萊德系統 (R) 2007 Q1 法說會逐字稿

Good morning. Welcome to the Ryder Systems Incorporated first quarter earnings release conference call. All the lines under a listen-only mode until after the presentation. (OPERATOR INSTRUCTIONS) I would like to introduce Mr. Bob Brunn, Vice President of Investor Relations and Public Affairs for Ryder. Mr. Brunn, you may begin.

Thank you very much. Good morning and welcome to Ryder's first quarter 2007 earnings conference call. I would like to begin with a reminder that in this presentation, you will 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 expectation and are subject to uncertainty and changes in circumstances.

Actual results may differ materially from these expectations due to changes in market, political, and regulatory factors. More details information about these factors is contained in this morning's earnings release and in Ryder's filings with the Securities and Exchange Commission. Presenting on today's call are Greg Swienton, Chairman and CEO, and Mark Jamieson, the Executive Vice President and Chief Financial Officer. Additionally, Vicki O'Meara, President of the U.S. Supply Chain Solutions and Tony Tegnelia, President of the U.S. Fleet Management Solutions are available on the call and are available to answer questions following the presentation. With that, let me turn it over to Greg.

Thank you Bob and good morning, everyone. This morning we will recap our first quarter results and provide our current outlook for the second quarter and the remainer of the year and then we'll open up the call for questions. For those of you on the slide presentation on page 4, reported net earnings per diluted share were $0.84 for the first quarter 2007, up 9% as compared to $0.77 in the prior year period.

In the first quarter 2006, as we disclosed last year, our reported results included a $0.02 one time benefit from receipt of insurance company stock in prior year. Total revenue for the company was up 7% in the first quarter. Operating revenue, which excludes fuel and subcontracted transportation revenue was up 6%, with growth coming from all business segments. Fleet management solutions total revenue was up 1%, while operating revenue was up 2% versus the prior year.

Total FMS revenue was impacted by a 3% reduction in fuel revenue, reflecting fewer gallons pumped for customers this quarter. Contractual revenue, which includes both full service lease, and contract maintenance was up 6% reflecting our strong sales activity over the last several quarters. Full service lease revenue was up 5%. This growth is due to improved customer retention, as well as continued in servicing of new vehicles associated with sales contracts signed in recent periods.

Contract maintenance revenue is up 14%, reflecting our heightened focus on growing this long-term contractual business with customers. A significantly weaker freight demand environment during quarter resulted in a 13% reduction in commercial rental revenue. Softer market demand conditions negatively impacted both rental utilization and pricing levels in our U.S. and Canadian markets. A decline in rental revenue was beyond our initial planned forecast, however, we are taking the appropriate mitigating actions to address the softer market conditions. These actions include, but aren't limited to reducing the size of our rental fleet. Gains from the sales of used vehicles were higher than last year, driven by an increase in the number of vehicles sold. Pricing levels on power equipment were generally table.

This improvement in gains was offset by higher carrying costs on a larger used vehicle inventory held for sale. Our used vehicle inventories were expected to be higher in the first half of this year, as we worked through the heavy lease replacement activity we have had in recent quarters, as well as the reductions in our rental fleet. Net before tax earnings and fleet management were up by 8%. Fleet management earnings as a percent of operating revenue were up 60 basis points to 11.3%. From an earnings stand point, fleet management benefited from improved results in full service lease and contract maintenance as well as lower pension costs.

These earnings improvements were partially offset by lower commercial rental results in North America, as well as higher sales force and marketing expenses tied to our sales initiatives and strong contractual sales results. On page 5, turning to the supply chain solutions segment, we had a 21% increase in total revenue, including the impact of managed subcontractor transportation. Operating revenue is up 18%, reflecting new and expanded customer contracts as well as higher volumes with some existing accounts. First quarter net before tax earnings and supply chain were up 7%, versus the prior year. Net before tax earnings, as a percent of operating revenue were down 30 basis points to 3.6%.

Earnings benefited from both new business wins and increased customer volumes, but were negatively impacted by both contract start-up and shutdown costs with a couple of specific customers. We expect continued impact in the second quarter from these start-up and shutdown costs in the supply chain. In dedicated contract carriage, total revenue was unchanged due to lower volumes of managed subcontracted transportation.

Operating revenues, however, were up by 2%, reflecting new business wins and expansions with existing customers. Overall, DCC volumes were relatively unchanged with varying impacts in different customer industry segments. Net before tax earnings and DCC were up by 22% and as a percent to operating revenue were up by 130 basis points to 7.6%. Earnings improved in the quarter due to new and expanded business, as well as improved safety and insurance costs. Page 6 highlights the key financial statistics for the first quarter. On 6% operating revenue growth, earnings per share were up 9% to $0.84, reflecting good earnings leverage on operating revenue growth. The number of shares outstanding was relatively unchanged at 61.2 million shares.

During the first quarter we purchased the remaining available 169,000 shares under our 2 million anti-dilutive share repurchase program at an average price per share of $53.42. These purchases complete this program through which we purchased 2 million shares at an average price per share of $51.10. Our first quarter tax rate was down slightly to 39.6% from 39.9% in the prior period. We'll turn to page 7 to discuss the first quarter results for the business segments. In Fleet Management Solutions operating revenue was up by 2%, driven by 6% contractual revenue growth, but partially offset by a decline in commercial revenue of 13%. Total revenue increased by 1%. The increase in total revenue was less than the increase in operating revenue due to the impact of lower volume of fuel sales.

Fleet Management Solutions earnings were up by $5.9 million or 8% driven by stronger full service lease and contract maintenance results, as well as lower pension costs. These improvements would partially offset by lower commercial rental results, as well as higher sales force and marketing costs related to our sales initiatives and results. In lease, we continue to see solid revenue growth as a result of in servicing new vehicles relating to sales made in recent quarters, while also improving customer retention.

While our total net lease sales are lower than last year, due to last year's 2007 EPA pre-buy activity, our first quarter net lease sales were above our own planned levels. Miles driven per unit on the equivalent leased vehicles basis was slightly down versus first quarter 2006. However, we did not see a meaningful deterioration in miles per unit as compared to the fourth quarter 2006. U.S. commercial rental utilization was 64.2%, down from 69.1% in the first quarter 2006, due to a weaker freight demand environment.

We also saw average rental pricing decline by around 5% during the quarter. As a result of this lower demand in our transactional business, we will reduce the size of our rental fleet below initially planned levels and expect to reach our revised rental fleet target by late in the third quarter. We're now planning for our peak rental fleet size to be down on a percentage basis in the mid to high teens, versus prior year's peak. This will help us drive better utilization levels and returns on rental assets. We also have a number of additional actions underway in the rental area to improve activity levels and results.

In supply chain solutions, total revenue was up 21% in the quarter, and operating revenue, which excludes subcontracted transportation was up 18% due to improved new sales activity and higher volumes with some accounts. This operating revenue growth came in all reported U.S. customer industry segments and in our International Supply Chain business, which was up strongly by 33%. SCS, net before tax earnings we are up $700,000 or 7% for the quarter, due largely to these higher revenue levels. Increased revenue levels were partially offset by start-up and shutdown costs related to a couple specific customer accounts.

In dedicated contract carriage, total revenue was unchanged due to lower subcontracted transportation activity. Excluding this item, operating revenue was up 2%, due to new and expanded customer contracts. DCC net before tax earnings improved by $1.9 million, or 22% to $10.4 million due to new business as well as lower safety and insurance costs. Total central support services costs were flat with prior year.

Unallocated central support services costs not charged to the business segments were up by $1.1 million reflecting the impact of the insurance company's stock recovery received last year. Net earnings were $51.3 million, up $3.7 million for a percent. And at this point, I will turn the call over to Mark Jamieson, our Chief Financial Officer to cover a number of items beginning with capital expenditure.

Thanks, Greg. Turning to page 8, the first quarter gross capital expenditures totaled $475 million, up by $106 million from the prior year. Increased capital spending was driven by higher spending on long-term contractual lease vehicles of 77 million. This higher lease spending was due to stronger activity in recent quarters. Commercial rental vehicle spending increased by 22 million. This increase is due to the timing of our rental purchases as we purchase more units in the first quarter this year to obtain additional pre 2007 engines.

The original rental capital plan we communicated in February called for an increase of approximately 75 million on a full year basis. Based on our revised rental fleet plan, we now expect our global capital spending on rentals to be approximately flat with the prior year. In 2006, we spent almost no capital in our UK rental fleet. The plan to make some investments in the UK in '07 to refresh the fleet. This increased spending in the UK will offset reductions in our North American capital spending, resulting in flat global rental capital spending on a full-year basis.

We realize proceeds from sales of primarily revenue earning equipment in the first quarter of $94 million, up by $5 million from the prior year, reflecting a higher number of units sold. Deducting sales proceeds from gross capital spending, our net capital expenditures were $381 million, up by approximately $100 million from last year. Turning to the next page, you will see that we generated cash from operating activities of $253 million primarily through our earnings and the depreciation add back. The depreciation increased since we have a larger contractual fleet and the cost of new tractors has increased somewhat.

Cash from operations improved by $136 million from the prior year. This improvement partially related to the deferred tax payments made in 2006 resulting from hurricane relief and tax payments that would otherwise have been due in the prior year. Including the impact of our used vehicle sales activity, and other items we generated $364 million of total cash, up by $140 million from last year. This strong recurring cash generation is important to the business as it supports our future expected growth in assets under management. The additional cash generated was used to invest in revenue earning equipment, primarily under long-term contracts. Cash payments for capital expenditures were up by $177 million, versus the prior year period, reflecting this investment of leased vehicles. Included in our capital spending, the capital used $123 million of free cash flow as compared to using $90 million in the prior full year period.

The full year forecast we -- the full year forecast we originally communicated in February caused us to generate positive free cash flow of $235 million as compared to negative $444 million in 2006. On page 10, you can see total debt has increased modestly as compared to year-end 2006. The increased debt level is largely due to contractual spending. Ryder's total obligations of $3 billion are up by $62 million as compared to year-end 2006. Balance sheet debt to equity was 162%, as compared to 164% at the end of last year.

Total obligations as a percent to equity at the end of the quarter were 167% versus 168% at the end of 2006. We continue to have significant balance sheet capacity as this is well below our long-term target of 250% to 300%. Our equity balance at the end of the quarter was $1.8 billion, up by $53 million versus year-end 2006, reflecting our net earnings offset by dividends and share repurchases. At this point, I will hand the call back over to Greg to provide an asset management update.

Thank you, mark. Page 12 summarizes key results in our asset management area. We are really very pleased with the results of our used vehicle sales operation where we sold over 6,000 used vehicles during the quarter. This is a record number of units sold in a quarter, and represents a 12% increase from the prior year.

Retail sales prices for both used tractors and trucks are generally at good levels and remain largely unchanged from the prior year. We expect price levels on power equipment to remain firm in the near term, due to the demand for grandfathered pre 2007 engines. At the end of the quarter of the 10,500 units classified as no longer earning revenue, approximately 7,300 were used vehicles available for sale.

Our used vehicle inventory has increased due to the higher than average number of leased vehicle replacements we had last year and the reductions we're making in our commercial rental fleet. This increase in the number of units available for sale drove up the number of vehicles no longer earning revenue by 3,600 units. Because we're seeing solid pricing in the retail market for used equipment, we continue to emphasize retail sales made through our own used vehicle sales network, where we realize more favorable pricing than in the wholesale market.

We expect vehicle inventories will moderate in the latter part of the year since we have significantly fewer leased vehicle replacements in 2007, as compared to 2006. Our U.S. commercial rental fleet size in the first quarter was down on average by 5% from the prior year. Due to the weaker than forecast demand environment, we intend to decrease our rental fleet size somewhat beyond our initially planned levels. We now expect the peak rental fleet size will be down on a percentage basis in the mid to high teens and that our target level, by late in the third quarter. These reductions will allow us to improve utilization levels and returns on the rental fleet.

In addition to the rental fleet size reductions, we're also making some changes in the mix of vehicle types to improve market penetration. We are also taking additional steps in the rental area from a sales and marketing stand point to improve activity levels and results. Page 14 outlines our current EPS forecast. At this time, we are reaffirming the full year EPS forecast of $4.30 to $4.40 that we initially provided on our most recent conference call in early February. This represents an increase of 8% to 10%, as compared to a comparable $3.99 we earned in 2006 excluding some tax changes and a pension change we had last year. We are also establishing for the five time an EPS forecast for the second quarter of $1.04 to $1.07 per share.

This second quarter forecast includes $0.01 of restructuring costs related to early debt retirement. Page 15 outlines the comparison of our second quarter forecast to last year's results. Last year our second quarter earnings were $1.02 per share, excluding an $0.11 one-time impact of changes in Canadian and Texas tax laws. This $1.02 included a net benefit of $0.02 from two nonrecurring items last year. In the second quarter 2006, we had a $0.03 benefit from a contract termination with a customer, partially offset by a one cents charge related to a discontinued operation.

These items were high lighted last year in our press release and other earnings materials, but we thought it would be helpful to summarize this as a reminder of these prior year impacts. That does conclude our prepared remarks this morning, and at this time, I will turn it over to the operator to open up the line for questions. Thank you.

(OPERATOR INSTRUCTIONS) One moment, please for the first question. Jon Langenfeld, you may ask your question and please state your company.

Robert Baird. Thank you, Good Morning.

Good morning.

Can you just talk about your deployments, the truck that actually went to customers. I think you mentioned in the fourth quarter that was a record deployment quarter. How does that stack up in the first quarter. Could you just kind of talk through that backlog?

And by deployment, you are referring to leased vehicles going into service?

Correct.

All right. Tony. I will let Tony Tegnelia who heads up fleet management take that up.

Good morning, Jon. In the first quarter we saw our units going into service of actually about two-thirds over where they were in the first quarter of last year. And that really is a reflection of the great sales year that we had in '06, the vehicles being delivered by the OEMs and, of course, our putting them into service.

We will continue to see very heavy in servicing as we go throughout '07, as those units continue to come into service, and also as our sales continue during '07. We are very pleased with where we are on our '07 sales outlook. Our pipelines look good. We have more quotable quotes out on the street now. We have more salespeople, commissionable on the street right now. And so we continue to feel that we have a good sale this year and we will continue in service levels come in as the year goes on.

Was 1Q bigger than 4Q in terms of deployment?

Generally speaking, yes.

Okay. And then as you look at kind of your attention rate, I know that's an area that you have been focused on. Can you comment on how that has been trending qualitatively?

Yes, our lot business in the first quarter is down from previous quarters and our retention rate is improving. We are putting a lot of effort in retention, and we are seeing the benefits of those efforts.

Okay. Great. And then how about the '07 engine selling that. Clearly it sounds like you have a lot of bids out there. So customers are willing to buy the '07 engines. Can you talk about your success thus far relative to your expectations.

We think the receptivity of the '07 engines will be good. The OEMs did a very good job, testing them thoroughly. A number of them have been in service for a good bit of time with selected customers and we think the receptivity will be good.

I think it's still probably pretty early Jon, but I think one of the concerns was the concern over the mileage and actually I think the mileage is turning out better than was originally forecast or guessed at.

That's right.

Okay. And then are you seeing the -- at least in your pipeline, I mean is there a bigger weighting of the class five through seven, versus the class eight, versus where you were last year.

We pretty much see the distribution by classes within in our pipeline, staying largely the same what we are emphasizing is a larger size transaction as the composition of the pipeline and we see those growing as a greater percentage portion of the pipeline and we like that because administrative sales and marking could have are lower on a larger deal transaction. So we like the level of the pipeline and the composition of the pipeline.

Okay. Very good. And then lastly on the commercial rental side. I mean, Greg, can you kind of put some bounds around how big of a risk this is. I mean, it seems like in your performance -- really, that was the open big drag, if you will. Like we have that for a while, in front of us but I guess I look at your fleet size.

I look at your utilization and it kind of looks like where we were in the first quarter of 2002. Is it realistic to be able to get back to kind of this 70% type situation by the end of the year? Given your outlook today?

Yes, it is. We do believe we will be back in the '70s. We are putting forth an effort to right size the fleet on a much more timely basis with the asset management disciplines that we have in place now, we believe that we are responding more quickly to right sizing the fleet. We do plan on these levels remaining soft. That's our plan. If the markets do firm, then we will really enjoy improved utilization and improved pricing. But overall, as a result of our right sizing the fleet, as Greg had mentioned, we do plan on seeing unite station in the 70s later in the year.

The other thing I will mention Jon from your acomador questions is that in 2002, five years ago, we now have five more years of experience in asset management in running this business model in a way that we think is considerably better and more efficient and I think that experience helps. In addition with the acceleration of contractual revenue over the last several years, dwarfing what has been going on commercial rentals, the commercial rental business is a smaller factor. It all counts. It's all important. But by comparison, it is also a smaller factor of our entire portfolio.

Great. Thank you.

Thank you. Our next question is from Alex brand. You may ask your question and please state your company name.

Good morning, actually, this is Kevin Sterling for Stephens in for Alex Brand.

Good morning.

Greg kind of talked about the commercial rental revenue declining as a percentage of the total revenue. Do you have a goal that you would like to get this percentage down to?

No, we do not have an articulated internal or external goal. We would like to have every piece of every segment growing and, you know, the reality is that this is, you know this is somewhat of a transactional portion of the business and it's more responsive to what's going on in the market place but we think it's an important part of the overall portfolio.

Remember that half of the our customers in lease utilize the ability of that rental fleet to supplement their shorter term needs or some of the pushes in volume that they may need. So we are not -- we have not either internally or externally said that there is a primary target. We did say a while back that the faster we can grow contractual revenue, the long term revenue and DCC, FMS and supply chain, the better off we would be as a consistent performing, better balanced organization. But specifically to answer your question, no, we don't have a target.

Well, thanks for that color on that. That really helps clarify some things. Can you talk about commercial rental volumes as we progress throughout the quarter, between January and March?

If Tony, do you want to distinguish between the months of the quarter, between January and March? Is that what you are trying to determine?

Yes.

Kevin, I think in general, we are seeing utilization improve as we go throughout the year, as we continue to work with the market place on pricing and most importantly, as we right size the fleet. As I said earlier, with our asset management disciplines in place, experiencing through this cycle, we are much more responsive to right sizing the fleet by asset class, and also by geography. So we are seeing the utilization improve as we go throughout the year, with the right sizing and the seasons picking up at the same time.

Thanks, Tony. And one last question about commercial rental revenue before I move on to something else. Can you remind me again, how much of a decline you are projecting for the commercial rental revenue for the year?

Our original plan estimated the decline of 6 to 7%. We are at a base that's a little bit higher than that, but we haven't disclosed what our full year estimate may be.

Okay. And moving on to SCS, can you give us some color on the SCS auto business? For instance, are the plant closures done and are Toyota and Honda becoming growing faster than General Motors and Ford dropping off?

I will ask Vicki O'Meara in our U.S. Supply Chain to comment.

Thank you. The automotive volumes overall across the United States market have declined and that has been a factor in our revenue base but you see our revenue increasing on a net basis because of other parts of our segment increasing at higher rates. Within the automotive segment specifically, we have a net overall positive story here because our new business in automotive, some of the companies that you mentioned are good customers of ours and we have some new business with them and our start-ups in the automotive accounts have outpaced the decline in volumes.

We do have one significant plant shutdown that we are working through, as we had announced previously that will affect -- that affected first quarter and will continue to affect the second quarter, but overall, General Motors, if you were following their recent transformational announcements is posting significant positive news globally and in North America. Profitable now in North America, they are experiencing declining -- or decreasing volumes overall globally, they are doing a lot -- a lot more positive business. And in our portfolio, we have a net increase in volumes and that's shown a good increase in revenue but we are experiencing some margin impacts due to start-ups and the plant shutdowns.

Thank you, Vicki. Appreciate that color. And, Greg, one last question for you. How would you characterize your sale assests to penetrate the product fleet market?

I think it's -- it is a continuing effort that I think we continue to see progress in. Over the last several years, it began with a commitment from the top and that means from sales leadership.

It meant trying to prepare and train our sales force to consider the advantages and make sure that we sold the advantages of outsourcing and in an increasing complex or more complex environment, especially with engine changes. That really does make sense for more private fleets to consider the advantages of outsourcing to us, in particular, at Ryder, because certainly we can do that more efficiently and cost effectively than they can do it themselves. So I would say that we have made progress. We continue to make progress. But we are nowhere near where we think we are fulfilling all that we are capable of doing.

Great. Thank you. It seems like you have a lot more opportunity ahead and nice quarter. Thanks for your time today.

Certainly. Thank you.

Thank you. Adam Talhiemer, you may ask your question and please state your name.

It's BB&T Capital Markets. Good morning, guys.

Good morning.

On the full service lease and maintenance growth, you know that continues to accelerate in Q1. I guess how much of that is a reflection of contracts signed last year and how much of that is a reflection of new business wins?

Well, they are sort of all in the same category, but I will let Tony discern a bit. I think the one that stands alone a little bit different is the maintenance. You know, those are probably cases where those are new contracts and new efforts. Full service lease can be a combination of additional volume in existing fleets, as well as new customers. I will let Tony comment on that.

Thank you, Greg. Adam, I think generally speaking the preponderance of the contractual lease growth business in the first quarter was from sales activity in '06, because of delivery times from the OEMs, and also in service time periods to get the vehicles generating revenue. So predominantly, there was some -- but predominantly the lease growth came from sales last year. More typically,en of third, fourth quarter, would carry deliveries into the first quarter and Greg is correct.

On the contractual maintenance piece, the turn around time on that is much more quickly. You take the vehicles over and you immediately begin to generate revenue. So a good portion of the contractual maintenance piece is late fourth, also within the first quarter as well.

Great. And then if I kind of extrapolate that out -- and I think you used to actually give numbers on a per segment basis. Where should we expect 6.4% both to either accelerate? How should I carry through the remainder of the year?

We believe our lease growth and contract maintenance growth generally will sustain these levels.

Okay. Great. And I think you mentioned that contractual miles were down less in Q1 than they were in Q4. What was driving that? What does that mean?

What we were measuring is we look on a per unit basis whether the miles driven are staying the same, going up or down, because part of the revenue we earned comes from the miles being driven as -- as apart from the pure leasing bill. And what was down less was comparing the first quarter with the fourth quarter. We were down about 1% or so compared to a year ago in the first quarter. We were down a little bit less than that compared to the fourth quarter '06. And we pay attention to that as a sign of kind of freight demand and general economic health. So at those levels, that is not disturbing.

It sounds like they were actually a little bit better than you were forecasting?

I don't know that -- it would be hard for us to differentiate that. We don't get into that level of detail. But, you know, on comparison, especially relative to commercial rental, you just didn't have that kind of decline or concern.

Great. And the last thing, I just wanted to clarify, Mark, I think you said that you were sticking away from the free cash flow guidance of $235 million for the year?

Yes, we will revisit the rental fleet. We mentioned that might be down as much as $75 million for the plan. At the same time, the full service lease business might be up. So on a cash flow basis we would be on plan. We will figure that out and probably come out with a new forecast the next time we talk.

Great. Nice quarter and thanks for the time.

You're welcome.

Thank you. Ed Wolfe, you may ask your question and please state your company name.

Ed Wolfe, I'm sorry, there's so many calls going on at once, and I'm back and forth. If I ask something that has been covered, just tell me and we will cover it offline. It seems like there was a jump in profitability, what changed in the dedicated side of things and is that ongoing? How do we think about that going forward?

I think the dedicated trends for margin improvements have been going on for some period of time. So I think the more important thing is to look at the longer trend, take out some of the quarter variability and look at the progress over several years. And I think that's the kind of way we look at it. Because in any given quarter, depending on what is in or out from a year ago or currently, you can have a little bit more variability.

In this year, we not only had increase in net operating revenue, we had 2% net operating revenue growth, which I think is very good in this environment, plus we had some lower costs. We had some lower safety and insurance expenses. So I think that showed up a little bit. If I'm missing anything, Vicki, you can add it.

Just a couple of points to elaborate on that very theme. One of the important initiatives that have enhanced the margins over the past several years has been our intentional exiting of lower margin business and replacing it with higher margin business, and you see that trend continuing through our new sales efforts and the other efforts that Greg has referred to. In addition, affecting margin is the continued best in class safety performance in the dedicated product line.

We are improving year-over-year in safety as a percent of operating revenue and dedicated improvement is 9% from the safety perspective. We are continuing to invest in this business, in talent, and in process, and you will continue to see them sustain platform for the transformation of this business and continued growth. We hope that this investment will accelerate top line growth but you will see the quality of earnings as well. Thanks.

So taking away from that, there's obviously some things that you are doing very specific. The insurance side of things, it feels like you think that can be sustained, there's nothing one time in that?

Well, you know, one severe incident can cause a short-term impact that none of us can, with a crystal ball say won't occur. We are making a very conservative decision and are trying to make sure that our practices are as good as they possibly can be. Our safety records are showing that and we are demonstrating consistent now over the past couple of years improvement in safety performance, which has a couple of impacts not only on the immediate expense but long-term insurance rates as well.

I think the safety culture that really focuses on this kind of attention, at every level, including the people who are handling the equipment, driving the equipment, the tools, the training, the awareness, the reminder, the recognition and the awards, all of that contributes to what I think we all want. And that is the safest possible environment. And ultimately that also shows up in -- in being more efficient and having less -- less costs in those areas.

Are you seeing any more competitiveness, though, on the rental business? Obviously there's a lot of trucks out there. You would think that that at some point that impact is dedicated.

You see in the mark trends that dedicate is continuing to grow as an industry. It is not as rapid a growth as your non-asset based transportation segments that are reporting out, far more rapid growth, but we are continuing to see steady, strong growth in this mature product line. And we haven't seen an impact vis-a-vis the rental market at all. You do see some freight volume impacts on dedicated, however, we are fairly insulated given the long-term contract nature of the business, given the short-term variabilities.

On the gains on sales side, how should we think about that $15 million number as we go forward?

That number will be down slightly in the second quarter. We are going to -- we have a lot of trucks to sell and we will probably take some of them through an option process instead of our retail operation that Tony Tegnelia runs. So we think gains will be down about $2 million on a global basis from the first quarter run rate.

And how do we think about the second half of the year?

Second half of the year should be comparable with last year.

You said comparable with last year.

Yes.

Okay.

Once we wind through this heavy truck used inventory and get down to the usual 5,000, it should be steady state. The prices should remain steady and the gains should be comparable as last year.

At this point, are there any trucks that are pre '02 that are left?

Pre '02? I don't know. I wouldn't know that. We would have to look that up.

What I'm trying to get at, that are before the first change in truck engines.

I get what your question is, but I don't know that any of us in the room have that information.

Very few Ed for the most part.

And what are you seeing in pricing terms now, versus, say, six months ago?

Pricing is very stable.

Into for both Class A and straight or is one different for the other?

For the most part within each classes, the pricing is very stable.

And then one last question for Mark.

Yes, I can. Interest expense is going to be -- it's going to be $39 million in the second quarter is what we see. Average debt will be relatively unchanged.

Okay. And in terms of the share repurchase, anything more aggressive or less aggressive that might impact that as we go out a couple of quarters.

We have nothing to announce until we announce it.

Okay. Thanks a lot, guys for your time.

Thank you. Our next question is from Todd Sauer. You may ask your question.

It's KeyBanc Capital Markets. I just want to understand some of the trends that were talked about on the leasing side of the business. Tony it sounded like you alluded to the lease writing activity in the first quarter. Not necessarily assets placed into service but at least trending a little bit maybe better than what you were expecting or in line with expectations?

Yes. Our -- our planned sales, net sales in the first quarter were better than we had anticipated. And as I had said, we have more commissionable individuals on the street this year than we did last year and also the fourth quarter comparison. And their per person quota is higher than it's been in the past as well, and the pipeline is higher, and the portions of pipeline that represent larger deals is greater than it was in the past. So we feel very good about '07 net sales.

Anything in the market that's happening with those positive metrics or just some similar trends to what you guys have covered in the past?

I would say generally that these are reflections of -- of what we said we wanted to do internally to improve the operating performance in sales management and sales execution. Clearly we had an opportunity in '06 with a market place opportunity that I think we were able to take advantage of. The -- the difference and the improvement I think is that we are now more equipped to take advantage of market opportunities when they occur and also to do a more diligent focused, capable, accountable job of selling than we had done in the past and that's why several years ago, we focused on that area of attention and improvement as a part of our -- our delivery to the market.

Okay. That's helpful. Great. And then I guess switching over to the supply chain side of the business, it looks like some pretty good revenue growth on the international basis. Can you talk a little bit about the customer mix there, as well as the nature of the business that you are seeing on the international side?

Yes, it is a mixture. It is not necessarily dominated by a particular industry; although, we also do extremely well in automotive. But in -- in international, it is -- it is a good balance of growth between automotive, high-tech and consumer goods.

Is the breakout relatively the same as what you see here in the U.S., or is it more skewed towards the high tech side of it?

It is a little bit more balanced because it is newer and a little bit different. We have a much larger install base of automotive in the U.S.

Okay. And then I you might have covered this. The head winds. Does -- as we go into the back half of the year?

Second quarter is a reflection of some things in the first. It is both some start-up and shutdown. I think the shutdown we get through our toughest issues by the end of the second quarter. Start-up, it all depends if something else comes to fruition that we may not be aware of, but we don't have anything that -- that is big or as -- as a -- as a big outlier as we look ahead.

Okay. And then just one last one, I will look on the detail side. Was there any change to the full-year CapEx guidance?

No. I don't think so.

No. As I mentioned earlier, we're revisiting rental but we think whole service lease could be higher. So we haven't changed the $1.3 billion total year forecast.

Very helpful.

Thank you. David Ross, you may ask your question and please state your company name.

Stifel Nicholaus.

Good morning.

First question going back to supply chain real quick, I know the margins were skewed this quarter with a one-time cost. Can you talk a little bit about the profitability by segment or the auto and industrial businesses more profitable. Are the high-tech businesses a little more profitable, potentially what is the mix there? Into that's a level of detail that we --

That's a level of detail that we have not disclosed.

Okay. And then going to the full service leasing side, you know, pricing on the full service leasing contract, competition out in the market place, do you want to talk about that for a bit?

Sure, I will let Tony address that.

David, we see the pricing on leasing very stable. As I mentioned earlier, pretty much by asset class, pricing is very stable from where we came off of '06. And we don't see that changing much.

Okay. Thank you very much.

You're welcome.

Thank you. Our next question is from Brannon Cook. You may ask your question and please state your company name.

JP Morgan.

Good morning.

Good morning. Just a question on the dedicated business. You seem, you know, somewhat confident about the ability to continue to grow that business. Could you talk a little bit about the competitive dynamics in that business and maybe, you know, how much of your dedicated business do you feel like its competitive with some of the larger truckload carriers dedicated offerings and how much is more kind of a specialized offering that you guys provide?

I don't know that I could give a -- a -- a real accurate precise ratio, but I think that you have hit on something that has been a part of our attention and success and that is we do provide a lot of value-added services. We do more than just meet a dedicated pickup and delivery window. We have our employees who serve our customers by being in their uniforms with the logo on their truck as service to our customers' customers. So, you know, part of our success is making sure that -- that we focus on that segment and that niche where we can be most successful.

And so therefore, irregardless of how others may try to enter some dedicated-type services, I think the more that we stick to our particular capabilities and really a lot of extra added value services that we -- we can perform very well. I would say that in most regard, we do considerably more for the vast majority of our customers than just meeting regular dedicated pickup and delivery window but we do a lot more in the way of being engrained and involved in the ongoing dynamic adjustment of our -- of our activity with the needs that they are encountering on their day-to-day business. And I think that serves us well as a way of solidifying our position, putting our resources in the right place and giving the right value to customers.

Okay.

And before I leave that one, I will let Vicki comment if she has anything else.

Yes, thanks. Building on that, the size of the niche market is -- is significantly smaller, but then the overall freight movement market in dedicated and competitive landscape, but it's still about $5 to $10 billion outside market in the niche services where it requires specialty equipment and special add-on services of the sort that we provide very well in the context that Greg mentioned.

One other important factor in the competitive landscape on dedicated that is important for us to explain about our business is we are combining our dedicated services with our transportation management offerings and we are able to compete very effectively against the truckload carriers who enter the dedicated environment with the ability to take incremental freight on their truckload line. So we can offer the same incremental freight movement capacity and we are finding this to be a very strong competitive advantage in the market. It's being very well received and a lot more receptivity in the large private fleet where we see great opportunity to turn over dedicated business.

Okay. That's helpful color. As a follow-up on dedicated, you saw solid, you know, EBIT growth in that segment at 22%. Well outpacing your guidance for that segment, for the full year. Is it reasonable to expect continued double digit type EBIT growth, looking towards the second quarter or does safety and insurance have enough of a tail wind so that we look for that to slow potentially to the single digit levels.

I think we have to look a little bit more the to the reversion of the mean and the averages. Over time, I think we will have consistent performance and I think we were estimating modest performance on the net perfect tax line when we did our 2007 plan. So when you see a bigger than normal quarter, I think it would not be appropriate to extrapolate that kind of improvement all quarters or near quarters going forward.

I think what you can expect is continuous steady improvement over time that will hover around an average and some quarters that will be lesser or lower -- lesser or higher, depending upon what we may have faced in a prior year or some particular positive impacts in the near term. I think you really have to look more at the longer term averages as a way to view this.

Okay. Okay. That makes sense. And finally just on a used vehicle pricing, looking out, I guess, you talked about, you know -- you talked, about you know, potentially having to get more aggressive, trying to sell some of those trucks and going the whole sale route. Should we look for the vehicle pricing for used trucks to come down in the second quarter?

Brannon, I think the way we are look at it is on the -- on the retail side, for tractors, we see very stable pricing in that segment of our distribution channel. Trucks a little softer but still on the retail side. The price is really very good. The only time we turn to a wholesale channel where we do receive fewer proceeds is if we feel that the inventory levels are getting a little bit bloated and we don't want to be caught holding long in the event that prices weaken in the future.

But right now, we see very stable, very good pricing on the retail side for tractors. We believe that will continue. A little softer on trucks retail, but still stable and fine. And we only turn to the wholesale channel if we see inventory levels rise a bit beyond where we are comfortable. So looking on out into the future, we may be turning to that as an avenue, but generally speaking, we always go the retail route first and try to get the best price.

Okay. Thanks for the time.

You're welcome.

Thank you. David Campbell, you may ask your question and please state your company name.

Thompson Davis and Company. I have been hearing and from most of the trucking companies that have reported first quarter results an improvement in revenue growth in the last few weeks of the quarter and continuing in April. Yet you seem to be more concerned that your commercial rental business will continue to be soft, continue to be down significantly from last year. Is that -- is that due to the fact that commercial rentals lag the improvement and trucking growth, revenue growth, are is it just you are trying to be conservative and insure that your utilization goes up?

David, this is Tony. As I said, we are doing our fleet planning following the assumption that this level will soften until we recently experienced does continue for several more quarters; however, due to seasonality and also with the right sizing of our fleet, we are seeing our utilization improve as well. If those who are predicting that the balance of the year improves, those economic cycles that impact rental, then we will be all that more beneficial on pressure on rates and also pressure on utilization.

But we are planning for the softness to continue. We think that's the best approach to take with our fleet. And as Greg mentioned, we will be right sizing the fleet with a greater reduction than originally anticipated if we are correct on that softness continuing, we'll be very glad we took this conservative approach on the reduction of fleet levels. If we are wrong, we will enjoy the upside on price and utilization.

Yes, that's true but you may enjoy less revenue growth than you could have enjoyed.

We believe that there are many vehicles that the OEMs will be able to provide to us. So if we do see the markets dramatically improving over what may be predicted, we are confident that the '07 engines will be available to us and we won't miss that revenue.

I would say -- and I haven't mean here as long asset, not quite eight years yet, but I would say the risk and the danger of a down side or downsize is greater than a potential upside miss. And for that reason on balance, we're going to do what we think is prudent and appropriate, and not count on a few transportation companies estimates because things look better in the last couple of weeks.

You have to look at the whole picture. You have to look at all industries, you have to look at everything tied to housing. You know, our call -- and I wouldn't call it a conservative one but a prudent one, that I'm willing to say that we are much better off in terms of our consistency and performance to those of you who invest in us to be cautious because of the down side rather than the potential upside miss.

Thank you. Then my second question is: Your full service lease, the capital expenditures for new vehicles and full service leasing this year, does the company plan on continuing the growth in that -- those revenues in 2008, that is does the capital expenditure plan sufficient to give you growth next year?

Well, David, we believe in 2008 and 2009, we will also see some very attractive increases in sales activity, in anticipation of the 2010 change of EPA requirements on the engines. So we are looking forward to 2008 and 2009 and as Greg had mentioned earlier, with the added emphasis and focus on our selling and marketing, with that we are in a better position to take advantage of those kind of surges in the market place. So we are looking forward to '08 and '09 and growth and leasing does require CapEx.

Right. The growth in CapEx is sufficient to give you revenue growth next year?

Sure.

Thank you very much.

You're welcome.

Thank you. Phillip Walker you may ask your question and please state your company name.

Phil Walker at White Mountain Advisors. Hey Greg, the call has been pretty uplifting. I wanted to draw your attention to transport topics was the journal 385 trucking companies went belly up in the first quarter. The article mentions that there's almost a recession in the trucking business. You know, clearly is this something that you guys are seeing with some of the operators that you lease to? If so, does this have implications in terms of the collateral values throughout the rest of the year.

I will let Tony comment.

We are not seeing the rise in bankruptcies within the customer base that we have. For the most part, the preponderance of our customer base is private fleet operator, not necessarily small carriers.

Okay. So in terms of a lot of collateral coming on the market, you don't think that will move the needle for your used truck inventory?

It may, however, a Ryder road ready vehicle on our used vehicle operations is actually a brand within the market place. And because of the history and the maintenance being performed on those units, by Ryder that road ready brand really helps us. As I said earlier, particularly on the retail side. A very small carrier who may have had to be insolvent typically that unit would not compare in quality or historic maintenance level to a Ryder unit. We don't necessarily see those units competing with our Ryder Road Ready brand of used vehicles.

Got you. Thanks a lot.

Thank you. I would like to turn the call back over to Greg Swienton at this time.

Since it's 12:00 and some of us have other commitments that we have to get to, as well as you, I thank you all for your participation and your interest and have a good, safe day.

Thank you. This concludes today's conference. Thank you for participating. You may disconnect at this time.