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Tickers in this Article: R, AMMX
Ryder System Inc. R), one of the world's largest providers of integrated logistics and transportation solutions, has reported third quarter 2012 adjusted earnings of $1.28, which surpassed the Zacks Consensus Estimate of $1.18 and increased 17% from $1.09 in the year-ago quarter.  The year-over-year growth was aided by improvements in Fleet Management Solutions along with higher contractual revenue, increased used vehicle sales, cost improvements and adjustments in rental fleet size.

Adjusted earnings for the third quarter 2012 excluded the negative impact of $0.02 or $0.9 million in special items related to changes in tax laws.

The company registered revenue of 1,573.3 million in the third quarter, which came below the Zacks Consensus Estimate of $1,620 million and remained flat year over year. Operating revenue (total revenue less Fleet Management Solutions fuel and all subcontracted transportation) increased 2% year over year to $1,283.2 million, driven by increased full service lease contracts.

Segment Results

Fleet Management Solutions: Total revenue inched up 1% year over year to $1,115.4 million on higher Contractual revenues and other revenues that increased 4% and 2%, respectively. The growth in Contractual revenues was backed by increased Full service lease.  Operating revenue for the segment increased 3% year over year to $848.1 million.

Supply Chain Solutions: The segment includes operational activities of the company's Dedicated Contract Carriage business. Total revenue remained flat year over year to $563.2 million in the third quarter. Operating revenue (excluding subcontracted transportation) also grew 2% year over year to $485.1 million. The year-over-year growth was primarily based on higher volumes in automotive and dedicated contract carriage.

Liquidity and Cash Flow

Ryder System ended the quarter with cash and cash equivalents of $95.7 million compared with $113 at year-end 2011. Cash from operations was $768.0 million compared with $782 million in the year-ago quarter. Given heavy investments in vehicles, free cash flow was a negative $436 million versus a negative $113 million as of September 30, 2011.

Guidance

Management expects fourth quarter 2012 earnings in the range of $1.06-$1.11 per share, up.  For 2012, management expects earnings in the range of $3.93 to $3.98 per share, up from previous expectation of $3.75-$3.90.

Recommendation

Despite the company's strong performance in the third quarter and encouraging earning projections, we remain concerned about the challenging economic environment surrounding its operations. Further, heavy capital expenditures, a distressed cash position, lower demand on tighter truckload market and competition from companies like AmeraMex International, Inc. (AMMX) are also expected to create significant headwinds for the company.

We currently have a long-term Neutral rating on Ryder System. For the short term (1-3 months), the stock retains a Zacks #3 Rank (Hold).

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