Ryder System (NYSE:R) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Ryder System reported its eighth consecutive quarter of EPS growth, driven by strategic initiatives and improved used vehicle sales and rental performance.
The company’s revenue mix has shifted toward supply chain and dedicated services, with 60% of expected 2026 revenue generated by these asset-light businesses.
Ryder raised its full-year 2026 EPS forecast to $14.85-$15.05 and ROE to 18%-19% due to stronger-than-expected Q3 performance and improved market conditions.
The company noted strong contractual sales across all segments, particularly in lease and dedicated services, and improving conditions in the freight market.
Management highlighted the effectiveness of operational efficiencies and AI-driven innovations in enhancing customer service and operational performance.
Full Transcript
OPERATOR
Good morning and welcome to the Ryder System Third Quarter 2026 Earnings Release Conference Call. All lines are in a listen-only mode until after the presentation. Today’s call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Ms. Colleen Condela, Vice President Investor Relations for Ryder. Ms. Condela, you may begin.
Colleen Condela (Vice President, Investor Relations)
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 Cristina 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.
John Diez (Chief Executive Officer)
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. Cristina 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 chains and gives our customers a competitive advantage remains the key priority. We’re enhancing the capabilities and driving the evolution of customer-facing platforms such as RyderShare and RyderGuide 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 three complementary business segments are leaders in North American 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 transformed 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 an improving freight environment. Turning to page five, 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 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. 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 is more than two and a half times 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 a 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 multi-year 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 remain strong across all three segments, with activity accelerating in lease and dedicated. Increased sales activity and robust pipelines reflect the value of our solutions and increased 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 a 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 Cristina to further review our third quarter performance.
Cristina Gallo-Aquino (Executive Vice President and Chief Financial Officer)
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% for trucks. 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 2.5 and 3 times as shown on the slide. Over a three-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 three-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.
John Diez (Chief Executive Officer)
Thank you, Christy, 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 multi-year 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 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 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 five- to seven-year lease contracts in FMS and three- to five-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 transformed 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 multi-year 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 System 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
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We’ll pause for just a moment to allow everyone an opportunity to signal for questions. Your first question is from Jordan Alliger with Goldman Sachs.
Jordan Alliger (Analyst)
Yeah, hi. Morning. Thanks. So, question: 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?
John Diez (Chief Executive Officer)
Hey, good morning, Jordan, and thank you. Yeah, 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 years, and 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.
Steve Sensing (President, Global Supply Chain Solutions)
Yeah, thanks, Jordan. Overall, you know, 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, you know, I think we’re pretty well protected there. Sometimes it’s not immediate, but we do have tight windows. 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.
Jordan Alliger (Analyst)
Great, thanks. And, you know, just one other quick follow-up question on the FMS side. You know, it was a good step up in that margin to the 13% level. So I guess the question is, you know, can we stick around that level or what has to happen to stay at that target zone?
John Diez (Chief Executive Officer)
Okay, I’ll let Tom address that.
Tom Havens (President, Fleet Management Solutions)
Yeah, 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 what was nice to see was the first time we had seen that increase year over year since Q4 of 2022. So, you know, 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.
John Diez (Chief Executive Officer)
Yeah, Jordan, just to add to that, I think we want to underscore 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 the lease pricing side has gotten us here, and 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.
Jordan Alliger (Analyst)
Thank you.
OPERATOR
If you find that your question has been answered, you may remove yourself from the queue by pressing Star one again. Your next question is from Brian Ossenbeck with JPMorgan.
Brian Ossenbeck (Analyst)
Hey, good morning. Thanks for taking the question. Maybe a 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 pay for the 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?
John Diez (Chief Executive Officer)
Yeah, 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. We’re not seeing any significant drag in our business as of yet. I think, as you heard from Steve, there are select markets where that becomes more acute and we’re getting out in front of it pretty quickly. We did make the acquisition of Cardinal back in 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.
Brian Ossenbeck (Analyst)
All right, thank you for that. And then just secondly, you raised the, I guess, the benefits for the upturn conditions in FMS another 20 million to 40. How’s that split between 3Q and 4Q? And what are sort of your early thoughts on how the remaining might transition into next year?
John Diez (Chief Executive Officer)
Yeah, 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 inventories, so that’s providing a little bit of 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 it’s 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’ve got a little bit of the carry-through from rental posted in that incremental 20 million for the year.
Brian Ossenbeck (Analyst)
Okay, thank you, John.
OPERATOR
Your next question is from Scott Group with Wolfe Research.
Scott Group (Analyst)
Hey, thanks. Good morning. So I want to just ask about some fleet expectations. I guess leasing and Dedicated continued 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 three businesses into ’27?
John Diez (Chief Executive Officer)
Yeah, 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 this ability to win, and when that equipment will start coming in for both Dedicated and Fleet Management, our expectations—we kind of flattened 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 he’s seeing at lease and also what’s happening with the rental fleet.
Tom Havens (President, Fleet Management Solutions)
Yeah, 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 three 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 the timing of the order. So 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 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 lease, so we would expect that momentum to continue to carry into 2027 and see, you know, in 2027 all three product lines with fleet increases.
Scott Group (Analyst)
Okay. And just secondly, we got 40 of the 250 of, like, cyclical upturn tailwinds. Does that, like, versus history, does that feel about right to get, you know, that sort of percentage in the first year of an upcycle? Like, what does the second year typically look like? I don’t know, maybe hard to, like—some of this is transactional, so hard to know—but how much of an uptick do you think we could see relative to that 250 target? And any other thoughts on, like, puts and takes for ’27?
John Diez (Chief Executive Officer)
Yeah, 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 that number 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.
Scott Group (Analyst)
Thank you.
OPERATOR
Your next question comes from Ravi Shankar with Morgan Stanley.
Nancy (Analyst)
Hi, this is Nancy on for Ravi. Thanks for taking my question. It would be helpful to hear any thoughts into peak season strength across all three businesses.
John Diez (Chief Executive Officer)
So look, 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 hadn’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 our 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 in 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.
Nancy (Analyst)
Great, thank you, 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?
John Diez (Chief Executive Officer)
Yeah, just what we are seeing is actually more activity from dedicated capacity. As the spot rate 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 a 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’s getting tighter. We’re seeing increased cost in insurance claims and the rising cost of equipment. All those things are putting pressure. We can do it more efficiently and more effectively for our customers. But I’ll have Steve maybe add a little bit of color on what he’s seen in the dedicated space.
Steve Sensing (President, Global Supply Chain Solutions)
Yeah, I would add 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 acceptance rate for truckload is on the rise. So they want a service that they can count on. But again, our lost business is down year over year versus last year. So it should put us in good shape for ’27.
Nancy (Analyst)
Great, thank you.
OPERATOR
Your next question is from Brandon Oglinski with Barclays.
Brandon Oglinski (Analyst)
Hi, good morning. Thanks for taking my question. I guess, John, can we unpack, you know, the capital priorities just given the returns that this business is, you know, putting off now, especially maybe in regards to M&A, because we’ve seen some dislocation and some other, you know, competitive deals go through here recently. So how do you see that landscape unfolding from your perspective?
John Diez (Chief Executive Officer)
Yeah, well, we’re in a different part of the cycle and coming into this upturn, one of the things is that we do have plenty of debt capacity on the balance sheet. If you look at our targeted leverage, we’re on the low end of our target leverage of 2.50. 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 can 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-creative acquisitions that we could do and take advantage of opportunities that are in the marketplace. So we’ll continue to look at those. That would be our top priorities, 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.
Well, yeah, 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 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?
Steve Sensing (President, Global Supply Chain Solutions)
Yeah, I would just add a couple things. So, you know, John spoke about that lapped automotive loss last year. In that situation, they went away from dedicated in 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, too, if you look at our pipeline, we’re seeing really solid increases in CPG, industrial, healthcare, 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.
OPERATOR
Your next question comes from Rob Salmon with Wells Fargo.
Rob Salmon (Analyst)
Hey, good morning and thank you for taking our question. 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?
John Diez (Chief Executive Officer)
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 of the business.
Rob Salmon (Analyst)
That’s helpful. And then with the response to an earlier question, I think it was Scott’s about the fleet, it sounded like there’d 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.
John Diez (Chief Executive Officer)
Yeah, I wouldn’t say pressured, meaning downward pressure. Right now we’ve kind of flattened out. You should see that planning to uptick perhaps in Q4 and then continue as the new equipment starts arriving. We should expect Q1 and beyond that in ’27 to continue to grow and accelerate.
Rob Salmon (Analyst)
And John, as my final follow-up there in terms of the growth, any sense of what that can be? Should we be thinking about low single-digit growth? Can it be better given the backdrop?
John Diez (Chief Executive Officer)
Yeah, right now the business, you’ve seen it overall, the business is growing mid single digits. That’s the complement of all three product lines that Tom talked about. As we get into the upcycle, 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 that 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.
Rob Salmon (Analyst)
Really appreciate the context.
OPERATOR
Your next question comes from Bascom Majors with Stephens Inc.
Bascom Majors (Analyst)
Thanks for taking my questions, John. Just under two 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? Thank you.
John Diez (Chief Executive Officer)
Yeah, Bascom, I have not seen the results of that or reviewed that. So it’ll be premature for me to comment on that. But I will tell you, look, I think generally speaking when we talk to shareholders, 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 those asset-light businesses, we’ve more than doubled those businesses, and have expanded margins while at the same time significantly improved 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, and they’re 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.
Bascom Majors (Analyst)
Thank you.
OPERATOR
Your next question is from Jeff Kaufman with Citizens Bank.
Jeff Kaufman (Analyst)
Thank you very much and congratulations. I want to get back to the growth question again. I know this has been answered a couple 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 that you’re seeing stronger than the other? Is it an industry segment or two that’s a little stronger than others?
Is it geographic? Because, you know, based on your comments, it’s across the board and kind of ubiquitous.
John Diez (Chief Executive Officer)
I will tell you, obviously there’s going to be unique circumstances out there, but I’ll paint a broad-brush picture of 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 rentals 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.
Jeff Kaufman (Analyst)
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 two. 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 six to nine months just because of the EPA mandate.
Do you have order slots already, or is that why you’re saying, you know, we’ll get that tractor fleet up 10% by the end of next year? And then over what, you know, 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?
John Diez (Chief Executive Officer)
Yeah, we do feel confident we could grow that fleet. Everything you asked will be dictated by market conditions. If we continue to see demand, we’re gonna 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 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 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.
Tom Havens (President, Fleet Management Solutions)
Yeah, just to clarify a point, 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 were 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 pick 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.
Jeff Kaufman (Analyst)
Okay, great context. Thank you.
OPERATOR
Our next question comes from Ben Moore with Citibank.
Ben Moore (Analyst)
Hi, good morning. Thanks for taking the question. John, Cristina and team, thanks for fitting me in at the tail end here. 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 to 60 million given your 20 million 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, 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.
Cristina Gallo-Aquino (Executive Vice President and Chief Financial Officer)
Yep. Yeah, Ben, so you have it right. Coming into the quarter, we had 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 closer, I would say, to 50 than to 60, 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 could face, is 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 our 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 February when we get back together, we’ll give you a look at the full year for 2027.
Ben Moore (Analyst)
Thanks for that color. That’s very helpful for how we should think about modeling the next quarter and into next year. My follow-up question is on what you’re seeing in the road ahead: strength in your DTS with your three- to five-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 seeing a similar upward trend or better or worse, and so this will signify more benefit to come in ’27 and ’28?
John Diez (Chief Executive Officer)
Yeah, 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 would 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 continue to tick up, we do have the measures and structurally in our contract that gives us the benefit to be able to recoup those. We’ll continue to sign good business because there’s good activity in the marketplace, and as capacity tightens, 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.
Ben Moore (Analyst)
Wonderful. Really appreciate that. Thank you.
OPERATOR
Your next question is a follow-up from Scott Group with Wolfe Research.
Scott Group (Analyst)
Hey, thanks for the follow. Appreciate it. Just a couple things. How are we thinking about impact of higher rates on buy versus lease decisions, return targets, all that sort of stuff?
Cristina Gallo-Aquino (Executive Vice President and Chief Financial Officer)
When you talk about return targets, Scott, you’re talking about returns in the overall business?
Scott Group (Analyst)
Yeah, does higher rates impact your ability to hit return targets and things like that? Interest rates?
Cristina Gallo-Aquino (Executive Vice President and Chief Financial Officer)
Yeah. So, look, for us, we continue to see that we’re on pace of hitting our return targets. Just to reiterate, because I think it’s important, we’re in the early parts of the cycle. Our return on equity is in that 18% to 19% level based on what we’re seeing in the marketplace and some of the inflection points we discussed around the 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 gets realized.
We are staying disciplined around our pricing both on the lease side—you saw rental pricing improve sequentially in the quarter. We would expect pricing in 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 targets.
Scott Group (Analyst)
Okay, helpful. And then just last thing if I can: what’s the impact of this still EPA uncertainty? Are your customers hesitant to be placing orders for ’27 now? Does this impact used—just any thoughts on the EPA?
John Diez (Chief Executive Officer)
Sure. I’ll let Tom add what we are seeing. I will tell you I think we’ve called it out. We didn’t see this pre-buy surge activity with the change in the technology, but I do think Tom has some color around what we are seeing as price increases in the marketplace, which customers are feeling the impact of, and we’re helping them navigate through the increased pricing in the marketplace going into next year.
Tom Havens (President, Fleet Management Solutions)
Yeah, 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 pre-buy activity. Some customers took advantage of it, but certainly not to any large extent. The non-conformance penalties, or NCPs, are clear to the marketplace at this point, so they kind of know where pricing will look like and what type of increases they’re looking at. The only thing that’s maybe unclear is what happens after the non-conformance 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 till some point mid next year. We do have those conversations with our customers on a consistent basis, and the message is generally act now because pricing is increasing. And I think that’s well understood in the marketplace.
Scott Group (Analyst)
Thank you, guys. Appreciate it.
OPERATOR
Your next question is a follow up from Brian Ossenbeck with J.P. Morgan.
Brian Ossenbeck (Analyst)
Yeah, hi, thanks. Just a real quick one here. With the sequential pricing up—it’s 15% for tractors and mid-single digits for trucks—is that on a like-for-like basis? I know you talk about shifting the channel around a little bit sometimes. Is there some vintage movement there as well? Just wanted to see how clean of a read that is for the overall market. Thanks.
Cristina Gallo-Aquino (Executive Vice President and Chief Financial Officer)
Yes, there’s—hey, Brian, thank you for the question. There is a little bit of noise there. I would say on the tractor side you’re getting the benefit of a shift in retail mix there. As we’ve gotten lighter on inventory, we were able to take advantage of that and sell more through our retail channel. So you are seeing that 19% be a little bit weighted 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 asset classes. So that’s really the underpinning performance of the overall market there.
Brian Ossenbeck (Analyst)
Okay. Any way to quantify roughly the wind assistance or the asterisk we should put on that, or is it too difficult to tell?
Cristina Gallo-Aquino (Executive Vice President and Chief Financial Officer)
No, I would say absent the retail/wholesale mix shift, it would probably be high to low double digits on the tractor side. So it benefited by about 700 basis points.
Brian Ossenbeck (Analyst)
Perfect. Thank you very much.
OPERATOR
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.
John Diez (Chief Executive Officer)
Yeah. Thank you, everyone. Appreciate taking an interest in Ryder System and look forward to seeing you out on the road. Take care now.
OPERATOR
This concludes today’s conference call. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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