Ryder System (R) Down to Sell on Guidance Cut

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On Aug 19, 2016, Zacks Investment Research downgraded Ryder System R to a Zacks Rank #4 (Sell). Going by the Zacks model, companies holding a Zacks Rank #4 are likely to underperform the broader market over the next1-3 months.

Why the Downgrade?

While releasing its second quarter results, Ryder System trimmed its earnings guidance for full-year 2016. The company now expects 2016 adjusted earnings in the band of $5.90 to $6.05 per share (old guidance: $6.10 to $6.30). Lower rental demand coupled with soft used vehicle volumes led to the dull view.

Further, the company’s guidance for the third quarter is disappointing. Moreover, the transportation company reported a 5% decline in second quarter 2016 earnings on a year over year basis. Foreign exchange issues hurt the company’s top line in the quarter.

Additionally, the company continues to face headwinds in the form of unstable economic conditions, high capital expenditures, mounting debts, stiff competition and federal regulations which add to its woes. We are also concerned about the weak balance sheet of the company. Ryder System exited the second quarter of 2016 with over $5.6 billion of debt as against $5.5 billion at the end of 2015. Cash and cash equivalents were only $66 million at the end of the second quarter which raises concern.

We are, however, encouraged by the company’s efforts to reward its shareholders through dividend payments. In Jul 2016, Ryder System hiked its quarterly cash dividend by 7.3% to 44 cents per share. In the second quarter of 2016, the company repurchased 322,000 shares at an average price of $68.05. During the quarter, the company started implementing its 2 million share anti-dilutive buyback program.

Stocks to Consider

Better-ranked stocks in the transportation space include Copa Holdings SA CPA with a Zacks Rank #1 (Strong Buy), and Dynagas LNG Partners LP DLNG and SkyWest Inc. SKYW with a Zacks Rank #2 (Buy).

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