of our portfolio are lease customers that decide they're not going to execute their transportation any longer and they convert to Dedicated.

So long-standing relationships, complex transportation services that we offer to those customers. And clearly, it just extends the relationship beyond just the truck for us.

Definitely. And do you have a preference on whether or not they stay in that FMS segment or shift to Dedicated?

We would love for every one of our lease customers, those 14,000 customers, to come over and take advantage of our Dedicated offering. So if you think about our portfolio, I think we serve just over 500 customers on the Dedicated side. So there's plenty of opportunity there.

When we convert a customer, obviously, we have the same vehicle investment, but our revenue goes up 4 to 5x and the margin dollars go up 2 to 3x on that same capital investment. So for us, clearly advantageous.

The customer in return, though, gets significant value from that, in that we now have taken over the procuring of those drivers, training those drivers. From an insurance and a risk perspective, we provide full coverage for any activities, any risk is transferred over to us. And then ultimately, we do think we could do it at a more compelling value proposition. So the cost of executing those deliveries goes down as well.

So really compelling. But nevertheless, you still have a great number of our lease customers that elect to do it themselves.

And can you talk about what you're seeing on the pricing side within the Dedicated segment? And when we think about potential tightening of the broader truckload market, does that come up in your conversations with customers right now?

It does. Certainly, the supply-demand imbalance we talked about, which is putting pressure on spot rates, that -- some of that transfers over to our dedicated market because there is excess capacity. Many of these truckload carriers are looking to encroach and start doing more dedicated specialized handling activity.

So we have seen some competitive pressures on pricing. For us, it's a matter of just continuing to deliver and drive the value that we could offer. Having access and working with our lease customers and converting them over time to Dedicated, I think, is something that our competitors can't do just because we have existing relationships. They know the level of service to expect, and we could continue to execute on their behalf.

And when you get a new contract, can you remind us how long those contracts are and what your ability is to increase rates if there is a turn in the cycle during that contract?

Yes. On the Dedicated side, our contracts are typically 3 to 5 years. That is the case for Supply Chain as well. And our leasing contracts are typically 5 to 7 years. So 90% of all the business we do is contractual in nature, long term.

So on the Dedicated side, there, we do have in our contracts, escalators for wages, and we saw this come into play during COVID. Wages on the driver side really scaled up double digits year-to-year. So we have protection there and then clearly, just general inflationary protection from our customers.

So not a huge exposure if inflation just gets away. We do have to obviously be competitive in that regard, and we have those discussions with our customers. But we've done a great job of insulating ourselves from some of the inflationary cost pressures that we've seen over the last 5 years.

And do you have the ability to go beyond the escalators, for instance, if spot rates inflect dramatically? Or is it more so just if the cost...

It's more cost driven, not necessarily spot rate indexed. So to the extent that the spot rate moves up, really what that means for us is we're a lot more competitive, and we should be winning a lot more business. So we like that space.

Really, our contracts protect us if, in fact, the driver market gets really frothy. And when the spot rates move up, a lot of drivers decide to drive for themselves and capacity on the driver side gets tight. So they kind of go hand in hand, but they're not aligned, let's say, to the spot rate. They're more aligned to what's happening on the driver front.

Okay. If we can move to the SCS segment, there's a lot that goes on within SCS. Maybe give us some insights into what are the offerings that you provide.

Yes. So Supply Chain is probably the most exciting part of the Ryder story today in that we continue to see that our port-to-door solutions create significant value for our customers.

So if you think about Fortune 100 customers as well as midsized firms that are dealing with the headaches of supply chains, creating resiliency in their supply chain, managing this trade, tariff activity; they're looking for solutions. So we have historically provided warehousing, transportation, brokerage activity. So we act as a traffic cop for many of our customers, providing inbound and outbound transportation solutions, managing warehouses.

And then over the last several years, we've bought and added some capabilities to our full solution set. So we went out and bought a last-mile business so big and bulky. So we deliver straight to customers who are ordering furniture, exercise equipment, big, bulky items.

We added a packaging business. So if you think about our consumer packaged goods customers that we do a lot of the warehousing for them today, we could also help them if they're running promotions, if they're introducing new products, we can now help them on the packaging side and getting those products out to the marketplace quickly.

We also have added an e-commerce. So with COVID, we went out and we felt there was going to be a huge need for more e-commerce activity. So we do the fulfillment. Instead of going through Amazon, they could come to Ryder. We take in orders from our customers' website. Those orders get fulfilled by one of our centers around the country, and then we deliver that product within 2 days to their customer, who placed the order.

So we have a full suite of solutions. We support the automotive space in a big way for inbound manufacturing. We support consumer packaged goods companies primarily on the fulfillment side, manufacturing and packaging side. Retail with e-commerce and some of the fulfillment activity we do, that's a growing market for us.

And then on the industrial side, if a customer needs anything, whether it's cross-border activity, we have a big presence in Mexico. We also are one of the largest cross-border -- we do probably as many cross-border moves. From a truckload perspective, we manage that for all of our customers in a big way and bring their product as they're looking in nearshore, we'll bring the product from Mexico into the U.S. for U.S. consumption.

And out of all those offerings, what do you see as the most compelling in terms of revenue growth going forward?

Well, clearly, our warehousing offering continues to grow and scale up pretty dramatically. We continue to see supply chains get disrupted, and people are looking for solutions and someone who's an expert in the field to execute that, whether it's driven by labor, which is a huge tailwind. We saw warehouse wages move up dramatically through COVID.

Now we're dealing with automation. So we bring automation to many of our customers as they look to redesign their supply chain, not only execute but implement some of these automation technologies that exist out there. So I think the warehousing side is a significant element that we continue to grow.

We think with this tariff disruption, we're seeing a lot more near shoring, believe it or not, still. And our Mexico capabilities provides customers a solution as they move their supply chains and reorient their supply chains closer to home. So those are clearly two that we think work.

Long term, I think e-commerce, we have seen retail activity be kind of softer right now, but we think longer term, e-commerce will also be a big driver of the growth story for us. But our solutions on the fulfillment distribution side, warehousing side is really showing up in a big way for us.

And you called out e-commerce as maybe a source of softness right now just because of the consumer dynamics we're seeing. Is there anywhere else that you would call out?

Well, clearly, manufacturing to some degree, we've seen that over the last 10 months kind of pull back. Coming into the year, manufacturing was the one element. Housing had been down. The consumer has been kind of sideways, but manufacturing took a step back, but those would be the ones I would call out.

And in terms of competition with all these segments, can you talk about where you're seeing the most competition? We're seeing a lot of people try to build out a final mile offering. So there's clearly people looking at this space as well. So where are you seeing the most?

Yes. We see especially the smaller players and even some of the big competitors, the e-commerce space is one that we continue to see a lot of new entrants, regional players. Final Mile, big and bulky, obviously, there's been some consolidation there, but we continue to see a pretty competitive environment. So those are elements.

I think longer term, I think you're going to see more competitors coming to the warehousing distribution side of it. But our scale and some of the technologies that we're deploying in our solutions, we think, really sets us apart.

So from that perspective, our scale there, just to give you an idea, we employ nearly 500 to 600 engineers that are designing solutions for our customers. Over 40% of our warehouses have some form of automation today. So we're seeing that accelerate, and that will continue. And certainly, that will give us an advantage in the marketplace.

That's a great segue into the next question I want to ask you, is on your technology investments, RyderShip, RyderShare, RyderView and RyderGyde. Can you tell us what those are, how they fit into your offering and maybe some customer feedback as well?

Yes. So a few years back, we looked at the market space and we said, where do we want to invest? One of the areas that we set out to invest in by way of a Ryder venture fund that we funded was in the technology space as well as making some direct investments.

Through the Ryder venture fund, there was an opportunity for us to invest in a start-up out of San Francisco that was creating some great software in the transportation optimization space. And we made an initial investment there. Then we ended up buying the company outright. And ever since, we've been utilizing that team to really deliver on some of our customer-facing technology.

So RyderShare is one that we started with a third-party firm building out early on years back. Now this group, which is the Baton Group, that's the company that we bought in San Francisco; they've been adding to those capabilities.

What RyderShare does is it provides a collaborative platform for any one of our customers, whether they're a dedicated customer or one of our transportation management customers. They can engage with our team members as to the status of a load, if we need to redirect the load. It makes it easy for them to feel like they're in control, not only do they have visibility, but they can impact kind of the direction and status of that load delivery with -- through our fleet, through their fleet, if they own their own fleet or through a third-party carrier. That's one.

We've added capabilities. We talked about e-commerce. So RyderShip is our e-commerce platform where you could see your order and the order status, similar to what some of the other competitors have.

RyderGyde on the fleet management side is a digital solution that we've been investing in to provide our private fleets really visibility and control over their existing fleet, where are they spending maybe, where they have idle equipment, which is a source of cost for them that they could eliminate. If they have a fleet that isn't performing from an uptime perspective, we could work through that with our customers.

So RyderGyde has been very instrumental for many of our fleet management customers to not only take control of their fleet, but optimize it as we move along kind of this demand environment.

And like you said, it's driving some optimization within Ryder. Can you talk about where you are in the implementation of this? And how far along you are in terms of like innings on the optimization on the cost side? How much is there to be taken out with these technologies?

Yes. So with RyderShare, we clearly have seen the impact of that in our Dedicated business. In fact, I would say about 1/3 of the new business that we win is in large part because of this technology is a differentiator. We have seen that we could optimize fleets better, and the customer gets full transparency of that once they engage with us.

On the RyderGyde side with our fleet management business, that is, I would say, middle innings with regards to that. We've been making huge investments there over the last couple of years.

Many of our customers are still adopting the platform, getting comfortable with it. So as more adoption we see from not only our large customers, which have taken full advantage, but our midsized customers; I think they could see the great benefits from that platform to optimize their fleet over time. So the big customers are seeing the value, optimizing their fleet, driving cost out. I think adoption by smaller to midsized firms is the next step for us.

Got it. And you've been acquisitive on the SCS side in the past few years. What would be the next thing on your wishlist if you got to choose?

Yes. So we've had great success improving the overall earnings power of the business. So free cash flow has been very strong over the last 5 years. We've been able to invest over $1 billion in acquisitions. We've also returned over $1 billion back to our shareholders through share buybacks.

We would look to continue to grow each of our businesses. We love all 3 businesses. So anything that adds scale and density that we could take advantage of and create value for our shareholders, that would be one. So that's fleet management tuck-ins or even a Dedicated deal like the one we just did with Cardinal. Those would be great attractive deals for us.

On the Supply Chain side is how do we continue to broaden our solution set. We've added this e-commerce business, the packaging business, but there's opportunities on the health care side that we continue to look at if we could broaden our health care solutions. Those would be capabilities we would look to add on to our Supply Chain solution set going forward.

And you've talked about some initiatives in the past in terms of like maintenance and different things like that on the cost-out side. Can you remind us where you are in the process of those? And what's next in terms of...

Yes. So look, right now, our initiatives is a big part of the Ryder story. We continue to demonstrate earnings growth even in this muted economic environment. This year, we haven't seen much top line growth, but we are seeing earnings growth, and it's all driven by our initiatives that [ Reed ] alluded to. This year, the initiatives will contribute $70 million of incremental bottom line benefits to the shareholder.

What that looks like for us is we've been repricing the lease portfolio. We're in the latter innings of that. That this year will contribute incrementally about $20 million to the overall performance.

We announced a year ago a maintenance cost reduction initiative of an incremental $50 million after completing a $100 million initiative. And just to put it in perspective, we spent over $1.2 billion in maintaining the fleet of 230,000 commercial vehicles that we operate. So that's a big initiative for us.

We purchased a [ KARNO ] Dedicated competitor. That, as we introduce them into the Ryder platform, we've been able to take out about $30 million to $40 million of cost in that business incrementally from last year, that has contributed another $10 million to $20 million year-over-year.

So these initiatives are -- keep driving the earnings growth story for Ryder without much help from the market. That we do expect to continue going into next year. So $70 million was the incremental benefit this year. We're projecting that to be $50 million for 2026, absent any sort of market dynamics, we think that will continue to drive kind of our earnings story for the future.

Definitely. And you touched on capital allocation briefly earlier. With your excess cash, you turn off a lot of cash. M&A, something you look at in terms of repurchases and debt repayment, what would be a priority?

Yes. For us, we would like to candidly invest more in growing our existing business. If we could deploy more capital to grow our fleet. Our rental fleet has been coming down over the last 3 years in this market and freight environment. So we would like to reignite and grow that fleet again. That will require capital to do that. We would like to grow our lease fleet.

So that's our #1 priority. We think any money we spend there will only expand our portfolio of customers and really create long-term value for our shareholder.

Secondly, we would look to continue to buy good businesses. We're not looking to fix businesses. So these are well-performing businesses with a great management team.

And then lastly, if there are no opportunities in the acquisition space, we're going to take any excess cash and return it back to our shareholders, which we've done quite a bit of that. We've bought back 20% of the shares over the last 4.5 years. We would look to continue to do that. We have a current buyback program in place that just got approved, another 2 million shares got approved by the Board.

So we will look to deploy capital in that way. We're waiting for this market to take an upturn to reinvest in the fleet again, grow the fleet and then start seeing kind of the earnings profile of the business even get more augmented through that growth period.

Definitely. And as we look out to 2026, there's some things to be excited for. What are you most excited about? And what worries you the most?

Yes. Well, look, I think the excitement for us has been our Supply Chain business, I alluded to it. They're on pace for another record sales year. So it looks like even though their top line growth has been muted this year, as we look into next year, we should see that business deliver great top line growth in the second half and bring earnings with it. That business is on pace for a record earnings year here.

So as we continue to expand our services, our port-to-door solutions, we see that business continuing to grow, irrespective of market conditions.

Exciting for us is this capacity getting tighter. The quicker that occurs, I think the better is going to be for the other parts of the business for us. So an acceleration of tightening of that capacity, I think, will bode well for us. And really, we need help from the market, right? The economy hasn't been great for freight. I think you're going to hear that from everyone today.

If we could get any sort of clarity and eliminate some of the uncertainty that exists today, I think you're going to see people invest, look to grow their businesses. So it would be great if we could get some support there.

I think this tariff discussion will get a little bit more muted as we go into next year. I think it will still be with us. I'm not naive to think that it won't be with us. But if we could put some of that behind us, I think we'll have clarity and you should see the economy start to gain some traction, especially the affordability discussion will drive, hopefully, housing to take an upturn and manufacturing to take an upturn.

Perfect. Well, thank you, John. Appreciate you joining us today.

Thank you. Appreciate it.

[Audio Gap] Quarter 2025 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time.

I would now like to introduce Ms. Calene Candela, Vice President, Investor Relations for Ryder. Ms. Candela, you may begin.

Thank you. Good morning, and welcome to Ryder's Third Quarter 2025 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, business, competitive, market, political and regulatory factors.

More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website.

Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer; John Diez, President and Chief Operating Officer; and Cristy Gallo-Aquino, Executive Vice President and Chief Financial Officer. Additionally, Tom Havens, President of Fleet Management Solutions; and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solutions, are on the call today and available for questions following the presentation.

At this time, I'll turn the call over to Robert.

Good morning, everyone, and thanks for joining us. The Ryder team delivered our fourth consecutive quarter of earnings per share growth. The third quarter earnings were in line with our expectations as the operating performance of our resilient contractual businesses and the benefits from our strategic initiatives more than offset headwinds from freight market conditions. The business continues to outperform prior cycles, demonstrating the impact from actions that we've taken under our balanced growth strategy to derisk the business, increase the return profile and accelerate growth in our asset-light supply chain and dedicated businesses.

I'll begin today's call by providing you with a strategic update. Cristy will then take you through our third quarter results, and John will review capital expenditures and our increasing capital deployment capacity. I'll then review our updated outlook for 2025 and discuss how we expect to leverage the strong foundation provided by our transformed business model.

Let's begin with a strategic update on Slide 4. We remain focused on creating compelling value for our customers through operational excellence and investment in customer-centric technology while further improving full cycle returns and unlocking long-term value for our shareholders. We expect earnings growth in 2025, driven by the operating performance of our resilient contractual businesses and the execution on our strategic initiatives. We are on track to realize the benefits from the strategic initiatives we outlined at the beginning of the year. These benefits are the key drivers of the year-over-year earnings growth expectations. Long-term secular trends that favor transportation and logistics outsourcing remains strong, and we are well positioned to benefit from increased domestic industrial manufacturing as 93% of our revenue is generated in the U.S.

We delivered high teens ROE of 17% for the trailing 12-month period, which is in line with our expectations during a freight cycle downturn. We expect our transformed business model to deliver ROE in the low to mid-20s when market conditions improve for our transactional rental and used vehicle sales businesses, which will enable us to achieve our over-the-cycle ROE target of low 20s.

Earnings growth from our high-performing contractual portfolio reflects our value proposition as well as our pricing discipline. Over 90% of our operating revenue is generated by multiyear contracts. Our transformed business model has demonstrated its resiliency over this elongated freight cycle downturn, which is going on its fourth year. We are confident that our cycle-tested business model will continue to outperform prior cycles while providing us with a solid foundation to meaningfully benefit from the eventual cycle upturn. Consistent execution of our balanced growth strategy is increasing the earnings and return profile of our business while also growing our capital deployment capacity. Ample capacity and our strong balance sheet support our capital allocation priorities, focused on profitable growth, strategic investments and returning capital to shareholders.

Aligned with these priorities, our Board recently authorized a new discretionary 2 million share repurchase program that replaces a program that was largely completed. So far in 2025, we've returned $457 million to shareholders by repurchasing approximately 2.2 million shares and paying our dividend. Since 2021, we have repurchased approximately 22% of our shares outstanding and increased the quarterly dividend by 57%. Our new share repurchase program and the dividend increase announced earlier this year, demonstrate our commitment to disciplined capital allocation.

Our 2025 forecast range for free cash flow is unchanged at $900 million to $1 billion, which reflects lower year-over-year capital spending and includes an annual cash flow benefit of approximately $200 million from the permanent reinstatement of tax bonus depreciation.

Slide 5 illustrates how key financial and operating metrics have improved since 2018, reflecting the execution of our strategy. In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from FMS. Ryder generated comparable earnings per share of $5.95 and ROE of 13%. Operating cash flow was $1.7 billion. This was during peak freight cycle conditions.

Now let's look at what we're expecting from Ryder today. In 2025, a year which freight market conditions remain at or near trough levels, our transformed business model is expected to generate meaningfully higher earnings and returns than it did during the 2018 peak. Through organic growth, strategic acquisitions and innovative technology, we have shifted our revenue mix towards supply chain and dedicated with 60% of 2025 revenue expected to come from these asset-light businesses compared to 44% in 2018. 2025 comparable earnings per share is expected to be between $12.85 and $13.05, more than double the 2018 comparable EPS of $5.95. ROE is expected to be approximately 17%, up from the 13% generated during the 2018 cycle peak.

As a result of profitable growth in our contractual lease, dedicated and supply chain businesses, operating cash flow is expected to increase to $2.8 billion, up approximately 65% from 2018. As shown here, in 2025, the business is expected to continue to outperform prior cycles, even when comparing the pre-transformation peak to the current market conditions. We're proud of the strong performance of our transformed business model and believe that executing on our balanced growth strategy will continue to deliver higher highs and higher lows over the cycle.

I'll now turn the call over to Cristy to review our third quarter performance.

Thanks, Robert. Total company results for the third quarter are on Page 6. Operating revenue of $2.6 billion in the third quarter, up 1% from prior year, primarily reflects contractual revenue growth in SCS and FMS. Comparable earnings per share from continuing operations were $3.57 in the third quarter, up 4% from $3.44 in the prior year. The increase primarily reflects higher contractual earnings and the benefit from share repurchases.

Return on equity, as Robert previously mentioned, our primary financial metric, was 17%, up from prior year, reflecting higher contractual earnings and share repurchases, partially offset by lower rental demand and used vehicle sales results. Year-to-date free cash flow increased to $496 million from $218 million in the prior year, due to reduced capital expenditures and lower income tax payments.

Turning to fleet management results on Page 7. Fleet Management Solutions operating revenue was in line with prior year. Pretax earnings in Fleet Management were $146 million, up year-over-year, reflecting higher ChoiceLease performance driven by pricing and maintenance cost savings initiatives, partially offset by lower used vehicle sales and rental results. We continue to see progress on our pricing and maintenance cost initiatives, and remain on track to achieve the benefits targeted for this year.

Rental results for the quarter reflect market conditions that remain weak. Rental demand increased sequentially, but the increase was below historical seasonal demand trends. Rental demand this quarter was also lower than last year. Rental utilization on the power fleet was 70%, down slightly from prior year of 71% on an average active power fleet that was 6% smaller. Lower rental demand was partially offset by higher rental power fleet pricing, which was up 5% year-over-year. Fleet Management EBT as a percent of operating revenue was 11.4% in the third quarter, below our long-term target of low teens over the cycle.

Page 8 highlights used vehicle sales results for the quarter. Year-over-year used tractor pricing declined 6% and truck pricing declined 15%. On a sequential basis, pricing for tractors was unchanged and pricing for trucks increased 7%. Sequential pricing benefited from a higher retail mix as we realize better proceeds using the retail sales channel versus the wholesale channel.

In the third quarter, 54% of our sales volume went through our retail sales channel, up from 50% in the second quarter. As a reminder, in the second quarter, we exited out of some aged inventory and increased our level of wholesaling activity. Our retail mix is still below prior year levels of 68%, reflecting ongoing weakness in market conditions. Pricing in our retail sales channel declined 4% sequentially for tractors and was unchanged for trucks.

During the quarter, we sold 4,900 used vehicles, down sequentially and up versus prior year. The sequential decline was driven by the actions we took in the second quarter to sell aged inventory. Used vehicle inventory of 8,500 vehicles was in our targeted inventory range. Used vehicle pricing remained above residual value estimates used for depreciation purposes. Slide 19 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information.

Turning to supply chain on Page 9. Operating revenue increased 4%, driven by new business in omnichannel retail. Supply chain earnings decreased 8% from prior year as the benefits from operating revenue growth were more than offset by e-commerce network performance and higher medical costs. Supply Chain EBT as a percent of operating revenue was 8.3% in the quarter at the segment's long-term target of high single digits.

Moving to dedicated on Page 10. Operating revenue decreased 6% due to lower fleet count, reflecting the prolonged freight downturn. Dedicated EBT was in line with prior year, reflecting acquisition synergies, offset by lower operating revenue. DTS results continued to benefit from strong performance of our legacy dedicated business, reflecting pricing discipline as well as favorable market conditions for recruiting and retaining professional drivers. DTS remains on track to realize the benefits from the Cardinal acquisition synergies. Dedicated EBT as a percent of operating revenue was 7.8% in the quarter, at the segment's long-term high single-digit target.

I'll now turn the call over to John to review capital spending and capital deployment capacity.

Thanks, Cristy. Turning to Slide 11. Year-to-date, lease capital spending of $1.2 billion was below prior year. Rental capital spending of $271 million was also below prior year levels, reflecting weaker freight market conditions. For full year 2025, lease spending is expected to be $1.8 billion, reflecting lower lease sales activity. Lease spending is expected to be down approximately $200 million from prior year, reflecting the prior year impact of OEM deliveries from vehicle orders in 2023. We expect the ending lease fleet to remain fairly consistent with current levels by year-end.

Forecasted rental capital spending is approximately $300 million, down from prior year. By the end of this year, our ending rental fleet is expected to be down 12% and our average rental fleet is expected to be down 5%. The rental fleet remains well below peak levels as we manage through an extended market downturn. In rental, we've continued to shift capital spending to trucks versus tractors. As of the third quarter, trucks represented approximately 60% of our rental fleet. Our full year 2025 gross capital expenditures forecast of approximately $2.3 billion is below prior year. We expect approximately $500 million in proceeds from the sale of used vehicles in 2025, and full year net capital expenditures are expected to be approximately $1.8 billion.

Turning to Page 12. In addition to increasing the earnings and return profile of the business, our transformed contractual portfolio is also generating significant operating cash flow. Improving the overall cash generation profile of the business is one of the essential elements of our balanced growth strategy. Better earnings performance is driving higher cash flow generation and, in turn, is delevering our balance sheet at a more rapid pace. This momentum is creating incremental debt capacity given our target leverage range of between 2.5 and 3x. As shown on the slide, over a 3-year period, we now expect to generate approximately $10.5 billion from operating cash flow and used vehicle sales proceeds.

Our operating cash flow will benefit from improving contractual earnings. This creates approximately $3.5 billion of incremental debt capacity, resulting in $14 billion available for capital deployment. Over that same 3-year period, we estimate approximately $9 billion will be deployed for the replacement of lease and rental vehicles and for dividends, leaving $5 billion of capital available for flexible deployment to support growth, and return capital to shareholders. We estimate about half of this capacity will be used for growth CapEx and the remaining to be available for discretionary share repurchases and strategic acquisitions and investments.

Our capital allocation priorities remain unchanged and are focused on supporting our strategy to drive long-term profitable growth and return capital to shareholders. Our top priority is to invest in organic growth. We've taken a balanced approach to investing and since 2021 have invested approximately $1.1 billion in strategic M&A and have deployed approximately $1.2 billion for discretionary share repurchases, reducing our share count by 22%. Our balance sheet remains strong with leverage of 254% at quarter end, at the lower end of our target range and continues to provide ample capacity to fund our capital allocation priorities.

With that, I'll turn the call back over to Robert to discuss our outlook.

Turning to our outlook on Page 13. Our full year 2025 comparable EPS forecast is updated to a range of $12.85 to $13.05, above the prior year of $12, as higher contractual earnings benefits from our strategic initiatives and lower share count more than offset the impact from market conditions in rental and used vehicle sales. Our updated forecast continues to reflect contractual earnings growth as well as a muted environment for used vehicle sales and rental.

Although sales pipelines remain strong, the prolonged freight downturn and economic uncertainty continue to cause some customers and prospects in lease and dedicated to delay decisions. These near-term contractual sales headwinds are consistent with current freight market conditions. We are, however, encouraged by robust sales and pipeline activity in SCS.

Our 2025 ROE forecast is unchanged at 17% and is in line with our expectations given current market conditions. As mentioned earlier, our free cash flow forecast of $900 million to $1 billion is unchanged from the prior forecast and reflects lower capital expenditures in 2025 and an estimated annual benefit of $200 million from the permanent reinstatement of tax bonus depreciation. Our fourth quarter comparable EPS forecast range is $3.50 to $3.70 versus a prior year of $3.45.

Turning to Page 14. The key driver of expected earnings growth in 2025 is incremental benefits from multiyear strategic initiatives that are well underway and related to our contractual lease, dedicated and supply chain businesses. They represent structural changes we're making in the business and are not dependent on a cycle upturn. Upon completion, we expect these initiatives to generate annual pretax earnings benefits of approximately $150 million, which will be a key component to achieving our long-term ROE target of low 20s over the cycle.

In FMS, we expect to realize an incremental annual benefit of approximately $20 million in 2025 from our lease pricing initiative. This results in a total benefit of $125 million relative to our 2018 run rate, reflecting portfolio pricing under the new model. we expect $50 million in benefits over multiple years from our maintenance cost savings initiative announced in mid-2024.

In DTS, we expect to realize $40 million to $60 million in annual synergies from the Cardinal acquisition at full implementation. The majority of these synergies are related to maintenance efficiencies and replacing third-party operating leases with the benefits of Ryder ownership and asset management. In SCS, we are focused on optimizing our omnichannel retail warehouse network through continuous improvement efforts, driving operational efficiencies and better aligning our footprint with the demand environment.

During the third quarter, we incurred some incremental costs related to the optimization of our network, but expect continued progress on this initiative with incremental benefits expected in 2026. By year-end 2025, we expect to realize approximately $100 million from these initiatives benefiting all 3 business segments. Approximately $70 million of these benefits are incremental to 2024.

In addition to driving our outperformance relative to prior cycles, our transformed business model also provides a solid foundation for the business to meaningfully benefit from the eventual cycle upturn. As such, we expect an annual pretax earnings benefit of at least $200 million by the next cycle peak. The majority of the $200 million benefit is expected to come from the cyclical recovery of rental and used vehicle sales in FMS, in dedicated improved driver availability and lower recruiting and turnover costs are benefiting earnings but have been a headwind for new sales and revenue growth.

As freight capacity and driver availability tighten, we expect to see incremental sales opportunities and improved revenue growth in DTS as private fleets seek solutions to address these challenges. In supply chain, muted volumes in our e-commerce network have been a headwind to revenue and earnings. We expect supply chain results to benefit as volumes from these services recover and our optimized warehouse footprint is leveraged. We've been pleased by the business's resilience and performance during the prolonged freight market downturn and are confident each of our business segments is well positioned to benefit from the cycle upturn.

Turning to Page 15. Our transformed business model continues to deliver value to our customers and our shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio. We continue to see significant opportunity for profitable growth supported by secular trends, our operational expertise and ongoing momentum from multiyear strategic initiatives. We remain committed to investing in products, capabilities and technologies that will deliver value to our customers and our shareholders.

That concludes our prepared remarks. Please note that we expect to file our 10-Q later today. At this time, I'll turn it over to the operator to open the call for questions.

[Operator Instructions] And our first question will come from Scott Group with Wolfe Research.

I want to ask how you think these CDL regulations impact the business model, what are the puts and takes? I don't know if you have like a sense on your lease -- on the lease side of the business, like are you more exposed to large fleets, private fleet, small fleets where there may or may not be less exposure? And do you think there is risk that if there's fewer drivers that could pressure used truck pricing, I don't know, just some of the puts and takes?

Yes. Scott, I think that's still developing. But I would say that what it's likely to do is tighten the driver market. The drivers that are impacted just for purposes of our supply chain and dedicated business. We don't have any of those types of drivers in our company. So tighter driver market typically is good news for our dedicated business as you're more likely to have companies looking for help on how to bring those drivers in. As far as our customer base on the lease side, let me hand that over to John, so he can give you a little more color on that.

Yes, Scott, the majority of our lease portfolio, if you think about it, there are private fleets that are doing specialized deliveries, whether they're food distributors or even local delivery. Most of what we think is going to get impacted is that over-the-road transport space, which are doing dock-to-dock deliveries that don't require special handling. So I would say the majority of it is not impacted by this. Our estimates based on the number of CDL drivers out there can be as much as 5% impact to the overall capacity. So not expecting a meaningful change there to our customer base, but certainly will put pressure on wages over time. And I think that will favor more outsourcing activity for our business, both on the dedicated side as well as individuals looking to cut costs and coming to us for either their fleet maintenance or dedicated solutions.

Okay. And Robert, I know you -- usually on the Q3 call, you gave at least some thoughts perspective on the next year. We've had some multiyear initiatives like some of those like the lease pricing kind of I think this is the final year that the fleet is sort of shrinking a little bit as the year plays out. So what are the drivers of earnings growth next year? Are there headwinds to be thinking about? Just overall puts and takes as you think about '26's earnings growth potential?

Yes. As I was going into this call, I thought there would be a lot more clarity this year than there was last year, given we had an election come up last year. So -- there's still a lot of uncertainty, but I would tell you, it's a very similar story in that you should expect contractual earnings growth. Really, we have $50 million left in our strategic initiatives of $150 million. So you should expect a good chunk of that, if not all of it, to really come in next year. In addition to that, although we've had some muted sales and lease and dedicated because of the freight market softness and an extended downturn, the really strong part of the story this year is supply chain. We are seeing a very strong sales year in supply chain this year. It's on pace to be one of our best sales years. So those contracts should start coming in as we go into next year, probably second, third quarter, we'll start to see the more of them come in. But I would expect revenue and earnings growth really driven by the supply chain side next year.

And then on the transactional side, it's really when do we think the freight cycle is going to turn. And we're now in -- we're going to be on our fourth year of a downturn. So at some point, it will -- if it happens earlier in the year, we'll get some boost from our rental and used vehicle. If it happens later in the year, we'll get less of that, but it's really that $200 million of incremental earnings that we're expecting by the time we are next peak. When that turn happens, you'll start seeing some of that. It does it all come in the first year, but you'll start seeing some of that. And there's still not a lot of certainty of when we're going to see that. But one of the things you mentioned around tighter market could be more capacity coming out of the spot market, which is probably a good thing for the overall freight market.

As you know, we have zero-based budgeting here. So we expect us to continue to manage our overheads and look for cost takeouts there. If it is a slower -- if it is a slow market from a freight market standpoint, so we don't see an upturn. Then you should expect another strong free cash flow year. Unless we see a big freight rebound, I think that's probably in the cards for us next year, another strong free cash flow year. And then also continued share repurchase. So really continued execution on our balanced growth strategy, which I think has given us really good results so far, and we'll continue to do so.

[Operator Instructions] And our next question will come from Ben Moore with Citi.

Wanted to touch on more about your used gain being challenged in the quarter. In thinking about 4Q and 2026, can you share how you frame thinking about the truck tariffs? Presumably, you could allocate purchases towards U.S. made trucks, USMCA compliance can alleviate tariffs on -- trucks. You've got higher new truck pricing that should lift your used truck prices and you can possibly pass through to customers higher new truck pricing given the strong truck leasing industry pricing discipline. And also private fleets would probably want to outsource more to you. It's more economical to lease and buy. Can you walk us through kind of maybe some of these points and what you're thinking the puts and takes, whether that could be an overall benefit?

Yes. Ben, first, I'll say that we still don't have clarity of what the impact on the pricing is going to be and how much of any of it will be passed through. But I think you hit on some of the key points that, number one, if there is a price increase -- and I think there's market dynamics here. So all the OEs regardless of where they're doing their final manufacturing will have to compete in the marketplace with those that may be doing more domestic versus across the border. But any increase that we see, obviously, we passed through in our lease rate with our customers. We're not buying trucks until we have signed leases. Those increases will likely -- if they do happen, we'll slow down the purchase of new trucks, I would expect, which should give -- which should accelerate getting the supply of trucks in the market down to where they need to be. So that could be -- help accelerate the balance of the freight market. But for Ryder just as importantly, the cost of used equipment and used equipment that, that was purchased prior to the tariffs should be more valuable. And we should see some help on the used truck side over time as the higher pricing of new trucks comes in. So those are the big ones. I think at the end, complexity at Ryder is our friend. And I think the uncertainty has not been our friend just like uncertainty is not a friend of any business. But more complexity is good for us. And certainly, we're seeing plenty of it coming down the pipe with some of this tariff talk also some of the changes in driver regulations and qualifications and who could be a driver. So those things over time really, I think, make the work that we do more complex, which should bode well for outsourcing and should bode well for companies like ours.

Great. Really appreciate that. Maybe as a follow-up just thinking longer term capital structure-wise, as you shift your mix to more supply chain and dedicated, how might you think about maybe kind of trending down your leverage target to be more in line with your supply chain and dedicated peers. It looks like most of them have leverage around 0 to 1 to 2x.

Yes, that's a good question. But I think if you look at our balance sheet, you can see that the majority of the capital that we're spending is still heavily weighted towards our FMS business. The good news is the profitability of that business has significantly improved. So the contracts that we've signed over the last now 5, 6 years are certainly more profitable than what we had historically. So that allows us to continue to hold our leverage and keep our leverage where it is even as there's been a shift in certainly the revenue and earnings for the company. So John, do you want to add something to that?

Yes. Ben, I think right now, we're at the lower end of our target range. You should expect once the freight market recovers, we are going to be spending more capital to not only replenish the fleet but grow the fleet, both for lease and rental. So you will see our leverage move up within the range as we kind of up-cycle business. So that's kind of -- one of the dynamics here is we're on the trough end of the cycle, which you're seeing us operate towards the latter end. It will take multiple years, I would say, before we start seeing a meaningful impact to our capital structure from the growth that we're seeing in supply chain and dedicated.

And moving on to David Zazula with Barclays.

Steve and Cristy, Robert's comments suggested a pretty positive outlook for Supply Chain Solutions kind of into the quarter and next year. Can you start with some of the headwinds you saw this quarter? Were they temporary? Is some of the revenue you'd be able to offset the poor network performance in e-commerce? Just any color you can provide there.

Steve?

Yes, David, as you look at it, we had our ninth consecutive quarter of EBT earnings last quarter. We remain in high single digit, I'd really put it in 3 buckets. We had higher medical costs in the quarter. In e-com, there was a productivity miss really associated with a couple of accounts where volumes were lower than what was forecasted. And then as Robert said, in our strategic initiatives, the continued optimization of our multi-client, e-com and Ryder last mile footprint. We did have some customers that requested to move earlier in the year. So we've got some moves going on here in the second half where we had planned those to happen in Q1, but we didn't want to accommodate them. So a little bit of higher move and shutdown costs as well.

Super helpful.

David, I was just going to add to that, that in the forecast that we've provided for the fourth quarter, what we're expecting there on the high end of the range is that rental will continue kind of at this flat sequential demand environment. And on the UVS side, on the high end, there would be some market improvement and also some benefit from us shifting to more retail mix on the used vehicle side. And then on the low end, it would just be that demand drops below Q3 levels, so a declining environment, and that used vehicle also has a modest decline.

Very helpful. And then just if I could squeeze one in on select care. It seems like there's some headwinds in select here there? I guess, one, maybe discuss whether we should think of those as temporary? Or is there something going on there? And then should we think of SelectCare as being more volatile than historically outstand it's been a pretty consistent grower over time. So anything you can provide there on...

Yes. I'll let Tom give you color. Remember, SelectCare has a component that's contractual. And then another component is more the rebillables or the more transactional part is we've got customers that need body work and other types of work to do, but go ahead.

Yes. So I would view it as temporary. As we looked at the quarter, it was just lower activity, and as Robert mentioned, that lower activity in the transactional forms of SelectCare. And we certainly expect that to return to more normal levels in the fourth quarter.

And the next question will come from Ravi Shanker with Morgan Stanley.

Just a follow-up on the CDL role. I understand that you said it's a very direct impact for you guys. But how do you think about the timing and maybe the indirect impact. If you can kind of rewind a little bit to in 2018 with the ELD mandate and the 2020 drug and a clearinghouse kind of when there were regulatory changes in the industry that impacted small truckers, how quickly did that kind of the second derivative flow up to you guys? And also, how -- what's the timing that you think this impact will take place? Is this something that happened right away? Is this '26? Is it going to take several years? And what are you guys seeing right now?

Yes. Those are good questions, but it's hard to tell at this point, though, right? We don't know what the timing of this is, but the estimates are that it's 5% of the driver market that could come out over the next couple of years. So it's probably not something that happens overnight. It happens over a period of time. And whenever there's been a tightening of the driver market, it's typically good news for outsourcing. So again, we would expect to see some improvement, which -- much needed improvement, I would tell you on demand for dedicated services. And that's an area that as the market times up, you should see that. You should also see an increase in the transactional parts of our leasing business, rental and used vehicle sales because as some of those drivers that are maybe one way and our typical truckload type fleets go down. Some of the private fleets are going to have to pick up the slack. And we've seen that tilt over the last couple of years more towards the for higher driver. You may see that come back towards the private fleet, which will benefit our leasing customers and our dedicated business.

Understood. And as a follow-up to that, just on that point of private fleets, I think there's been some speculation about private fleet growth over the years. And yesterday, we may have heard that, there are some signs that maybe private fleets may be kind of giving back just given cost inflation and other issues. What do you think are some of the structural trends in private fleet growth right now? And kind of how do you think that lasts through the up cycle?

Yes. I think we've seen that in our lease fleet and our dedicated fleet over the last several years as coming out of COVID, there were a lot of trucks that were ordered that came in that probably our customers didn't need them all at that point once the COVID high came down. So you've seen those fleets teeth leading over the last 2 to 3 years. And we believe that's probably getting closer to the tail end of it now. But yes, there's no doubt that private fleets have been defleeting over the last 2 to 3 years.

And we'll take a question from Jeff Kauffman with Vertical Research Partners.

Congratulations, everybody. I just wanted to focus a little bit on the bonus depreciation. How is that going to funnel into the financial statements? Is it just going to be a cash flow benefit? Is it going to help the operating margins? And how is that going to accelerate? I think you mentioned a $200 million benefit, maybe I'm wrong, but I just kind of want to get a better idea how that's going to flow through the financials?

Cristy?

Jeff, so -- yes, the bonus depreciation right now for us is going to be a cash tax benefit, and we are estimating that to be about $200 million. We would expect that at the same level of capital spending in future years, it would continue to be about $200 million in the next several years. So that's the way it's going to flow through our financial statements. There is no tax rate effect of this. And from our operating margins, I mean, we continue to price our leases at market rates. So there really isn't a meaningful impact. It's just a cash timing benefit that we're going to be getting.

All right. And the $200 million number in the annual number, correct?

That is correct, yes.

And our next question comes from Jordan Alliger with Goldman Sachs.

Just wanted to come back to supply chain for a second. You mentioned -- the margins were in the high single-digit target for the third quarter. You mentioned the e-commerce network productivity or performance. Is that something that just is isolated into the third quarter and it drops off, and we could get back to some sort of a sequential improvement from here? Or is that sort of linger on? And then secondly, you commented that supply chain sales pipeline has been really strong and could start impacting in the 2Q, 3Q next year. Can you talk a little bit about the trade-off, if you start getting back to the revenue growth targets that you like to see longer term. Is there a trade-off with margin on startup? Or can we hold the high single digits as that starts to flow in?

Yes, I'll let Steve answer that. I'll tell you the last part of that. I do think we're certainly excited about the growth. We are not changing our earnings leverage targets, though, for supply chain. So no would expect same earnings leverage targets, just to be -- it's going to be nice to get back closer to our target growth rates. But go ahead, Steve.

Yes. I think in the quarter, as you think about Q4, there's going to be some continued optimization of the footprint, specifically in e-commerce and last mile. So I think that would continue, but it would set us up for a rebound in 2026. We also are seeing in the second half a few more plant shutdowns in automotive as they retool and move models around to different plants. So that's another one. I didn't really stand out in the quarter, but that's some items that we're seeing here in the back half.

And our next question will come from Harrison Bauer with Susquehanna.

You've laid out your peak to trough market improvement opportunity of around $200 million. And that was off a 2024 base with used vehicle sales down on the games part or maybe $50 million this year in rental earnings contributions also down notably. Do you think that peak to trough opportunity might be close to $300 million if we rebase the transactional earnings contribution to 2025?

Yes. Harrison, this is John. I think your observations are directionally accurate in that if you think about where we were in '24 from a gains perspective and where we're sitting today. Obviously, we've had a pullback in our UBS gains. As a reminder, our expect the normalized gains to annually are in that range of $75 million. So clearly, more opportunity on the UBS side relative to where we were back in 2024. Rental has also taken a step back since then, which would suggest that it's a little bit more than the $200 million that we originally had calibrated. So we are going to need to make investments to grow the rental fleet and continue to invest in that fleet over time, which factors into that $200 million. But you're absolutely right. The $200 million, it's maybe not reflective of where we sit today, which is more depressed than where we were a year ago.

And as a follow-up to the nondomicile CDL conversation, I appreciate how you mentioned how the removal of drivers would impact different parts of your business. But what do you think the sort of other side of that where there might be additional trucks to the market and how that might affect used vehicle prices?

The question is additional trucks as a result of having fewer drivers?

Correct. Yes, like the displacement of drivers and what might happen with those trucks and any pressure to used vehicle prices or residual values?

So you're saying that, yes, there will be more used trucks in the mark. Yes, I think that would be I mean, see, time will tell, but I think that would be more than offset by just the benefit of more trucks need to be there to replace them, right? You're going to have to -- you're going to need more newer trucks or less or newer model year trucks to replace them. So -- yes. It's hard to tell exactly how it all falls out. But generally, I would tell you that as the market tightens for drivers, that is a good thing for used trucks, and that's a good thing for our rental business.

And our next question will come from Brian Ossenbeck with JPMorgan.

Just wanted to ask for a little bit more specifics on the rental demand. I think you said it was a little bit weaker than seasonal. I don't know if you can call it anything in particular there? And similarly for the e-com, it sounded like there was a productivity miss on -- maybe volume. So is there anything within that vertical that you can read into? Or is this more of a one-off from a specific customer and whatever they're forecast was and whatever that warehouse was supposed to look like, but if they didn't deliver?

So I'll let Tom address the rental what we saw in the quarter versus what we expected.

Yes. Cristy mentioned it a little bit in her opening comments, but the third quarter was slightly down from our expectations and slightly worse than what we would typically see from a seasonal demand trend -- by about 1%, if you look at the trend year-over-year. You can see that. So as you step off into the fourth quarter here on that slightly lower demand, that's reflected into the fourth quarter forecast as well. So it's a little bit worse than what we had expected.

And certainly, we're well off of our target of where we want to be from a utilization standpoint.

Steve, do you want to address the e-com?

Yes. Brian, I'd say that productivity miss to forecast was really a one-off situation in the quarter.

And I guess just on the rental demand, if it was worse, and I appreciate you updating the guidance for the run rate, but what -- is there anything in particular that surprised you to the downside? Was it a combination of things, anything you can really point to? .

Yes. I guess there's a good and bad in the detail of the data. The good point is our pure rental business year-over-year, the demand for our non-lease customers running trucks was flat year-over-year. So what we're seeing is our lease customers haven't picked up their demand. And we certainly haven't signed lease sales have been a little bit muted, and we would typically have a wait new leases as we sign new business. So those are the 2 areas that were down in demand. .

The other good point here, and you saw it in the numbers, the RPD was up about 5%. So we are seeing good rate discipline in rental. So I think when we see our lease customers start to rent again, that will be a really good sign for us.

And we'll take a question from Ben with Citi .

Just looking at the bright side, your strong sales performance in SCS and you seem very excited about SCS leading growth in 2026. Can you talk more about your recent developments in your incubator for tech that had developed your RyderGyde, RyderShare, RyderShip and tech-driven sales? In our research, it looks like load board and broker apps using AI have been supporting one truck owner operators. And I'd be curious to hear about similarity with your tech supporting your logistics managers and the outsourcers that you serve?

Yes. John Diez here. Two components to your question. One around tech. Clearly, what we're seeing the investments we're making in RyderShare, RyderShip and some of the other technologies that our customer facing is making a difference. That's really a big differentiator in what we're seeing in the sales activity. We are starting to see large customers take action in reshaping their supply chain. So these technologies are making a difference in those opportunities and how we compete.

With regards to the second part of your question around AI, clearly, we're deploying some of these technologies, especially around agentic AI technologies with regards to improving our service levels and improving the effectiveness of some of our solutions, specifically around our transportation management and brokerage part of the business, that's making a difference in optimizing rate for our customers, improving overall service levels as well as improving our effectiveness around our freight bill audit and pay activity there. So you are seeing that in the supply chain space as well as some of the activities we're deploying to other parts of the business, including fleet management and dedicated.

And our last question comes from Scott Group with Wolfe Research.

Just real quick. Can you just let us -- what's in the guidance for gains in the fourth quarter? And it's always a little hard to know what that slide and the residual value is like how much cushions left to stay within the ranges on residuals before we risk either losses or having to do something with depreciation assumptions?

Yes. Scott. So on the guidance itself, let me remind you, in the quarter, pricing was somewhat stable. And at this level, we're still maintaining gains on the on the P&L. So I would expect the fourth quarter to be similar or somewhat better because we are expecting on the high end, a modest improvement in pricing. So we think that it will be higher than the third quarter results.

As far as how much can we sustain the sensitivity right now is we would need pricing to decline 8% from where it is today in order to hit the bottom end of our residual levels, we are not anticipating a decline. And so right now, that's not what we're forecasting, but that is the amount that it would need to decline to hit the bottom end.

Okay. So it doesn't sound like just to be sure, you're not planning any residual assumption changes or changes in accelerated depreciation or anything like that for next year?

That's right. Right now, we're comfortable with our residuals where they're at.

At this time, there are no additional questions. I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks.

Okay. Well, thank you. We're near the top of the hour. So -- thanks again for your ongoing interest in Ryder and great questions. Talk to you guys soon.

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.

Good morning, and welcome to the Ryder System Second Quarter 2025 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time.

I would now like to introduce Ms. Calene Candela, Vice President, Investor Relations for Ryder. Ms. Candela, you may begin.

Thank you. Good morning, and welcome to Ryder's Second Quarter 2025 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, business, competitive, market, political and regulatory factors.

More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website.

Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer; John Diez, President and Chief Operating Officer; and Cristy Gallo-Aquino, Executive Vice President and Chief Financial Officer. Additionally, Tom Havens, President of Fleet Management Solutions; and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solutions, are on the call today and available for questions following the presentation.

At this time, I'll turn the call over to Robert.

Good morning, everyone, and thanks for joining us. I'm proud of the Ryder team for delivering our third consecutive quarter of double-digit earnings per share growth.

Second quarter results were above our expectations, driven by outperformance in our Supply Chain segment. This benefit was partially offset by increased used vehicle wholesale volumes to manage aged inventory levels. The business continues to outperform prior cycles, driven by our resilient contractual portfolio that reflects the actions we've taken under our balanced growth strategy to derisk the business increase the return profile and accelerate growth in our asset-light supply chain and dedicated businesses.

I'll begin today's call by providing you a strategic update. Cristy will then take you through our second quarter results and John will review capital expenditures and our increasing capital deployment capacity. I'll then review our updated outlook for 2025 and discuss how we expect to leverage the momentum of our transformed business model. Let's begin on Slide 4.

Turning to Slide 4. The structurally higher earnings profile of our transformed business model and execution on our strategic initiatives continue to drive earnings growth. We remain on track to realize the benefits from the strategic initiatives outlined during the February earnings call. These benefits are the key drivers of the year-over-year earnings growth we are expecting. Long-term secular trends that favor transportation and logistics outsourcing remains strong. The value that our solutions bring to our customers remains compelling. We are also well positioned to benefit from increased industrial manufacturing in the U.S. as 93% of our revenue are generated here.

We delivered a return on equity of 17% for the trailing 12-month period which is in line with our expectations during a freight cycle downturn and continues to demonstrate the resilience of our transformed business model. Earnings growth from our high-performing contractual portfolio reflects our value proposition as well as our pricing discipline. Over 90% of our operating revenue is generated by multiyear contracts. We expect our transformed and cycle-tested business model to continue to outperform prior cycles.

In addition to increasing the return profile of our business, the earnings power of our contractual portfolio continues to provide us with increased capital deployment capacity, which we expect to use to support profitable growth and return capital to shareholders. Earlier this month, we announced a 12% annualized increase to our quarterly dividend reflecting higher profitability and improved returns over the cycle. In 2025, we returned $330 million to shareholders by repurchasing approximately 1.7 million shares and paying our dividend.

Since 2021, we have repurchased approximately 21% of our shares outstanding and increased the quarterly dividend by 57%. We increased our 2025 forecast for free cash flow by approximately $500 million to a range of $900 million to $1 billion due to lower expected capital spending and the estimated cash flow benefit of approximately $200 million from the permanent reinstatement of tax bonus depreciation.

Slide 5 illustrates how key financial and operating metrics have improved since 2018, reflecting the execution of our strategy. In 2018, prior to the implementation of our balanced growth strategy, operating cash flow was $1.7 billion. This was during peak freight cycle conditions.

Now let's look at what we're expecting from Ryder today. In 2025, a year in which freight market conditions are expected to remain near trough levels, our transformed business model is expected to generate meaningfully higher earnings and returns than it did during the 2018 peak. Through organic growth, strategic acquisitions and innovative technology, we have shifted our revenue mix towards supply chain and Dedicated, with 60% of 2025 revenue expected to come from these asset-light businesses compared to 44% in 2018.

2025 comparable earnings per share is expected to be between $12.85 and $13.30, more than double 2018 comparable earnings per share of $5.95 million. ROE is expected to be approximately 17%, up from 13% generated during the 2018 cycle peak. As a result of profitable growth in our contractual lease, dedicated and supply chain businesses, operating cash flow is expected to increase to $2.8 billion, up approximately 65% from 2018. As shown here, in 2025, the business is expected to continue to outperform prior cycles, even when comparing the pre-transformation peak to the current market environment.

We're proud of the strong performance of our transformed business model and believe that executing on our balanced growth strategy will continue to deliver higher highs and higher lows over the cycle.

I'll now turn the call over to Cristy to review our second quarter performance.

Thanks, Robert. Total company results for the second quarter are on Page 6. Operating revenue of $2.6 billion in the second quarter, up 2% from prior year primarily reflects contractual revenue growth in SCS and FMS. Comparable earnings per share from continuing operations were $3.32 in the second quarter up 11% from $3 in the prior year. The increase reflects higher contractual earnings and share purchases.

Return on equity, as Robert previously mentioned, our primary financial metric was 17%, up from prior year, primarily reflecting higher contractual earnings. The ROE benefit from share repurchases was offset by used vehicle sales and rental performance. Year-to-date free cash flow increased to $461 million from $71 million in the prior year, reflecting lower working capital needs and reduced capital expenditures. The benefit in working capital reflects lower tax payments and the timing of vendor payments.

Turning to Fleet Management results on Page 7. Fleet Management Solutions operating revenue increased 1%, driven by ChoiceLease revenue, which was up 2%. Pretax earnings in Fleet Management were $126 million, down year-over-year, reflecting weaker freight market conditions. Higher ChoiceLease performance driven by pricing and maintenance cost savings initiatives partially offset lower used vehicle sales results. We continue to see progress on our pricing and maintenance cost initiatives, and remain on track to achieve the benefits targeted for this year. Used vehicle sales results in the second quarter were negatively impacted by the decisions we made to exit out of some aged inventory by utilizing our wholesale channels. We do not plan on executing this level of wholesale trades going forward.

And given that we are not expecting any significant change to market conditions for the second half, we expect used vehicle sales results to be in line with first quarter levels for the next 2 quarters. Rental results for the quarter reflect market conditions that remain weak. The sequential increase in rental demand for the quarter was in line with prior year and below historical trends as contemplated in our prior forecast. Rental utilization on the power fleet was 70%, up from 69% in the prior year on an average active power fleet that was 7% smaller. Although utilization remains below our target range of mid-70s, year-over-year comparisons improved for the first time since the third quarter of 2022.

Rental power fleet pricing was up 4% year-over-year. Fleet Management EBT as a percent of operating revenue was 9.7% in the second quarter below our long-term target of low teens over the cycle.

Page 8 highlights used vehicle sales results for the quarter. Year-over-year, used tractor and truck pricing both declined 17%. On a sequential basis, pricing for tractors increased 3% and pricing for trucks decreased 10%. Pricing in the second quarter reflects increased wholesale volumes to manage aged inventory. Approximately 50% of our sales volume went through retail sales channels this quarter compared to 65% in the prior year. Pricing in our retail sales channel increased sequentially with tractor retail pricing up 10% and truck retail pricing up 4%.

During the quarter, we sold 6,200 used vehicles, up sequentially and versus prior year. Used vehicle inventory of 9,600 vehicles was slightly above our targeted inventory range. Used vehicle pricing remained above residual value estimates used for depreciation purposes. Slide 19 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks, for your information. Although used vehicle sales results were negatively impacted by higher wholesale volumes, lower levels of aged inventory position us to increase our use of the retail sales channel where we realize higher pricing. As such, we expect a higher retail sales mix in the balance of the year compared to current levels.

Turning to supply chain on Page 9. Operating revenue increased 3%, driven by new business as well as higher customer volumes and pricing. Supply chain earnings increased 16% from prior year, reflecting operating revenue growth and improved performance from our initiative to optimize our omnichannel retail network. Supply Chain EBT as a percent of operating revenue was 9.7% in the quarter, at the high end of the segment's long-term target of high single digits.

Moving to Dedicated on Page 10. Operating revenue decreased 3% due to lower fleet count, reflecting the prolonged freight downturn. Dedicated EBT increased 1% year-over-year, reflecting acquisition synergies and prior year integration costs that were partially offset by lower operating revenue. DTS results continue to benefit from strong performance of our legacy dedicated business, reflecting pricing discipline as well as favorable market conditions for recruiting and retaining professional drivers. Dedicated EBT as a percent of operating revenue was 7.9% in the quarter at the segment's long-term high single-digit target.

I'll now turn the call over to John to review capital spending and capital deployment capacity.

Turning to Slide 11. Year-to-date, lease capital spending of $832 million was below prior year, reflecting delayed OEM deliveries in the prior year. Rental capital spending of $268 million was also below prior year levels. For full year 2025, lease spending is now expected to be $1.8 billion, down $300 million from our prior forecast, reflecting lower lease sales activity. Lease spending is expected to be down $200 million from prior year, reflecting delayed OEM deliveries in 2024. We expect the ending lease fleet to remain fairly consistent with current levels by year-end.

Forecasted rental capital spending remains at approximately $300 million, down from prior year. Our ending rental fleet is expected to decrease 2% by year-end, and our average rental fleet is expected to be down 5%. The rental fleet remains well below peak levels as we manage through an extended market downturn. In rental, we've continued to shift capital spending to trucks versus tractors. As of the second quarter, trucks represented approximately 60% of our rental fleet.

Our full year 2025 gross capital expenditures forecast of approximately $2.3 billion is below prior year. We expect approximately $500 million in proceeds from the sale of used vehicles in 2025 and full year 2025 net capital expenditures are expected to be approximately $1.8 billion.

Turning to Page 12. In addition to increasing the earnings and return profile of the business, our transformed contractual portfolio is also generating significant operating cash flow. Improving the overall cash generation profile of business is one of the essential elements of our balanced growth strategy. Better earnings performance is driving higher cash flow generation and in turn, is delevering our balance sheet at a more rapid pace. This momentum is creating incremental debt capacity given our target leverage range of between 2.5 and 3x.

As shown on the slide, over a 3-year period, we now expect to generate approximately $10.5 billion from operating cash flow and used vehicle sales proceeds. Our operating cash flow will benefit from the permanent reinstatement of tax bonus depreciation and improving contractual earnings. This creates approximately $3.5 billion of incremental debt capacity, resulting in $14 billion available for capital deployment. Over the same 3-year period, we estimate approximately $9 billion will be deployed for the replacement of lease and rental vehicles and for dividends, leaving around $5 billion of capital available for flexible deployment to support growth and return capital to shareholders.

We estimate about half of this capacity will be used for growth CapEx and the remaining to be available for discretionary share repurchases and strategic acquisitions and investments. Our capital allocation priorities remain unchanged and are focused on supporting our strategy to drive long-term profitable growth and return capital to shareholders. Our top priority is to invest in organic growth. We've taken a balanced approach to investing and since 2021, have invested approximately $1.1 billion in strategic M&A and have deployed approximately $1.1 billion for discretionary share repurchases, reducing our share count by 21%.

Our balance sheet remains strong with leverage of 251% at quarter end at the low end of our target range and continues to provide ample capacity to fund our capital allocation priorities.

With that, I'll turn the call back over to Robert to discuss our outlook.

Turning to our outlook on Page 13. Our full year 2025 comparable EPS forecast is updated to a range of $12.85 to $13.30 above prior year of 12 as higher contractual earnings and the benefits from our strategic initiatives more than offset the impact from market conditions in rental and used vehicle sales. Our updated forecast continues to reflect contractual earnings growth with a more muted second half recovery in used vehicle sales.

Although sales pipelines remain strong, the prolonged freight downturn and economic uncertainty continue to cause some customers and prospects in lease and dedicated to delay decisions. These near-term contractual sales headwinds are consistent with current market conditions. We are, however, encouraged by robust sales and pipeline activity in SCS. Our 2025 ROE forecast is revised to 17% from a range of 16.5% to 17.5%. The revised forecast remains in line with our expectations given current market conditions.

As mentioned earlier, we increased our free cash flow forecast by $500 million to a range of $900 million to $1 billion to reflect lower capital expenditures and the permanent reinstatement of tax bonus depreciation. Our third quarter comparable EPS forecast range is $3.45 to $3.65 versus the prior year of $3.44.

Turning to Page 14. The key driver of expected earnings growth in 2025 is incremental benefits from multiyear strategic initiatives that are well underway and related to our contractual lease, dedicated and supply chain businesses. We have good visibility to these initiatives. They represent structural changes that we're making to the business and are not dependent on a cycle upturn.

Upon completion, we expect these initiatives to generate annual pretax earnings benefits of approximately $150 million, which will be a key component to achieving our long-term ROE target of low 20s over the cycle. In FMS, we expect to realize an incremental annual benefit of approximately $20 million in 2025 from our lease pricing initiative. This results in a total of $125 million benefit relative to our 2018 run rate, reflecting portfolio pricing under the new model. We expect $50 million in benefits over multiple years from our maintenance cost savings initiative announced in mid-2024.

In DTS, we expect to realize $40 million to $60 million in annual synergies from the Cardinal acquisition at full implementation. The majority of these synergies are related to maintenance efficiencies and replacing third-party operating leases with the benefits from Ryder ownership and asset management.

In SCS, we are focused on optimizing our omnichannel retail warehouse network through continuous improvement efforts, driving operational efficiencies and better aligning our footprint with the demand environment. Since the second half of 2024, we have seen improved productivity in this vertical as a result of these actions and expect incremental benefits throughout 2025. By year-end 2025, we expect to realize approximately $100 million from these initiatives benefiting all 3 business segments. Approximately $70 million of these benefits are incremental to 2024.

In addition to continuing to increase the return profile of our contractual businesses, we are also focused on ensuring the business is well positioned to benefit from the eventual cycle upturn. As such, we expect an annual pretax earnings benefit of approximately $200 million by the next cycle peak and expect to begin to realize these benefits during the upturn. Although over 90% of our operating revenue is supported by long-term contracts that generate relatively stable and predictable operating cash flows over the cycle, each business segment has meaningful opportunities to benefit from the cycle upturn.

We expect the majority of the $200 million benefit to come from the cyclical recovery of rental and used vehicle sales in FMS. In dedicated, improved driver availability and lower recruiting and turnover costs are benefiting earnings but have been a headwind to new sales and revenue growth. As freight capacity tightens and driver availability becomes more challenging, we expect to see incremental sales opportunities and improved revenue growth in DTS as private fleets seek solutions to address this pain point.

In Supply Chain, muted volumes in our omnichannel retail vertical have been a headwind to revenue and earnings. We expect supply chain results to benefit as volumes from these services recover and our optimized warehouse footprint is leveraged. We've been pleased by the business's resilience and performance during the prolonged freight market downturn and are confident each of our business segments is appropriately positioned to benefit from the cycle upturn.

Turning to Page 15. Our transformed business model continues to deliver value to our customers and our shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio. We continue to see significant opportunities for profitable growth supported by secular trends, our operational expertise and ongoing momentum from multiyear strategic initiatives. We remain committed to investing in products, capabilities and technologies that will deliver value to our customers and our shareholders.

That concludes our prepared remarks. Please note that we expect to file our 10-Q later today. At this time, I'll turn it over to the operator to open the call for questions.

[Operator Instructions] We'll now take our first question from Ravi Shanker with Morgan Stanley.

So greatest to the dry powder on the balance sheet here. Are you confident kind of deploying that now? Or do you think you need to wait for the up cycle and maybe a little more clarity before you decide where to there?

Ravi. Yes, look, I think Obviously, we feel really good about the dry powder. We've got repurchase programs in place already. We are always looking for acquisition opportunities. And then obviously, as we get into the freight up cycle, we're going to be investing organically in vehicles not only for lease, but for rental. So we feel really good about where we're at. We think we've got a great balance as you saw in that page that John took us through and really feel we've got the dry powder we need to do all of the things that we want to do across each of those areas.

If I can squeeze a quick follow-up here. Noted on the retail versus wholesale mix in the back half, but how are you thinking about the different scenarios on residual truck values in the back half of the year, just given the uncertainty around the cycle?

What we're thinking about on the pricing?

Yes, correct.

Yes. Look, as we look at the back half, what we've seen and what probably many of you have seen is that tractor pricing has begun to move up. Our tractor pricing, as we showed, even with the additional wholesaling activity we did was still up 3%. If you look at retail only, it was up 10%. So we would expect that trend to continue. We did bring down the top end of our guidance, primarily because we don't expect the increase to be as significant as we originally did, so a more muted increase. But we would expect a steady increase, especially in the fourth quarter, as we get into the fourth quarter in terms of trucking, but we're very encouraged by what we're seeing in the used tractor market.

[Operator Instructions] We'll now take our next question from Scott Group with Wolfe Research.

Just a follow-up there. So just maybe a little bit more on why the -- we went to losses on sales in Q2 and why it goes back to gains right away in Q3? I don't know that -- we've seen it in flex so quickly in the past? And then just maybe if that's right, though, that we get this uplift from $0.20 or so of games, we typically see just the core earnings get a little bit better Q2 to Q3. So are there other offsets to think about in the guide for Q3?

Yes. I think the reason we went to a loss was really driven by the fact that we had this incremental wholesaling activity of aged inventory. We talked about it on the last call, we said we were going to do what we did. We actually did a little more than we had originally expected. So that probably cost us about $10 million in the quarter. There was about 1,000 units that we did there, incremental to what we had done in the first quarter. So that's really why we know is going forward, we still have some wholesaling to do, but we don't expect to do anywhere near that magnitude of it, and that's what would get us back to more of the gains levels that you saw in Q1.

I don't know if you had other thoughts on, like, the other part of the question just about if we get that $10 million or whatever uplift in used, are there other offsets to think about in the guidance for Q3?

No, I think we're expecting -- if you think about towards the high end of our guidance, we said at the beginning of the year, we had about $70 million in earnings improvement from initiatives. That comes out to like [ 1.20 ]. So we were at $12 last year, with the initiatives that we have, that gets us to [indiscernible]. I guess it's pretty close to the high end. The incremental earnings are really coming from the contractual parts of the business more than offsetting some incremental challenges that we have in rental and used vehicle sales, right? We lowered our range last quarter because of rental. We lowered it a little bit. And this year -- this quarter, we're lowering a little bit because of used vehicle sales. So those transactional parts just haven't really come back.

As you know, the market hasn't come back with all the uncertainty. I think this quarter is a little less uncertainty than there was a quarter ago. And hopefully, next quarter, there's a little less uncertainty than this quarter, and things continue to improve. But those are really -- I would tell you the only other headwind is just obviously contractual sales. Contractual sales with the uncertainty has been more muted, especially in our lease and dedicated businesses. So we need that business. We need customers to get to the point where they're making decisions, and we get that -- those sales back on track. That does create some headwind in terms of the growth of earnings as that comes back.

We are pleased, though, we have seen a pickup in sales on the supply chain side. We got some larger customers that are making decisions, and we're very pleased with what's going on there. But we haven't seen that yet on the dedicated and leasing side.

And maybe just if I can ask one more, just to that point, like I get the cash flow benefit to you from the bill, but how do you think it changes customer behavior? Is there more buying instead of leasing? Is it a risk to you? Is it -- are you seeing -- because of the cash flow benefit maybe a -- is there any sort of reason why leasing activity would pick up? Just any thoughts there?

I think historically, when you've seen -- I mean, I feel like we've had bonus depreciation for a long time, but you go way back when bonus appreciate we get turned on and off. Typically, you would see an increase in overall business spending. And that is good for us because that means there's more activity in the marketplace. We get more opportunities to pitch our leases and our services. So yes, it does provide a free cash flow benefit for us going forward, at least for the next several years. But it also, more importantly, stimulates the economy and get our customers to feel better about making investments, whether it's buying additional equipment or leasing and signing contracts for additional equipment.

We'll now take our next question from [ David Sanzone ] with Barclays.

I guess, we've talked a little bit about the 3 key portion of the guide. Given 3Q and full year, we can back into what is going on in 4Q. Can you maybe talk early assumptions on what you're expecting in 4Q from an FMS perspective, leasing environment? Any thoughts you have into that portion of the guide?

So if you look at the range of the guide, on the top end of the range, it's primarily we're expecting historical sequential trends in rental. And then on the used vehicle side, we're expecting some increase or kind of flattish in Q3 and then some increase -- modest increase, if you will, used vehicle pricing in Q4.

On the low end of the range, however, we're expecting flat rental with no seasonal pickup and actually continued declines in used vehicle pricing in Q3 and Q4. So that gives you kind of an idea of the goalpost that we've got out there in terms of what could happen. The contractual businesses is more consistent. We're expecting that to continue to perform the way it has been. And then obviously, we expect to continue to execute well on our initiatives, and we're certainly on track with achieving the $70 million we originally targeted.

And if I just ask about OEM delays and some of the drivers behind the CapEx change, are those things that you're expecting to kind of reverse in 2026? And yes, early, do you expect an environment that would warrant increase capital spending on your part in '26?

Yes. Look, I think the tax bill is certainly going to be helpful. We need the freight market to finish correcting. I keep saying we're closer to the end of the beginning. I still think we're way closer to the end than the beginning after 3 years of this. We are seeing an early side just with what's happening with used tractor pricing. We're still seeing rental those soft and it's kind of flattish. And then we're the least miles per unit or kind of bumping along flattish, too. So we still haven't seen the big pickup. I think there's still certainly lingering uncertainty around tariffs. And hopefully, that gets resolved here in the next month or so. Mostly resolved. And then it's a matter of that freight market rebalancing and we're back off to the races. So yes, that could turn around certainly next year.

The CapEx decline is primarily just not having the lease and rental CapEx that we would normally see as we start building the business back up. So yes, some of that you should start to see that come back in 2026.

We'll now take our next question from Harrison Bauer with Susquehanna.

Great. Maybe could you walk us through about how you're thinking about the margin cadence in the back half of the year? Really across your different segments and for FMS maybe on an x gain basis. And then as you take a step back, considering all your segment margins, including FMS x gains are at or approaching their long-term guides, in 2026, as you pivot to growth more, do you think there might be some margin pressure that comes with that?

Let me hand it over to Cristy, she could give you a little color around the margin expectations. And then we can talk about what would happen as we start to grow.

Yes. So on the -- Harrison, on the margin side, for the FMS business, we are expecting Q3 and Q4 to have growth in those periods also because we're catching the tail on some of the deterioration that we saw last year from rental and now with rental stabilizing, that should get better. But regardless of that, we're obviously benefiting from the initiatives in FMS related to pricing and maintenance. So that is continuing to provide benefit in our margins for those periods.

On the Supply Chain side, it's more of the same of what you've seen. We've had good growth there as well as our initiative around the omnichannel retail network. So we are also expecting margin growth in those periods. And then with Dedicated, we've talked about that. One, we do have the benefits from the Cardinal synergies but we are seeing lower fleet count, and that will impact our comparable earnings comparisons year-over-year. So that will put some pressure on that. But overall, as we said, we expect earnings growth, and we should continue to benefit from these initiatives, and all the stuff we've done to the contractual business to really make it as resilient as it can be.

Yes. Look, and I think you mentioned that the segments are all at or near there. target margins, yes, if you look at Supply Chain and Dedicated or after target margins. FMS is not at the target margins right now, they're at the high single digits, low double digits. We want it to be in the low teens. And that's going to be -- it's going to get to the low teens as we start to see the market recover. As you start to get rental and used vehicle sales really contributing. That's how you start to see that come back. So hopefully, that's happening already next year, and we start to see that improvement. But that's really the missing piece, if you will, to the puzzle.

The only other thing I would add to what Cristy said is on the supply chain side, you will -- as we go into the second half of the year, they've really been on a tear in terms of the growth and the consecutive quarters of earnings growth. We're going to expect -- we expect to see that in 3 or 4. However, you do catch the tail of some of the earnings improvement that we had last year. And then you also could have some -- we've got a lot of new business that has been signed and you could have some lumpiness around when that starts to come in.

But as we get into the fourth quarter, we expect to really start to see growth on the top line accelerate and then the bottom line also begin to grow.

Great. And then maybe just a quick follow-up on your truck and tractor mix as John alluded to in the rental business. But maybe could you update us on the differences you're seeing in demand in your lease and rental on tractors versus trucks?

Let me hand that over to Tom.

Well, I can -- I'll start with lease. I know you can see that we've had some headwinds on the lease fleet growth year-over-year. But when you strip that out and look at the different classes, trucks are actually up year-over-year about 2,000 units and the business headwinds are in the tractor trailer classes, which is where you might expect it to be with the transport challenges that we're seeing in the market in general. So I think that's a generally good trend from a truck perspective, and we expect tractor trailers to come back at some point, as Robert's mentioned, as the market improves.

On rental, I think John hit it in his opening comments. We have continued to invest in the truck fleets and it sits at about 60% of the rental fleet today. We expect that to continue through this year. As the market done prove, I would expect that we would invest in some tractors in the rental fleet, probably in 2026, but we'll wait to see as the market improves before we do that and grow that tractor fleet again.

We'll now take our next question from Jordan Alliger with Goldman Sachs.

I'm just sort of curious on the used trim markets, it's great. We're seeing the sequential increase. You indicated you expect that trend to continue. What underpins that? Is it more a function of new truck prices are higher, orders are down, but people still need high-quality trucks? Or is it a function perhaps of maybe supply getting a little firmer in the overall trucking market?

Yes. I think that it's probably all of those things that you mentioned. We are getting to a point where this freight recession has been going on for a while, and you're starting to see some other people, I guess, that are looking to replace vehicles that they have, used vehicles and the vehicles that we have are truck at that.

I don't know, Tom, if you want to give them...

The only thing I might add is you look at the sleeper classes, in particular, is where you're seeing the most price uplift in used vehicle sales. And I think our inventory probably mirrors the overall general inventory of used vehicles. Our sleeper inventory is actually relatively low. And I think that's what's driving the pricing. So it's, I think, an indication that you're getting closer to equilibrium at least on that class. Hopefully, the others will follow soon. And these are -- I mean, these are high-quality vehicles that are really the pricing. If you look at the historical charts that we have, they've come down to pretty low levels. And that's where you start to see some folks coming in to replace units.

And then just as a follow-up, the supply chain margins continue to be at target despite the difficulty in closing deals and maybe revenue growth being operating revenue growth below target. I mean is that how it should work like going forward? What underpins the strength in the margins despite perhaps the less than optimal revenue growth?

Yes. Look, I think it's an indication of the value prop of the work that we do in supply chain. But let me hand it over to Steve to give a little color.

Yes, Jordan, I think first of all, I wanted to thank the team for focusing on the business and our customers. There's 3 or 4 things that we've been focused on. You remember a few years ago, we focused on investing in our start-up effectiveness teams. We continue to do that. So as Robert said, as we bring on new business, we've got the right approach and execution on that. Team is also focused on continuous improvement in the business. We've been very disciplined, I think, on the overhead structure and our pricing on new contracts.

And I think the diversification of the portal door capabilities and service offerings is attractive to our customers. So as Robert said, we're off to a good start. We should expect as we exit Q4 to be in that mid-single-digit range.

Yes. And the only thing I'd add to that is that as we get through this uncertainty, I think it was really holding up decisions in Supply Chain has been the uncertainty because it's not all just tied to the freight market, and we're starting to see some of that loosen up now. We're really encouraged about the opportunities to continue to grow that business, especially as if you start to see more industrial manufacturing pick up in the U.S. and more industrial manufacturing come to the U.S. I think we're really well positioned to play in that space.

We'll now take our next question from Jeff Kauffman with Vertical Research Partners.

Congratulations. Bigger picture thought question on maintenance. Some years ago, we thought outsourced maintenance was a strategic growth weapon. It's been kind of stagnant for the last few years. We can blame the environment fleet, maybe some of it has to do with the mix where you're focusing more on trucks versus tractors. But I just kind of wanted to think about maintenance because in theory, in an environment like this, when nobody is buying trucks, maintenance should become really important and a lot of fleets are complaining to me that their maintenance costs are rising.

What's going on with maintenance? I mean, why hasn't it grown the last couple of years? Is it a strategic decision? Is it a customer decision? Is it a mix decision? And where do we think the outlook for maintenance -- outsourced maintenance is in the long run?

Yes. I'll let Tom give you more of an answer there, but I'll tell you that we haven't given up on it. I mean we've got an initiative around mobile maintenance that we're trying to grow with our Torque product where we're going on into mobile maintenance. I think the real opportunity may be there is retail as opposed to these contractual of multiyear agreements for kind of a guaranteed maintenance. We're finding this customers that don't want to do full service but many of them just want to do retail mines. They want to pay by the drink and they want to pay retail.

So that type, along with the mobile service seems to really have some good prospects. So we're focused on getting that initiative off the ground and really getting -- growing it. But no, we haven't given up. And by the way, any of those customers that you run into who are having trouble with maintenance make sure you send them all away. So let me give that over to Tom.

Yes, let me just make -- let me make a couple of more comments on Torque. And I think Robert's right, there's -- we haven't had that product historically in the past, where it's a straight kind of retail pay-by-the-drink and pay-as-you-go product, our traditional maintenance offering is contractual. And we do think that there is a good market for that out there today, as you mentioned, Jeff.

But because it's a new business for us, it's still a startup for us, I would call it. The revenue is up about 75% year-over-year, which is good growth, but not meaningful for us yet. But we're certainly continue to invest in that. We've got about 200 techs doing that today, and we're expecting to grow that quite a bit. We're looking in that space. in terms of acquisitions as well. Hopefully, we'll find something there. And then on our traditional SelectCare fleet. I know it's down quite a bit year-over-year. We've talked about that in previous earnings calls as to why that happened. But sequentially here, we've seen some growth in that fleet. You can see that in the numbers.

Our revenue is up, our margins are up in SelectCare. So we certainly haven't abandoned it, and we expect growth in that select care fleet for the balance of the year as well. I think that, along with what we're doing with Torque, we're trying to grow in that maintenance space, as you mentioned.

And just kind of following up on that. If I think about some of the projects you have going on in RyderVentures, what's going on there? And is this excess free cash flow and opportunity to come into markets that may be weak and maybe look for strategic opportunities?

Yes. We -- remember, you step back, first of all, I want to buy companies that are well run. We're not looking for turnaround situations and we want to buy companies that are certainly within our core businesses. So we're in the market always, you know we did several of them over the last few years. We did IFS and Cardinal last year. We want to -- we're looking for the right one. So we have -- we're patient. We've got plenty of dry powder now to do, and we're going to continue to look until we find the right ones.

Around RyderVentures, that's been more an avenue for us to see what technology is coming to market that could help our customers what technology is coming to market that we may want to acquire as we did with Baton. But yes, I don't see that being a huge draw of capital for us unless we find, again, the right acquisition candidates for us.

We'll now move to our next caller who is Brian Ossenbeck with JPMorgan.

So just on the residual slide. I know you talked about tractors start to pick back up, and you can kind of see that inflection going to the midpoint than out of the range, but it looks like truck is getting closer. I don't know if that's anything you would expect to across that line. Could you just give us an update in terms of what you do think and what might happen if you -- are there any actions you sort of have to take if you cross that? Obviously, we watch this closely, but we haven't really seen the truck on come down to that level just yet?

Yes. Just as a reminder, Brian, this quarter's numbers and adding those lines include all the extra wholesaling that we did in the quarter. So that's why it's gone to where it is. Without that, it would be up certainly higher than it is now. But I'll let Cristy to give you a little more color around that.

Yes, Brian. So basically, on the trucks, what you're seeing there is the impact of the aged inventory, which was primarily in the truck space. That is where we took those actions. So what you're seeing here is the trucks regardless, if you look at retail activity, did have a sequential price increase. So as Robert had mentioned earlier, we're still happy to see that the retail pricing is holding and improving slightly.

So with that said, on your question, anything that's happening in the market right now is really just as a result of this prolonged freight environment. And we wouldn't think that, that would be something that would be an for an extended period of time. So there would be no impact or clearly not a material impact on our results if that were to continue. So we're not concerned. Our residuals are reasonable at this time, and we don't have any concerns on that end.

And Cristy, even if it were to go lower for whatever reason, like it doesn't trigger anything right? Like we've seen the tractor go in that range before. But I don't know on the truck side, if they were to go below that line, it doesn't really trigger anything, if that's -- my understanding is correct in terms of like adjustments sort of things you need to do. Is that correct?

That's correct. Like I said, if it were to go below that line, we don't think that it would be for a prolonged period of time. It would be a temporary something happened in the market. And so we're not concerned. And again, if you go back to our history, what we're seeing right now is the lowest levels we've seen in over 25 years. And every time that, that has hit these levels, we've seen a rebound. So we don't believe that this is permanent or longer term and by anything.

I mean, Brian, this really highlights the benefit of having brought our residuals down to where we have both from a pricing standpoint and an accounting standpoint because even in these low -- in these trough level market conditions, we're still not at a point where we're having to do anything else around residual values. We feel really comfortable with where they're at.

Understood. Just one quick follow-up on the bonus depreciation for Ryder. Is that obviously the benefit for this year, but does that structurally improve the free cash flow conversion going forward? Is it all just more of a catch-up that you're seeing now? I'd assume it is permanent, but just to clarify that.