Good morning, and welcome to the Ryder System First Quarter 2019 Earnings Release Conference Call. All lines are in a listen-only mode until after the presentation. Today's conference is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Mr.

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

Robert Sanchez, Chairman and Chief Executive Officer and Scott Parker, 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. This time I'll turn the call over to Robert..

Good morning, everyone, and thanks for joining us. Let me start by welcoming our new CFO, Scott Parker in his first earnings call at Ryder. Scott brings a great depth of experience to the CFO role from both public and private companies and also has extensive background in leasing businesses.

I look forward to introducing you to Scott at person at upcoming investor conferences this quarter. This morning we'll recap our first quarter 2019 results. Discuss the current outlook for our business and highlight progress on some of our strategic initiatives then we'll open the call for questions.

With that let's turn to an overview of our first quarter results.

Comparable earnings per share from continuing operations were $1.11 for the first quarter 2019 up 16% or $0.15 from the prior year primarily reflecting growth in our contractual businesses, ChoiceLease, Dedicated and Supply Chain and improved operating performance in all business segments.

Comparable results were above our forecast range of $0.96 to $1.03 and include the benefit from the lease accounting change that was $0.09 better than forecast. Also contributing to the [indiscernible] versus forecast was higher than expected, contractual performance particularly in ChoiceLease and Dedicated.

Pre-tax earnings grew by 17% despite depreciation headwind of $9 million related to lower used vehicle pricing. Sales activity remain strong and we delivered double-digit revenue growth in all segments driven by secular outsourcing trends as well as our sales and marketing initiatives.

Operating revenue which excludes fuel and subcontracted transportation revenue increased by 14% to a record $1.8 billion for the first quarter. Page 5 include some financial information for the first quarter.

Comparable EBITDA was $565 million up 18% from the prior year primarily reflecting growth in our contractual businesses and strong rental performance. The average number of diluted shares outstanding for the quarter was $52.6 million unchanged from the prior year.

We began repurchasing shares under two-year 1.5 million shares anti-dilutive repurchase program in February, 2018. During the quarter we bought approximately 226,000 shares at an average price of $62.66.

Excluding pension cost and other items the comparable tax rate was 27.6% for the first quarter of 2019 up from the prior year's rate of 26%, but in line with our expectations. This increase reflects the expiration of certain state NOLs in 2019, a one-time beneficial adjustment in 2018 and a change in the mix of jurisdictional earnings.

The comparable tax rate is expected to remain somewhat elevated in the second quarter and then declined in the second half of the year. The return on capital spread was 40 basis points up from 30 basis points in the prior year. I'll now turn to Page 6 and discuss the key trends that we saw in business during the quarter.

Fleet Management Solutions operating revenue which excludes fuel increased 10% organically from the prior year driven by growth in all product lines. ChoiceLease revenue increased 8% primarily due to fleet growth and to a lesser extent higher rate on replacement vehicles. The lease fleet increased by a record 4,200 vehicles in the quarter.

Growth in the lease fleet benefited from earlier than anticipated vehicle deliveries from the OEMs. We continue to effectively penetrate the non-outsourced market with 40% of recent fleet growth coming from customers new to outsourcing. We also continue to see growth from customers expanding their fleet sizes.

We remain on track to achieve record organically fleet growth this year of at least 11,000 vehicles which would be a new record for the company. SelectCare revenue increased 11% reflecting higher ancillary maintenance activity. The average SelectCare full service and [indiscernible] fleets grew by nearly 2,000 vehicles from the prior year.

Commercial rental revenue was up 15% driven by higher demand in pricing and was generally in line with our expectations. Global rental demand on power units was up 14% and pricing was up 3%. Rental utilization was 74.9% consistent with the prior year on an 11% larger average fleet. Used vehicle results for the quarter were down slightly year-over-year.

I'll discuss those results separately in a minute. Overall FMS earnings increased due to higher performance in ChoiceLease and to a lesser extent commercial rental. Results also benefited from a significant maintenance cost recovery item.

These benefits were partially offset by higher depreciation primarily from depreciation policy changes and accelerated depreciation. Higher liability insurance cost related to the development of prior year claims and growth related investments in sales, marketing and technology. Earnings before tax in FMS increased 12%.

FMS earnings as a percent of operating revenue were 5.3% up 10 basis points from the year. Excluding the impact of lease accounting change in both years FMS pre-tax earnings increased by 6%. Page 7, summarizes key results for used vehicles sales.

Used vehicle results for the quarter were down slightly as increased pricing and volume were more than offset by higher valuation adjustment on a larger inventory.

Due to growth in the size of the operating fleet over the past few years we've revised our target range for used vehicle inventory from 6,000 to 8,000 to a new target of 7,000 to 9,000 vehicle. Used vehicle inventory held for sale was 7,600 vehicles at quarter end within the target range.

Inventory increased by 700 vehicles sequentially reflecting a greater number of units coming off lease this year as expected. We sold 4,900 used vehicles in the quarter up 17% versus the prior year and up 9% sequentially. Proceed per vehicle sold were up 17% for tractors and up 3% for trucks compared to a year ago.

Primarily reflecting pricing improvement in the US market and a higher retail sales mix. I'll turn now to Dedicated Transportation Solutions on Page 8. Both total revenue and operating revenue increased 17% this quarter due to new business. Expanded business with existing customers and higher volumes.

Favorable outsourcing trends including a very challenging driver market contributed strong DTS sales result again this quarter. Our sales team also continued to focus on upselling our lease customers to Dedicated which remains a significant growth opportunity for this business.

DTS earnings increased due to revenue growth, improved operating performance and a favorable development related to prior year insurance claims. Segment earnings before taxes a percent of operating revenue were 7.9% this quarter up 90 basis points from the prior year.

You may recall during the second half of 2018 DTS results were impacted by cost associated with the challenging start of accounts. As we discussed on our last call, the issues associated with this account have been resolved and we expect this account to positively impact 2019 results going forward. I'll turn now to Supply Chain Solutions on Page 9.

Total revenue grew 28% and operating revenue grew 25% driven by new business, higher volumes and increased pricing. Revenue growth includes Ryder's Last Mile business from the acquisition of the MXD Group in the second quarter of last year.

Excluding the acquisition Supply Chain Solutions total and operating revenue grew organically by 18% and 19% respectively. Supply Chain Solutions earnings before tax were up 27% driven by revenue growth. Segment earnings before taxes a percent of operating revenue were 6.8% for the quarter up 10 basis points from the prior year.

At this point I'll turn the call over to our CFO, Scott Parker to cover several items starting with capital spending..

Thanks Robert. Turning to Page 10, gross capital expenditures totaled approximately $1.1 billion up around $390 million from the prior year. This increase reflects higher planned investments to grow and refresh the contractual lease fleet.

We realized proceeds primarily from the sale of revenue earning equipment of $103 million up from the prior year reflecting higher pricing and increased sales volume. Net capital expenditures increased by $389 million to just over $1 billion.

Turning to the next page, we generated cash from operating activity of around $500 million for the quarter up approximately $150 million or 44%. The increase was primarily driven by higher cash based earnings and lower working capital needs.

We generated around $600 million of total cash up approximately $160 million from the prior year reflecting higher operating cash and sales proceeds. Cash payments for capital expenditures increased by $364 million to just over $1 billion.

The company's free cash flow was negative $438 million for the quarter down from the prior year of negative $236 million reflecting increased net capital spending. Our full year forecast for free cash flow remains unchanged at negative $1.1 billion reflecting significant growth in capital spending.

Our debt to equity at end of the first quarter increased to 278% from 262% in the end of 2018. And primarily reflects investments in the fleet growth. Our balance sheet leverages near the midpoint of our target range of 250% to 300%. At this point, I'll hand it back to Robert to cover our outlook..

Thanks Scott. Our overall earnings outlook for the balance of the year remains on track with our prior expectations with a modestly better than expected impact from lease accounting. We are on track to meet or beat our 2019 revenue growth targets in all business segments.

Commercial rental is expected to perform for the balance of the year although we're planning to revenue growth rates to decline from the current levels due to potentially softer demand conditions later in the year.

We're pleased with results to date on our initiative to leverage ecommerce growth by increasing the number of medium duty trucks in our rental fleet. In used vehicle sales, we continue to expand our retail sales capacity to handle additional volume expected this year.

although used vehicle pricing was up in the first quarter we continue to expect pricing to be down slightly for the full year particularly in the second half of 2019 due to additional inventory that's likely to come to the market. In FMS, we're on track to meet our full year target from our new maintenance cost - our reduction initiative.

In DTS, we expect revenue growth rate comparisons to remain favorable although below the first quarter levels. Dedicated EBT percent should be higher year-over-year reflecting improved operating performance.

In supply chain, we expect revenue growth rate comparisons to turn negative in the second half due to the impact of previously announced loss business however year-over-year earnings are expected to improve.

In light of these factors we're raising our full year comparable EPS forecast range to $6.05 to $6.35 versus a prior range of $6 to $6.30, primarily to reflect a better than expected impact from the new lease accounting standard. Our second quarter comparable EPS forecast is $1.34 to $1.44 as compared to $1.46 in the prior year.

second quarter comparisons include $0.10 negative year-over-year impact from lease accounting reflecting an estimated $0.05 negative impact in the second quarter of 2019 compared to a $0.05 benefit in the prior year. The negative impact from lease accounting in 2019 reflects an expected decline in the lease fleet age.

The full year 2019 impact from lease accounting is expected to reduce earnings per share by approximately $0.15 as compared to the prior accounting method. As a reminder there's no change to cash flow or total earnings over the life of the lease contract as a result of the new lease accounting standard.

Turning to Slide 14, I'd like to provide you with a brief update on the progress we're making on some of our strategic initiatives. First, we continue to focus on driving long-term profitable growth.

We're very pleased with the momentum from record contractual sales in 2017 and 2018 has continued into 2019 with strong sales activity in the first quarter. DTS sales has been particularly strong with increased proposal activity for larger deals.

In addition to benefitting from secular trends that drive more outsourcing, we're realizing success from our initiatives to expand the size of our sales team, increased collaborative selling across the organization and launch new products.

We're on track to deliver our eight consecutive year of organic lease fleet growth with record growth of 11,000 vehicles expected this year. Ryder last month completed its first year of operations ahead of our earnings expectations and is well positioned as a leading provider of Last Mile services for big and bulky goods.

We're pleased with the successful integration completed by our team since last April's acquisition. We're also encouraged by recent sales activity with an increased pipeline that's 50% larger and a larger average deal size. We expanded COOP by Ryder the first commercial vehicle sharing platform of its kind into the South Florida market.

We're leveraging the experience gain from the platforms initial launch in Atlanta last year and we see strong opportunities for COOP in the Florida market and beyond. Finally, we're on track to achieve our full year cost savings expected from our multi-year maintenance cost reduction initiatives and from our Zero-base budgeting process.

We expect significant opportunities to lower cost and drive efficiencies in the future. Slide 15, provides our expectations for 2019 results as compared to our three-year financial targets we laid out in early 2018. FMS and DTS are expected to beat their operating revenue growth targets reflecting secular trends in our initiatives.

Supply chain is expected to come in below their targets this year due to the previously announced loss business in the second half of the year. Supply chain contracts are individually larger which can lead to lumpiness in the segments growth rates depending on the timing of the new and loss business.

Our three-year CAGR for operating revenue growth is expected to be 11% this year. Given our pipeline for new business we remain confident in our ability to meet or beat our long-term target of 7% to 8% revenue growth of supply chain overtime.

FMS EBT performance is expected to improve year-over-year will remain below the target due to the ongoing impact of used vehicle sales and higher maintenance cost and certain older model year vehicle. As we discussed before the maintenance cost headwinds should be largely eliminated in 2020.

Dedicated earnings performance is expected to improve an approach target levels this year. Supply chain results are expected to move up into the bottom end of their range this year. Our return on capital spread is forecast to improve or will be below target due to FMS earnings.

Finally we expect leverage to remain within our target range of 250% to 300%. That concludes our prepared remarks this morning. I do want to mention that due to the additional requirements with our first quarterly filings under the new lease accounting standard. We expect to file our 10-Q by the middle of next week.

Starting in the second quarter we expect to return to our regular cadence of filing the Q on the same day of the earnings call. 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 question each.

If you have additional questions you're welcome to get back in the queue and we'll take as many calls as we can..

[Operator Instructions] and we'll take our first question from Stephanie Benjamin with SunTrust. Please go ahead..

I just wanted to talk a little bit on the used vehicle environment, a lot of good color on your prepared remarks. But I think just the native impact from used vehicle sales are bit higher than are the loss - unused vehicle sales are bit higher than expected in the first quarter.

So was hoping you could kind of flush out what you're seeing and your expectations have changed for the full year than just kind of overall the environment we kind of move through in the second quarter..

Okay, I'll let Dennis give you a little bit more color. But just as a highlight I would tell you used vehicle came in generally when we expected. The pricing especially on trackers which is really where the focus is primarily because of what's happened in the last few years.

Pricing on tractors I mentioned was up 17% so definitely the pricing continues to move in the right direction part of that is because we're growing our retail capacities so we're able to retail more trucks as opposed to wholesaling which is a 30% price deferential typically between a retail and a wholesale.

So our strategy is to continue to expand our capacity. Capacity was up 17% year-over-year this quarter we expect that to grow in the second half of the year. We really be able to continue to retail more trucks in the second half, but I'll let Dennis give you a little more color with what we're seeing..

Yes, Stephanie I'd just add to Robert's comments that pricing was up as Robert shared but the book values of what was coming through was a little higher than we expected. So we really need to get even a little more price and we've got several initiatives to target that. So for example, from the retail point of view we're using inside sales more.

Inside sales is now 0.7% of our retail volume where we have leads being generated online and going to telemarketers who're selling vehicles and getting nice proceeds per unit..

Got it. I really appreciate the color. I'll leave at that. Thank you..

[Operator Instructions] we'll take our next question from Todd Fowler with KeyBanc Capital Markets. Please go ahead..

Robert, can you maybe just help us flush out a little bit, the changes to the full year guidance.

1Q came in above the range of what you were looking for and you got the lease accounting headwind coming in about $0.05 for the full year, was all of that in 1Q and is that just what the adjustment is to the guidance and then if you can also talk about the cadence with 2Q, where you set it out and then kind of back end waiting for the rest of the year.

I think that would be helpful..

Sure. Well first let me answer the question on the changing guidance. Changing guidance is primarily driven by the lease accounting adjustment. It was a beat in the first quarter. Portion of that beat, the $0.05 we think is really a permanent one for the year, so we really brought the guidance up as a result of that.

In terms of, so the rest of the business I would tell you is operating in line with our expectations. In terms of the second quarter, I think the year-over-year delta's, if you look at the growth rate that we saw in the first quarter compared that to what is really going to flat to down in the second. Lease accounting is a big part of it.

Lease accounting in the first quarter was a $0.06 good guy year-over-year and in the second quarter it's going to be a $0.10 bad guy year-over-year. So that really takes a big chunk of it. So you're going - if you exclude lease accounting first quarter was up 10%, second quarter for the high end of our guidance would be 6%.

So the bulk of that is primarily supply chain, earnings growth at a lower rate than they grew in the first quarter. The supply chain earnings in the first quarter grew at 28%, I think it was that comes down a bit in the second quarter. So that's primarily the difference.

The other thing if you go back second quarter of last year was a bang up quarter for supply chain, earnings were up and supply chain were up 45%.

A little bit tougher comps in the second quarter, but I'll tell you we feel very good about the second quarter and certainly in the second half as we continue to see contractual business really growing across all segments.

So this is business that we're locking in that we know is profitable and we feel really good about how that's going to play out for the balance of the year.

So I would tell you, even though we didn't adjust the guidance excluding lease accounting we didn't adjust the guidance for the balance of the year probably feel lot more confident now than we just did just three months ago in terms of our ability to hit it..

Yes, good no that's helpful and to be clear, you mean operationally did an adjust guidance down even though 1Q was above your guidance range that was the lease accounting benefit in 1Q in operationally things are really the same or for the rest of the year at this point..

Correct..

Okay, good. I'll turn it over. [Indiscernible] you're asking for one, but thanks for the time this morning..

We'll take our next question from Ben Hartford with Baird. Please go ahead..

Robert, [indiscernible] perspective on commercial rental trends. Utilization came in pretty good in the first quarter.

Can you kind of slice out class 8 versus medium duty? What the trends look like and I know you talked about your underlying outlook for the balance of the year being unchanged, but anything on the rental side obviously coming in a little bit better in a weak spot environment is impressive.

So could you slice out heavy duty versus medium duty and maybe what the - what an updated outlook is for the balance of the year?.

I guess I'll let ask you a little bit more coverage. Just at a high level, I'll tell you demand is coming in, in line with what we had expected. If you slice it out by class probably the medium duty initiative that we have coming maybe a little bit better and maybe class 8 a little bit worse, but generally demand is been where we expected it.

So we expect our forecast does expect some softening in the second half of the year in terms of demand and utilization, but primarily around the class 8 as we expect more of the new class 8 to hit the market, but all in all I'll tell you it's in line what we have forecast. I'll let Dennis give you a little more color around the class..

Yes, Ben just to add what Robert said, even April demand is looking strong year-over-year and when it comes to the split between tractors and trucks. Trucks are strong. And tractors I would say we saw a little softening with sleepers in particular on the west coast, but still strong demand coming from tractors.

But we're planning for the second half to be softer with tractors in particular. We still expect strong demand from trucks and so we're preparing for that..

Okay, great. And if I can get related follow-up. You highlight COOP and the expansion there. Robert as you think about the development and the rollout of that product.

When can it become meaningful to result I mean in terms of perhaps providing us cyclical buffer to existing rental fleet and it's utilization, is that something that can be expected over the next couple of years or is that still a longer term type initiative and before it becomes material..

Yes, I guess I would tell you at a high level it's longer term initiative. Our plan is really to - till we roll it out in Atlanta last year we're doing South Florida, maybe broader Florida this year. And at this end of this year really be in a position to then finalize our strategy.

We're going to continue to go market-by-market or do a broader national type of rollout. Obviously we decided to go with broader national rollout that would start to impact and help us shorter in the nearer term, but I would look at this certainly at least three years out before you would have a meaningful impact.

But we're encouraged by it and all that, I know John Diez is been helping to head that up. I'll let him just give you a little color on what we're seeing here in Florida..

Yes, Ben just to give you an update here. The Florida market has actually been very encouraging for the COOP platform and that we've been able to demonstrate that we could scale in a [indiscernible] market fairly quickly. The acceptance in this market has been actually a lot more favorable than our original market with Atlanta and Georgia.

So as we scale up and we take this platform to other markets I think the encouraging signs for us is, how quickly we could do that and what's the acceptance is going to be from the broader market..

Got it. Thanks for the time..

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

Why don't you just first clarify just a couple of things, Robert? In prepared comments you talked about a maintenance recovery, was that a one - can you quantify and if that's one time or part of the new initiatives. And then when you were talking about rental, you talked about a decline in the second half of the year.

You're talking about year-over-year decline in revenue or just last revenue growth than the 15% in first quarter just wanted to clarify, those two things..

Okay, let me just - I'll hit the first one and I'll let Dennis take the second half. The maintenance cost recovery items was a negotiated warranty related recovery for prior period maintenance cost, so it was a one-time item now.

In addition to that, Dennis's team also made progress on the $75 million maintenance cost initiative which as I mentioned $20 million was for this year, so we're well on our way to achieving that also, so yes that was a one-time item that we called out and it was for prior period maintenance cost.

And Dennis you want to talk about?.

Scott on the rental side, it just a decline in the growth rate. so we grew revenue 15% in Q1, we don't expect that 15% to continue, but we'll still be growing to be clear in the second half it's just not growing as fast..

And how much was that maintenance recovery?.

We're not discussing that because lots of puts and takes, but it was meaningful enough that we wanted to call it out..

Okay and then just lastly, so I think last quarter you talked about give or take $0.40 headwind from losses on sales and lower residuals this year and then a similar headwind next year, given your sort of reviews on used truck market and what you're seeing, any - do either those numbers change for this year or next year?.

No, I would say again most of them - a lot more in the second half of this year, but right now I would say it's - we're probably on track for those numbers..

Okay, thank you guys..

Our next question will come from Amit Mehrotra with Deutsche Bank. Please go ahead..

Robert I just wanted to ask about, I guess leasing business is obviously a bit of lag between when you negotiate the new leases and when the earnings stream hits the P&L.

can you just talk about the impact that will have as you look beyond this year and is 2020 meaning? How much of the earnings growth is under written in 2020 from leases you're adding this year and also maybe for Scott, is the fleet age a push next year in terms of the puts and takes or does it continue to get a bit younger and just so we can understand if there's any incremental headwind beyond this year from some leases you're adding this year? Thanks..

Well as we're getting into 2020, it might be a little early but just I guess to answer the first part of your question. The leases that we signed at the end of last year a lot of that or vehicles that we're now taking in to service. So I mentioned on the call that in January we were signing leases for May timeframe.

As we sit here today we're signing leases for August and September timeframe. So you can look at all of the equipment that's going to come into lease between now and August, September is already signed and locked in.

So we're getting out to a lot of the revenue this year, is already accounted for where we'll be locked in, so we feel good about that's why I said, we feel more confident about hitting our numbers now than we did three months ago because the earnings growth is really primarily being driven by our ChoiceLease, Dedicated and Supply Chain businesses so we feel good about that.

The second part of your question was around..

The fleet age next year?.

Yes, fleet age right now year-over-year is at 41 months for the lease fleet age. It's down sequentially one month as we go into this year we expect it to come down maybe another month and as we get into next year I guess it depends on what happens with our sales.

If you just look at what's happening with class 8 production in the forecast for next year's already the class 8 production will be down some. I would expect that our sales for 2020 will be down some from 2019, but again that still remains to be seen.

If that happens, you would expect then fleet age to really start aging out little bit again, again which [indiscernible] kind of neutralizes out a bit..

Right just one follow-up if I could. I think embedded in the guidance this year. The EPS guidance is a pretty decent sized headwind from various strategic investments. I was just hoping if you could maybe expand on that, the size of those investments and when those investments I guess are going to kind of pay off or they quick pay back type stuff.

Are you guys willing? Or you willing to maybe dial back some of those strategic investments drive may some higher earnings growth in the near to mid-term?.

Yes as we mentioned on the call in January about $0.47 of strategic investments which as we showed was really covered entirely with some of the cost actions we're taking, those investments are really around sales and marketing help drive some of the continued growth, so you look at we're adding sales people, we're spending money on marketing, we've got technology, investments.

We talk about COOP. technology, investments and e-fulfilment. We're rolling out new e-fulfilment product to be able to provide that service to a new set of customers.

So those are investments in new service offerings, new products and in sales which we are confident really are going to pay dividends here in the next year, the next two years and three years. So we think they're important to your questions of what we pull them back. Obviously we got into some type of a crunch scenario where really things slowed down.

We would probably, we would look at some of those areas and possibly pull some of them back, but in the environment we're in now with the growth that we're seeing we think it's a good time to make these investments in the future..

Got it. Okay, thanks a lot. Appreciated..

Moving next to David Ross with Stifel. Please go ahead..

Just wanted to talk about the Last Mile division, the MXD now Ryder Last Mile. I think it's about $350 million run rate at the moment.

Can you give us more color around the growth and margins of that segment? Are there better or worse that SCS average, is there a lot of improvement going on there?.

I guess I'll hand it over to Steve.

I think it's important to point out that we now hit the one-year mark since we did the acquisition and I can tell you that I'm happy to report that we exceeded our earnings estimate that what we had initially expect when we made the investments that we're very excited about the business, the integration is going very well and what we're seeing is really the traditional supply chain fails [indiscernible] getting to sell into this Last Mile piece of the business which was really a key part of the synergies we expect it to see so, we're in the early innings of that we're excited about we're seeing..

David, Steve. Just a reminder on the 350 that's a combination really of Ryder Last Mile and our e-commerce, e-fulfilment business that is part of an overall solution for many of our customers in supply chain. As Robert said, we started really cross-selling across SCS and DTS customers, so if you think about the sales pipeline.

We got a good mix between new names and expansion business about a third of our pipeline is coming from DTS and SCS customers and sales people, so I think we're off to a really strong start. We hit our target in Q1, feel really good about Q2.

Got think in the back half, you're obviously focused about execution for our customers in peak period, so at the end of the day it's going to be about volume coming through their retail sales channel, so feeling really good about it..

And what did you have to do, I guess with MXD to get it to where it is today and is there anything left to do still with the integration or to get Ryder Last Mile to where you want it to be..

Yes, so the integration went great, on track actually ahead of schedule last year. The business is executing. They've got cost cutting initiatives in there. I think you asked earlier about the EBT targets.

It's just slightly below the normal SCS business but now it's really growing the business and continue to expand the footprint to serve the many customers out there..

Thank you..

Our next question will come from Jeff Kauffman with Loop Capital Markets..

Is my math on par here that the yield on the FMS leasing business was flat to slightly down? If so could you tell me what's going on there because the trend has been kind of slower yield on yield gains year-on-year over the last few quarters?.

You're talking about the FMS margins?.

No, I'm looking at revenue per vehicle..

Revenue per vehicle.

Well, let us take a look at that, there's a possibility that you might see it coming down [indiscernible] as you get a churn of lot of vehicles coming in through the fleet, you've got vehicles that are on the way out and so vehicles that are on the way in, so during that process you could see some slight what's down, but I wouldn't read that as a long-term change.

Yes there's a lot of vehicle that have come into the fleet in Q1, both growth as you saw we grew the lease fleet 4,200 vehicles. In addition to that, lot of replacement vehicles.

So when that happens a lot of vehicles have to come out so if you just take our total lease fleet number that you see out there you're going to divide the revenue by, you might see a little an anomaly during that time..

Okay, is there a mixed fact where maybe you're taking more smaller light duty vehicles that might be complicated with, no.

okay?.

No, I can tell you. I mean obviously the revenue that we're getting for the new units coming in is meaningfully higher than the units going out..

Yes I would have guessed so, that's why I was scratching my head a little bit..

Yes..

All right. That's my one. So thank you..

Our next question will come from Matt Brooklier with Buckingham Research. Please go ahead..

So wanted to hit on the DTS top line outperformance. Maybe if you could provide a little more color in terms of what drove out was the bank account or accounts win any quarter or is it just, is it more related to volume with existing customers. I think it will be helpful to get a little bit more color there..

Well I think the easy answer was all the above, but I'll let John give you a little more color..

Yes, Matt if you look at the growth in the quarter about half of that came from new names that were added to the portfolio. About a quarter that is expansion of existing accounts as well and if you look at how we perform relative to our historical level.

Last year in the quarter we had a record year of sales and that was certainly impacted by significant win in last year in Q1.

We didn't have that level of activity meaning, we had a significant number of account wins, but we didn't have one account that drove the number so overall if you look at our performance was the second highest sales here for the quarter that we've had which is terrific.

I think we're still seeing the secular trends which is around drivers challenges, you look at people looking for visibility in technology solutions and then they're looking to mitigate cost headwinds. We're seeing all three play out and we continue to win in the market place with the solutions we have in place..

And I guess let me just add going back to the question on strategic investments.

Here's an example of where we made strategic investments in prior years of adding sales people to dedicated, adding sales people to the other segment and adding marketing dollars and technology to drive the growth you're seeing really top line, you're seeing top line and bottom line growth as a result of that, where FMS' has grown 10% dedicated 17 [ph] and supply chain 25 we've got whole acquisition there.

But you know these investments do pay off and in order to get the growth on the top line and the bottom line, that's where some of the money goes, but I think Dedicated is a great example of that..

Okay and just quickly second part of my original question. I know there's some insurance cost benefit in the quarter.

Can you talk to how much that led to EBT?.

Yes I would look at insurance the [indiscernible] net for the company was year-over-year was flat, right. It was generally in line and flat with prior year. There was a negative on the FMS side and a positive on the Dedicated and Supply Chain..

Appreciate the time..

We'll move next to Kevin Sterling with Seaport Global Securities. Please go ahead..

Robert, with your bump up in used vehicle inventory.

Do you think you can still sell those in the retail channel or do you think you'll might have to ship some of that inventory to the wholesale market? How should we think about that?.

Yes, we have an aggressive imitative to really ramp up our retail sales channel and it's primarily through an inside sales organization that Dennis and John Gleason our Head of Sales are building out. So the plan and the initiative is really to go up and really hold retail, those additional units through this new structure.

So our sales volume was up 17% in Q1, but majority of that was the retail. So the goal is to keep ramping that up and in the second half of the year really have a meaningful increase in the number of vehicle that we can retail..

Yes, let me just add to that. Just to add to that, where we sold 4,900 units in Q1 and that goes up to 5,300 or 8% increase in Q2 and as Robert said, this is why we've added the marketing for getting new prospects and then we're feeding them in the inside sales and that as I said earlier is now north of 20% of our retail volume.

So we're doing, is we're expanding our retail reach and having a lot of success with that and yes we got to sell about 8% more units here in Q2..

Okay, thank you. If I'm not mistaken you guys have always have pretty good traction in the used market because of your maintenance records and things like that, like assume that's still the case..

That is and I would just add, again with the investment in the marketing as Robert talked about earlier. We're reaching a larger retail audience for our used vehicles and the value prop is still there about maintaining vehicles over six to seven-year period and having the maintenance records available for the customer..

Got you okay, well thanks for your thoughts, appreciate your time today..

Our next question will come from Brian Colley with Stephens. Please go ahead..

So I just wanted to ask about the sensitivity what's in the 2019 earnings guidance around rental demand and what you're assuming there.

So if were to assume rental demand is 5% lower than what you guys are projecting, what's the ball park headwind sort of bottom line, if we factor in your ability to flex and reallocate the equipment?.

5% lower in the Q [ph] would be let's say it happens in the second half of the year, so 5% lower in the second half of the year..

Right, sorry 5% lower than what you're projecting I guess for the year, for the full year..

Well if you think about it's a math equation at that point. If you take - if you assume the rentals about $900 million product line so half the year is $450 million, 10% of 450 would be $45 million and half of that is, $24 million, $25 million is what we're thinking.

It's probably $24 million, $25 million if you just say 100% pull through of that obviously we would adjust the fleet the last time that we had a downturn we were able to adjust the fleet in a matter of one quarter, so we - be able to mitigate a good chunk of that. So that's a quick way to look at it. Obviously we have - we built in just to be clear.

We have already built in a slowdown in the second half, so you're talking about another 5% beyond that..

Got it, all right that's helpful. I just wanted to ask about, how the sales pipeline trended in the quarter, what you're seeing maybe and some more detail across the different segments..

Well I think sales across the company were very strong in the first quarter, not as strong as the record from last year's first quarter. If you remember last year's first quarter was really record across the company.

But to put it in perspective in FMS and Dedicated it was the strongest first quarter in history, but it was the second strongest first quarter in the history in the company. So I would tell you still very robust sales. The 3.2 GDP environment here in the US is very helpful.

We see commercial customers willing to sign up the long-term contract, the confidence is good. So we still feel very good about the sales prospects. We still see companies looking to outsource the transportation and logistics needs.

So I would tell you not only was it good start to the year in terms of the results double-digit top line, with double-digit bottom line growth but also the sales that we saw in the quarter were very healthy which bode well for second half of the year as we start in 2020..

Great, well that's good to hear and I appreciate the time today..

All right, thanks Brian..

And at this time, this does conclude today's question-and-answer session. I would like to turn the call back over to Mr. Robert Sanchez for closing remarks..

All right, well thanks everyone. Thanks for getting on the call. I'm sure we'll be seeing a lot of you over the next few quarters and get a chance to meet Scott in the conference and the road show. So look forward to doing that. Thank you..