Ryder System Stock

Good morning, and welcome to the Ryder System Third Quarter 2026 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Ms. Calene Candela Vice President, Investor Relations for Ryder. Ms. Candela, you may begin.

Thank you. Good morning, and welcome to Ryder's Third Quarter 2026 Earnings Conference Call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors. More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website.

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

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

Good morning, everyone, and thanks for joining us. The Ryder team delivered our eighth consecutive quarter of comparable earnings per share growth. Strong results were driven by consistent execution on our strategic initiatives and improving performance in used vehicle sales and rental.

I'll begin today's call with an update on our balanced growth strategy, followed by key highlights from our third quarter performance. Cristy will review our segment performance, capital spending and capital deployment capacity. I'll then review our outlook for 2026.

Let's begin with a strategic update. Consistent execution on our balanced growth strategy has created a more durable earnings and cash flow profile, enabling us to outperform prior cycles. The solid foundation built by the Ryder team reflects actions taken to de-risk the portfolio, enhance returns and cash flow and shift to a less capital-intensive, more resilient business mix. This foundation continues to evolve and strengthen as we execute strategic priorities that create value for customers and shareholders. Operational excellence is where we stand out and what enables us to leverage our full end-to-end capabilities to solve our customers' toughest logistics and transportation challenges.

Investing in customer-centric innovation that enables proactive supply chain and gives our customer competitive advantage remains a key priority. We're enhancing the capabilities and driving the evolution of customer-facing platforms such as RyderShare and RyderGyde by embedding Agentic AI. We're also leveraging AI in FMS Customer Service and Roadside Assistance to enhance the customer experience while improving effectiveness. Additionally, we continue to drive operating efficiencies in our warehouses by deploying automation and robotics.

We remain focused on profitably growing our contractual relationships. By increasing customer engagement across our portfolio of port-to-door solutions. Over 90% of our revenue is generated by long-term contracts and this high-quality contractual base has proven to be a key driver of business model resilience over the cycle.

Our 3 complementary business segments are leaders in North America logistics and transportation, and position us well to support customers and their increasing need for the value-added solutions that we provide. I am confident our market-leading solutions, strong relationships and Transform model will continue to drive long-term earnings growth. We're also excited to unlock the company's full earnings potential as we continue executing on our strategic priorities against the backdrop of improving freight environment.

Turning to Page 5. Our business model is benefiting from a broader and more diversified revenue mix. Key financial and operating metrics have improved since 2018, reflecting the effectiveness of our strategy. In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from our Fleet Management segment. Ryder generated comparable EPS of $5.95 and return on equity of 13%. Operating cash flow was $1.7 billion. This was during peak freight [indiscernible] conditions. Now let's look at Ryder today. Our revenue mix has shifted towards Supply Chain and Dedicated with approximately 60% of 2026 expected revenue generated by these asset-light businesses compared to 44% in 2018 as a result of organic growth, strategic acquisitions and innovative technology.

Since 2018, we've more than doubled the size of our asset-light businesses while also delivering increased profitability. Our 2026 comparable EPS forecast range of $14.85 to $15.05 and is more than 2.5x our 2018 comparable EPS of $5.95. Our return on equity forecast of 18% to 19% is also well above the 13% generated during the 2018 cycle peak. As a result of our profitable growth across our contractual businesses, forecasted operating cash flow of $2.6 billion is nearly $1 billion or 50% higher than 2018.

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

Moving to key performance highlights from the third quarter. Comparable EPS for the quarter was up 21%, marking our eighth consecutive quarter of comparable EPS growth. Results reflect the strength of our contractual portfolio, benefits from strategic initiatives as well as improving performance in Used Vehicle Sales and Rental. Return on equity increased to 18%, in line with our expectations given where we are in the freight cycle. We remain on track to deliver more than $70 million in benefits from strategic initiatives during 2026. These initiatives are part of a multiyear program launched in 2024 with total benefits in excess of $170 million expected by the end of this year. Consistent execution on these initiatives is the key driver of expected earnings growth in 2026.

And finally, we're encouraged to see benefits across the business from continued strengthening of freight market conditions. Contractual sales remained strong across all 3 segments with activity accelerating in Lease and Dedicated. Increased sales activity and robust pipelines reflect the value of our solutions and increase customer demand for quality capacity. Customers are facing a host of challenges, including increasing difficulty attracting and retaining drivers, securing reliable and safe capacity and addressing rising insurance, transportation and litigation costs. These dynamics reinforce the value of Ryder's end-to-end Transportation and Logistics Solutions and are leading to new customer wins and expansion activity with existing customers.

Used vehicle sales results continued improving and reflect better-than-expected pricing and retail sales volumes. Demand for used vehicles benefited from lower market inventories and spot rates that remain elevated. Lease miles per unit increased year-over-year and sequentially, indicating that our lease customers are increasing utilization of their fleets. Commercial rental utilization was strong at 77%, up 700 basis points year-over-year. While demand remained below prior year, it increased sequentially in line with historical seasonal patterns and was particularly strong in the tractor class. Third quarter utilization was the highest we've seen since 2022, and we expect utilization will remain near this level in the fourth quarter. The market remains in the early stages of recovery with conditions continuing to improve. However, geopolitical and macroeconomic factors remain key variables affecting the pace and durability of the recovery.

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

Thanks, John. Total company operating revenue increased 6% to $2.8 billion, reflecting contractual revenue growth in Supply Chain and Fleet Management. Comparable earnings per share from continuing operations were $4.33 in the third quarter, up 21% from the prior year, reflecting benefits from higher earnings in Fleet Management and share repurchases. Return on equity, our primary financial metric was 18%, up from prior year, reflecting share repurchases and earnings growth. Free cash flow increased to $992 million from $496 million in the prior year, reflecting lower capital expenditures year-to-date.

In Fleet Management Solutions, operating revenue increased 5%, reflecting contractual revenue growth. Earnings before taxes were $177 million, up 21% versus prior year, reflecting benefits from strategic initiatives on ChoiceLease results as well as strengthening market conditions in Used Vehicle Sales and improved Rental performance. In Rental, utilization increased to 77% on a 12% smaller average fleet. Rental results benefited from planned asset management actions and higher pricing. Rental pricing was up 4% year-over-year.

Fleet Management EBT as a percent of operating revenue was 13.2% in the third quarter, up from prior year and in line with our long-term target of low teens over the cycle. We're encouraged to achieve this profitability level in the early stages of the freight market recovery. Looking ahead, FMS profitability has further upside as Used Vehicle Sales and Rental market conditions normalize, and we begin to realize the benefits from contractual fleet growth. In Used Vehicle Sales, year-over-year pricing increased 19% for tractors and 5% for trucks. Sequential pricing increased 15% for tractors and 6% per truck. In the third quarter, the retail channel accounted for 61% of our sales volume, up from 54% in the prior year and up from 56% in the second quarter. During the quarter, we sold 5,100 used vehicles in line with prior quarter and up 200 units year-over-year. Used vehicle inventory declined to 7,300 vehicles near the lower end of our target range.

We're encouraged by continued improvement in used vehicle pricing, reflecting the early stages of a freight market recovery.

In Supply Chain, operating revenue increased 9%, driven by new business and higher volumes and pricing, partially offset by lost business in Automotive. Earnings before taxes increased 7% from prior year. Results benefited from higher volumes in E-commerce Fulfillment and Ryder Last Mile, which leveraged our optimized omnichannel retail network. These benefits were partially offset by productivity of new business ramping up and lower Automotive results. Supply Chain EBT as a percent of operating revenue was 8.1% in the quarter, at the segment's long-term target of high single digits.

In Dedicated, operating revenue decreased 1% due to lower year-over-year fleet count, partially offset by higher pricing. Sequentially, the power fleet count increased and was up 100 units due to improved net sales activity. Earnings before taxes declined from the prior year, reflecting lower operating revenue and a prior year workers' compensation insurance benefit, partially offset by benefits from strategic initiatives. Dedicated EBT as a percent of operating revenue was 7.5% in the quarter at the segment's long-term high single-digit target.

Next, let me cover capital expenditures. Year-to-date, Lease capital spending of $996 million was below prior year, reflecting the timing of sales activity. Year-to-date Rental capital spending of $265 million was just below prior year. Our full year 2026 capital expenditures forecast of $2.4 billion is above prior year and unchanged from our prior forecast as increased investments in our rental fleet will be offset by lower Lease spending. Our 2026 forecast for Lease capital expenditures is now $1.7 billion, above prior year but below our previous forecast, reflecting the timing of Lease sales activity. Our 2026 forecast for Rental capital expenditures increased to $500 million, up $300 million from our prior forecast. A portion of these vehicles were delivered during the third quarter and we expect remaining deliveries towards the end of the year. This Rental investment positions us to benefit from improving market conditions and capture higher expected demand in 2027.

We expect the ending rental fleet to increase 8% sequentially in the fourth quarter, resulting in an approximate 10% increase in the second half of 2026. Even with these investments, our ending rental fleet remains below peak levels. We expect approximately $500 million in proceeds from the sale of Used Vehicles in 2026, in line with prior year.

Full year 2026 net capital expenditures are expected to be approximately $1.9 billion. Our high-quality contractual revenue base is generating higher earnings and cash flow, which is delevering our balance sheet at a more rapid pace than prior to our business model transformation. This momentum is creating incremental debt capacity given our target leverage range of between 2.5x and 3x. As shown on the slide, over a 3-year period, we expect to generate approximately $10.5 billion from operating cash flow and Used Vehicle Sales proceeds. This creates approximately $3.5 billion of incremental debt capacity. Together, these sources provide around $14 billion of capital available for deployment. Over the same 3-year period, we estimate approximately $9.5 billion will be deployed for the replacement of Lease and Rental vehicles and for dividends. This leaves around $4.5 billion, which equates to approximately 50% of our quarter-end market cap available for flexible deployment to support growth and return capital to shareholders.

We estimate about half of our flexible deployment capacity will be used for growth capital expenditures and the remainder will be available for discretionary share repurchases, strategic acquisitions and investments. Our capital allocation priorities remain focused on profitable growth, strategic investments and returning capital to our shareholders. Our top priority is to invest in organic growth. Aligned with these priorities, year-to-date, we funded Lease and Rental replacement CapEx of approximately $1.3 billion and returned $485 million to shareholders through buybacks and dividends. Our balance sheet remains strong with leverage of 242% at quarter-end, slightly below our target range and continues to provide ample capacity to fund our capital allocation priorities.

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

Thank you, Cristy, and turning to our outlook. We've increased our full year 2026 comparable earnings per share forecast to a range of $14.85 to $15.05 up from a range of $14.40 to $14.80. The increase to our forecast reflects stronger-than-expected third quarter performance and incremental benefits expected in the fourth quarter from improving market conditions in Used Vehicle Sales and Rental. We've increased our 2026 ROE forecast to a range of 18% to 19% to reflect higher expected earnings. Our free cash flow forecast of $700 million to $800 million remains unchanged. And our fourth quarter comparable EPS forecast range is $4.25 to $4.45 above prior year of $3.59.

Our Transform model is well positioned for continued earnings growth. We continue to expect 2026 earnings growth to be driven by incremental benefits from multiyear strategic initiatives. These initiatives represent structural changes we're making to the business and are not dependent on a cycle upturn. In 2024 and 2025, we realized approximately $100 million in benefits, leaving more than $70 million of incremental benefits expected in 2026.

In addition to driving outperformance relative to prior cycles, our Transform model also provides a solid foundation for the business to meaningfully benefit from the cycle upturn. By the next cycle peak, we estimate the potential benefit could be $250 million or more with the majority expected to come from the cyclical recovery of Rental and Used Vehicle Sales and Fleet Management with additional benefits from higher omnichannel retail volumes, leveraging our rationalized footprint. We expect to recognize these benefits over time as freight market conditions improve. We now expect to realize approximately $40 million of upturn benefits in 2026 up from the $20 million in our prior forecast. These benefits are driven primarily by higher Used Vehicle Sales results and, to a lesser extent, from improved Rental performance.

Profitable contractual growth provides another meaningful opportunity for long-term earnings growth. Strong 2026 sales activity in Lease, Dedicated and Supply Chain is creating growth momentum across our contractual businesses. We remain focused on pricing discipline, and as a result, we expect our portfolio of 5- to 7-year Lease contracts in FMS and 3- to 5-year contracts in Supply Chain and Dedicated to provide strong returns and earnings durability.

We've been pleased by the business's resilience and performance over the most recent cycle and are confident each of our business segments is well positioned to benefit from the cycle upturn. Our Transform business model continues to deliver value to our customers and shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio. We continue to see significant opportunity for profitable growth, supported by secular trends, our operational expertise and ongoing momentum from multiyear strategic initiatives. We remain committed to investing in the future with products capabilities and technologies that will deliver value to our customers and our shareholders. Our Transform model provides a solid foundation for Ryder to meaningfully benefit from the cycle upturn.

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

[Operator Instructions] Your first question is from Jordan Alliger with Goldman Sachs.

There's been a fair bit of discussion of late from other transports about driver-related cost pressures, difficulty in getting drivers, particularly in Dedicated. I'm just curious if you could talk to those two points? And is the inflationary pressures on the driver front, does that, in any way, impact your ability to do what you want to do on the Dedicated margin front? And frankly, can you go in and do you need to go in to rework contracts as needed?

Jordan, thank you. Yes, let me address some of the market conditions, and then I'll turn it over to Steve, who can provide you details. Just a reminder for the group, our Dedicated business is highly specialized. So much of the discussion you've heard in the marketplace, clearly, for us is a little bit different in that 70% to 80% of our dedicated is highly specialized. These are typically private fleet conversions, where we take over a private fleet and execute the transportation. Typically, we are dealing with very experienced professional drivers, which have a different wage structure than as you would consider a brand new driver. So what we've done over the last couple of years, you heard us talk about this post-COVID is we've introduced to many of our contracts, inflationary adjusters for wage inflation, and that's still in place. So we would expect the impact to us to be really limited to select markets and not a broad-based kind of impact.

And I'll let Steve maybe talk a little bit about what that looks like.

Yes. Thanks, Jordan. Overall, we're seeing about a mid-single-digit wage increase in certain regions. So it's very targeted, not a wide range, nationwide issue. If you'll recall, back during COVID, we already worked on our contracts with our customers to really address this. So we have annual CPI openers for the customers, but we also have driver wage indices that allow us, if we see a drastic change to go back and open discussions with those customers. So I think we're pretty well protected there. Sometimes it's not immediate, but we do have tight windows. So from a recruiting standpoint, our recruiting team does a great job. Remember, 80% of our jobs are home every day, or every night. So that's very attractive along with our comprehensive safety program. So I think we're in pretty good shape there, and we'll continue to focus on that.

And just one other quick follow-up question on the FMS side. It was a good step-up in that margin to the 13% level. So, I guess the question is, can we stick around that level or what has to happen to stay at that target zone?

Okay. I'll let Tom address that.

Yes. I appreciate you pointing that out. But it was the first quarter where we saw all three key product lines, Lease, SelectCare and Rental, all with year-over-year revenue increases, albeit relatively small in Rental, but it was nice to see. It was the first time we had seen that increase year-over-year since Q4 of 2022. So we're expecting this to be the inflection point with Rental. So very encouraging to get to 13% this early in the cycle. But certainly encouraged that we'll continue to do that with all three product lines growing year-over-year. So we do expect to see that, over the coming quarters and into next year, assuming we continue to see the tailwinds of the cycle.

Yes, Jordan, just to add to that, I think we want to [indiscernible] the fact that all the good work the team has been building up for with all the strategic initiatives, both on the maintenance side and Lease pricing side has gotten us here in that business to get to that low teens level early in the cycle really underscores the good work that the team has been doing. So thank you for asking the question.

[Operator Instructions] Our next question is from Brian Ossenbeck with JPMorgan.

Maybe just quick follow-up first just on the, I guess, the Dedicated protection. Have you felt any I guess, mismatch in terms of timing when you can push through the higher cost and [indiscernible] drivers yet. And with Cardinal, I think you closed that in '24. So was there anything you need to do there to kind of bring those contracts up to the same level of protection?

Yes, Brian, I think you're asking primarily about the timing of the wage increases relative to when we can recover from our customers. I would say there's usually a bit of a [ lag ]. Not seeing any significant drag in our business as of yet. I think as you heard from Steve to our select markets, where that becomes more acute and we're getting out in front of it pretty quickly. We did think the acquisition of Cardinal back at early 2024. So this will be the first cycle that we go through that with those customers. Many of those customers have been replaced over the last several years, and we've introduced that kind of language and protection in those contracts. Obviously, there may be a little bit of a tail, but we don't expect any material drag from that activity.

All right. And then just secondly, from -- you raised, I guess, the benefits for the upturn conditions in FMS, another $20 million to $40 million. Is that mostly -- how is that split between 3Q and 4Q? And what are sort of your thoughts on how the remaining might transition to next year?

Yes. As you saw in the numbers, we continue to see really good Used Vehicle performance. We are seeing at a broad market level, lower Used Vehicle market inventory. So that's providing a little bit tailwind for us. We did start moving our retail wholesale mix upward and getting back to normalized levels. So we made improvements there. So a good portion of that improvement of the $20 million going to $40 million, I would say its Used Vehicles, both driven by pricing and some of the actions we're taking to improve the overall retail mix. And then you are seeing the early signs of an inflection point, as you heard from Tom on Rental. We do expect this fourth quarter to be better than last year's fourth quarter. So you got a little bit of a carry through from Rental posted in that incremental $20 million for the year.

Your next question is from Scott Group with Wolfe Research.

So I wanted to just ask about some fleet expectations. I guess, Leasing, Dedicated continue to fall a little bit sequentially. Rental, I guess, just started to move up for the first time in a couple of years. How should we think about fleet growth for the 3 businesses into '27?

Yes, I'll give you some high-level remarks and I think Tom can provide some details for you. If you think about what's been happening over the last several quarters, we've been seeing great sales performance. So we do have visibility to [indiscernible] when that equipment will start coming in from both Dedicated and Fleet Management. Our expectations, as we kind of flatened out in the quarter. You may see a tick up in Q4, and then it becomes more meaningful for both of those businesses as you get into 2027 to start the year. But I'll let Tom maybe talk a little bit about what you've seen at least and also what's happening with the Rental fleet.

Yes. So it's probably a little bit different story depending on the product line. I'll start with Lease. So as John mentioned here, we've had 3 consecutive positive net sales quarters in Lease, but really accelerated here in the third quarter. Now with Lease some of the timing, it does take a little bit longer before you see those sales results transition into the fleet, with some of the ins and outs and timing of the orders. So you might see -- you may not necessarily see the Lease fleet improve yet by the end of this year. But certainly, going into 2027 based on the sales results we're seeing, we would certainly expect to see that.

In Rental, I think we've seen the inflection point. And you heard from some of the opening comments that we've placed orders and you're going to see that Rental fleet continue to grow through this year, with some benefit here in the fourth quarter, but really to set us up for what we expect to be an increasing demand environment into 2027.

And then SelectCare, we started to see -- started to see it in Q2, where we did start to sign new business. And in SelectCare, you see it much more quickly than you do with Lease as you transition those maintenance contracts pretty quickly. So you saw fleet growth, pretty good fleet growth year-over-year. Our pipelines are really strong, really at record levels in both SelectCare and in Lease. So we would expect that momentum to continue to carry into 2027, and in 2027, all three product lines with fleet increases.

Okay. And then just secondly, there were we've got $40 million of the $250 million of like cyclical upturn tailwinds. Does that like versus history, does that feel about right to get that sort of percentage in the first year of an up cycle. Like what does the second year typically look like? I don't know, maybe it's hard to like some of this is transactional, so hard to know, like how much of an uptick do you think we could see relative to that $250 million target? And any other thoughts on the puts and takes for '27?

Yes, I would say, look, this is indicative of the early cycle when you get to the mid portion of the cycle and things are going -- we still need some freight demand to accelerate. And if you get that acceleration, especially around Rental, you're going to see the numbers spike up. So this is kind of typically the numbers you would expect early in the cycle. And then as rental accelerates, you're going to see that number increase significantly. And then it tapers off as you're approaching the peak of the cycle a little bit the incremental improvements. But that's typical what you should expect.

Your next question comes from Ravi Shanker with Morgan Stanley.

This is Nancy on for Ravi. It would be helpful to hear any thoughts into peak season strength across all 3 businesses?

Sure. So look, we -- as you've heard already on the call, we've seen good acceleration in demand for the services we offer, especially in the quarter, we saw Dedicated continue to build on the momentum we saw in Q2 as well as Lease where we saw good activity. We haven't seen that level of sales activity going back to post-COVID. So that was a good indication for the business. We have seen continued solid performance on the Supply Chain side, on the sales side. We did see our Transactional businesses continue to improve, you saw Used Vehicle pricing get better. You also saw Rental utilization get back to normal levels, mid-70s. And at the end of the quarter, we were in the high 70s. We expect that to continue and spill over into Q4 as we even add more fleet. So we're seeing increased demand on Our contractual businesses, increased demand from some of our Transactional businesses. And as you heard, we also saw better utilization of the Lease fleet. So our Lease customers are running more miles on their fleet, which should translate later on to more fleet additions as we move through the cycle.

Great. That's helpful. And then one more question on the Dedicated side. I know revenue remains a bit under pressure from the lower fleet count. Are you seeing signs that customers are becoming more willing to commit to Dedicated capacity? Or what needs to change for fleet growth to start turning positive?

Yes. Just what we are seeing is actually more activity from Dedicated capacity as the [indiscernible] market has moved up, and good quality capacity has been taken out of the market. They're coming to us looking for high-level service at a reasonable price level. So we have seen a little bit of move back from that dedicated capacity space into our Dedicated business. More importantly, what we continue to see is customers looking for specialized dedicated. We're seeing fleet conversions continue to accelerate in this market environment, because the driver environment is getting tighter. We're seeing increased cost in insurance claims and the rising cost of equipment. All those things are putting pressure, and we could do it more efficiently and more effective for our customers.

But I'll have Steve maybe add a little bit of color on what he's seeing in the Dedicated space.

Yes. I would add that the pipeline remains healthy. We're seeing some good opportunities there. As John said, some of these customers traded cost for service earlier in the year. And last year, we're seeing that come back to us now as the tender accepted break for truckload is on the rise. So they want a service that they can count on. But again, our loss business is down year-over-year versus last year. So it should put us in good shape for '27.

Next question is from Brandon Oglenski with Barclays.

I guess John, can we unpack the capital priorities just given the returns that this business is putting off now, especially maybe in regards to M&A because we've seen some dislocation in some other competitive deals go through here recently. So how do you see that landscape folding from your perspective?

Yes. Well, we're in different part of the cycle and coming into this upturn. One of the things that we do have plenty of debt capacity on balance sheet. If you look at our targeted leverage we're on the low end of our target leverage of 250%. So we have plenty of capacity to -- our first priority will be to continue to grow the fleet, rebuild the rental fleet, which is down almost 30% from peak levels. So we're going to continue to deploy capital there. We're excited to deploy capital in high-return business, fleet growth that we know we could execute against. And then we'll look to opportunistic acquisitions.

Obviously, for us, priorities include adding capabilities, whether it's on the Supply Chain side or value accretive acquisitions that we could do and and take advantage of opportunities that are in the marketplace. So we'll continue to look at those. That would be our top priority clearly to build a stronger foundation for the future. And then as we continue, even in this higher capital spending cycle, we would continue to look to deploy capital and return capital to our shareholders.

Appreciate that response. And then quickly on supply chain. I think you guys talked about potentially maybe a contract loss there, but also new contracts starting up. So how do you think about getting back on track to long-term growth targets and margin targets in that business?

Well, yes, we've made mention about the lost automotive account. We finally, as you saw in the results, our year-over-year revenue growth was strong at high single digits of 9%. So that is -- we've lapped that account. We continue to see good demand in the marketplace, and we expect that business to continue to grow. When you look at the bottom line performance, this business continues to deliver at high single-digit targets. We had another good quarter, above 8%, and we expect that business to continue to deliver high single-digit targets through the year. But Steve, anything else to add there?

Yes, I would just add a couple of things. So John spoke about that lapped Automotive loss last year. In that situation, they went away from Dedicated and Supply Chain to truckload. We've seen through our pipeline part of that opportunity coming back to us. So I think I said that earlier in the year. So we're really excited about that. I think, two, if you look at our -- if you look at our pipeline, we're seeing really solid increases in CPG, industrial, health care and retail. So I think, as John said, as well for us to get to low double digit that will take M&A activity, but we had a really solid quarter.

Next question comes from Rob Salmon with Wells Fargo.

We saw a real nice acceleration in the revenue per active in ChoiceLease. Can you give us a sense of what the roughly 200 basis point acceleration came from? Was this just contractual renewals with your annual rate increase, new business or something else?

Well, it's a function -- thank you, Rob. It's a function of two factors. One, obviously, as we renew the new equipment, you've got higher inflation on that equipment. And then we are making sure that our pricing discipline and hitting our target spreads is showing through. So you're getting the benefit of that. We've also had a record level of redeployment. So we put a lot more equipment to work, which has improved the overall performance of the portfolio and the business.

That's helpful. And then with with the response to an earlier question, I think it was Scott's, about the fleet. It sounded like there would be continued pressure in the near term. I'm curious if we can see sequential growth. Looking out to the fourth quarter within the ChoiceLease product? Given some of that new contract momentum you had talked about earlier on the call.

Yes. I wouldn't say pressure meaning downward pressure. Right now, we've kind of flattened out. You should see that planning to uptick perhaps in Q4, and that continued as the new equipment starts arising, we should expect Q1 and beyond that in '27 to continue to grow and accelerate.

And John, just as my final follow-up there. In terms of the growth, any sense of like what that can be -- should we be thinking about like low single-digit growth? Can it be better given the backdrop?

Yes. Right now, the business you've seen in overall, the business is growing at mid-single digits. That's the complement of all three product lines that Tom talked about. As we get in the up cycle, you're going to see an acceleration of the top line from Rental. That's probably going to be the catalyst. You are going to see healthy growth from Lease. I would expect it to be in the mid- to high single digits, as we start growing that fleet. And then you're going to see SelectCare continue to deliver mid-single-digit growth based on the market conditions we have in front of us.

Your next question comes from Bascome Majors with Stephens, Inc.

John, just under 2 months ago, I believe you guys commissioned an Investor Perception Study of analysts and shareholders. And I know that's probably not complete yet, but if you could share any early findings that you've had from that engagement, what surprised you? What hasn't? And how is the Board and management thinking about incorporating that into the company's strategy going forward?

Yes, Bascome. I have not seen the results of that, or reviewed that. So it will be premature for me to comment on that.

But I will tell you, look, I think, generally speaking, when we talk to shareholders, and I think everyone's been very pleased with, number one, the execution of the strategy that we set out to go after. The business mix has really dramatically changed, has elevated, as we've talked about the overall profitability and the resiliency of the model. I think one of the things that we're really proud of is we've been able to take that those asset-light businesses, we've more than doubled those businesses and have expanded margins, while at the same time, significantly improve the margins of our historically largest segment, which was Fleet Management, and we expect that to continue.

One of the things we're excited about for the future is really around how do we leverage our port-to-door solutions and continue to grow, and we're seeing early success with -- how do we grow our relationships, which are deeply rooted under long-lasting relationships with many of our customers where we can help them and solve some of their biggest supply chain challenges. So I think that will show through going forward in our strategy and what you hear from us. But as far as early indications from that report out I don't have it. But clearly, I think we're going to hear good things about the execution from the team on the overall strategy.

Your next question is from Jeff Kauffman with Citizens Bank.

Congratulations. I want to get back to the growth question again. I know this has been answered a couple of different ways. But you had talked about an increase in demand, an increase in mileage, both contractual and transactional. I was wondering if I could get a little bit more of a feel for it, just in terms of is it an equipment size, if you're seeing stronger than the other? Is it an industry segment or 2 that's a little stronger than others? Is it geographic? Because based on your comments, it's across the board and kind of ubiquitous.

Yes. I will tell you, obviously, there's going to be unique circumstances out there, but I'll paint a broad brush picture what we're seeing in the landscape. We are seeing customers add fleet, which we hadn't seen in some time, Jeff. And when they're adding fleet, we're seeing additions across all three asset classes. We have seen on the Dedicated side on specialized handling. We have seen higher demand for construction and on the Industrial side, which is interesting. And then when you look at asset classes and asset class performance, I will tell you on Rental specifically, we did see an acceleration in the tractor class in the quarter and we're going to grow that tractor fleet by 10% as we move into next year by the end of the year. So that hopefully gives you a little bit of a broad perspective, I would say Lease and Dedicated is pretty broad-based.

We are seeing good activity on the industrial side on the Dedicated sales activity and then Rental, we did see an acceleration in both tractors and trailers, which is indicative of maybe this freight market showing signs of life, which is one of the encouraging signs we saw in the quarter.

No. It's very, very helpful. So with respect to that Rental fleet, you had gone about kind of downsizing the ratio of tractors relative to trucks over the last year or 2. Right now, the Rental fleet, at least on my numbers, if I combine the Rental and the Lease fleet, the Rental fleet represents about 21% of that total and normally, that ratio is closer to 25%. And tractors are going to be kind of tough to get over the next 6 to 9 months just because of the EPA mandate. Do you have orders slots already? Or is that why you're saying we'll get that tractor fleet up 10% by the end of next year. And then over what -- do we go back to 25% of the total fleet since a lot of Rental is holding for Lease customers where the equipment isn't ready?

Yes. We do feel confident that we could grow that fleet everything you asked will be dictated by market conditions, right? If we continue to see demand, we're going to meet the demand. And we have not only the slots, but we obviously have a large fleet that we could redeploy equipment and do some things with our assets to meet some of that demand. But what I will tell you is we've already taken action, I'll let Tom speak to it a little bit more in detail. We've taken action already in the quarter of starting to bring in equipment, and we made some orders, as you saw in our increase in our Rental CapEx for the balance of the year, which we think are going to alleviate some of the some of the pinch points we're seeing in the marketplace. Utilization is not yet to screaming red levels like we saw post-COVID, but it'll get there if if we don't have fleet and we're going to continue adding fleet to meet that demand. But Tom, maybe you could add a little bit of color on the fleet itself.

Yes. Just to clarify a point that the 10% increase will be from Q3 to Q4. So we've made a pretty significant tractor order already. And your comment about availability of slots. That's not an issue. We certainly able to order what we needed, and have a pretty significant tractor fleet increase here in Rental just in the fourth quarter. Going into 2027, obviously, we still have work to do on how much we'll continue to add to that fleet. The market will help dictate that.

But to your point about the percent of the fleet, you might expect that to tick up a little bit, a couple of percentage points, depending on what the market tells us. But looking at history, during the peak times, you typically do see that percentage increase a little bit on tractors and I would expect to see the same thing, assuming the market indicators are there.

Our next question comes from Ben Mohr with Citibank

My first question is on your used vehicle sales net target. Last quarter, you had it at $40 million for the year. And it sounds like from the previous conversation here, maybe we're targeting $55 million to $60 million given your increase in your '26 benefits. My question on that is kind of risk and puts and takes to that, given this quarter, the strength was driven by as you mentioned, both volume and retail mix, 61% versus wholesale. So the question is kind of how should we think about that trending in the rest of the year? What's the risk on that? Could it be driven by the truck capacity dynamic turning a different direction or EPA '27. Just wanted to get a sense of kind of risk to that and puts and takes?

Yes, Ben, so you have it right. Coming into the quarter, we have signaled to about a $40 million Used Vehicle performance for the full year. That was up about $20 million year-on-year. We're now signaling up more closer to, I would say, to $50 million than to $60 million, as you called out. What we do see in the marketplace, which I think are favorable trends, even despite some of the potential headwinds we face, we continue to see market inventories decline. Our inventory continues to decline. We're now at the low end of our target range of 7,000. We're going to continue to sell through that inventory. I would suspect it's going to give us the opportunity to continue to move a retail mix upward.

Right now, we would expect to hopefully continue at the same level you saw in Q3. But as you get into next year, we're going to get into the 70s and get into a 70% level with our retail wholesale mix based on the inventory levels we have. So we have that lever for us based on the thin inventories we expect to face later next year. So that's probably the biggest, I would say, hedge against market forces. We continue to see capacity being taken out of the market. And as long as the spot rates remain elevated, I think there's going to be demand for equipment, and we have equipment ready to provide that service. So that's kind of how we're seeing it right now and obviously come to February, when we get back together. We'll give you a look at the full year for 2027.

Great. That's very helpful for how we should think about modeling the next quarter and into next year. My follow-up question is on your -- what you're seeing as sort of in the road ahead strength in your DTS with your sort of 3- to 5-year contracts. Other truckload dedicated carriers have been seeing a ramp in their renewal rates for their contracts at the beginning of the year, kind of starting point at up low single digits to now. Many of them are seeing high single digit, low double digit. Are you -- can you say that you're seeing kind of a similar upward trend or better or worse? And so this will signify kind of more benefit come in '27 and '28?

Yes, we're different. So we're not in that truckload carrier or dedicated capacity space like some of the competitors you alluded to. Most of our business is Specialized Dedicated, which is highly engineered solutions with specialized handling from our drivers in providing that service. So I'd say they behave a little bit different from a pricing perspective, because you are not trading price for service per se, we've committed to a level of service that they expect. What you should expect is continued discipline from us on pricing and as wages and inflation continues to tick up, we do have the measures -- structurally in our contract. That gives us the benefit to be able to recoupe those. We'll continue to signed good business because there's good activity in the marketplace. And as capacity [indiscernible], we should be able to take advantage of those opportunities as the market develops here. So hopefully, that gives you a little bit of color on how we see Dedicated progress.

Your next question is a follow-up from Scott Group with Wolfe Research.

I appreciate it. Just a couple of things. How are we thinking about impact of higher rates and, I don't know, buy versus lease decisions, return targets, all that sort of stuff?

When you talk about return targets, Scott, you're talking about returns on the overall business?

Yes, does higher rates impact your ability to return targets and things like that? Interest rates?

Yes. So look, for us, we continue to see that we're on pace of hitting our return targets, right, just to reiterate because I think it's important. We're in the early part of the cycle, our return on equities in that 18% to 19% level, based on what we're seeing in the marketplace and some of the inflection points we discussed around that Fleet Management business, we're going to move closer to our long-term target of low 20s over the cycle. So we expect a progression there as some of that $250 million gets realized. We are staying disciplined around our pricing, both on the Lease side. You saw Rental pricing improved sequentially in the quarter. We would expect pricing and Rental to continue to strengthen, which can provide potentially upside opportunities on some of those returns over the cycle.

And as you just heard from myself on Dedicated, we continue to see good activity there. Obviously, capacity is tight -- there is opportunity for us to get some good rates, while capacity remains tight. And I would expect both supply chain and dedicated to continue to perform at their high single-digit target.

Okay. Helpful. And then just last thing, if I can. How are -- what's the impact of this still EPA uncertainty. Like are you -- your customers like heading in to be placing orders for '27 now? Does this impact you? Just any thoughts on the EPA?

What we are seeing, I will tell you, I think we called it out. We didn't see kind of this pre-buy surge activity with the change in the technology. But I do think Tom has some color on what we are seeing is price increases in the marketplace, which customers are feeling the impact of that, and we're helping them navigate through the increased pricing in the marketplace going into next year.

Yes. I think it's pretty well understood at this point that price increases are coming in 2027. And despite that, there was not any significant prebuy activity. Some customers took advantage of it. But certainly, not to any large extent. The nonperformance penalties -- nonconformance penalties or NCPs are clear to the marketplace at this point. So they kind of know where -- what pricing will look like and what type of increases they're looking at. The only thing that's me unclear is what happens after the nonconformance penalties and the engine manufacturers put out their new technology engines. That's certainly not clear, to the market. We probably won't know that until some point mid next year. We do have those conversations with our customers on a consistent basis and the message is generally back now because pricing is increasing. And I think that's well understood in the marketplace.

Your next question is a follow-up from Brian Ossenbeck with JPMorgan.

Just a real quick one here. With the sequential pricing up, I think it's 15% tractors and like mid-single digits for trucks. Is that on a like-for-like basis? I know you're talking about shifting the channel around a little bit. Sometimes there's some vintage movement there as well. I just wanted to see how clean of a read that is for the overall market?

Yes. Brian, thank you for the question. There is a little bit of noise there. I would say, look, on the tractor side, you're getting a benefit of a shift in retail mix there. As we've gone lighter on inventory, we were able to take advantage of that and sell more to our retail channel. So you are seeing that 19% be a little bit wind-aided by our retail mix activity in the quarter. Generally speaking, I would say we continue to see pricing on a like-for-like basis, continue to improve across all the asset classes. So that's really the underpinning performance of the overall market.

Okay. Any way to quantify roughly the the wind assistance or the [indiscernible] we should put on that? Or is it too difficult to tell?

No, I would say, look, I think absent the retail wholesale mix shift, it will probably be high to low double digits on the tractor side. So it benefited by -- it's about 700 basis points that it benefited from.

There are no further questions at this time. I'd like to turn the call back over to Mr. John Diez for any closing remarks.

Yes. Thank you, everyone. I appreciate taking an interest in Ryder and look forward to seeing you out on the road. Take care now.

This concludes today's conference call. You may now disconnect.

Fantastic. Let's keep it going here, but also change gears a little bit. And very happy to welcome back to Laguna again, Ryder and very happy to have EVP and CFO, Cristina Gallo-Aquino. Thank you so much for being here.

All right. Thank you for having me.

So plenty to talk about, given your diversification, given all your segments and kind of obviously, a lot of the tech trends as well. But maybe let's just start at a high level kind of when you look across the business right now and look at the cycle, which obviously has been a big topic of discussion here at this conference so far. How do you see things?

Yes. Well, we've done a lot to transform our business, as you said. And we've had 7 consecutive quarters of earnings growth. And really, we've done that by consistent execution on our balanced growth strategy, which we've been talking about for quite a few years. And it's great to see now how that strategy has demonstrated that we have a very resilient business model that has been able to perform well during the last few years of this freight downturn. So what we've done is really what we've created a structural change in the business. And we think it's provided the right foundation, a solid foundation with good quality contracts that's really going to lead us into the next phase of this market and the recovery when it comes. We've all been anxiously awaiting.

But we've done that by derisking the model. We've done that by enhancing the returns and the cash flows of the business, and by shifting the mix of the business to be more of an asset-light business model. And those 3 things have resulted in what we've seen here over the last few years with our earnings growth and being able to weather the downturn and still generate 18% return on equity for our business portfolio. So we're really excited about what it's done. But we're more excited about what's to come, right, and what's next. And really, we're just waiting for that -- the growth in the business with the market returning as well as getting some of the transactional businesses to generate earnings the way that they used to.

Our focus really right now is on executing relentlessly is what we're focused on. We're focused on innovating and investing in growth and then obviously growing the contractual parts of the business. So we're going to do that through operational excellence with all the capabilities that we've added to our business model with all the acquisitions on the supply chain side. We have a nice suite of end-to-end capabilities to offer our customers to fit any transportation or logistics need that they may have. We are investing in technology to innovate, to be customer-focused technology and making sure that our customers have proactive -- ability to proactively look at their supply chains and really gain a competitive advantage in the market and then growing that contractual business.

So we have put out there that we think with the market recovering, we expect to have at least $250 million of additional earnings from the transactional parts of the business. That's primarily going to be on the used truck sales side as well as the rental demand coming back. But the other piece is just growing the contractual parts of the business with our high-quality portfolio, that contractual business is really going to be the key to just compounding earnings growth year after year.

Got it. Your reinvention is obviously well documented. The stock market has absolutely rewarded you for that. We can argue not enough, and there's a lot more to come. But how would you characterize elements of that reinvention in terms of being more defensive in a downturn versus allowing you to play more offense in an upturn?

Yes. No. I mean, like I said, I think that this is a structural change that we've made, right? And we've created that discipline within the organization. And as long as we stick to that discipline, we are doing business with the customers that we want to do business that are going to be partners with us throughout any cycle. And it's really allowed us to do well during the downturn. I would say, prior to the transformation, we had customers that would not have survived this downturn, and we would have suffered as a result of it.

But by choosing to do business with the right customers at the right returns, it's created just such a solid foundation that we're able to weather any storm. And we think now as long as we stick to that discipline as we grow and the market comes back, we're going to benefit from all of it.

Very good. So let's talk about that. You raised the low end of your full year 2026 EPS guidance to $14.40 from $14.05, to your point, reflecting improved outlook for used vehicle sales gains as well. What is giving you that confidence in the back half? Is it everything you're seeing on the tightening side of the TL cycle? Or is it more idiosyncratic to you?

Yes. No, I think what caused us to raise our guidance is what we're seeing in the market, but it is principally tied to the used truck market. And in the second quarter, we've seen a second consecutive quarter of sequential mid-single-digit growth in used vehicle pricing. We do believe that there are many drivers in the market that are causing used vehicle proceeds to benefit. You talk about capacity has definitely exited the market, right? So the tightening of the equipment has been a key driver. The fact that new equipment is going to be -- have a significant price increase is going to drive people to used vehicles as well as just what's happening with spot rates in the market.

So I think all 3 of those things coming together, especially the excess capacity leaving the market. We're finally seeing replacement level, like OEM builds at replacement levels, right? It had been at least 3 years since we had seen that. So all those are driving used vehicles, and that's what caused us to raise the bottom end of the range for the balance of the year. We're still not seeing it on the rental side in some of the other areas, I would say, in the second quarter, we saw seasonal trends in rental demand. We're not expecting anything more than seasonal trends in rental for the balance of the year. So that's what gives us pause to want to raise it anymore, right, or to raise the top end. I think we're just not seeing any big push in demand.

Got it. Let's spend a little time on almost a one-on-one type discussion because, the advantage of your business is that it's very diversified, but you also have many parts of the business. And there's also a really unique, some would say, weird cycle, just given how strong it already is almost entirely driven by the supply side and demand side hasn't shown up yet. So if this is entirely a supply side-driven cycle, what parts of the business will do really well? Is it that the rental side is not picking up yet because the demand side hasn't shown up yet? And kind of is that a leading indicator? Can you just talk about kind of different moving parts if this is supply-driven versus demand driven?

Right. So I think it's exactly what you said, right? Rental is the side that is not going to benefit if this is just a supply-driven economy, which is why what we have done is really control the things that we can control. And on that end, it's the size of our fleet. We've always mentioned that our target utilization is to be in the mid-70s. We finally got there in the second quarter, but we've done that by defleeting the rental fleet. So our rental fleet is 20% lower than it was even pre-COVID levels. So there's been a significant shift in that fleet size, that luckily for us, we can just adjust as we see the demand coming back, we're ready to make that investment in the fleet.

We also -- even before that, we're operating at mid-70s. We have the potential to operate even into the high 70s if needed. We saw that during COVID, we got up to 80% utilization in rental. So we're able to capture the demand immediately and at the same time, determine whether we're going to make the decision to invest in the rental fleet. So we're monitoring that very closely down to a detailed level of geographies, type of vehicle, what have you, so that as soon as we start to see that demand increase, we're going to make the investment on the rental fleet. So that's where we're not going to see it because it's a supply side recovery. But where we are seeing it is on the dedicated side.

So many drivers in the market right now are pointing to the benefit of our dedicated solution. So one, you have tightness in driver capacity. right? We know we've seen what's been happening there. And so that's benefiting us. The fact that new equipment costs just continue to rise and now insurance costs, right? So the 3 -- those 3 things are just a very strong elements of wanting to outsource and moving to a dedicated solution. And we are starting to see that in our pipeline. So our pipeline is the strongest that it's ever been. We're seeing customers that maybe over the last few years went away from dedicated because there was a cheaper for-hire solution are now coming back to us because they're looking for that dedicated capacity again. So we are definitely benefiting from those dynamics in the market and think that, that's really going to benefit our dedicated growth probably in 2027 and forward.

Got it. I think one of the big talking points of this conference has been the Montgomery ruling, which maybe -- again, it's been in the works for a long time, but I think still took the industry a little bit by surprise. Obviously, kind of for the drivers that you employ versus the folks who are using either rental fleets or dedicated fleets, how is that ruling in particular, having an influence on either your cost of operations as well as the demand for your...

Yes. So the Montgomery ruling does not really impact us. It's actually a benefit because it's driving people to our dedicated product. But the Montgomery ruling impacts more brokerage type business, which we have a small piece of. But we go through a very intense carrier vetting process. And again, it's a small part of the business, 3% of our business is brokerage. So really, what it's doing is driving people to a dedicated option. And from an insurance cost for us, we're already insuring ourselves as is under a commercial auto liability program. So whereas brokers have a different type of insurance program, and that's where they're seeing rising costs.

So we're not seeing the rising costs so much on our end other than from just general insurance inflation and what have you. But what it is doing is pushing people to a dedicated solution because we're hiring the drivers. We have a very strong recruitment process. We have very strict safety standards, right? We're top rated on the safety side. And our safety practices are top notch. We have inward and outward-facing cameras on our vehicles. We monitor safety progress. And -- but we are seeing rising insurance costs. It's just a matter of -- they're not going to rise as much as they are for other people. And ultimately, that's going to make it a better proposition for them to come to a business like us.

Got it. You referenced cost of trucks in your earlier remarks as well. Obviously, EPA 27 is also something that people thought was in the bag and then has surprised people. How is that having an influence on demand for your trucks?

On the what?

On demand for your trucks, how is the fact that it's now going to be a lot more expensive to renew a fleet pushing people to maybe renting or leasing trucks.

Yes. No, absolutely. So I mean, number one, it's pushing people to the used vehicle side. That's why we're seeing an increase in used vehicle prices. But for our lease customers, it's absolutely creating the opportunity to tell them, okay, if you don't renew now or you don't start making decisions, which has really been the challenge on the lease side is our lease customers have just been hesitant to finally make the commitment to either sign up, whether it's a new customer or just renew their fleet. They've been holding on as long as they can, but it's kind of getting to the point right now that if they don't renew and they don't make a decision soon, they're going to be hit with a higher cost.

And we have some insight on to what that may be. So as we have those discussions with our lease customers, we are starting to see decisions being made finally, right? And I think during our second quarter earnings call, we also mentioned that we finally hit that turning point where lease customers are making decisions. I believe the technology, the increase in new technology is what's causing some of that.

Got it. How much visibility or kind of, again, just forward look do you have on that pipeline? Again, I'm sure it's going to be different by business. But again, just given the length of the contracts or just the kind of customers who are kind of use you as a capacity provider and so they know what is to come, do you guys have a forward look into what demand is going to look like?

Well, for our lease customers, it's all contractual. And so we know exactly when the renewals are coming. The other part of our lease business is when our lease customers have supplemental needs, they will rent from us, okay? And so we have not had a lot of that business in a long time because they've been, if anything, excess -- they've had excess capacity and haven't had the need for rental. So really, it goes through a phase. First, they're going to turn to our rental and then they will convert into a lease, a longer-term lease. We're starting to see some of that. But again, it's similar to rental, right. Until the demand, we're not going to see a lot of it. It's more just customers making a decision to renew the fleet because it's gotten to an age that they can't continue to run it.

So -- but we do have visibility, you could say about 1/7 of our fleet renews every year. And so we know exactly which customers are coming up for renewal, and we're obviously talking to all the ones that are coming up in the next 12 months because with the higher equipment costs, we're going to need to let them know what they're faced with next year. So they either got to make a decision now or just pay that price later on.

On the supply chain and Dedicated side, it's more of the pipeline and the pipeline is -- doesn't go too far out. It's a 6- to 12-month trajectory. But really, that pipeline on the supply chain side, if you think about it, even with visibility into those needs, by the time we win a customer, it still takes about another 6 to 9 months to start them up. Luckily, we've been saying since last year, supply chain has had a very strong sales year, and we've been starting up a lot of those new operations this year, albeit right now a little slower than we expected. We also mentioned that where the ramp-up is taking longer or they've actually pushed back the start dates just based on their own internal capital priorities. But that's the visibility we have there.

And then on the dedicated side, I would say it's similar to lease. Our dedicated contracts are typically 3 to 5 years. So we know exactly what's renewing. We're already talking to those customers so that we understand their needs. But like I said, the dedicated pipeline is strong, and it's not just new customers that are coming in, but even our existing customers are asking for expansion of their fleets. So we're really excited about what we're seeing there.

Got it. Let's unpack SCS a little bit more because I think over time, this is probably the business of yours that has the best structural growth opportunity. Do you feel like that pushout of volumes is purely cyclical? Do you feel like some of these companies are completely kind of structurally reevaluating their supply chain as a whole given changes in the geopolitical environment? How do you see that playing out?

Right. So interesting question. I would say the ones that have already committed to a new contract, it's just that their volumes have not materialized the way that they expected. So I think it's also economy-driven, just they're not seeing -- their volumes are not materializing. And so that's why it's been a slower ramp-up than expected. I think the ones that haven't made a decision are still debating whether outsourcing is the right solution, what do they want to do? It's a little harder sell on just the new customers that we're trying to convert and convince them that the solution that we're proposing is the right one for them. It's a big investment, and it takes a lot, and it disrupts any time you're transitioning from one way of doing business to another, right? So we got to make sure that everyone is fully on board and understands what it means.

Understood. And I think you guys have a little more automotive exposure here, kind of any signs of life there? I think one of our takeaways from yesterday was that on the one hand, people are surprised that SAAR is as high as it is. On the other hand, they're like surprised is not lower. So any visibility on kind of how that business is going?

I mean, so for us, it's specific to the customers that we serve. And we've been talking a couple of things there. A lot of the customers that we serve have been in the process of retooling their existing plants. And so there's been a little bit more than usual shutdowns on the automotive side, which has created some volume pressure year-over-year. In addition to that, we also specifically mentioned that there was one automotive customer that we lost in the fourth quarter of last year that we've been having some of that year-over-year headwind in our business. So we will lap that here after the third quarter and the fourth quarter will finally be an apples-to-apples comparison. But the last estimate I had on SAAR was it was going to be flat for the year. I would say flat is kind of what -- that's what we've been seeing.

Yes. Okay. Just to go back to Dedicated for a second because, again, another topic of discussion in this conference has been whether Dedicated is just going to be a structurally better business going forward, just given that it's been again, for 4 up cycles now, we've been saying we're never going to see an up cycle this strong ever again and the next one is still -- is bigger and kind of more disruptive. And one way to control your -- again, control your costs and manage revenues is to, a, outsource your operations or your fleet to someone who knows what they're doing; and b, sign a long-term contract to do that, right? So does it feel like the pipeline and the momentum behind Dedicated is like the strongest you've ever seen? Or do you think there's still room for that to build?

I think there's still room for it. I think we're in the early parts of it. I think there's been a lot of developments even in the last few months on just market dynamics that continue to push more for favorable economics to outsource and all that. So I think those conversations are just starting to happen internally at some of these companies, and our salespeople are out there as best they can to be touting what we can do for them and why it's going to take risk off the table because whether it's difficulty in finding a driver or your insurance costs are rising to a level that you can't or you've got new technology that you're not going to know how to maintain next year. All those things are going to drive them to come to us. And I think it's just a matter of time. So I think we have seen it as robust as possible in the last few years, but I think there's still more to come.

Great. Let's shift gears a little bit. Obviously, we spent a lot of time on the segments and the topline here, but also you referenced the strategic initiatives, the $250 million kind of so you remain on track to deliver $70 million this year, completing the $170 million program. Next cycle peak, you're targeting $250 million. Remind us again kind of what the buckets are, how much of this kind of you have very high visibility to? How much of this needs a cycle for you to deliver and kind of what that cost opportunity looks like?

Yes. Okay. So first on the $170 million, which is just the underlying initiatives specific to Ryder, those we feel very confident in being able to deliver that by the end of this year. Those are related to our pricing initiative on the lease side as well as cost savings on the maintenance side of the house. So those have been kind of just once we started this process 6 years ago and had the maintenance initiatives, we just created a well-oiled machine that part of the organization just knows how to do it, how to do it well, and they have a continuous improvement mindset. So every year, they're coming up with new initiatives. And so even though we're hitting the end of that initiative for this year, I wouldn't doubt that there will be more to come as we continue to ask that organization for more.

But on the $250 million, which is the part tied to the cycle, as I mentioned, $20 million, we expect to come this year, simply from the UVS used vehicle sales proceeds being higher. But the majority of that $250 million is tied to rental, and then to used vehicle sales, right? So I would say rental is the predominance of that with used vehicles being the second part. As I mentioned, our rental fleet is at an all-time low. So in order to achieve that $250 million, we're going to need to make an investment in the rental fleet. We're down about 10,000 units from prior to COVID. So it's a pretty significant investment that we would need to make over the next few years, probably at least 12, 18 months. And we can still get some of the $250 million simply from our utilization being at a higher rate. But that's not going to be ideal. The ideal would be to invest in that rental fleet and capture that new demand.

Got it. Just going back to your Montgomery response kind of you said, hey, no real impact on apart from the general inflation in insurance inflation that the industry has seen. Obviously, this is an industry-wide problem, like we've written big reports on this together with our insurance analysts. Is there anything you guys can do? Or is it just kind of, hey, that's the way the industry is going and kind of you just have to price for it and pass that through?

Yes. Well, I mean, I think other than lobbying efforts, which are...

[Indiscernible] come up this conference, but good luck with that.

It would be needed, but right, we won't count on that, but I do -- we do have our efforts out there because just some of the things that are happening are really unimaginable, right? But other than that, we just focus on our safety standards, right, and making sure that we are -- safety has always been culturally for us, #1. And so we start every meeting with a safety message. I mean that's how much it is ingrained into the culture at Ryder.

We monitor our safety metrics constantly, so making sure that for our drivers, and it's really for our drivers that is top of mind and that they -- we train them, they go through their practices. We have a process where if we have multiple incidents from a driver, there's consequences. So we have great practices in that area, and I think that's the way we're going to be able to control it. But it's a tough one. And like I said, I think it is industry-wide. But as long as we can keep ours as low as possible, then we're going to be better than the person next to us.

Sounds good. Speaking of safety, I didn't want to shift gears and spend some time talking about autonomous trucks. A, I've been asking everybody about it. It's been a big theme of the conference, partly because I've been asking people about it. But also because kind of I hear that it's coming up in a lot of the investor meetings, kind of I'm sure you guys have seen that as well.

And also because you are, I would consider a leader in the space, even though you're not an OEM, you're an autonomous technology company, I think you have probably more partnerships and more stakeholders across this universe than anybody else, right? So I know that technology is something that you guys spend a lot of time on. So -- what is the current house view on autonomous trucking, what works well, what still needs work? And kind of what role do you think that you guys can play in that ecosystem?

Yes. Yes. There's a lot going on there. I would say, in the last year, we've seen a lot of development advancements in the developments of the AV technology. We are keeping a very close eye on it. Mostly, we want to make sure we understand how the technology is evolving. We want to know how it's going to be commercialized and ultimately, what value it's going to add to our customers. That's the priority. So in order to keep our finger on the pulse here, we have partnered up with OEMs like Daimler and International Motors, and we've also partnered up with AV technology companies like Aurora, Gatik and Kodiak to pilot their technology.

And we have seen success, but in limited applications, right? It's not fully -- it's not going to be an end-to-end solution at least not yet. What we're seeing is pockets of success. And basically there, we've tested it in yard management, in over the road. And so we're seeing pockets of benefits. To me, I think it's still a few years out. I think that we need to understand what the regulatory environment is going to be. That's a big question, and there isn't a national framework for AV. So that's important. I think the other one is OEM readiness. Right now, everything is being retrofitted into a vehicle, but it's not necessarily being manufactured that way. And so what do those economics look like and what does that mean?

And then the liability side, right? So we've been talking a lot about insurance and what does it mean? Who's going to be liable for this. So until we have those questions answered and understand what those economics look like, I think it's going to take some time. That's why I think we're still a few years out. But when it does come around or we are going to be ready to be part of that ecosystem, as you referred to it. In FMS, in our leasing division, we are going to be able to provide maintenance on this equipment, just like we provide maintenance on our regular ICE vehicles today. The solution will be not only maintenance on the underlying base equipment, but also maintenance on the technology itself. Right now, that maintenance is being done by the technology provider, but over time, it's probably -- it's going to be outsourced. And then that vehicle, that AVV autonomous vehicle is going to be just like our vehicles today. We're going to be able to lease, rent, provide maintenance and all of our ancillary services to it like fueling and washing and everything else. So that's on the leasing side.

One thing to keep in mind is our FMS network has over 800 shops across the United States. Our supply chain, we have 100 million square feet of warehouses across the U.S. These vehicles are going to need hubs to transition. We could be a provider of that, right? We have the footprint to be able to provide that service should it be needed. So I think that's another avenue that we have top of mind. On the supply chain side, I will tell you that if we end up adopting AV and go down this route, no matter where you are, it's going to disrupt supply chains. And we are here to redesign our -- either our existing customers or new customers that now need to think of a whole new supply chain infrastructure. So I think we can benefit from that as well.

And then on the Dedicated side, I think there, as I mentioned, this is not end-to-end. I think there is still a first mile, last mile that's going to have to be done by Dedicated. The other thing, too, is the Dedicated business that we provide, about 70% of it is specialized Dedicated, which requires some type of handling of the load by a human, right? So I'm not sure how it's going to work, and I think those are things that still need to be figured out. But I think we're going to be there to help in that process, and we're ready wherever we are in that journey.

Got it. That was incredibly comprehensive and detailed response. Just a couple of follow-ups there. It's very logical to see you with your service footprint, with your real estate footprint playing a part kind of, again, in that ecosystem, if you will. Have you guys gone so far as to think of how will this practically work? How do we build for this? What does that revenue look like? You don't have to share it with us right now. But has that math happened? Kind of have you thought about that this point?

It has not. No, we have not gone that far. I think some of the things I mentioned, which is just what is the cost of all of this is still to be determined, right? And until we understand that, I don't know, we have not come up with what that means. And ultimately, we're going to do whatever our customers want, right? As you said, we're not manufacturing this. We're here to serve our customers. And if our customers see the economics and the benefits of doing it, then we're going to be there for them to help them. We are agnostic to the technology, whether it's EV, AV or any other type. if our customers see the benefit and the need for it, we're going to be there for them.

Got it. We just published this kind of big report on autonomous trucking last week. You were very helpful with giving us a bunch of data for that report. And one of the conclusions of that report was just kind of raising the point of are the 4 stakeholders involved, which is the autonomous trucking companies, the OEMs, the fleet operators and the shippers. Are these 4 stakeholders talking to each other, kind of are they kind of addressing each other's concerns?

The questions you raised are very, very valid, very relevant questions, but I would say also somewhat basic. So are you having these conversations with the OEMs? Are you telling them, hey, we don't know what the unit economics are like. We don't know if you still need humans at both ends? Or obviously, you're working with Aurora, you're working with Kodiak. Are you telling them about these things and kind of what does that dialogue look like?

Yes, that's exactly the purpose of the pilot, right? So we're there for them so that we can `provide the feedback. We're introducing these vehicles into certain applications, testing it out and providing continuous loop of feedback to say, this is what's working, this is what's not. So companies like Aurora, Kodiak and Gatik, those are all companies that we've actually made some investment in also as part of our Ryder Ventures fund. And so we have a stake in it as well, right? And so their success is our success, and we want to make sure that they're getting all the feedback. That's the point of the pilot. So yes, there is that continuous loop. Is it comprehensive? Is everybody at the table at the same time? No, probably not. It's just some of us, but those conversations are happening.

I think if anyone can get everybody at the table, it's probably you guys just given that you have your fingers in kind of all of these pies here. Last question for me on this topic. Again, you addressed kind of what this means for every segment. Is there additional opportunities beyond stuff you're doing right now? Obviously, some of these trucks will need like Rangers to get out of them if they are stranded on the highway. There's talk of doing intermodal for the road and kind of drayage at both ends and kind of using service points -- there's talk of having drivers kind of doing load, unload at facilities. There's talk of people potentially having to refuel these trucks kind of at the fuel stations kind of are there other services beyond the ones you offer right now that you think you can offer in autonomous world?

I mean nothing that we have talked about that you haven't already mentioned. We're looking to complement our existing services. So if our service or our footprint can help in any way, we're there. But I'm sure just as you -- as with any change in technology and anything else, there will be things that come up that we haven't even thought about yet. And we're, again, part of the pilot. These are all the discussions that are happening behind the scenes to make sure that we have our finger on the pulse, and we know exactly what is changing and how we can be there to support it.

Understood. Super helpful. Any questions from the audience?

You talked a little bit at the beginning of the remarks about your discipline on choosing customers who will be with you in an up cycle or a down cycle. With a potential up cycle coming, are you at a higher starting point because that's been a focus of yours over the past few years? Should I think about maybe more tempered volume growth because of that discipline that you've already had in place? Any thoughts on how that looks in an up cycle? And then also curious about your capital deployment plans. Obviously, you have a lot of flexible capital. How are you thinking about M&A, shareholder returns, investing back in the business with that?

Okay. Yes. So yes, the growth will be tempered. And I think what we've said even when we started on this journey, we said that growth of 2,000 to 4,000 vehicles a year on the lease side is what we would expect with this level of returns that we're expecting from our customers. Prior to the transformation, we were growing 10,000 units a year, right? So we're not going to be at those levels. We're going to choose our growth wisely with the customers that we want. So yes, it will. But that will be in line with our targets that are set in our FMS business of being mid-single-digit growth. right, on 1%. So that's the first question.

On the second one, your question was. Capital allocation. Okay. So on the capital side, yes, our priorities with our outlook for the next 3 years, we're expecting to have about $13 billion of capital to allocate to the business. $9.5 billion of that is going to go just for the replacement of existing leases as well as dividend, right? So our dividend policy will stay intact, which leaves about $4.5 billion of discretionary spend. Our priorities there are going to be, first and foremost, to grow organically. I've mentioned how there's a lot of potential here to grow organically. When we mentioned the $250 million coming back, that doesn't include growth in our contractual business base.

And so growing that business base at our targeted margins and our targeted growth rates is going to provide us annual earnings of at least $50 million, which will compound every year, right? That's $50 million every year. So organic growth, that organic growth will also include the investment we need to make in the rental fleet because it's so small right now.

The second priority is going to be acquisitions. So we've done a lot already to grow our capabilities in supply chain. I think we have expanded into the areas that we want to. So any new opportunities that we're looking into are going to be more to expand our existing capabilities, just grow them -- I'm sorry, not expand, to grow the existing capabilities that we have. We're looking for well-run companies. We don't want the fixer-uppers. We want the ones that are well run that are going to complement our existing business. Tuck-ins like we did with Cardinal or anything on the leasing side would be the ideal sweet spot for us. We had a lot of synergies that we recognized from those acquisitions, and those are the ones that benefit us the most.

We're also looking at expanding the health care vertical in supply chain. It's another one that we've been expanding right now organically. But to the extent that there's an acquisition out there that makes sense, we'd want that. And then if there is no organic growth and no acquisition opportunities, we're going to do buybacks, right? Our business right now is naturally delevering because of the solid contractual base that we have, we're generating a significant amount of cash. And so it's causing our business to delever. Our target leverage is 2.5 to 3x. So that provides us all this opportunity that I just spoke about.

Got it. I know we're out of time, but just very quickly to bring us home here. Going to my previous comment, the good news about Ryder is that the markets kind of recognized all the changes you've made. Stock has been at an all-time high for a long time now, but you're still one of the cheapest stocks in our coverage universe, which is the opportunity, right? So if you could address the investors kind of what are people kind of not getting about the story and kind of how do we drive that multiple rerating forward?

Yes. I think it's the potential that we have to grow when the market does come back, right? So we're performing at this level at an 18% ROE in a down market, right? Not many companies can say that, and we've been growing our earnings every quarter. So there's still a lot of growth to come from the transactional, but it's really this contractual business growth that I think is the part that's being missed, and it's a significant amount of the earnings potential of us -- of our company. So I think that's the piece that's missing.

We'll come with the cycle.

Yes.

Cristina, thank you so much for your time.

All right. Thank you. Thank you very much

Hi, everyone. Welcome to Deutsche Bank's Industrials Conference. We're in the afternoon session here. I think we're in the final inning. So very pleased to be joined by John Diez at the current moment, President and CEO of Ryder. John, thank you for being here and supporting us at this conference.

Thank you. Great to be here.

So maybe we can start with a few opening remarks by you, just giving us some insight on the current lay of the land as you see it, what the market looks like, how Ryder fits in, and we'll take it from there.

Sure. I'll give you a little bit of background and an introduction to Ryder. We're a $13 billion business. We're organized around 3 segments. We're in the outsourced transportation and logistics business. All of our business is B2B and 90% of it is contractual in nature. And it's organized around the 3 segments: Fleet management, which is our truck leasing and rental business. That accounts for about 40% of the portfolio. Then you've got our Supply Chain business, which is end-to-end supply chain logistics capabilities. Warehousing is the predominant service that we provide there, but we also provide transportation and integrated transportation and warehousing solutions to our customers.

And then our dedicated business is the smallest of the 3, just over 20% of the business, and that is where you elect to outsource your transportation. We do the delivery for our customers to their customers or if it's a middle mile solution to their distribution site. All 3 businesses operate in North America and we don't operate outside of North America. And then I think the big thing for Ryder to take stock of is we've gone through a transformation that began in 2019, 2020.

The transformation was aimed at doing three things. One was de-risk our lease portfolio. Second was to increase and enhance the margins of the business. And third, really diversify the business portfolio and accelerate the growth of our Supply Chain Dedicated business. Fast forward from 2019 to 2020, I think by and large, we're fairly complete with our transformation. If you look at our lease portfolio, we reduced the residual values. What that translated into was increased price to our customers. We had to reprice the lease portfolio. That's been very successful over that period of time.

If you look at our Supply Chain Dedicated business, that used to be 44% of our overall revenue base. Now it's 60% of our revenue base. So highly diversified business. Most important for us is cash flow from operations has improved 60%. Profitability has more than doubled over that period of time. And then if you look at kind of the earnings power of the business is substantially greater. And you can look at our return on equity metric, which we're looking at guiding 18% return on equity today in kind of just coming off the bottom of the cycle.

And in 2018, at the peak of the cycle, we were doing 13% return on equity. So that's a quick overview. As far as market conditions, I touched on it a little bit. We are seeing a freight recovery. It's a supply-driven freight recovery, which benefits parts of our business. What we haven't seen is kind of an acceleration in demand, but we are seeing that conditions are improving across the business. We see it in our sales activity in FMS, in our Supply Chain business. And then we are seeing used vehicle pricing. We started seeing in first quarter and second quarter, they're starting to go up and lifting from where they were a year ago. So that's a quick summary on Ryder and what we're seeing early in 2026.

Okay. Great overview. So maybe we can dig a bit more into the used equipment market in particular. I think you more than most I've spoken to today should be very well equipped to weigh in on that, just given, again, that the Truck Leasing business that you have, 40% of your operation. Just how it might be influenced by like the capacity and driver constraints in the industry. This is the used truck market. And how do you think it evolves? What does that mean for Ryder? What are you exactly seeing? You said the last 2 quarters, you've seen a nice little uptick. Talk to us about that.

Yes. So we started seeing improving conditions at the beginning of the year. Capacity has been taken out of the market, both from a regulation enforcement of that regulation as well as kind of non-domicile driver activity. And what you saw is the spot rate market started recovering late last year. And obviously, that is also a function of capacity being taken out.

UVS pricing, we saw sequential improvements from Q4 into the beginning of the year. Q1 was better than the prior year, slightly better. And then Q2 was certainly sequentially better than what we saw in Q1. Our expectations and what we've seen thus far this year is a 5% improvement on year-over-year pricing. We expect that to continue moving up. And then we would expect as market conditions continue to get tighter. Next year, we'll be in that double-digit range for year-over-year market improvement.

Okay. But it's a little bit of like a unique situation, right? Because if there's drivers that are being pushed out of the industry, effectively, there's maybe a glut of capacity that's like trucks that aren't being used by drivers. I mean, am I thinking through that correctly? Or what is it?

I think you have. I think we started seeing that last year, and a lot of that capacity has washed out. And now you're seeing the fact that the spot rate market has moved up. There's probably more attractive freight to move for over-the-road carriers, those that want to come back into the market, which have been sitting on the sidelines, and that's giving us a little bit of a lift in that used vehicle pricing environment. So even though some of the capacity have been taken out, that helped lift spot rates. And then with the spot rates moving up, you're seeing a little bit more demand come into the marketplace.

And talk about the value proposition right now used versus new, like what we're seeing in the new market, order trends, maybe new emission standards all that?

Yes. I'll take it one at a time. Clearly, we're anticipating used vehicle pricing to keep moving up in part because the new vehicle pricing environment is moving up as well. So we are expecting EPA regulations to take effect next year. That's going to move pricing up. We do expect that to be meaningful. It could be high single digits to low double-digit increases based on the latest information. What we have seen at the beginning of the year is Class 8 orders and activity has been moving up.

First quarter was weak, I would say, Q2 didn't move up meaningfully. I think that's a reflection of people looking to start taking advantage of what they're seeing in the freight environment and also anticipating some of that price increase going into next year. So we do see momentum across the board in both new sales activity as well as used vehicle activity.

And do you think some of the new sales activity is a reflection of like prebuy or anything like that? And what do you think replacement versus growth?

Yes. I think what we're seeing right now is predominantly replacement activity that had been deferred, where you had seen fleets and even ourselves, if you look at our fleet age profile, that has been aging out even further over the last 12 to 18 months. I think a lot of fleets had delayed making replacement decisions until they saw market activity starting to firm up a little bit. I think that's what you're seeing. If you look at the full year Class 8 numbers, I think we're still below replacement levels.

So we're catching up on that replacement level number. And then next year, I would anticipate that you are going to see overall fleet growth in this environment. So I think that maybe answers your earlier question. We're still at below replacement levels with the new activity, even though it's moving up. So the overall market is still taking capacity out of the market in 2026. But as you get into 2027, you may get to a more neutral or even in a growth mode depending on the strength of the orders.

Can you put some numbers around that? Like what do you think is replacement like normal replacement demand? What do you think -- if I see a number above x, it signifies like maybe more growth?

Yes. It's hard for me to quote because everyone does these a little bit different. I would tell you, I think right now, the last set of numbers I saw were about 5% to 10% below replacement levels. So if you see a move up 5% to 10% above that, you get back to replacement levels. And then from there, you should be at replacement levels, whether you're talking Class 8, whether you're talking Class 3 through 8, there's all different figures out there that I don't want to misquote. But that's kind of the order of magnitude, 5% to 10% below replacement levels for 2026.

And then obviously, if the order volume continues to move up, which it has been trending upward, I would expect that to crest that neutral point into 2027.

Yes. It's interesting, right? Like it seems like kind of a sanguine sort of outlook on potentially getting back to growth mode. But you and I were just talking on the side about some of the challenges that the industry is facing, right? Like from a cost perspective, things are getting much more expensive, inflation and then you have the regulatory landscape that's been changing. So talk about, I guess, feedback from some of the smaller carriers that work with you and their ability to grow. On one hand, we do see the spot market signaling like lots of good opportunities to capitalize on these strong rates. But on the other hand, again, like all these cost increases are probably not easy to stomach. So...

Yes. I think the big companies and the big customers we deal with are able to digest that better. I think the smaller players are looking for clarity in the marketplace and they're looking for some level of certainty around market conditions and the business environment. They're dealing with higher insurance costs. They're dealing with higher equipment costs. They're dealing with the uncertainty in the overall economic space. So for them to make a commitment on signing up for a long-term lease makes it that much more difficult.

So I think everyone is still looking for a little bit of clarity. The big players that have been delaying to replace their fleets. I think those are the ones that we're seeing are making decisions around replacing their fleet or growing their fleet as they see business conditions start to improve.

And given that clarity is tough to come by, so a lot of unknowns out there around what's going to happen, do you think that increases the value proposition of leasing?

I certainly think so. With regards to our value prop, not only -- I think the biggest thing for us is the costs keep going and rising for our customers. So if you're looking to operate your own transportation network and you're dealing with rising equipment costs, trying to find diesel mechanics to work on your trucks and then you've got insurance costs moving up. Certainly, our dedicated offering provides a great opportunity for us to grow. And even in our leasing business, we continue to see opportunities there where you take some of that risk off the table, you're not putting forth capital to invest in your own fleet.

Okay. All right. Very good. Moving to the supply chain solutions. You've done a good job of increasing your exposure to maybe more asset-light supply chain side. At the same time, this year, we also saw a lot of Amazon headlines wanting to get big in asset-light supply chain. Is that something that like competes with your business? You said warehousing is a big part of that. Like are you worried about Amazon being more of a formidable threat?

Well, we're aware of the Amazon announcements. What's exciting for us on supply chain is that is a business that -- most of that business is highly customized engineered solutions that are tailored to that one customer. So we're dealing with large Fortune 50 type companies that are looking to really us execute their supply chain on their behalf. When you look at that business, we've been growing that business organically over the last 5 years, double digits. It's a scalable business now. We just came out with the results. Our sales for the last 18 months are at record levels.

So we haven't seen a slowdown in the opportunities and the value we create in the marketplace. We do have -- as a part of our supply chain business, we do have an e-commerce fulfillment business, which that's where we would think an Amazon would come in and be an alternative to our customers. That's a much smaller piece supply chain business a customer could elect to do the fulfillment through us, but put that business through the Amazon network and have Amazon be the supply chain arm for them.

Most of the customers we serve there have elected thus far to do business with us as opposed to Amazon, but it's a very small portion of our supply chain portfolio overall. We haven't seen Amazon really show up in our space as of yet. But clearly, that's something that we'll keep an eye on.

How small of a piece do you think is that?

So it's about a $400 million business and supply chain overall now is closer to $5.5 billion, $6 billion. So that gives you an idea. It's just under 10% of the overall supply chain business.

Okay. That's helpful. All right. So let's consider maybe the broader dynamics in the spot market. I'm going to zoom out a little. I understand that a significant portion of your business. I think you said 90% is contractual, right? So I'm curious how quickly you can capitalize on the improving rate environment and substantial gains we've been hearing about. We've been hearing some estimates double-digit increases, pricing ever have that significant of an impact at Ryder or a stable business, so less volatile, but you will eventually see good solid increases. Just help us think through that?

Yes. Look, over time, there's always a trade-off between lower price and service as well as on the flip side now, as we're seeing is higher price relative to service. So as the spot rate market continues to move up, contract rates move up as well and dedicated benefits from that. These are 3-year contracts. So it does take time for some of that pricing to funnel into our dedicated contracts over time. We should benefit from that and we are seeing our sales so far this year have been tremendous on the dedicated side.

So a lot of folks are trading price for service now that they could get a much better service at a competitive price relative to the spot market. So we are going to continue to see growth in our business there. The pricing impact will not be as dramatic as what you see in the spot rate market, right? It's a gradual increase, as you highlighted, and it does take some time. Where we do see the impact of that is tangentially in our used vehicle sales activity.

So you are seeing kind of the early innings of a recovery of used vehicle sales with that spot rate market moving up, we have a lot more people buying into used equipment and getting started to participate in that market. And we should see continued healthy strong uplift in tractor used vehicle pricing.

Rental benefits a little bit, too, from that as people look to start a trucking operation, they may start first with a rental piece of equipment from us, get into the market, expand their business and then they'll look to sign off for a longer-term lease.

I see. I see. Can you just explain that bifurcation a little bit more, the rental versus the lease and how -- what portion of your business caters to either?

Yes. We operate and manage about 230,000 vehicles. 30,000 of those vehicles are in our commercial rental fleet. And many of our customers first began with no long-term commitment. They decide to just rent trucks on a short-term basis. As you see kind of these volatile conditions, typically, people will begin first with a rental truck to execute loads and execute freight against that. Then as the market strengthens over time and they get a lot more confident with their business and the volumes longer term, they'll sign up for a 5-year lease commitment with Ryder and that's typically the pattern we see in our customer profile. They'll start with rental, no commitment and then they'll go on to lease and then they'll go from lease into our dedicated solution.

So it's more like a gateway opportunity in the rental business. And given that there's not as much of a commitment aspect, I'm sure the pricing is more favorable.

Yes. The pricing in rental usually comes at a premium over lease for that reason, but it provides an adequate entry point, as you said, for fleet operators to begin operating.

Okay. And then you made this point about how you're seeing tremendous sales in your leasing division. I guess just talk about like what is driving that? I mean what's the feedback from your customers around that? What is the thing that's like -- is it just -- and is there more of like a private fleet aspect of that? Just give us a flavor for.

I think there's 2 components. So typically, the freight recovery happens through demand and we usually see it come through our commercial rental business. And then there's a 6-month lag, which takes effect and we see our fleet sales start moving up. This one is unique. I think it is a supply side recovery where you've seen capacity kind of taken out of the marketplace.

So what we are seeing is a lot of deferred replacement activity and customers and private fleets have been holding to replace their fleet. And now they're coming in and saying, okay, I need to replace my fleet.That's one.

Two, I do think private fleets are looking to -- in this spot rate environment, looking to grow their fleet. And if they could put more freight through their vehicles as opposed to using the for-hire carrier market for some of that excess freight capacity, I think they're bringing it in-house, and that's creating a little bit of opportunity for us as well.

Okay. And just you said that you're working through and striking contracts, albeit you're not going to see the same dramatic increase that we typically see. How far along are you in this process of touching some of the contracts to reflect kind of current conditions, albeit it's going to be more muted, but you are still going to see nice increases. How much of the book have you repriced?

Yes. So about 1/3 or just under 1/3 of the book gets repriced each year. And each time we're looking at reflective of market conditions, what's happening in the driver market. The driver market is starting to see signs of tightening capacity. We're signing on bonuses. We're paying more sign-on bonus than we were maybe 6 months ago. You are going to see follow-on effects, the knock-off effects is wage inflation in the driver side. We haven't seen that yet, but we do anticipate that to come. So all that gets factored into the economics as we reprice business. So you will see that continue to progress as that book of business comes up for replacement.

And what do you think of like the prospect for wage increases? Like we've heard from some of your peers that, yes, they will come eventually, it will happen, but it maybe won't be as significant as what we saw during the COVID?

Yes. I think COVID and I've seen 2 of these. In 2018, we had a pretty tight driver market. And then in 2022, obviously, and '21, we saw kind of the lid pop off the business. I don't think it will be as dramatic as what we saw in COVID just because the demand environment won't be at that kind of accelerated environment. But I think you will continue to see as drivers keep being taken out of the marketplace. You are going to see tighter capacity and wages will need to move up to attract people to come back and then become drivers in this country.

So I have found that, that kind of works itself out over time. But do I think it will be as dramatic as what we saw post-COVID? I don't think so, but you will see something similar to what we saw in 2018 without a doubt.

Okay. And do you share some of your peers' views that like we are still in the early innings of the supply correction?

Yes. Yes. We're kind of feeling the effects right now of this supply-driven recovery. What will be interesting to see what happens when demand comes back and how significant acceleration that is. And if it does come back with strength, then we may be caught with a capacity crunch, right? That's really -- but I don't anticipate that. If you think about market conditions, the industrial side on the demand side seems to be going strong. The consumer is kind of a mixed bag.

And then housing, which is the third leg here, Housing has been pretty weak for some time. The only way I would see that happening is if housing comes back strong, then you'll see kind of that demand acceleration. But I do think demand will continue to move up from here. It will just be, I think, a little bit more gradual than what we've seen in other cycles.

You anticipated my next question. Just can you color that maybe with some feedback you're getting from your customers? You're pretty well diversified, big in food and bev. Like what are your customers seeing? And how are they feeling about the current backdrop?

Right. So if you look -- we're very diversified. So we serve over 35,000 businesses in our rental business. We have 14,000 lease customers. So if you look across our end markets, I would say just over 1/3 or almost 40% is tied to the consumer, so food and beverage, retail, just under 1/3 is the industrial space. And then the other, I would say, 25% is all kinds of services.

Housing is in there, technology and health care. I would tell you, the consumer food and beverage has been down, especially the beverage side. If you look at beverage companies, they're seeing lower volumes, and that may be a function of GLP-1s and younger people not drinking as much, but we are seeing the impact there, food and beverage being down. Retail is a little bit of a mixed bag.

As I mentioned, there are some retailers that are doing quite well. So there are pockets in retail that continue to be strong. Industrial started moving up late last year. We saw manufacturing continue to be strong most of this year. So I do anticipate that will continue. And then the housing sector, which is a smaller part of our business has been down, and it has been down double digits when we compare demand on the rental side to last year. So I think that will continue and we're hopeful that maybe the demand on the consumer side starts picking up. Obviously, we're dealing with an energy inflationary environment right now. If that kind of subsides and we get back to normalized gas prices, I think you may see the consumer come back in and spend more money.

On the industrial side, if you could break that up a little bit, like data center exposure, do you have any of that? Or kind of what in the industrial, like we do -- we all see the ISM kind of improving, still nascent, it feels like. But yes, what sort of type of customers are seeing improvement?

So if you look at our industrial segment, 3 big broad brushes for using auto manufacturing in the U.S. Our supply chain business, a big portion of that is auto manufacturing over 20%. So we support that manufacturing activity. A lot of what we do even in dedicated and some of the support on the fleet management side is steel companies, and they're benefiting from the data center build-out. So they provide steel products that go out into those builds. So there is some exposure there.

You have the commercial builders, bricks guys, masonry guys that are participating in that. Those are kind of the big elements that we support. And then you've got like HVAC systems, which those folks are also benefiting from the data center element. So I would say, by and large, most of the industrials we serve is businesses that have been around for some time. And I would say probably a little bit of the growth we're seeing from them is coming from the data center build-out because the HVAC folks are benefiting from that. The steel folks are benefiting from that and some of the brick folks are also benefiting from the build-outs that we continue to see out there.

So it's a nice little undercurrent. Okay. Cool. So let's get back to some Ryder-specific stuff. So I think your transformation, you made a concerted effort to kind of get your business to 60% asset-light, the supply chain-driven stuff. But maybe focus on the trends facing that side of the business in particular, what differentiates you? And maybe give us some examples, right? You said like in automotive, a lot of that business, you do service through supply chain. Like what exactly are you doing?

Yes. So automotive, we provide end-to-end. So all the parts that are going into a manufacturing assembly plant in the U.S. We coordinate the transportation, and we execute some of those transportation moves all the way from Mexico into the U.S. manufacturing facilities. We stage that product in one of our warehouses, and then we feed the assembly line every day. And we do that for some great brands in the U.S. So that is a big part of what we do in automotive and that Mexico cross-border activity is a key component of what we do.

So we do a significant number of border crossings from Mexico into the U.S., and we continue to execute that very well. So that's an exciting piece of the business. We have seen significant growth in the retail space. So we continue to win with big retailers, big box retailers that are coming to us to provide them the -- to award us with their supply chain network. And we execute for all the big brands there that you can imagine. And what we do is we're behind the scenes.

So all the product that ends up in the stores we pick it, ship it and coordinate it to make sure that it arrives at the stores on time.

Got it.

It's a great question. The question was, can supply chain grow without margin erosion. We've been very proud. And in fact, I said it earlier today, we've grown that business 11% organically and 17% with the acquisitions. And we've actually maintained or improved the margin profile of the business. So that business is operating at our target level of high single-digit EBT as a percentage of revenue. And we've done that fairly consistent here over the last 5 years. So that's a great question.

We continue to see pricing discipline and execution against the design to be very, very, very effective. So we design a solution, we price it out and then we go out and execute it, and we've been very successful at executing to the design over time. Yes.

And who are your competitors? And is this like basically an outsource? Like is the customer itself kind of a competitor of yours like...

No. The customers are typically large shippers, right? So you're looking at large shippers like a Conagra is one of our customers. And GM is a customer on the automotive side that would look to outsource to us. Who do we compete with?

The big competitors for us is you look at folks like DHL, GXO and then in particular verticals in certain industries, you may see some other competitors come into the space. Penske is also a competitor in that space. So we compete with those folks. We manage over 100 million square feet today.

So we manage the second largest footprint as an outsourced logistics provider or warehouse space in the country. So continue to scale that business up. And now with our end-to-end solutions of port-to-door where we could deliver, help them with bringing in the product across the border or from Asia and deliver it all the way to the customer's home through either our e-commerce business or our final mile delivery business. We have the end-to-end solutions to help our customers.

And I guess what I meant by that is the customer competitor, there's this dynamic of like trying to convince them to outsource that operation to you. Do you feel like that's...

Yes. We actually feel our biggest competitor is always private. We call it private fleet. But in this case, it could be a private operator because they want control. They don't want to relinquish control. It's our job to convince them that we could do it better in a more cost-effective way than they can. One of the competitive advantages and the value prop that we serve is we're making investments in technology that serve the needs of our customers, and we make big investments in technology that they take advantage of where it becomes very costly if you individually are having to make those kind of investments in supply chain technology each and every time.

So we come to our customers now with sophisticated technology solutions that they could take advantage of that we've made that investment for.

Where are you in that journey in terms of automation and physical AI implementation in the warehouse?

Yes. I think we've come a long way. The last 5 years has been crazy. We've seen an acceleration there. I think 5 years ago, less than 20% of our warehouse space had some level of automation, now closer to 60% of our warehouse space have some form of automation. So we've seen that evolve. We've seen the economics also improve on the robotics and automation solutions that are available.

What we do for our customers is we test all kinds of solutions that we execute against. And if they work or if they don't create value for our customers, we're not going to offer up to them. But we can advise them on what works for this application or for a separate application. It all depends on order flow, whether it's high velocity, low velocity, if it's individual cartons or if it's pallet in, pallet out. So we see all the solutions that customers need, and we could tailor a solution that's going to create value for them.

Anyone else have any questions or can continue? All right.

Yes. So the question is, what is Ryder's mid-cycle earnings power?

Look, right now, as I opened up, our return on equity profile is sitting at 18%. Yes. Over the cycle, we think the business can perform in the low 20s. So at the peak of the cycle, we think the business can perform in the mid-20s or even a little bit closer to the high 20s. So clearly, the earnings profile of the business has been tremendous and has been elevated significantly. At this same point in 2018 at the height of that freight cycle, we would execute at 13%.

So a lot of improvement. Yes. Where are you, you think, in this transformation journey? Are you done? Do you still think that there's left to go?

Look, there's always more to be done. I would say that. But we're clearly in the late innings. We did a few things. The $100 million multiyear maintenance productivity initiative is behind us. We've outperformed that $100 million. So that means $100 million of cost savings each year are benefiting the shareholders. The lease portfolio repricing, we think this year will be close to the end, if not going into next year, we will be done. That also contributed over $125 million of benefits to the bottom line.

And then as you think about what we've done with the business and the diversification in Supply Chain and Dedicated, I think we're on our way. We're going to continue to grow those businesses at scale. But there's always more to be done with productivity. And if we could get more in the future from maintenance initiatives and some rationalization initiatives in supply chain, we'll do that, and we'll continue to push for that.

So the question is, our leverage is in a good place. Why not do more buybacks?

Our leverage, we do try to manage it between 250% and 300%. We do have a buyback that the Board has approved out there, and we're executing against it. We are expecting higher level of CapEx over the next 12 to 18 months as we invest in growing back our rental fleet. Our rental fleet is down 20% from the peak. With the freight market conditions continuing to improve, we would add fleet there.

Lease sales and dedicated sales continue to be strong. So I am going to be needing to spend capital to grow those businesses, which obviously are more of the capital-intensive businesses. But nevertheless, even with that profile, the balance sheet that we have still delevers even at negative free cash flow levels. So we'll continue to delever over time, which gives us opportunities to either invest in good acquisitions, which is our second priority behind organic growth or if not continue to do buybacks.

And I think to put numbers around that, you gave fleet growth target of 2,000 to 4,000. Is that right? Talk about potentially like what's it going to take? Is that all organic, first of all, yes?

That's all organic. Yes.

And yes, what's it going to take for you to execute that?

Yes, 2,000 to 4,000 is kind of our target of what we have for the lease fleet to grow over time. I think if you see an acceleration in demand, we may get above the 4,000. I would think next year, we're going to be in that range band. If things continue to improve, maybe the year after, we get above the range band, we'll see. I hope that's the case. We have no [indiscernible]. That's just kind of what we think the market and what we could execute. That's all on the premise that we're going to continue our pricing discipline of underwriting lease activity. So with that discipline, we think we can get to a 2,000 to 4,000 level over time.

Okay. And then you talked about technology within the -- maybe the supply chain solutions more. But what about more broadly speaking, it seems like you're a very technology-focused company. Like tell us what you're incorporating into the business? Where are you on that journey?

Yes. So a few key highlights there. We have our own proprietary technology that we continue to invest in. And then we have a Ryder Ventures fund, which we really utilize to figure out whether it's robotics and physical AI or other technology solutions that are coming into the market that we think we can leverage to create long-term value for our customers. We'll make small seed investments and start-up activities that are executing in that space.

On our proprietary technology, we've invested heavily in some of our solutions like RyderShare. RyderShare provides our customers visibility and control of their transportation and full visibility. We are adding AI capabilities there so that our customers get more real-time information and they could execute against that quicker and better than before.

Our fleet management customers have their own fleet management system, if you will, where they have full visibility to their fleet, status on their fleet, effectiveness of their fleet and which ones are being utilized, which assets are not being utilized and they could take action just the same.

So we continue to introduce AI to our proprietary solutions. On the warehouse side, we partner with a number of software providers and tailor those solutions to the needs of our customers, just the same. So we are seeing continued evolution of that. I think on the robotics side and the physical AI side, we continue to see an acceleration. I touched on that before. And we will continue to look at opportunities to make investments from a Ryder Ventures point of view in that space over time.

Okay. Excellent. I guess we're coming up on time, but any sort of closing thoughts as you speak to investors today, what differentiates you? I mean, going from -- you said improving your ROE by, what, 500 basis points cycle over cycle, seems like a pretty good value proposition. See at what could happen as you go from last mid-cycle to next mid-cycle. But yes, like what else?

Yes. Look, we're excited because the best hasn't been shown yet for our company and what the transformation looks like. With our port-to-door scale capabilities, we think we could serve the needs of the customers in North America, whatever they need from a supply chain point of view. And then for our shareholders, we would expect that the earnings power of the business and with some help from the marketplace, we're going to get to that low 20s ROE target, which not only is it ambitious, but I think it's unparalleled in our industry.

Great. Thank you.

Yes. Thank you.

Good morning, and welcome to the Ryder System Second Quarter 2026 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Ms. Calene Candela, Vice President, Investor Relations for Ryder. Ms. Candela, you may begin.

Thank you. Good morning, and welcome to Ryder's Second Quarter 2026 Earnings Conference Call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors.

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

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

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

Good morning, everyone, and thanks for joining us. The Ryder team delivered our seventh consecutive quarter of comparable EPS growth. Solid results were primarily driven by consistent execution on our strategic initiatives. Improving market conditions in used vehicle sales also contributed to our higher results.

I'll begin today's call by providing an update on our balanced growth strategy, and we'll then provide you with key highlights from our second quarter performance. Cristy will provide you with an overview of our segment performance and discuss our capital spending and capital deployment capacity. I'll then review our outlook for 2026. Let's begin with a strategic update.

Consistent execution of our balanced growth strategy has demonstrated the resiliency of our transform model and has enabled Ryder to outperform prior cycles. By executing on our strategy, the Ryder team built a solid foundation that reflects actions taken to de-risk the portfolio, enhance returns and cash flow and shift to less capital-intensive, more resilient business mix.

Building on this transform foundation, our strategic priorities remain focused on executing relentlessly, investing in the future and growing contractual customer relationships. These priorities are aimed at creating value for our customers as well as our shareholders.

Operational excellence is where we stand out and what enables us to leverage our full end-to-end capabilities to solve our customers' toughest logistics and transportation challenges. Investing in customer-centric innovation that enables a proactive supply chain gives our customers a competitive advantage.

In RyderShare and RyderGyde, we're embedding Agentic AI in order to enhance capabilities and drive the evolution of these proprietary platforms. We're also leveraging AI across the company, including FMS Customer Service and Roadside Assistance, where Agentic AI is enhancing the customer experience while improving effectiveness.

Additionally, we continue to deploy automation and robotics in our warehouses to drive operating efficiencies. We're focused on profitably growing our contractual relationships by increasing customer engagement across our portfolio of port-to-door solutions. Over 90% of our revenue is generated by long-term contracts. Our high-quality contractual base has proven to be a key driver of business model resilience over the cycle, and reflects the actions taken to de-risk the model and enhance returns.

Our transform model has delivered meaningful out-performance relative to prior cycles, demonstrating the effectiveness of our balanced growth strategy. Our three complementary business segments are leaders in North America logistics and transportation with secular trends that support further growth opportunities.

Finally, we're encouraged by the earnings power and resilient performance of our transform business model and believe that it positions us well to benefit from a cycle upturn.

Turning to Page 5. Key financial and operating metrics have improved since 2018, reflecting the execution of our strategy. In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from FMS. Ryder generated comparable EPS of $5.95 and return on equity of 13%. Operating cash flow was $1.7 billion. This was during peak freight cycle conditions. Now let's look at Ryder today.

Our revenue mix has shifted towards Supply Chain and Dedicated with approximately 60% of 2026 expected revenue generated by these asset-light businesses compared to 44% in 2018.

As a result of organic growth, strategic acquisitions and innovative technology. Our increased 2026 comparable EPS forecast range of $14.40 to $14.80 is more than double 2018 comparable EPS of $5.95. Our return on equity forecast of 18% is also well above the 13% generated during the 2018 cycle peak.

As a result of profitable growth in our Contractual Lease, Dedicated and Supply Chain businesses, forecasted operating cash flow of $2.7 billion is up $1 billion or approximately 60% from 2018.

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

Moving to key performance highlights from the second quarter. Comparable EPS for the quarter was up 12%, making it our seventh consecutive quarter of comparable EPS growth. Results reflect the strength of our contractual portfolio, benefits from strategic initiatives as well as improving market conditions in used vehicle sales.

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

And finally, we're encouraged to see continued momentum from improving freight cycle conditions. Contractual sales activity was strong across all three segments, reflecting customer confidence. We continue to see improved Fleet Management and Dedicated sales activity, which have been experiencing sales headwinds due to the extended freight downturn.

Supply Chain continued to generate strong sales activity with record sales in 2025 and year-to-date 2026, reflecting the value of our solutions. Used vehicle sales results were higher year-over-year and retail pricing improved sequentially for both trucks and tractors. Commercial rental utilization returned to target levels of 75%, driven by our planned asset management actions. That said, market conditions remain below normalized levels, and geopolitical and macroeconomic factors continue to influence the pace and durability of the recovery.

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

Thanks, John. Total company operating revenue of $2.7 billion in the second quarter increased 3% from prior year, reflecting contractual revenue growth in Supply Chain. Comparable earnings per share from continuing operations were $3.73 in the second quarter, up 12% from prior year, reflecting benefits from share repurchases and higher earnings in Fleet Management.

Return on equity, our primary financial metric, was 17%, in line with the prior year. Free cash flow increased to $684 million from $461 million in the prior year, reflecting reduced capital expenditures.

In Fleet Management Solutions, operating revenue increased, reflecting contractual revenue growth partially offset by lower rental demand. Earnings before taxes were $150 million, up 20% versus prior year, reflecting benefits from strategic initiatives on ChoiceLease results as well as strengthening used vehicle market conditions.

Used vehicle results reflect a year-over-year improvement and better-than-expected performance. In rental, utilization returned to our targeted level of 75% on a 15% smaller average fleet. Although demand remained below prior year levels and historical seasonal trends, it was the strongest sequential increase we've seen in 4 years.

Rental pricing was up 1% year-over-year. Fleet Management EBT as a percent of operating revenue was 11.5% in the second quarter, up from prior year, but below our long-term target of low teens over the cycle.

In used vehicle sales, year-over-year used tractor pricing increased 3% and truck pricing increased 6%. Year-over-year results benefited from a higher retail mix due to elevated wholesaling activity in the prior year to manage aged inventory.

In the second quarter, 56% of our sales volume went through our retail channel, up from 50% in the prior year and down from 61% in the first quarter. On a sequential basis, overall pricing was stable for both tractors and trucks, reflecting a lower retail sales mix.

However, retail pricing for trucks improved 7% and for tractors improved 3%. During the quarter, we sold 5,100 used vehicles up 500 units sequentially and down 1,100 units versus prior year, largely reflecting the prior year's elevated wholesaling activity.

Used vehicle inventory of 8,500 vehicles declined and is within our targeted inventory range. Used vehicle pricing remained above residual value estimates used for depreciation purposes. Slide 20 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information.

In Supply Chain, operating revenue increased 7%, driven by new business, partially offset by lost business in automotive. Earnings before taxes decreased 7% from prior year due to lower automotive results and to a lesser extent, productivity of new business ramping up, partially offset by benefits from the optimization of our omnichannel retail network.

Year-over-year comparisons were challenging in Supply Chain due to record results in the prior year. Supply Chain EBT as a percent of operating revenue was 8.4% in the quarter, at the segment's long-term target of high single digits.

In Dedicated, operating revenue decreased 3% due to lower fleet count, partially offset by higher pricing. Earnings before taxes were below prior year, reflecting lower operating revenue and adverse development of prior year insurance claims, partially offset by benefits from strategic initiatives. Dedicated EBT as a percent of operating revenue was 7.9% in the quarter at the segment's long-term high single-digit target.

Next, let me cover capital expenditures. Year-to-date, Lease capital spending of $605 million was below prior year, reflecting the timing of replacement activity. Our 2026 forecast for Lease spending is $1.9 billion, reflecting higher replacement activity versus prior year. Year-to-date rental capital spending of $94 million was below prior year as expected. Our 2026 forecast for rental spending is $200 million. We expect our average rental fleet to be down 11%, consistent with our prior forecast.

Our fleet remains well below peak levels. We continue to execute asset management actions that can provide us with flexibility to modestly increase rental capacity in the second half of the year if market conditions were to accelerate. In the short term, we can deploy vehicles that are coming off lease or in our dedicated fleet to rental. And in the long term, we can increase our rental capital spending later this year, which would primarily benefit earnings in 2027 and beyond.

At quarter-end, trucks represented approximately 60% of our rental fleet, reflecting our shift in spending towards trucks versus tractors in recent years. As trucks have historically benefited from relatively stable demand and pricing trends. Our full year 2026 capital expenditures forecast at approximately $2.4 billion is above prior year. We expect approximately $500 million in proceeds from the sale of used vehicles in 2026, in line with prior year.

Full year 2026 net capital expenditures are expected to be approximately $1.9 billion. Our high-quality contractual base is generating higher earnings and cash flow which is de-levering our balance sheet at a more rapid pace than prior to our business model transformation. This momentum is creating incremental debt capacity given our target leverage range of between 2.5x and 3x.

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

Over the same 3-year period, we estimate approximately $9.5 billion will be deployed for the replacement of lease and rental vehicles and for dividends. This leaves around $4.5 billion, which equates to approximately 45% of our quarter-end market cap available for flexible deployment to support growth and return capital to shareholders.

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

Our top priority is to invest in organic growth. Aligned with these priorities, year-to-date, we funded lease and rental replacement CapEx of approximately $700 million and returned $406 million to shareholders through buybacks and dividends.

Additionally, earlier in the quarter, our Board authorized a new discretionary 2 million share repurchase program that replaced a program that was largely completed during the quarter. And more recently, our Board approved an 11% increase to our quarterly dividend, marking the fourth consecutive year with a double-digit increase.

Our balance sheet remains strong, with leverage of 259% at quarter-end in our target range and continues to provide ample capacity to fund our capital allocation priorities.

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

Thanks, Christy. Turning to our outlook on Page 14. We've raised our full year 2026 comparable EPS forecast by increasing the low end of the range to $14.40 from $14.05 while maintaining the high end at $14.80.

Our forecast continues to expect strong earnings performance in our Contractual Lease, Dedicated and Supply Chain businesses. The increase to our forecast largely reflects an improved outlook and reduced downside related to used vehicle sales, with gains now expected to be approximately $40 million for the full year, up $10 million from our prior forecast. This benefit is partially offset by the timing of new business onboarding in Supply Chain.

Our 2026 return on equity forecast is revised to 18% from a range of 17% to 18%. This forecast remains in line with our expectations given current market conditions. Our free cash flow forecast of $700 million to $800 million is unchanged and reflects higher replacement capital expenditures versus prior year. Our third quarter comparable EPS forecast range is $4 to $4.20, above prior year of $3.57.

Turning to Page 15. Our Transform model is well positioned for earnings growth. We continue to expect 2026 earnings growth to be driven by incremental benefits from multiyear strategic initiatives. These initiatives represent structural changes we're making to the business and are not dependent on a cycle upturn.

In 2024 and 2025, we realized $100 million in benefits leaving $70 million of incremental benefits expected in 2026. This year's benefits will reflect our lease pricing and maintenance cost saving initiatives in Fleet Management. Our margin improvement actions related to our Flex operating structure in Dedicated and optimization of our omnichannel network in Supply Chain.

In addition to driving outperformance relative to prior cycles, our Transform model also provides a solid foundation for the business to meaningfully benefit from the cycle upturn. By the next cycle peak, we estimate this potential benefit could be $250 million with the majority expected to come from the cyclical recovery of rental and used vehicle sales in Fleet Management with additional benefits from higher omnichannel retail volumes, leveraging our rationalized footprint.

We expect to recognize these benefits over time as freight market conditions improve. We now expect to realize approximately $20 million of upturn benefits in 2026, primarily from higher used vehicle sales results, up from $10 million in our prior forecast.

In addition to benefiting our transactional businesses, we also expect additional opportunities for profitable contractual growth as freight conditions normalize and customers seek safe, efficient and reliable capacity. We've been pleased by the business's resilience and performance of the cycle and are confident each of our business segments is well positioned to benefit from the cycle upturn.

In closing, our Transform business model continues to deliver value to our customers and shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio.

We continue to see significant opportunity for profitable growth, supported by secular trends, our operational expertise and ongoing momentum for multiyear strategic initiatives. We remain committed to investing in the future with products, capabilities and technologies that will deliver value to our customers and our shareholders. We're confident our Transform model provides a solid foundation for Ryder to meaningfully benefit from the cycle upturn. That concludes our prepared remarks.

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

[Operator Instructions] And your first question comes from the line of Bascome Majors with Stephens.

I would hope you could focus on the Supply Chain business a bit. A few months ago, the announcement of Amazon competing, and I know we've heard your initial comments on that. But big picture, as they've been in that market, maybe repackaging their offering a bit more formally for a few more months.

What have you heard from your salespeople? Are they approaching the market differently? Do you still think it is a sort of shared warehouse, retail focused approach to the market? Or is there some intent or desire to compete more in the Dedicated site stand up that you think would have more of a competitive response?

Yes, let me make a few comments, and then I'll turn over to Steve who could provide deeper insights here. Clearly, from a Supply Chain perspective right now, that business, and we've seen it now for the last 18 months continued to perform really well when it comes to the sales side of the house. So we haven't seen any sort of impact with regards to the businesses that we're looking to engineer, design and hopefully launch with customers.

I would tell you, the Supply Chain pipeline continues to be strong and evidence of that pipeline changing or moving it's only moving in one direction and continues to get stronger and stronger. So that gives you a little bit of a backdrop of what we're seeing today, but I'll let Steve give you more of forward-looking view of the business.

Yes. I think your comments around the focus of where they're looking is more on the retail side, I would say. As I think about our business, I have not seen us go up against them yet in any RFQs or any opportunities. We don't have clear visibility to who we're competing with at all times, but haven't heard their name yet.

Remember, our solutions are highly customized, as John said. So these are typically a single box dedicated to a single customer. And remember, 60% of our revenue comes from customers that use more than one service. So typically, we'll run warehouse, again, highly engineered and then offer an additional service from our port-to-door capability.

[Operator Instructions]. The next question comes from the line of Jordan Alliger with Goldman Sachs.

Just curious on Dedicated, what you may be seeing in terms of contract renewals there, retention as well as the pipeline of new business in the context of a tighter trucking markets with drivers, is that flowing additional opportunity to you? Or will it?

And then just on supply chain. I know you touched on it briefly, but when does the productivity catch up with the new ramp that you could start to see margins improve again in that sector? Like what's the timing of it or sequencing?

Yes. Thank you, Jordan. Let me address the DTS side of your question. On the Dedicated side, we continue to see the capacity exit the market, and we're seeing more and more opportunities come forward. We highlighted last quarter and we continue to see strong activity. Our pipelines are at record levels for us right now. We've seen a number of opportunities come back where customers have been running their transportation with for hire carriers, and they're looking for Dedicated capacity and coming back to us.

More importantly for us on the Dedicated side, most of what we do is specialized in nature. So 70% of our revenue base in Dedicated is still specialized. And I would say the value prop there continues to resonate with our customers. Secular trends continue to favor outsourcing on the dedicated side, whether it's rising costs, tighter driver capacity or rising insurance costs, all of which bode well for us.

So on the Dedicated side, I would tell you, we saw an improvement in the year-over-year comps from a revenue perspective. That will continue as we finish the year, and our expectations are to continue to see kind of growth when we get into 2027 with the activity we continue to see.

On the Supply Chain side, you did highlight we have had a number of projects that we've launched. They've taken a little bit longer to get to full ramp up. Volumes haven't been there, which has put a drag on kind of our expectations.

We also highlighted in our prepared remarks that we thought some of these projects that we had expected to launch later in the year are also going to be extended into 2027. So that's impacting a little bit of our guide for the second half of 2026. But I'll let Steve provide you a little bit more color on the Supply Chain ramps?

Jordan, I would just kind of remind you, last year, Q2, 9.7% EBT was a record Q2 for us. This quarter, we're in at 8.4%. I think a bigger driver of the quarter was the lost automotive business that we talked about earlier this year. And then we're still seeing plants continue to retool for EV and ICE vehicles here in the quarter. So as John said, some of these take us a little more time to work out of. And once these volumes bounce back, I think we'll be in pretty decent shape.

The next question comes from the line of Robert Salmon with Wells Fargo.

You had talked -- so it sounds like the pipeline is getting better. When I look at the FMS fleet, the active units were roughly flat, but we had seen a sequential decline in the ending units overall. Could you talk a little bit how we should be thinking about the active units and kind of what the dynamics were that caused those two to diverge?

Sure. Robert. And I'll turn it over to Tom to give you a little bit more color here. But we have seen a good, strong sales activity on the Fleet Management side to start the year. The number of customers that are coming forward, the closing rates on those opportunities has increased. And obviously, the pipeline continues to get stronger and stronger.

So we are seeing sales and that should translate into higher fleets going forward. That takes a while because our sales cycles typically take 3 to 6 months. So you should see that kind of that decline in the active fleet abate. And then as we exit the year, that should continue to turn positive for us. But I'll let Tom provide you additional color.

Yes. I think you're right, John, its really just timing of the sales activity and when those trucks actually hit the fleet when you signed a new deal with a new vehicle. We do have to have the truck on order, takes a little bit of time, a quarter or 2 before the sales results really flow into your actual fleet count. So I will say that we've seen two straight consecutive quarters of positive net sales in the first quarter and then here again in the second quarter. Obviously, very good signs for us that things are starting to change a little bit from a sales perspective and really from a customer confidence level to add that fleet back.

But like John said, we do -- you might see a slight reduction in the fleet still until that timing comes in, but we certainly expect that fleet to grow near the end of the year and into 2027 based on what we're seeing in sales.

Really helpful. And John, in your prepared remarks, something jumped-out at me is you were talking about we're back at the commercial rental utilization target levels. But with below normal demand. Should we think about this as the normalized level has been raised given some of the internal company initiatives? Or is this unique just because we're still shrinking the fleet and we're getting to those normalized levels despite suboptimal demand?

Yes. I think as we thought, I think this cycle feels and it's shaping to feel a little bit different than some of the others. It's kind of a capacity-driven recovery. So we've taken the actions ourselves to reduce the fleet. I think we -- in the prepared remarks, we highlighted we're going to be down 11% of average fleet in the rental side for the year.

So what you're seeing there is a combination of a little better demand activity, more seasonally oriented than we have seen over the last couple of years. And then the actions we've taken to de-fleet primarily in the second half of last year and into the first half. We do expect demand to continue to hopefully build, and we're going to look to grow the fleet slightly in the second half. That was part of our plan all along, and how we were taking in our replacement units in the second half.

So it's a little bit of that. I would tell you from a demand perspective, we have seen -- unlike other cycles, we have seen demand shock on the Lease and Dedicated side, where folks are coming forward. Typically, we would see rental be the leader there and see an acceleration on rental. We have seen, as I mentioned, a rental uptick there. And that's our expectation that we'll continue to build. But we would love to see rental demand accelerate. And clearly, we're ready for it. As soon as that starts taking off, we could add fleet and take advantage of the good returns that, that product line provides us.

The next question comes from the line of Ravi Shanker with Morgan Stanley.

This is Nancy on for Ravi. I was curious what you would need to see in the cycle to start sizing the fleet up significantly? And then I also saw that there was pretty solid improvement year-over-year in truck pricing during the quarter. What further benefit would you even see there as well to increase that used vehicle sales outlook? And what have you seen with buying patterns as we approach any changes going into 2027 with the EPA rules?

Yes. So thank you for the question. First, on the used vehicle side, the second part of your question, we continue to see good momentum there. Second quarter where we've seen year-over-year improvements in our used vehicle performance. As you called out, we saw sequential improvement in our retail pricing on trucks of 7%, tractors was 3%. That continues to move up.

We do expect and in our guide, we do expect second half continued improvement. I think when we see an acceleration from kind of the mid-single digits, at that point, then we could feel confident in lifting that guide further. And certainly going into 2027, we would expect year-over-year that pricing will continue to accelerate to that double-digit range.

As far as rental on the rental fleet, as I mentioned, with regards to this cycle, it does feel a little bit different in that the recovery has been kind of a capacity-driven recovery. We typically see demand accelerate in rental first. I think we're still waiting for that to happen. As soon as that happens, then we could add equipment and add fleet and really capitalize on the momentum of that product line. So we don't have that in our guide clearly with regards to rental. That's something that we're still waiting for. And as soon as we see it, we'll take advantage of.

The next question comes from the line of Harrison Bauer with Susquehanna.

Great. I'm curious kind of building off some of the fleet and capital allocation discussion. How much visibility do you have into your capital plans for this year? For example, I mean, are all of the lease purchases planned for the year? Or what's the opportunity for upside if leasing activity continues to improve?

And you gave a little bit of color on how you're thinking about your rental and leasing fleet for the year, but maybe some thought about where Dedicated fleet might shake out exiting the year? And what's the opportunity for growth for that is into next year?

Yes, Harrison, a little bit on visibility for capital forecast. I would say 75% of the year from a capital perspective is probably good. I think we're still -- as we navigate through the third quarter and how conditions change there, we may see a change in our full year outlook when we get -- when we exit Q3 into Q4.

I would tell you, rental is one that we continue to monitor closely, because that's the one that we're probably going to need to add fleet as you saw in the results, utilization kind of returned to normalized levels. We still have some utilization capacity that we could service more demand some.

But we do expect, as demand starts picking up, we're going to need to go out and add fleet to our rental fleet. So that hasn't happened. But clearly, as we see kind of conditions change, we may we may take actions between now and the end of the year.

With regards to Dedicated and the Fleet there, look, sales had a great in Dedicated to start the year. We are seeing evidence of tighter driver capacity. We've seen it in some of our measures. Turnover has ticked up. We are seeing the number of days that it takes to find drivers. That has ticked up a little bit. So we are seeing that momentum build. Our pipeline shows that. Our sales activity shows that.

So I would suspect we're going to continue to see good strong sales here for the balance of the year. We do expect the fleet to start flipping positive as we get into the second half of the year, probably in Q4 and into Q1. So that's probably when you're going to see it.

And then if we do see demand pop on both Lease, Dedicated and Rental, we obviously have access to OEM slots that we could take advantage of and ready to capitalize on the opportunities as we see them there. But rentals one that we have an eye on with CapEx. And clearly, if lease continues to be strong, we can add more fleet there as well.

Great. And maybe as a follow-up on used vehicle sales. The rental versus wholesale mix percentage of rental that fell back a little bit sequentially. What do you expect the rest of the year on some of your -- or sorry, rental retail rather, we expect for the rest of the year on your retail versus wholesale pricing. Where do you want that to be? And how much control does the team have in terms of driving more retail versus wholesale sales to capitalize off of some better pricing?

Yes. I think our UVS retail wholesale mix in Q2 was probably the low end of what we would expect for the full year. It just came down 500 basis points from Q1, if I recall the numbers, I think moving forward, we're still going to be in that high 50s, low 60s range as we navigate through the inventory. The inventory did fall -- so as the inventory continues to fall, we have less actions we need to take and should see that retail wholesale mix rise.

Ideally for us, we're not even where we want to be long term. I think once the market really starts heating up, you should see us get back into the 70s range in that retail wholesale mix, and that's ideally where we want to operate at.

The next question comes from the line of Brandon Oglenski with Barclays.

Yes. Maybe this is for John or Cristy, but when you guys show the 3-year outlook for about $4.5 billion capital available for flexible deployment, how do you balance the growth CapEx versus, say, acquisitions when you look out there and maybe what are priorities when you think about M&A in the future?

Sure. I'll let Cristy address that.

Brandon, yes, so look, our priorities remain on profitable growth. So the organic growth in our fleet is always going to be the top priority. But with the capital that we have available, we mentioned $4.5 billion available for flexible deployment. That's more than enough available to also provide for acquisitions.

We're always looking for well-run companies that are going to complement our existing capabilities or add service -- expand our existing services. So we have more than enough. We estimate that of the $4.5 billion over this 3-year period, maybe half of that is growth related and the other half is for acquisition and repurchase related activity.

I appreciate that. And quickly on Supply Chain, I mean, what is the sales pipeline looking like there, especially as we head into '27?

Steve?

Yes, the pipeline remains healthy. I'd say it's kind of flat year-over-year. And remember, we had a record sales year last year and off to a great start. So a lot of that is business that we've won that's come out of the pipeline. But I'd say across the verticals, as you see in the appendix, we had a good quarter in retail sales up 24%. CPG was relatively flat.

Industrial, we're adding new names there. And then other is health care, we just launched a new health care account in the quarter. So extremely positive, and I think we'll continue to ride the momentum.

The next question comes from the line of Jeff Kauffman with Citizens Bank.

John, congratulations on taking the reins at the new role. I was just kind of curious more on the customer side. I mean there's been a lot of commentary over the shifting environment and how you're reacting to that. But you made a decision some time ago to staff the rental fleet more with straight trucks as opposed to tractors. What are your customers asking you for now today versus maybe what it was 6 or 8 months ago given the tightness of capacity and the over-the-road truck market?

Yes. Thank you, Jeff. Well, we did that both deliberately and I think as a reaction to the marketplace, if you recall, coming out of COVID, we saw extreme demand activity for straight truck market as we saw an acceleration in the e-commerce space. So some of that, we did that to capitalize on those opportunities in the last-mile opportunities that we saw over the last several years.

At the same time, we were seeing kind of that for-hire carrier market on the tractor side kind of wobble. And we decided that we wanted to be a little bit more measured with our rental fleet and how we fleet it up there.

Today, I would tell you, clearly, we're seeing probably better signs on the tractor side and demand there seems to be starting to move up kind of as we would see. We haven't seen an acceleration, as I mentioned in my remarks. But we are starting to see stronger demand on the tractor side but up I'll have Tom who maybe give you a little bit of color on what he's seeing across each of the classes.

Yes, we continue to be focused on the truck markets, as John mentioned, as part of our shifting strategy. And like you said, we've seen a number of large customers that do business in that straight truck market as some customers have even shifted their delivery mechanisms from more tractors to less trucks to meet the driver market as well. So you've seen that, and we've taken advantage of that.

But I would say as we look to add back rental fleet, and you've probably seen this, where through this downturn, the tractor fleet is down pretty dramatically. So some of the investment, obviously, is going to need to be in that tractor space, to meet that demand, but we still expect, even during the upswing to have a predominance of trucks in the fleet, when we look at it as a percent of the total fleet we'll be leaning towards trucks.

The next question comes from the line of Scott Group with Wolfe Research.

So I wanted to just ask about earnings seasonality first. We -- there was a bunch of years where we would see a big pickup in earnings Q3 to Q4. Last couple of years, it's been more flattish. It seems like the guide this year assumes sort of flat Q3 to Q4.

Is that your view that this is sort of the new seasonality of Q3 and Q4 are similar? Or do you think there's going to be some conservatism, we can go back to that old seasonality of Q3 moves and then Q4 moves a lot higher than Q3?

Yes. Scott, actually, great question. I think it's a little bit of both in that you are going to see some seasonality as you historically called out. But the second component when it's flattening out a bit is the fact that the transformation we've gone through has flattened out the earnings of the business. So if you think about what we've done by growing the Dedicated and growing the Supply Chain asset-light businesses in a meaningful way, you're now seeing kind of the stability and the structural shift in that portfolio. So that's number one.

I would tell you, you are still going to see some seasonality. In fact, second half is still going to be stronger than the first half from an earnings perspective is in that mid-50s level, is what you should expect, where before the second half used to be about 60% of the earnings for the full year. So I would tell you, it's a function of both. You are going to see seasonal impact. But we -- through the transformation, we flattened out that earnings profile over the last several years.

Okay. And then just last two things. The $70 million of strategic initiatives this year. You have an early number on what you think you could do next year? And then just separately, we've now got clarity on EPA. We got clarity this morning from Cummins. Do you have views on how this impacts sort of truck ordering, purchasing behavior for you, your customers?

Yes. I would tell you that we're not ready to provide any sort of guidance towards next year, but I'm really proud of the team, and they continue to execute very well across all three businesses, as you saw. From a Supply Chain point of view, a Dedicated point of view and even in our FMS business, all three are contributing towards that $70 million. So we're really proud of the work the team overall continues to deliver there.

We would expect they will continue to deliver going into next year, and we'll kind of come out with that later in the year. As we think about the clarity that you mentioned with regards to EPA, I think we're still sitting on the fact that we're waiting for the OEMs to reveal what the price increases are going to be for the second half.

We did get some clarity, but not until we get that information from the OEMs, we won't be able to pass along to our customers. I don't think it's going to be dramatically different than what we've been planning for, which is the fact that we're still expecting significant increases to not only deal with the EPA regulatory change, but also with some of the inflation and tariff-related activity that the OEMs are looking to pass on to the customer.

So we'll probably have more clarity in Q3. By then, we should have that in hand. And obviously, that should help Lease activity should help Dedicated activity. And longer term, we think it's going to be a good add for UVS and support for UVS pricing.

The next question comes from the line of Ben Mohr with Citi Bank.

Going back to the used vehicle sale topic, looks like you benefited year-over-year from higher retail mix in 2Q and you raised your UVS full year target to the $40 million that you mentioned from the previous $32 million. Just wanted to make sure we get kind of clarification, what's driving that? Is it volume? Or is it price? Or is it both? How would you parse that out?

And do you think for your UVS, you could potentially get better retail mix from what we're seeing in the marketplace, the one truck owner operator exits. I understand it's a slightly different market. They have more sleeper tractors or you have more trucks and day cab tractors, but could they be driving potentially some more retail over wholesale mix for you? And then related, could they be as they exit the markets scrapping their older trucks, we could lift used sales and used sales price for you?

Yes, Ben, I'll let Tom provide you color on that. I think our retail wholesale mix, as we continue to see our inventory levels declined. We do expect to manage that. We do have control over that. We should be able to manage that and push that up. Clearly, the type of customers you highlight there are the type of customers that come into one of our 60 retail centers in North America and that we sold retail to. Those are not the typical wholesale buyers that we're serving. So -- but I'll let Tom provide you a little bit of color on what we saw on the UVS trends year-over-year.

Yes. So we are seeing benefits from both price and volume. I will say that, but more of it is coming from price. So we have seen sequentially retail sales improve, throughout here, obviously, more retail sales gives you a better result. And then -- but more of it I think is coming from the price uplift that we're seeing -- not only is our inventory coming down, but the overall marketplace inventory is coming down. And when that happens, obviously, that's a benefit to price.

You did mention some of the various external factors that are still out -- still out there that could impact used vehicle sales, what's going on with fuel pricing could potentially impact how used vehicle buyers view the market, depending on what happens with interest rates going up or down, right? Obviously, interest rates coming down could potentially help UVS, but we'll see where that goes.

And then obviously, other geopolitical activities going on. So we'll see how that all plays out, obviously, here in the next couple of quarters. But what we're seeing today better retail sales volumes and better retail pricing.

Great. Very much appreciate that color. For the follow-up, moving over to SCS, can you maybe kind of help clarify the offset to your new guide that looks like it's a headwind on new business on-boarding in your SCS. It sounds like you mentioned what would have come later in '26 is pushed on to '27. Is that the only factor? And are we still expecting a strong 3Q starts similar to your 2Q starts? And then maybe looking at the headwinds, tailwinds in 2Q, your SCS had lapped tough autos comps from 1Q last year with the OEM shifts in production days. So that's left and that's behind us.

And then it sounds like in 3Q, there likely shouldn't be any more headwind from your lost autos business in second half of last year, that should be lapped. But it sounds like you mentioned there's still some retooling from EV to ICE. So that should still go on. And so if you could just help us kind of parse out whether this is an accurate outlook or what some of the key headwinds and tailwinds are for your SCS in terms of on-boarding that contributed to that offset, please?

Yes, Ben, good color there on Supply Chain. With regards to our guide and the offset, what we called out and what we expect is some of the wins that we had signed earlier in the year, we thought those were going to start being realized and showing up and on-boarded here in 2026. A few of those have pushed 2027. We also saw lower volumes on, a few of those on-boarding activities. So that should continue for the balance of the year.

I think Clearly, as you called out, we're going to lapse the auto loss business from last year here in the second quarter and third quarter from a comps perspective, are going to get better for us. So those two dynamics are playing.

I do think we continue to see good sales, healthy sales, as Steve called out, but I'll let Steve give you color on what he's seeing on the loss -- on the auto volumes, which I think you also mentioned in your question.

Yes. It's kind of the OEMs are a moving target right now. We did see in Q2 a little more downtime than what we expected. We are seeing some locations that are also saying they may shut down a little bit more in Q3, Q4. So that's kind of not baked yet at this point. And then I think as John said, we lapped that lost auto in -- after Q3 of this year.

So many of these deals that are pushed out are driven by customer for various reasons, could be a funding decision this year, could be a minimization strategy not to start a building up during peak or then maybe the network is not ready for it. So it's typically customer-driven.

The next question comes from the line of Brian Ossenbeck with JPMorgan.

Just a couple of quick follow-ups on rental. It sounds like the majority is still going to be in the straight trucks. Maybe you can give us a little bit of context as to how much what the mix is right now? And then also just for some further details you can provide just how the utilization trended throughout the quarter? Because clearly, we're hearing and seeing more activity, better activity on the -- you said transactional side, the spot side of the freight market. So want to hear how that trended for Ryder rental in particular?

Tom, do you want to provide, Brian, with a little bit of color on the trends and then the fleet mix.

I'll start with the utilization trends. We did see utilization, as you would expect, increased throughout the quarter with June being the highest utilization and we certainly did take advantage of USA 250th birthday. A lot of activities and events going on with that. So utilization was was pretty strong.

So we started at 72% in April, finished at 78% in June, which was -- gave us that 75% for the quarter. Sitting here today, we're still running in that mid-70s utilization number. And as John mentioned earlier, I believe we're expecting to be in that mid-70s through the balance of the year.

In terms of the truck versus tractor fleet, I'll have to look that one up, let me see if I got the numbers here. I don't have that number in front of me. I have to get back to you on the percent of the truck versus tractor fleet.

But clearly, Brian, as we mentioned earlier, Tom mentioned that we have reduced the tractor fleet significantly. So that typically used to be almost equal. I would say before we made the shift where you saw an equal amount of tractors to trucks. We had kind of shifted that to 60% range. I would suspect it's a little bit over 60%. But I think, Tom, you have it now?

It's at 60% today.

It's at 60% today. So that hasn't changed dramatically from kind of the shift we made a few years back.

Okay. I guess the overarching question stepping back at the $250 million of cyclical benefits. Obviously, some of that's in used vehicle, which you talked about. But would you get your -- I guess, would you hit your target with the 60% truck? Or do you think that that's something you need to visit back to maybe a little bit more balanced with tractor to feel some of that cyclical upside?

Yes, the $250 million, we think, clearly, with rental coming back over the next couple of years, we'll get a large majority of that and UVS. We don't think we need to make dramatic shifts in our fleet to achieve that. What we need is the market to come back and specifically around rental, we need that market to start accelerating for us. And we do think that will continue to get better as we move through the year and into next year.

There are no further questions at this time. I'd like to turn the call back over to Mr. John Diez for closing remarks.

Well, thank you, everyone. Appreciate all the good questions. Thank you for taking an interest, and we'll see you out on the road. Take care.

This concludes today's conference call. You may now disconnect.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes.

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

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

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

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

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

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

So high single digit off of peak.

Off of peak...

Relative to [indiscernible] cycle?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes.

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

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

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

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

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

That will work itself out.

Yes.

Today, we had another announcement out of Amazon.

Yes.

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

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

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

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

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

Yes.

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

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

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

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

Yes, on growth.

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

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

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

So acceleration off of low double digits in 2027?

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

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

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

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

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

Terrific.

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

Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

For used equipment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A few years being what?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you. I appreciate it.

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

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

Thank you. Good morning, and welcome to Ryder's First Quarter 2026 Earnings Conference Call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Great. Appreciate the time and insights.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Any vertical...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So Cristy, thanks very much for being here.

All right, thank you.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

All right. I think that's it.

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

That was the point, yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you.

Appreciate you being here.

All right. Thanks, everyone.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It's about 6 months, yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Are we keeping those EPA standards or...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes.

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

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

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

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

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

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

It is today, yes.

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

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

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

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

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

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

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

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

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

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

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

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

They just think with your...

Can I vote or...

We've yet to get remote up here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you very much for coming. Really appreciate it.

Thank you for having me.

Congrats on retirement.

Thank you.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What's John going do with all...

Or Cristy?

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you.

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

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

Thank you. Good morning, and welcome to Ryder's fourth quarter 2025 earnings conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors. More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We'll go next to David Zazula with Barclays.

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

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

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

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

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

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

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

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

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

We'll go next to Harrison Bauer with Susquehanna.

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