Robert Brunn - VP, Corporate Strategy and Investor Relations Robert Sanchez - Chairman and Chief Executive Officer Art Garcia - Executive Vice President and Chief Financial Officer Dennis Cooke - President of Global Fleet Management Solutions John Diez - President of Dedicated Transportation Solutions Steve Sensing - President of Global Supply Chain Solutions.

Benjamin Hartford - Robert W. Baird & Co. Todd Fowler - KeyBanc Capital Markets Inc. Scott Group - Wolfe Research LLC David Ross - Stifel, Nicolaus & Co., Inc. Justin Long - Stephens, Inc. Brian Ossenbeck - J.P. Morgan & Co.

Matthew Russell - Goldman Sachs Matthew Brooklier - Buckingham Research Group John Cummings - Copeland Capital Management LLC Scott Group - Wolfe Research LLC..

Good morning, and welcome to the Ryder System First Quarter 2018 Earnings Release Conference Call. All lines are in a listen-only mode until after the presentation. Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Mr.

Bob Brunn, Vice President, Corporate Strategy and Investor Relations for Ryder. Mr. Brunn, you may begin..

Thanks very much. Good morning and welcome to Ryder's first quarter 2018 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 is contained in this morning's earnings release and in Ryder's filings with the Securities and Exchange Commission. The conference call also includes certain non-GAAP financial measures.

You will find reconciliations of each non-GAAP measure to the nearest GAAP measure in the written presentation accompany this call is available on our website in investors.ryder.com. Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer; and Art Garcia, Executive Vice President and Chief Financial Officer.

Additionally Dennis Cooke, President of Global Fleet Management Solutions; John Diez, President of Dedicated Transportation Solutions; and Steve Sensing, President of Global Supply Chain Solutions, are on the call today and available for questions following the presentation. With that, let me turn it over to Robert..

Good morning, everyone, and thanks for joining us. This morning, we'll recap our first quarter 2018 results, discuss the current outlook for our business, and highlight the progress on some of our strategic initiatives. Then we'll open the call for questions.

But before we do that, I would like to take a moment to acknowledge the tragic event that occurred in Canada yesterday, involving a Ryder rental van. Our deepest sympathies go out to the victims and their loved ones.

As all of you know, we take safety and security very seriously, and we are fully cooperating with the authorities during this investigation. Now let's turn to an overview of our first quarter results.

Comparable earnings per share from continuing operations were $0.91 for the first quarter 2018, up 10% or $0.08 from the prior year, reflecting a lower federal tax rate due to tax reform.

Comparable earnings per share for the quarter were just above the high-end of our forecast range of $0.83 to $0.90, primarily reflecting stronger than expected performance in Rental, Supply Chain, and Dedicated partially offset by lower than expected used vehicle sales results.

Our contractual businesses, ChoiceLease, Dedicated, and Supply Chain all grew nicely during the quarter and benefited from secular trends that favor outsourcing as well as our ongoing sales and marketing initiatives. Continuing our momentum from record company-wide sales in 2017, we achieved record sales again in the first quarter.

We also continue to make progress on our strategic initiatives that leverage disruptive trends in transportation to drive longer-term revenue and earnings growth. First quarter 2018 comparable results exclude a $0.29 UK goodwill impairment charge and a $0.02 net benefit from non-operating pension, acquisition, restructuring, and tax related items.

Last year's comparable earnings excluded $0.08 of non-operating pension cost and an operating tax charge of $0.03. Operating revenue, which excludes fuel and subcontracted transportation revenue, increased by 7% to a record $1.5 billion for the first quarter, reflecting higher operating revenue in all three business segments.

Total revenue increased by 10% and benefited from higher operating revenue and increased subcontracted transportation activity. Page 5 includes some additional financial information for the first quarter. The average number of diluted shares outstanding for the quarter decreased to 53 million shares from 53.4 million shares last year.

We began repurchasing shares under a new two-year 1.5 million share anti-dilutive repurchase program in February of 2018. During the quarter, we bought approximately 171,000 shares at an average price of $75.43.

Excluding the pension costs and other items, the comparable tax rate was 25.6% for the first quarter of 2018, significantly lower than the prior year rate of 36.6%, primarily reflecting the net benefit to the federal income tax rate from U.S. tax reform. I’ll turn now to Page 6 and discuss key trends that we saw in the business during the quarter.

Fleet management solutions operating revenue, which excludes fuel, increased 8% from the prior year driven by growth in all product lines. ChoiceLease revenue increased 5% due to fleet growth and higher rate on replacement vehicles reflecting their higher cost. The lease fleet increased by 1,700 vehicles since year-end 2017.

ChoiceLease continues to benefit from favorable outsourcing trends as well as our sales and marketing initiatives. We achieved record lease sales during the quarter and continue to effectively penetrate the non-outsourced market.

In addition, we are encouraged to see growth from customers who for the first time in many years are expanding their fleet sizes due to the strong rate environment. Given continued strong sales and a robust pipeline, we increased our full-year forecast for lease fleet growth to 7,500 vehicles, up by 1,000 units compared to the prior forecast.

This will be a new record for the Company. ChoiceLease results benefited from fleet growth, although, this was partially offset by higher depreciation, maintenance cost and certain older model year vehicles, and weather-related expenses during the quarter. Miles driven per vehicle per day on U.S.

lease power units declined by 1% versus the prior year, reflecting a mix change in vehicle types and continue to run at normal historical levels. SelectCare revenue increased 7%. The average SelectCare full-service and preventive fleet grew by 4,100 vehicles from the prior year, reflecting new customer wins.

During the quarter, 8,100 vehicles were serviced under SelectCare on demand maintenance agreements. This is a decrease of 13% from the prior year, primarily reflecting lower activity in certain accounts. Unit serviced were unchanged sequentially. Commercial rental revenue was up 18% year-over-year driven by higher demand and pricing.

Global rental demand was up by 14% reflecting a strong freight environment. Global pricing was up 3%. Rental utilization on power units was 74.8%, up 760 basis points on a 3% larger fleet. This is the highest first quarter utilization rate we've realized in the past decade.

Used vehicle results for the quarter were down year-over-year, primarily due to higher inventory valuation adjustments and to a lesser extent fewer vehicles sold. I'll discuss those results separately in a few minutes.

Overall, FMS earnings decreased due to higher depreciation of $10 million from residual value changes, used vehicles sales results, and overhead spending. The impacts were partially offset by higher commercial rental and ChoiceLease performance. Earnings before tax in FMS decreased 5%.

FMS earnings as a percent of operating revenue were 4.8%, down 60 basis points from the prior year. I’ll turn now to Dedicated Transportation Solutions on Page 7. Total revenue grew 12% due to higher subcontracted transportation and operating revenue. Operating revenue was up 4% due to increased volumes and new business.

We anticipate this growth rate to increase as the year progresses due to strong sales in late 2017 and early 2018. DTS earnings increased 17% due to revenue growth and operating performance as well as favorable development related to self-insurance claims from the prior years.

Segment earnings before tax as a percent of operating revenue were 6.5%, up 70 basis points from the prior year. I’ll turn now to Supply Chain Solutions on Page 8. Total revenue grew 10% due to higher operating revenue and increased subcontracted transportation from new business. Operating revenue grew 6% primarily reflecting new business.

SCS earnings before tax were down 7% due to lower volumes in the automotive business as well as ongoing performance in one customer account. These impacts were partially offset by earnings from operating revenue growth in the CPG/Retail and Technology/Healthcare verticals and lower insurance costs.

Segment earnings before tax as a percent of operating revenue were 6.8% for the quarter, down 90 basis points from the prior year. At this point, I'll turn the call over to our CFO, Art Garcia, to cover several items, including capital spending..

Thanks Robert. Turning to Page 9, gross capital expenditures for the quarter totaled $711 million, up by $275 million from the prior year. This increase reflects higher planned investments to grow and refresh the rental and lease fleets.

We realized proceeds primarily from the sale of revenue earning equipment of $90 million, down $7 million from the prior year. The decrease primarily reflects a lower number of vehicles sold. Net capital expenditures increased by $281 million to around $620 million.

We are increasing our forecast for full-year gross and net capital expenditures by around $130 million, primarily due to the increase in our ChoiceLease fleet growth outlook of 1,000 vehicles. Our new forecast for gross capital is $3 billion and our forecast for net capital is now $2.6 billion.

Turning to the next page, we generated cash from operating activities of $315 million for the quarter down 5%. The decrease was driven primarily by increase working capital requirements partially offset by higher cash based earnings.

We generated $425 million of total cash down $19 million from the prior year, primarily reflecting lower operating cash in sales proceeds. Cash payments for capital expenditures increased by around $300 million to approximately $660 million.

Company’s free cash flow was negative $238 million for the quarter versus the prior year positive $83 million, reflecting higher capital spending. Our revised full-year forecast for free cash flow as decreased $150 million, the negative $750 million reflecting the expected increase in our ChoiceLease and rental fleet.

Page 11 addresses our debt-to-equity position. Total debt of around $5.7 billion increased by $268 million from year-end 2017 driven by higher capital spending, debt to equity at the end of the first quarter increased to 199% from 191% at the end of 2017 and is just below the low end of our target range of 200% to 250%.

Our revised forecast for balance sheet leverage at year-end is now 210%, up from our prior forecast of 199% reflecting additional growth capital expenditures and the acquisition of MXD Group earlier this month.

Equity at the quarter was just under $2.9 billion up $17 million from year-end 2017 due to earnings and foreign exchange partially offset by dividends and net share repurchase. At this point, I'll hand the call back over to Robert to provide the used vehicle sales updates..

Thanks Art. Page 13 summarizes key results for global used vehicle sales. Used vehicle inventory held for sale was 6,000 vehicles at quarter end and at the low end of our target range of 6,000 to 8,000 vehicles.

Used vehicle inventory was unchanged from year-end 2017, but declined significantly year-over-year reflecting our initiative last year to reduce our used vehicle exposure. Prior year inventory excludes an elevated number of lease vehicles being prepared for sale. However, we no longer have elevated levels in 2018.

Including these vehicles in the prior year provide a more relevant comparison and shows the year-over-year decline of used vehicle inventory of 2,400 vehicles. We sold 4,200 vehicles during the quarter down by 7% from the prior year. Vehicle sold increased by 200 units sequentially.

Proceeds per vehicle sold were up 5% for tractors and up 2% for trucks compared to a year-ago. This reflects a greater use of retail sales channel where we receive better pricing as well as a change in the mix of vehicles type sold. From a sequential standpoint, tractor pricing was up 3%, the truck pricing was down 3%.

We realized lower than expected pricing in certain truck classes and tractor models during the quarter. I'll turn now to Page 15 to cover our outlook. We expect year-over-year pre-tax earnings to be higher for the balance of the year.

This reflects growth from contractual on rental revenue and cost reductions, which will more than offset the impact from used vehicle sales and higher depreciation. Overall, our earnings forecast for the balance of the year remains generally in line with our prior expectations.

We expect strong rental performance and contractual sales results to continue driven by a healthy freight environment and our ongoing sales and marketing initiatives. We're encouraged by record contractual sales results for the first quarter following record sales in 2017.

Based on our sales pipeline, we see the potential for upside to our upwardly revised lease fleet growth forecast of 7,500 vehicles. Due to the longer production lead times however, we expect the incremental vehicles above our original forecast to be mostly deliberate late this year and primarily benefit earnings starting in 2019.

We're forecasting the used pricing we saw in the first quarter on certain truck classes and tractor models to continue for the balance of the year. Used vehicle inventory is expected to be around the midpoint of our target range and proceeds are expected to benefit from a greater use of the retail sales channel versus the prior year.

In rental we expect strong demand conditions to continue. We now anticipate rental fleet growth of 7% for the full-year average and at the year-end with a 3% price increase. Utilization is expected to be up for the full-year, although with greater – with a greater increase in the first half due to easier comparisons versus 2017.

Dedicated revenue growth should ramp up as the year progresses due to strong sales in late 2017 and early 2018. In addition, we’re excited about the opportunity to leverage the growth opportunities in e-commerce and last-mile delivery following our recent acquisition of MXD Group.

We expect double-digit operating revenue growth in both DTS and SCS for the second half of 2018. Based on our first quarter results in current outlook, our full-year comparable EPS forecast range is now $5.45 to $5.70 reflecting an increase to the lower end of our prior range of $5.40 to $5.70.

Our second quarter comparable EPS forecast is $1.20 to $1.30, an increase of 20% to 30% from the dollar in the prior year. We're forecasting a much higher sequential EPS growth from Q1 to Q2 in 2018 than we realized last year. But at a comparable growth rate as to what we saw a couple years ago.

Second quarter results this year are impacted by accelerated depreciation expense, which will be higher in the first half of the year than the second half as well as our assumption that used vehicle pricing – used vehicle sales results will not improve sequentially from the first quarter.

Before we begin taking questions, I'd like to provide you with a brief update on the progress that we're making on some of our strategic initiatives. First, we continue to focus on driving long-term profitable growth in our very encouraged by the record contractual sales results we delivered during 2017 in the first quarter of 2018.

In addition to benefiting from increased market outsourcing, we're realizing success in our initiatives to expand the size of our sales team, increased collaborative selling across the organization and rollout new products.

Our investment in customer facing technology also continues to pay dividends and enhanced satisfaction with current customers and winning new prospects. We're particularly pleased with what we expect will be our seventh consecutive year of organic lease fleet growth at a record 7,500 lease vehicles this year.

We're focused on ways to improve used vehicle sales performance and are encouraged by the initial results from our newly established inside sales team for used vehicles. The insight sales team is expanding our market reach as most of the used vehicle sales from this channel are coming from new customers.

We also see this as a great opportunity to sell more vehicles at good rates with minimal overhead investment and to extend our customer base. We're also continuing to make strategic investments in order to leverage disruptive trends in transportation and generate long-term earnings from new products.

Earlier this month, we announced the acquisition of MXD Group, which significantly expands our e-commerce fulfillment network and adds new last-mile capabilities for big and bulky goods.

The combination of Ryder’s prior business plus MXD puts our annual e-commerce and final mile revenue for SCS and DTS in the mid $300 million range with additional revenue in FMS supporting e-commerce activity.

We believe the growth opportunity in e-commerce and last mile to be very significant, and look forward to cross selling these services to our large customer base as well as taking our expanded suite of services to new prospects.

Following a pilot phase, we fully launched COOP in the Atlanta market this month, the first truck sharing platform for commercial vehicles. This new product will provide customers with the opportunity to monetize underutilized vehicles and create a new asset light revenue stream for Ryder.

We expect to expand the geographic footprint of COOP starting in 2019. Lastly, we announced three strategic partnerships with manufactures of electric vehicles. Since last year, we've had electric vehicles available in our rental fleet in select California markets. In the first quarter, we signed our first ChoiceLease customer.

The electric vehicle technology we've deployed is in light and medium duty vehicle classes. Slide 18 provides our current year expectations for each of the three of our three financial targets. All segments are now expected to reach or exceed their operating revenue growth targets. FMS is forecast to beat the target while dedicated should be on target.

Supply chain is expected to be well above the target when including the MXD acquisition. We now expect full-year SCS total revenue growth of 15% and operating revenue growth of 11%.

Note that the smaller portion of MXD revenue will be reported in operating revenue in the retail and CPG vertical, while the larger portion of the revenue will be reported as subcontracted transportation.

Earnings before tax as a percent of operating revenue for FMS is expected to come in below the target this year due to the impact of used vehicle sales. Dedicated is planned to come in just below target and SCS is expected to reach their target EBT percent.

Return on capital spread is forecast to breakeven this year below our target of 100 basis points to 150 basis points, primarily reflecting the impact from used vehicle sales.

We are focused on improving used vehicle sales results, leveraging revenue growth, expanding non-asset based earnings, and continuing cost reduction opportunities to drive ROC to the target range over the three-year period.

Leverage is forecast to be in the lower end of our target range, which provides additional room for capital to support growth and/or acquisitions in the near-term. That concludes our prepared remarks this morning. At this time, I'll turn it over to the operator to open up the line for questions.

In order to give everyone an opportunity, please limit yourself to one or two questions each. If you have additional questions, you are welcome to get back in the queue, and we will take as many calls as we can.

Operator?.

Thank you. [Operator Instructions] We will go first to Ben Hartford with Baird..

Hi. Good morning, everybody.

Robert some perspective on commercial rental utilization this quarter, you talked about some of the lengthening lead times with the OEMs and obviously healthy growth on the ChoiceLease side, but how are you thinking about that relationship relative to commercial rental utilization in the second quarter and the back half of the year? Should we think about rental utilization remaining healthy as spot continues to be strong, and given some of these lengthening lead times, do you expect people to lean more on rental for the time being? How do you expect that to play out in the second quarter and the back half of the year?.

Yes. We're expecting the demand that we saw – the strong demand we saw in the first quarter to continue through the balance of the year.

Clearly the year-over-year comps may tighten up a little bit just because rental started improving really in the back half of last year, but we're expecting – considering what we're seeing in the freight environment which is really, really healthy right now.

The extended lead times from the OEMs, we would expect rental to continue to perform strongly..

And then to touch on the used equipment pricing topic, could you give us the mix of retail and wholesale in the quarter if you didn't give it already and what the expectations are for 2Q and the back half of the year in the context of what you said – expected continued challenges to used equipment pricing?.

Yes. I think Dennis you got the retail mix..

Yes. Ben, globally retail was at 66% and in the U.S. 72%..

That was in the first quarter?.

Yes..

And any thoughts on whether that will change in 2Q into the back half of the year?.

We actually expect it to improve..

Okay. Improve in favor of retail, I assume..

Correct..

Great. Thank you. I’ll jump back in queue..

Kind of what we said at the beginning – in the original forecast. We expect to be kind of in our target range upwards of 70%..

Yes. That’s helpful. Thanks..

We’ll go next to Todd Fowler with KeyBanc Capital Markets..

Great. Good morning, everyone..

Good morning..

Maybe just to take a step back on – hey, good morning, everyone.

To take a step back on the used vehicle market, Robert, can you talk a little bit about, is the market worse, I mean that where we were just in mid February when you provided your guidance, and if so what's driving that? It really seems like that the volume piece is okay, but maybe it's more on the pricing side, so can you help us kind of square what you're seeing with respect to used vehicle? And the $0.14 loss that you gave your initial guidance is that still the right number that we should be thinking about for 2018 or is that moved with what you've been experiencing over the past couple of months?.

Yes. Volumes were generally in line with what we thought. Pricing came in slightly below what we thought. I mean, I’ll tell you pricing was a little bit lighter now. It’s a whole mix of vehicles also – but I would tell you, apples-to-apples slightly lower than what we expect that I would think.

I would tell you the gains that we – the losses that we originally forecasted about $14 million. $10 million - $0.14 is now probably around $25 million. So we're expecting that more loss is based on this pricing. But the market is not easy to predict right now.

I think you're hearing in the marketplace, pricing improving on some of the newer model year used trucks. So that's encouraging for us. Yes, we have not seen that really impact yet the older model years that we sell.

However, you would expect over time that that should trickle down as people trade down as prices move up on the newer model used of a trade down to the older. So we haven't seen that yet. That's not built into our forecast, but that’s something that’s out there still..

That's very helpful. And so how do we think about, I mean with where we're sitting right now, the risk that there's continued downward pressure to the numbers or to what you're seeing on these truck.

I mean is there any sort of way that we can get comfortable that you kind of have baked in – the market continues to slide or you don't see that improvement or is that to your point that the visibility is just difficult right now, and it could be kind of a quarter-to-quarter type thing if we don't see things step up that there could be a little more pressure to the used vehicle results?.

Look, I think you've seen stabilization in the marketplace. We obviously moved. We saw it’s slightly coming lower than what we had expected, and that impacts our earnings. But I would expect that where we're at now, continued to see kind of bouncing around this level for the balance of the year. That's really our view of it.

It is all dependent on supply and demand as you know. So supply is really – demand seems to be very strong right now. There is a lot of freight moving. There is a lot of demand for vehicles. Obviously, people are looking for the newer ones right now. I think that trickles into the older used ones over time. And then the question is supply.

How many vehicles are going to come into the marketplace over the second half of this year and will the demand be able to outpace that?.

Okay. I’ve got a few on the leasing side, but I'll jump back in the queue at this point. Thanks..

All right. Thanks Todd..

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

Hey, guys. Thanks. So one more on used.

So your proceeds are going higher, are you saying that that's all mix and underlying prices is not improving? Is that what you're saying? And then can you just be clear that the guidance is assuming no underlying pricing improvement from here in used truck? Or are you counting on some pricing improvement? And then maybe just the last thing on unused.

So there's a worry about like all these truck orders and then it’s going to flood the market with more used trucks.

Do you have the view on the trucks that are going to enter the market? Or as new trucks enter the market and then other trucks get put up on the used truck market, are those going to be relatively younger trucks or older trucks like you guys deal with, if that makes sense?.

Yes. Okay, I'll answer both. The first question is what we're expecting for the balance of year, is basically a flat market. We are not expecting any improvement. We're expecting it to be flat from where we were in the first quarter. So you're going to have – we're going to have more retail versus wholesale.

So you’re going to see some improvement in that, but other than that the overall market I would tell you assuming it flat. In terms of the vehicles coming into the used truck market, I think it depends on what age vehicle is coming.

If you get more of the newer equipment, the newer model used vehicles that may have less impact and if you get more of the older model year which is what we typically sell. We are seeing the volume move through, so it’s not we’re environment where there's not a market for just the pricing as the picked up yet.

So that these we have not – we haven't called that yet, I think it's too early. But that's what it boils down to. We're assuming flat if there's any pickup. It will be upside, but we're not calling that yet..

Okay.

I guess that's what I was asking, do you have any view or insight into what's going to be coming into used truck market is it going to be the younger or older trucks?.

You're going to have a mix of them, no we don't have that – we do see what we can model out what's coming in, but it just to translate that into what's going to happen to pricing is not a perfect sign. So I wouldn't venture to give you any guidance on that..

Okay.

And then on MXD is there any color you can provide on sort of the margin profile this business and how much I think in the press release you said slightly accretive, but any way to put some numbers around on how much that's helping the guidance?.

Yes, I guess it's slightly accretive, so it's kind of I would view it as really kind of a wash right now. It is a profitable business so and in that business is not – it is a difficult business, so we're very encouraged by that.

We think there's a great opportunity to cross-sell and Steve can add a little bit more color to what some of that looks like, but I think it really fits very nicely with our customer profile in our portfolio and gives an opportunity to really brought sell in and get into new markets..

Yes, thanks. I'll just add little bit of color. As we've met here over the last that say several months of talk to a couple of their customers, the majority of their customers. Conversations have been very positive on the cross-selling opportunities in the last couple of weeks with our existing customers.

We've actually had some face-to-face meetings with client that have been looking for this capability. So there's tremendous interest there. So we expect as we go forward to see new opportunities that we haven't seen in the past by having this capability..

Thank you guys. Appreciated..

Okay. Thanks Scott..

We’ll go next to David Ross with Stifel..

Yes. Good morning. Just real quick on the MXD just a follow up and then Class 8.

You should annual e-commerce [Panama] business is about $350 million now, including MXD, what was it prior to MXD?.

Yes, we haven't given that those figures out, but the majority of the e-commerce that we're seeing now is more than half of it is coming from MXD..

Okay. And then on the Class 8 side when you look at the new orders coming in the lease fleet growth.

Is that from some of these private fleets growing another way to look at is the renewals as the contract come up adding trucks to their total fleet as they renew?.

Yes, I think the first quarter was probably the most encouraging lease sales quarter we've added and certainly in the years I've been with the Company. We saw not only conversions of ownership convergence from customers that had – a prospect that had owned their own fleets to now leasing. But we also saw growth within our customer base.

So the customer that has 10 trucks meeting 11 that is the phenomenon we have not seen in a very, very long time. So it's extremely encouraging what we're seeing in the marketplace on the demand side.

I think that bodes very well for earnings primarily that vehicles are going to come in the second half of this year really helping us start 2019 with a really nice earnings uplift on that side of the business. So yes, we're seeing growth not just from new customers coming in and leasing, but also from existing fleets now beginning to grow..

Excellent, thanks..

We’ll go next to Justin Long with Stephens..

Thanks and good morning..

Good morning, Justin..

So thinking about your contractual revenue guidance over the remainder of 2018 across your different businesses, could you give us a ballpark on how much of that is locked in? I just wanted to get a sense for your level of visibility at this point?.

Yes. I’d tell you visibility is pretty high at this point. The needs of the business you know especially Supply Chain and Dedicated have relatively long lead times, and we've had very encouraging results on the sale side now for certainly two quarters, three quarters almost.

On the leasing side, leased times to be a little tighter, but even now with some of the OEM production slots taken up, lead times have been extended a little bit. So we are really selling into a lot of that stuff in the second half already. So I would tell you the visibility has been good.

I think there's potential for upside on the lease fleets, on the lease fleet growth side just because we still have a very healthy pipeline. And if we can lock in some of that, you'll see our lease fleet grow even more this year. Earnings impact of that will be some in the second half of the year, but also really primarily hit and helped 2019.

So I would say that one thing that to make sure we take away from this is that if you look at what's going on in the business right now, we do have this – we have a lot of headwind from the used truck side. We've had it now for a couple years.

What's different now is that the earnings in the rest of the business is going to more than offset the earnings headwind from used vehicle sales and depreciation.

I think it's a very important point to take is that whether it's this thing turns around in 2019 or 2020 or whatever it is, we believe we now are at a point where we can offset and really grow our earnings meaningfully even in the face of continued softness on the used truck side..

Thanks for that color. And I guess secondly I wanted to ask about the guidance you gave for the year-over-year maintenance headwind last quarter, I believe you said that number would be around $30 million in 2018.

Any update to that forecast and any initial thoughts on what the year-over-year impact from maintenance could look like in 2019 based on the replacement schedule you have in place?.

Yes. I don't think it's changed much from the original guidance. We're probably looking about $30 million this year. And then as you look at 2019 that number will be significantly less. And then obviously start that we expect that to turn into a tailwind as we get into 2020. So that’s just assuming the normal flow of vehicles through the lifecycle.

But yes, we're really kind of on track with what we had originally given here..

Okay. Thanks for the time as always..

Thank you..

Thank you, Justin..

We will go next to Brian Ossenbeck with J.P. Morgan..

Yes, hi, thanks. Good morning. I appreciate taking the call..

Hey, Brian..

So I want to go back to MXD for a second. I mean last mile, final mile [indiscernible] has clearly been a growth area and still pretty fragmented.

So I just want to see if you could give us a little bit of context as to the bidding environment for that asset if you could? And then as we've seen some challenges with other of your peers rolling out and not getting initial attraction, so if you can comment also in terms of just the scale of what you acquired beyond what was in the release, and if you think there's any other investments you need to kind of get that up and running and to be able to cross-sell across your portfolio?.

Yes. I won’t comment on the bidding environment, but I’ll talk to you a little bit about the scale from our perspective as we talked about, they've got 21 last mile hubs and then 16 dedicated warehouses. We think there's capacity to sell into those with existing and new customers.

I would say that the growth here in this area is what we think is probably low-teens as far as growth perspective, but certainly a good opportunity for us..

Okay.

And any thoughts on the bidding environment when it was up for sale or when you're going to purchase the asset?.

We don't comment on that topic..

Okay. No problem.

And then maybe for you on the residual impact, clearly headwind this year, is there anyway to give us some sensitivity as you look into next year and some of the puts and takes with the lease fleet growth continuing with some momentum into 2019? If we were to see pricing stay where you think it is right now anyway to give us a sense of what the residual adjustment would be for 2019?.

Yes, we talked about a little of this last time that hasn't changed too much. As we go forward directionally, we would have another depreciation policy change. It could be a little bit less than what it was this year.

But I think if you were modeling, I would be modeling in that, $30 million to $40 million range probably similar to what it was this year is about to see how the year plays out. That's on the policy piece. I think on the accelerated depreciation aspect that's more dependent on what pricing does.

So we need some improvement in pricing for the accelerated impact to not be there in 2019..

Okay. Thanks for you time. Appreciate it..

We’ll go next to Matthew Russell with Goldman Sachs..

Yes. Thanks for taking my question.

You referenced a bit about how the longer lead times on the manufacturing side are having an impact on the leasing business? Are you seeing any impact on the used sales market there? And is there any read through I mean if there is not necessarily an impact, I mean is there any read through in terms of what's driving the overhang on the used market?.

Well, I think what we've been here in the marketplace is pricing on the newer model year, used equipment is going up. So you can't get your hands on a brand new vehicle, so you go to the used market and you get something that's a year or two or three years. So we don't sell typically vehicles in that – of that vantage.

So we have not seen that yet trickle down to the vintage that we sell, which is more the six to eight-year old vehicles.

But you would expect over time if that continues, you would see some trickle down and people trading down to as the price of been - as the new model years moves up, you might have some folks trading down to the older model years and start to see some price improvement there.

We haven't seen that yet, but I think that all of that is probably driven by two things. Number one, the very robust freight environment that we have, and number two the shortage of vehicles in the marketplace and really the lead times from the OEMs really been extended out..

Got it.

I guess as the trickle down timeline has that differed materially from past cycles in review?.

Yes, I really I couldn't comment on that, all these cycles are very different. I would tell you, I’d never and you're not going to come and I think I've seen a freight environment this strong. So this will probably be a little differently maybe than others that. So we just got a kind of let it play out and see where it ends up..

Got it, okay. And just one more for my if I could just if we were to piece everything together here if we excluded the used sales market, I mean is it fair to say that your expectations for 2019 are improving everywhere outside of that piece of the business relative to where you were just a few months ago..

Yes, if you think about our move from $10 million in losses on used vehicle sales. Now saying $25 million, that’s additional $15 million.

That's being offset by other parts of the business that are really whether it's rental, ChoiceLease, Dedicated, Supply Chain all those are contributing to help offset this and keep us on track the balance of the year that we can to the extent used vehicle stabilizes this growth continues and the other pieces you've got to model then that that really can provide nice earnings growth going forward..

Thanks very helpful..

We’ll go next to Matthew Brooklier with Buckingham Research Group..

Hey, thanks and good morning. A couple on DTS. You called out having an insurance benefit in first quarter.

Are you able to talk to how much benefit that was in terms of the margins?.

Yes, that was a benefit from prior claims from prior years, but in terms of the Matthew, if you look at the results the team actually had a solid first quarter and if you look at the year-over-year improvement on a dollar basis about half of that improvement year-over-year from prior year accident point..

Okay. That's helpful. And then the year's starting off maybe a little bit lighter from a growth perspective, the expectations are you're going to see acceleration as we move through the year.

Is that just a function of when you anticipating – when you anticipate onboarding new accounts? Or is there a gating factor that may be is proving a headwind? I guess what I'm getting at is the tight driver market potentially a headwind here in terms of trying to grow the DTS topline?.

Yes. So what I would say is that we actually seen the tight labor market actually helping us and we started seeing that in the second half of 2017. I think you heard from Robert, we had great sales activity in the second half of 2017 and then the first quarter 2018 has been tremendous as well.

So what you are seeing is what you said, which is we're ramping up some of these launches from last year or early 2018 that starts contributing in the second half..

Okay. That's helpful. Appreciate the time..

Okay, all right. Thank you, Matt..

We’ll go next to Todd Fowler with KeyBanc Capital Markets..

Great. Thanks for taking the follow-up. Most of what I had has been addressed at this point, but Robert I just wanted to ask on the lease fleet additions that you're expecting this year.

If I go back a couple of years ago when you had a big lease growth in 2014 and 2015, I think that there was some difficulty in prepping the vehicles and getting them into service.

Can you talk about how the networks positioned to handle the amount of vehicles that you are expecting to come through this year and anything that we should think about from a cost perspective or from a timing perspective in getting those vehicles into service at this point?.

Yes. I don't see any issues there at all. I mean we've got our headcount were need to be, these vehicles come in. The issue is really OEM slot dates and OEM production dates. As you know we secured those dates ahead of time, so we've got more dates and I think most people in the marketplace, however those starts to extend out a little bit even for us.

But we're certainly ready on our side and Dennis’ team to bring those vehicles and get them ready to move in with our customers and start generating revenue..

So from a network standpoint there's not a lot of additional cost that you need to bring into facilitate the growth that you're seeing either from our technician or in hours or from an infrastructure standpoint. You have all that in place so just a matter of getting the timing of when you get the trucks..

Absolutely, there's not a lot of work that goes into when it first come in. A lot more work goes on the way out and on the way in. So typically is not an issue.

I think the – what you maybe thinking about with some challenges we had around getting rental trucks ready when rental demand came up probably three or four years ago, but now this is a different situation. These are brand-new unit that are going to coming in. We identify them with the customers logo and markings and put them out with the customer..

And then from the slide that that you have with kind of the expectations for this year versus the full-year guidance.

I don't know if you want to be this granular, but for the FMS segment, would you be within the targeted margin range within the back half of the year if you're not in for the full-year, can you speak to maybe the quarterly margin progression this year based on the timing of the fleet growth?.

Yes. It goes up clearly from where we are today just seasonally also. And again accounted for the growth, it starts to get I think close, but again, it's not a fair way to look at it because our targets are really full-year, which take into consideration the lower first quarter.

So I’d say we’ll end the year still short of that of our target range, again really completely due to the used vehicle challenges. But I think the important thing is we continue to grow and we really are now at new levels in terms of our ability to contribute earnings from our – the contractual side of our business, rental doing well.

So as we go into 2019, you’ll see us start making some good progress there, I think even in light of the headwinds from used vehicle sales and depreciation..

Okay. Thanks for the extra time..

Okay..

We’ll go next to Ben Hartford with Baird..

Thanks for the follow-up. Robert, when you think about the rollout of COOP and where we are in the cycle, obviously rental utilization is healthy, and you described the market is a strong as you've seen, there's probably an inevitability of that moderating at some point whenever that takes place.

But how do you think about the rollout of COOP and what it can do to the rental product, the deeper that we go into the cycle in terms of being able to insulate that offering from some of the negative operating leverage that does naturally develop? What's realistic to think about this cycle with regard to COOP and perhaps the next cycle? How does that product play in terms of insulating some of the cyclicality of rental versus providing growth avenues et cetera?.

Yes. If you think about it, what COOP could do over time is really provide us with a significant supply of surge capacity vehicles in the marketplace, which means Ryder and others may not have to go out and purchase as many surge capacity vehicles during the upturns. So you're not having as much volatility on the downside.

So I think that’s the longer term outcome. Right now, we're very encouraged by what's going on in Atlanta. Still in the early, early innings of this. But it is a tool that I believe over time as we start to – as we finish and really burn it in if you will in Atlanta.

And then over time roll it out to other markets that become a very nice source of surge capacity vehicles for the marketplace, a nice source of income for many of our customers who may have idle vehicles and a nice source of asset-light revenue and earnings for Ryder. So it's very encouraging. It's still early.

So I don't want to get ahead of myself on that, but I think to the point you just made over time, it could also mitigate our reliance on making capital investments for rental or certainly to the extent that we've been making them over the history of the company..

How many years do you think will be required to fully rollout COOP?.

Yes. I think it's too early for me to speculate on that because I think first of all, we have to make sure that this thing continues to progress as we expect it. But it is – I'll just tell you it's a multi-year rollout. How fast we do it? Maybe depends on the results that we're seeing, and how promising we believe it is.

We could throttle that back and forth depending on what we see..

Okay. That's helpful. Thank you..

We’ll go next to John Cummings with Copeland Capital..

Hi, good morning. Thanks for taking the question.

I'm just curious if you guys could comment on the competitive environment on the leasing side just in general? And then also what you're seeing from competitors in terms of pricing, and if you're seeing any competitors lower their leasing rates due to tax reform?.

Yes. I think overall the leasing market continues to be relatively rational market. Competition is seeing a lot of the same things that we’re seeing, I think with the healthy freight environment, and we're seeing pricing really holding its own. I don't think there was a big move due to tax reform and pricing is just kind of held on..

Okay, thanks.

And then maybe one other question on the ELD mandate, and there's been some debate there about how that will impact the used vehicle markets? So I just love to hear your opinion on the impact there?.

Yes. That’s obviously something we've been monitoring and some of our buyers are the owner operators where everybody is forecasting maybe impacted by the ELDs. We have not seen I think one move either way, I think positive or negative from that. But again, as you know, this is recently being enforced.

But I think whatever owner operator was going to get out, it's probably already gotten out, and the folks that are in are the ones that believe they can stay in it. So I think we’re probably already seeing whatever impact that is. And again, as I mentioned earlier, our volume on the used truck side is on track.

So we're selling the volume that we need, we just are looking for a pick up on price now..

Okay, thanks.

And then one other question actually on your pricing, and I'm just curious how you would adjust your pricing based on sort of the used vehicle residual value that you're seeing today, and I'm just curious because given the big decline we've seen in the used vehicle pricing, I would have thought we’re just seeing a more meaningful pick up in sort of your pricing of the new leases based on the current residual values..

It’s not about the – the way we price in our lease?.

Yes, on new leases..

Yes. We typically used a rolling average for pricing our lease vehicles. Based on the market we've seen in the last couple years, I'll tell you we have lowered the residual more in line with what we're seeing right now just to protect ourselves in terms of what could happen with used truck market going forward.

So the pricing model that we have is currently including the existing lower used truck pricing on the residual side..

Okay. All right. Thanks..

Okay..

We’ll take our last question from Scott Group with Wolfe Research..

Hey, guys. Thanks for the follow-up. So Robert a few years ago when you first started talking about the leasing growth opportunity.

I think we talked about 25% sort of incremental margins, is that still seem like the right way to think about margins on all this growth coming?.

Yes, I think it is I think clearly what we have contemplated back then with some of the headwinds that we are seeing on used vehicle sales and on depreciation. But if you just look at the incremental growth of a new lease that we're signing that already had – all that built into it. I think that's still a fair way to model it..

Okay helpful.

And then lastly on rental, can you say as you're raising the leasing fleet guidance? Are you also raising the rental fleet guidance and then if you have it, can you give us rental either utilization or demand by month in the quarter?.

I think we do have that I would tell you we are slightly raising the average rental fleet I think for the year. We're looking now at 7% versus the originally set 6%. So we're holding on to some vehicles longer than we had maybe originally expected. If you want utilization by month January was 75.5, February was 73.8, and March was 74.9..

Do you have April by any chance?.

April 75.6. So all of those our year-over-year improvements..

Okay.

Is it normal that January is the best of the quarter?.

No. It is very not normal. January typically weaker I think the March. But this year that's the way it played out..

Okay. All right. Thank you guys. Appreciate it..

All right. Thank you Scott. End of Q&A.

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

Okay. Thank you everyone and thanks for your interest in the company. Have a great day. We’ll see you out on the road..

This does conclude today’s conference call. Thank you for you participation. You may now disconnect..