Ryder System, Inc. (R) Earnings Call Transcript & Summary

Okay. Thank you. Good afternoon, everybody. We're back here on the final transports presentation for day 1. Brian Ossenbeck, I cover the group for JPMorgan. Thanks for joining us here. Again, we have Ryder, and with us is Robert Sanchez, who is the President, Chairman and CEO. We have Calene Candela in the audience as well. So Robert's going to go through a few slides here just to kind of get us refocused on Ryder and then we'll go into some Q&A. And of course, if you've got questions raise your hand, we'll get you a microphone. So Robert, thank you very much for being here.

Thanks, Brian. For those of you who may not be as familiar with Ryder, just a quick overview. We're a leader in outsourced transportation and logistics, about $12 billion of revenue. Our operations are strictly in North America. We have just over 48,000 employees made up of warehouse workers, professional truck drivers and technicians. We have one of the largest fleets in North America of just under 260,000 vehicles. We operate over 300 distribution centers, just under 100 million square feet of warehouse space that we operate for our clients. And we have just over 750 maintenance locations that we maintain the fleet from. Business operates in 3 business segments, a Fleet Management Solutions, which is our truck leasing and rental business. If you think about that, it's the outsourcing of a truck. There's a Dedicated Transportation Solution, which is the outsourcing of the truck and the driver. And then there's the broader supply chain solutions, which is the outsourcing of trucks, drivers, warehouses, distribution centers and transportation networks. So just on the split of the business, this is the first -- 2022 was the first year where our more asset-light Dedicated and Supply Chain businesses were more than 50% of the revenues of the company, which had always been -- more than 50% had always been the fleet management business. And you can see we have a very strong diversified customer base. We do business with over 15,000 businesses on a contract basis. And if I think about our total customer base, it's nearly 40,000 businesses across all industry sectors. We play in very large markets. So we said we're in the outsourcing business. So whether it's the outsourcing of the truck, the truck and the driver, or third-party logistics, everything we do, a customer can do on their own, a client can do on their own. So our job is to do it more efficiently, more reliably and more safely than they can. The non-outsourced market across each of these businesses is very large. Typically, anywhere from 80% to 90% of the market is still not outsourced. So our focus on North America is just about continuing to chip away at companies that have an outsourced activity and having that outsourced to us. Secular trends that favor outsourcing in our business are anything that make what we do more difficult, and the good news is that there hasn't been a shortage of that. More regulations, the drive for cleaner air, the drive for safer roads, the shortage of truck drivers have all been helpful for outsourcing and getting more companies to outsource. As you might imagine, all the conversation that you heard about disruption in supply chain since the pandemic, really good news for Ryder. Because the more there's disruption in the supply chain, the more companies are looking for help and they come to companies like Ryder. So we don't see that necessarily changing. The big move towards e-commerce also has shifted supply chains for a lot of companies. You'll hear a lot about near potential near-shoring, onshoring that's all stuff that really, I think, would favor not just outsourcing, but outsourcing at companies are focused in North America. About 3 or 4 years ago, we shifted our strategy. We pivoted from what was primarily just an overall growth strategy to grow across all of our business segments equally, to really accelerating the growth in our more asset-light businesses and having a more moderate growth across our more asset-intensive fleet management business. The reason we shifted to that was we felt that, that type of growth could provide us a better balance between top line growth and then earnings and free cash flow. Because very heavy growth or very strong growth in our fleet management business does require a lot of capital and really puts a lot of pressure on free cash flow and felt that this balance would work better. Good news is we've made a lot of progress in that. We've generated over $3.6 billion of free cash flow over the last 3 years. We had 3 pillars really for that strategy. The first one is really to derisk the business. One of the things that we looked at in our leasing business is that the methodology we had been using for determining residual values for those leases, the last cash flow was based on a rolling 5-year average. We realized that, that wasn't always working as well as it could, and especially with the volatility that we were seeing more recently in the used truck market. So we made a decision to lower those residual assumptions really derisking the leases. So more of the return is based on the cash coming in from the company that's leasing the vehicle from us and much less on that final cash flow. Another thing that we did is we got out of our U.K. FMS business. So we were still in the U.K., even though we're primarily North America. It was underperforming. And we took the opportunity last year as used truck prices had really escalated in the U.K. to sell out of that business, and really narrowly focus on more on North America. We did things around improving the returns of the business. A big one for us was we reduced our maintenance costs through process reengineering in our shops and better buying. We reduced our maintenance cost by over $100 million in our fleet management business. That was a multiyear initiative. We still have some more of those types of initiatives to go. And then just as importantly is really the repricing of our lease portfolio at higher returns. So we started this in 2019. We've got 60% of our fleet now repriced at the higher returns. And 20% of it, we've actually already priced yet we're still waiting for the vehicles to come in, in 2023 because we're a year out on delivery of vehicles. So we've already got leases signed and the vehicles just have to hit the ground. So by the end of this year, we'll have had -- 80% of the fleet will be repriced at the higher returns. We've said that total benefit is over $125 million once we have the whole portfolio repriced. And then around driving long-term profitable growth, the accelerated growth in our Supply Chain and Dedicated business, really being done organically, but also through acquisitions. So we did around $800 million worth of acquisitions in supply chain in the last 14 months to really grow into the e-commerce fulfillment business was one of the big ones that we did. We also bought a technology company to help us on that end. And you can see that the mix -- as I mentioned earlier, the mix of the revenue of the companies are shifting and it's the combination of that organic growth and the acquisitions. And then last, but not least, we've had also, we have plenty of balance sheet capacity to do not only acquisitions but to do buybacks. We returned just under $700 million to the shareholders last year through buybacks and dividends. So we feel really good about where we're at. We think the strategy has really gotten us to a good place. And even as we expect things to soften in the business this year, we still expect to have a very strong year in terms of returns. So those are all the things we've done in the past, things that we still have to do, obviously, continue to grow our Supply Chain Dedicated business organically. We think that can grow high single digits, low double digits on a normalized basis, continue to drive better lease pricing, that's continue to get that last 20% of it repriced. Every year, we're going to drive more maintenance costs out. We spend about $1.2 billion, maintaining our fleet of trucks. So we got a little over $100 million out. We still think every year, there's a -- historically, it's been anywhere between $15 million and $25 million to take out. We're still going to have with this balanced growth. We're still going to have capacity for acquisitions and share repurchases. So that's how we continue to add value and grow the business.

Okay. Great. Thanks, Robert. Yes, there has been a lot that's changed. We'd go through these conversations in the past and just be 5 or 6 different questions about used trucks, different variations of that. So it's nice to we don't have as much and it's really not driving the business as much. So when you think about this balanced strategy started a couple -- a few years ago, as you mentioned lowering residuals, exiting U.K. business. Is there anything else you feel like needs to be realigned or addressed? Or do you feel like you've gotten the big heavy lifts, which I think were pretty big for what you've done. Are those all pretty much finished at this point? Are there a couple more you feel like you've got to address in the next couple months?

I mean -- yes, Brian, to your question, I think the big one was obviously the residual assumption in our lease pricing. Bringing that down really takes a lot of the downside risk of that used truck price at the end when we go to sell the vehicle, really hurting the returns. It really increases the chances of upside on what your returns are going to be. One other thing we did that I didn't mention is we did extend the warranties on our equipment starting back in like 2017 -- '16, '17, and that really helps us also derisk the maintenance cost risk across the fleet where much more of it is covered under warranty. So we've really gone through a checklist, if you will, of what are the things that could go against us and how do we mitigate that. The last one that we did was what we learned when driver wages shot up 7% to 12% in a year. Our contracts were set up in a way where we could pass through driver wage increases pretty well, but we did have some caps in there of 3%, 4%. So one of the changes that we're in the process of making, we've got about 40% of the contracts with that change already made is to really eliminate those caps. So if the market for driver wages goes up more than 3%, 4%, we're able to more easily pass that through to our customers. So we passed through the price, but it required a lot more work, I think, than what we wanted to, and there was a delay in making that happen. So I think we've tackled the big ones that we can see in the business.

Yes. It seems like the way it's set up now, you'd almost have gains built into the model almost in perpetuity or at least maybe a high probability of having gains in the future when you sell the trucks based on where residual values are. So I don't know if that's really more realistic or if it -- if you can actually really count on that because I think you've reset the values in the residuals to be much, much lower and you've got it in the price now. So it just feels like there's a lot more protection. Obviously, things can change, numbers can come down. But it just doesn't seem like it's going to be nearly the same as what it was before.

Yes, if you just look at historical prices for used trucks, and we have a chart that we show on our deck for like 25 years' worth of pricing, the likelihood of there being gains are much greater than the likelihood of there being no gains or in any way a need for additional depreciation, right? Because in order for us to go below our residual values you'd almost have to have used truck prices go below what they've ever been at and then stay there for an extended period of time. So we've tried to -- not so much just derisk it, but really allow investors to see the changes in the used truck market in one line, which is the gains line. And there's less worry about, all right, is it going to go through depreciation? Is it going to go through accelerated depreciation policy, we had a lot of different places where it could show up.

Yes. it certainly did, but I think hopefully, we're past most of that. There was a nice waterfall when it started to roll off because it was pretty big chunks year after year when you got through it. So looking on the other side of that, I mean, that's all accounting. But in terms of the free cash flow of the business, is this the point where you feel like you'll be positive free cash flow through the cycle or it obviously depends too on growth, but where growth is right now, it seems like you're closer to hitting that point of just more steady positive free cash flow almost regardless. But is that something that can change or again, like the gain is much closer to that being the reality than that.

Right. So yes, I think that's an important change, too, is we're targeting 2,000 to 4,000 unit lease growth, which we think on -- depending on how much replacement you have in any given year, that can generate more like $300 million, $400 million of free cash flow with that level of growth. If you don't have any growth, you're looking more like $800 million, $900 million of free cash flow. So if we can just stay with it -- if we stay within our target, you're going to generate $300 million to $400 million -- we would expect $300 million or $400 million of free cash flow as opposed to historically we were -- we had years where we went -- we were growing 10,000 units and we went $1 billion negative we're really looking to be positive. And I don't want to say every year because I may have that one year where we decide to grow a little bit more, but just about every year and certainly positive strong positive over the cycle.

And you mentioned the $1.2 billion of maintenance, obviously, you have one of the largest fleets out there, so that's not a small number. I think you had $100 million plus done already. Are there any other operation. Obviously, you've reset some of the risk parameters and have price. But anything else from an operational perspective that you feel like you can dig into a little bit more? I know you're going to do more maintenance like you just said, but anything else along those lines from an operational perspective?

Yes. It's what we -- I mean it's just the normal course of business, right? So on the maintenance side, we're always going to be looking, we have 750 locations, how do we become more efficient, how do we can keep the technicians turning wrenches more efficiently, giving them more information, more data on what they're doing, so there's less rework. So every year, we're going to knock out $15 million to $25 million probably of those types of initiatives. And then there's always even within the business, we have a zero-based budgeting process at Ryder that we go through every year. So we had the levers of which ones we decide that we're going to invest in as strategic investments in any year, and which ones we pull back. So if things got tighter, you'd probably see us pull back on more of them. There are certain strategic investments we want to keep going because they're really laying the groundwork for the future of the company. An example of that was this RyderShare technology that we invested in 2, 3 years ago. It was to give our supply chain customers visibility to their product, whether it was on a Ryder truck or a third-party truck and even in our warehouses, and it's done great. It's been a big driver for new sales for us and a differentiator in the marketplace. So we're going to continue to make those types of investments that help drive growth in the future.

And just on RyderShare. You guys have a lot of different irons in the fire, so to speak, with some of the investments, but also how to monetize rental like the on-demand rental with COOP. In this case, RyderShare does seem like it's driving lot of incremental business or at least it's part of the wins. I think at the Investor Day, you said it was almost 1/3 of new business wins for SCS and DTS. So what is it about that, that really seemed like it really connected or really helped the onboarding process for new wins.

Well, it was -- what made it a little unique because a lot of folks have visibility tools, but they're parts of their fleet in different pieces. This was a more holistic across different carriers and across different modes. But also it's not just visibility. It's also a really good collaboration tool. So everybody is looking at the same data set. So if a driver is going to be late, and they've got some comment they want to make, they can pull over, they can enter the information into the system and everybody sees it. Our dispatcher, the customer, the customer's customer, they're all talking on the same platform. And we found that to be -- or customers found that to be very valuable, and it's really helpful in our operation.

So I think with the business you have, you have a lot of visibility on the lease book because I guess it's a good problem to have that you're sold out, but you're obviously not getting those trucks to put them into place. So maybe you can just talk about do you have any visibility into '24 at this point, like what's booked for '23 as you look at FMS and some of those that are just waiting on the truck to be delivered. It seems like at this point, you have a pretty good feel for what's coming down the pipeline and what's spoken for already.

Right. So the leases that we have signed are not cancelable, if you will, from the customer side. So those vehicles will come in and the customers are going to take them. They're typically replacement vehicles for existing fleets. And as you know, we have some growth built in also -- but those have already been signed, and it's a matter of getting them delivered. As we look at 2024, so deals that are being signed today will be delivered in January and February '24. That's still a long ways away. And what we're finding is customers are now saying wait a minute, there's a lot to happen between here and next January. Let me wait and see. It's really not that big of a deal for us right now because we don't see the need right now to sign today because they might want to sign in another month or 2, and they can still get the vehicle in January or February. So right now, you've probably got a little bit uncertainty in the system than you had maybe 6 months ago as people, I think, are beginning to see what's going to happen with interest rates, what's going to happen with the economy. Outside of that, we do -- we have seen the used truck market turn. It started turning the first quarter last year and continued to decline. We're assuming in our forecast that, that decline continues through the balance of the year. So we can see used truck prices come back down from astronomical levels they've been at. We expect rental to soften too. As we -- primarily on the carrier side, as the freight market slows down, we expect less folks wanting to rent trucks and tractors from us. We expect the e-commerce-related straight trucks will probably stay a little bit stronger a little longer. But overall, getting off of pretty high peaks that we had last year.

So when -- can we get a microphone back there, if you could. When you look at the lease pricing again, you said it's a long time from now, like how -- a lot of things can change inflation and driver pay, like how are you looking at locking that in and protecting the margin? Is that something that's like predetermined? You're not worried about the passage of time, you don't have to go back to the customer and figure out what's changed by the time that the truck's delivered? Or is it pretty much all locked in when you sign it?

No, it's all locked in. We actually have a clause in there now where if interest rates change, there's an adjustment factor for interest rate volatility. If anything changes with the price of the truck, that also gets adjusted in the lease rate. There's a formula in the contract to do that. So there's very little exposure in terms of things -- it's kind of how we've been able to sign a year's worth of leases over the last year. So there's not a lot of exposure. The challenge for us is short term. We get a customer that says, I need a truck now, I mean, here we are, we're Ryder, and I can't find you a truck. So one of the things that you're going to see us do is lease trucks out of our rental fleet. So we have a whole rental lease program where we'll now take -- especially as rental starts to slow down, we start leasing trucks that are currently running in rental into lease and those get a really good return for the balance of the year. So that turns out to be a win, win. The customer gets the truck they want. We get a truck out of our rental fleet when there's less demand, and we have a good return on that investment over the life of the vehicle.

Robert, [ Gus Skaco ], HBIA Funds. Just a question for you. We're seeing with Paccar, Navistar, some others, they're doing enhanced onboard telematics. I think they're using -- I'm sorry, I think it's Platform Sciences is a company. That's going to be part of the -- a lot of fleets are using them. I guess that's going to be coming in the trucks. How does that integrate with the software, if at all, with what you have and the systems that you have. Is your's separate and distinct or is it meshed with it?

Yes. Well, we have different analytics, different telematics for different purposes, I guess, in our business. We have some telematics that we have in our fleet management business, which is for hours of service, and we offer that to our lease customers. And that is relatively agnostic to any of that. Then we have within our RyderShare business, we have a telematics connection that we have set up with third-party carriers. And that's actually, that's also agnostic, it's just through a different field. So as the OEMs bring in their own telematics technology, it will be very simple to incorporate that to the software that we have. The issue then is what you do with the data. And there, we've got a lot of different folks looking at it in different ways. The OEMs are doing their thing around predictive maintenance and how you optimize that data. We've had our own efforts around that. I think no one's really found the holy grail of -- these 3 fault codes in a row will lead to a breakdown, therefore, you should call all the vehicles in and have them changed out. There some areas that we're seeing some opportunity for that. That's some of the maintenance efficiencies that we're talking about, but still not the -- we still haven't found the holy grail, if you will, of how you keep all vehicle downtime from happening.

So we are still seeing a pretty good influx of new orders for trucks and tractors. Is that primarily on the replacement side, you would think? I know each one of those that comes up is probably an opportunity for business for Ryder, but what do you make of that is there's probably a lot of pent-up demand just because you couldn't get them before in terms of what's coming off the -- or what's coming off the OEM order books?

Right. Well, a lot of it is replacement, I think the OEMs will tell you that also. There's just been a backlog. I mean, it's -- if you sit there and do the math without a slowdown in demand, it's very difficult for the OEMs to catch up because they really have to ramp up their production because you have -- every year, you've got more replacement that happens. So I think the vast majority is replacement. Every one of those is an opportunity for Ryder to provide a lease solution if they're doing a purchase. That's really the growth opportunity for us. There's plenty of opportunity for us to grow 2,000 to 4,000 units. It's a tiny piece of what the OEMs are producing. So we acknowledge that. And that's why this year, we've already got locked in that growth rate of 3,000 to 4,000. And if OEMs were delivering quicker, we'd probably be growing more than that this year just because we've had kind of a delay from last year. But yes, plenty of opportunity still even though from an overall U.S. fleet, it's probably mostly replacement that you're seeing.

Okay. So a little bottleneck in terms of deliveries, you might grow a little bit faster based on that. But how is pricing because that was another big factor that you moved the needle on a bit in the last couple of years in terms of just getting residuals differently, finding where the market was from price and obviously changing probably some growth for that. But has that held up considering like you mentioned there's a little more uncertainty in the economy, things are cooling down on the freight cycle? Are you still being able to get the price that you want in these contracts that are going out to '23 or late '23 already?

Yes. The good news is we are. I think the -- all the challenges that Ryder felt in terms of wait -- increases in the price of the vehicle, the challenges around the variability of the used truck market, interest rate volatility. People who are buying their trucks, owners felt the same challenges. So I think what we're seeing is more customers -- and even by the way, the challenge of finding technicians, people being able to hire their own technicians become much more challenging. So that has allowed, I think, Ryder -- and I don't think just us, I think our industry to get a little bit more value and more spread on the work that we do. We've got, as I mentioned, 80% of our fleet repriced. We've got another 20% to go. So we'll have 100%. Now is that forever? I don't know if that's forever, but I know I've got a full book of 6-year leases now that have been repriced. And our goal is to continue to hold that price and continue to add value to customers so they see the value and continue to pay it. If we get into a situation where we're not getting that, then we'll have to make a decision on what else we do. But as I sit here today, there's probably more of a likelihood, it'll grow less and still try to maintain price and then grow the other parts of the business. I still have a supply chain, an important high return Supply Chain and Dedicated business that we can continue to grow in the portfolio.

Yes. So on that point, within Dedicated, are these still the first time outsourcers that are primarily coming to you from that -- in that business rather? And then the supply chain being as disruptive as it has, I would think at some point, maybe people will step back from outsourcing a bit because they feel like maybe they've got their arms around it? Or is it just because it's such a long sales cycle potentially that you're still going to go on further than when there's fewer ships outside the L.A. Long Beach, like when things calm down a little bit, Dedicated will still continue because those trends may have cooled off, but they haven't necessarily come back to the point where people are taking those decisions back internally or at least not outsourcing them.

Well, look, Dedicated -- big driver for Dedicated has been the shortage of truck drivers, right? Private fleets have a tough time hiring their own drivers. So what do they do? They go let me go find somebody who does this for a living. Ryder has 10,000 professional trucks. I think we're back up to 11,000 now professional truck drivers that work for us. We've got an incredible driver recruiting network. So we have a process for bringing in drivers, training them and making sure they're doing a good job. So I don't think the driver shortage, even though it's better than it was a year ago, for sure, it's not going away. I think that's more of a issue that unless we do something different around immigration or find ways of attracting a lot more people to being truck drivers it's going to be with us for a while. So I think -- that trend is there. Around the Supply Chain piece, all the disruption and the resiliency. You're right. Sometimes, businesses have a little bit of short-term memory, and we're on to the next problem. But I think, from our vantage point, the structural changes that have to be made in a lot of supply chains aren't going to be made overnight. You've got supply chains that are having to move their distribution points or moving their manufacturing . You have supply chains that are adding places to store inventory because they don't want to ever be caught again without semiconductors or parts that they need to make stuff. We're involved in helping companies do that and find new space. And I think that's a multiyear initiative that doesn't go away. This near-shoring, on-shoring, there's a lot of talk about that. I can tell you, as somebody we're in the middle of it. There's not a tsunami of that yet, but there's certainly a lot more discussions around, hey, the next manufacturing plant we open, the next distribution center we want to look -- we want to look at U.S., we want to look at Mexico. So I think that's a longer-term trend that we still haven't seen the benefits of that. I think -- but I think that's still -- there's enough on geopolitical uncertainty, I think for the near future, that companies are going to be wanting to be closer to the point of consumption and closer to, in this case, North America -- north American market, and I think there'll be plenty of opportunity for us there also.

Yes, because you have a pretty large business in Mexico already and do a lot of cross-border traffic. So is that -- you're going to see it primarily in warehousing at the border. Obviously, auto has been a big success story in Mexico for a while, and there's probably more to come. But we -- so we hear the same anecdotes and stories, but I guess we haven't really seen things you can necessarily point to. Where do you expect to see like the most near-term impact or maybe even just the biggest impact from an industry that could potentially come and really make a difference, maybe not as big as auto in how much it comes down into Mexico, but something that would be almost as meaningful.

Yes. What we're seeing is more like industrial manufacturing. So non-auto, industrial-type companies, specialty stuff companies that have bigger, heavier stuff. So the ones making a little -- well, I guess semiconductors are little, but outside of semiconductors. Bigger, heavier stuff are more likely to be nearshore. And those are the companies that I think you're going to see, if we can get Mexico stable, you're going to see them setting up more operations in Mexico. If not, I think you're going to see them setting up more up in the U.S. We just need labor here to be able to fill all the jobs. But I think -- I know the customers we talk to would like to be opening more in North America. They're just trying to figure out where and how to best do it. And it is a longer-term exercise that is going to take a while.

So you mentioned Supply Chain as there's a lot going on in that bucket, especially as you made some more acquisitions. But maybe you can talk about some of the verticals within there, the different end markets that you serve, ones that you might want to expand into. And it feels like, at least from our vantage point, like a lot of those, you have to expand into with an acquisition like you did with MXD with Last-Mile, that's a little bit different, but kind of a similar concept. So what are you seeing from the verticals and which ones are maybe attractive that you're not necessarily in right now?

So obviously, we're really excited about e-commerce fulfillment. That's a business that we bought at the beginning of last year, new growing vertical, new capability we have there. We're expanding. We're adding facilities for them to continue to grow. We're going to see that go through its first cycle here. So we've got a good team there that we brought in, so we're excited about that. And when I say e-commerce and say, I would put the e-commerce and Ryder Last-Mile to big and bulky also in that same space. Industrial, we saw a lot of new sales on the industrial side. So these are -- think about this as non-auto manufacturing type businesses. We think they're going to continue to want help. They've gone through some of the same supply chain challenges that you saw in auto. We saw it across a lot of these industrial companies. So as they work their way through this, we're picking up more business there. CPG has been probably the steadiest of all the verticals through the pandemic. I mean CPG, prior to the pandemic was a bit of slower growth, big, more mature type vertical. It's no longer. It's now been a faster-growing vertical. So it's like we all discovered CPG companies again. And they seem to be continuing to grow even post this pandemic hiccup, and we're seeing more new business there. Where we've seen a little bit less is probably around the high tech, we have picked up a couple of new health care companies. It's an area that we'd like to be in. You asked about where we might want to add. What we probably have our eye on right now is maybe looking at some reverse logistics type businesses. So we have the e-commerce component. So if you have e-commerce, you have to be a way of getting that product back from the consumer. We have a way of doing it with the company that we bought, but we may be looking for somebody who has more scale that we can add to the portfolio. And these are all just new services that we could sell to our customer base and continue to have what we call the port-to-door service within North America.

And these would be primarily bolt-on to the existing footprint? Or are some of these large enough where it would actually come like with -- like with Whiplash with another couple of facilities?

Yes, I think it could clearly come with additional -- like if we did a reverse logistics, I'd like it to come with capabilities facility technology. I mean, we're not -- we're looking to buy companies that are well run that are profitable that we can then bring in and scale.

And we hear a lot about with outsourcing with automation. Is that something that really -- I know it depends on the different vertical and the value they get from automation, the different type of automation, so it's a hard thing to generalize, but it doesn't seem like we hear as much about that in terms of adding value for Ryder, maybe it's just behind the scenes. But is that something -- I guess, how do you view that internally? And what will that do to some of these end markets that you're looking to serve.

Yes, if you look across all the distribution centers in North America, a very small percentage have a lot of automation. Most of them are still heavily labor, and it's because of the type of product you're moving. If you're moving pallets, there's not a lot of need for automation. If you're moving small pieces, that's where more of the automation comes in. So we have an entire group of engineers that focus on automation. We have automation that we've implemented for customers. We have automation that we use within our e-commerce business, but it's very much application and customer specific. So we do -- we are using it where there's a value for it where it's based on the labor cost and productivity here in North America, where there's an application to bring automation that's going to add value, we do. Otherwise, we continue to work with labor as the solution.

So I think one of the other interesting things about Ryder is you mentioned, I think 750 locations, right? So are there ways to monetize that or to get more utilization from those facilities? I know in the past, I think you've done some of these maintenance where you can do like on-demand maintenance and show up at a shop, and you looked at it at one point, I think, as doing some pilots with autonomous trucks and how that might roll out. So it seems like there's a lot of possibility for that many facilities. I just don't know if you've gotten a lot of traction with that or if there's other things you're going to try as the economy changes, as the freight markets evolve? Like what do you see coming next for that footprint?

Yes. It is a competitive advantage, if you will. So that's why there's not a lot of players in our business. It's very hard to replicate a network of 750 truck maintenance shops that we built out over a 50-year period. So one of the things we -- we're always looking for ways to leverage that. We can bring more vehicles into those locations. As you mentioned, one of the things we've tried recently or we're trying recently is working with some of the autonomous truck networks that are looking for hubs to run autonomous routes from. I mean, it's still early innings. But clearly, Ryder is positioned to be a player in that space, not only do we have the hubs, but we also have the maintenance capabilities, the asset management capabilities. So we want to continue to do that. But it's really more about continuing to drive more volume through those facilities. We're always looking to optimize them. And if I see an opportunity to put 2 shops in 1, we will, and we continue to make sure that we're upgrading those. Monetize. We've had a lot of people come with the idea of doing sale leasebacks on the property. That's fine. If we were in need of capital, we could. But right now, we don't see that as necessarily the most efficient way to get capital and we continue to do it the way that -- by issuing our medium-term notes.

So I think one of the more interesting aspects of Ryder in the last year has been just what you called the peak of the used truck market, which turned out to be pretty accurate, which I don't know if too many people would call a peak in one of their main earnings drivers. But you did, it turned out to be pretty spot on. And then you've given us this view of normalized earnings as we're all trying to figure out like what's normal post pandemic? Like where do we end up and how to at least put some framework around it, whether or not it's the right numbers, kind of separate, but at least we have a framework for us. So you've given us this core earnings and what's normalizing off the peak. So maybe since we've only got a few minutes left, we can just wrap up with your thoughts on that. And do you have, even if it's not public, because I don't think it is, like do you have a view of core earnings compounding over time? Like what's the algorithm you're looking for when you think about that line over time. And I'm assuming it's more of SCS and DTS and still the core leasing that we've talked about, but if you can just walk through some of your thoughts on that.

Sure. So the core earnings is really -- the reason we presented this was we knew used truck -- the used truck market as the used car market had skyrocketed during the pandemic, there wasn't enough cars. There wasn't enough trucks. So it was extraordinary the pricing we were getting on these prices. So we wanted to provide the market -- I think everybody was asking, well, how much of this is over earnings. So we tried to give the market a view of -- if you just brought used truck prices down to a 20-year average, more normalized number. And if you bring utilization of our rental fleet, which was in the low 80s, it was also very strong, back to more normalized level, what would an earnings number look like? So you're right, it's primarily -- we view that as you normalize rental and used trucks is primarily our lease -- our lease margin, our use -- I'm sorry, our Dedicated returns and our supply chain returns, the contractual parts of the business. So if you say, well, we said this year -- we said last year, normalized -- I'm sorry, core earnings were $9.50, let's say, if you brought -- you made those adjustments. We -- this year, we said we're going to be $11 to $12 is our earnings guidance. And we said about $11 would be with normalized used truck gains and rental. So the goal is that -- and that's -- some of that increase from $9.50 to $11 is because we have a significant improvement in supply chain and Dedicated with margins because of the pricing push through that got done in 2022, then we're going to get the tail end of that next -- this year and get the benefit. So going forward, I would expect, if you think about it, if we just keep our margins where they are, you're going to grow supply chain double digit, you're going to grow -- we're going to grow Dedicated high single digits, and we're going to grow lease mid-single digits. So -- that's normalized margins, that should mean core earnings should grow in that high single-digit range. So you should see core earnings each year, there could be movement on any given year, but generally you should expect that to grow high single-digit range just based on that math.

And that's all contractual driven because I think that's been the opportunity or at least the intrigue of Ryder, you have all these contractual businesses, but there's all -- in the past, there was a big overhang of the cyclical aspect of used vehicles and gain on sale and whatnot. So it sounds like you're -- you've got that in a good spot and you're still compounding these businesses, but we should see it kind of show up more independent based on all these changes.

Higher highs and higher lows, right? So you're going to continue to see that grow. You could have a year where used truck prices go even lower than normalized or rental and you could go south of that number. But the core piece of just -- with those other 2 assumptions being made should continue to move up at that clip.

Okay. Well, we're out of time, but that's a great place to end. So thank you very much, Robert, for being here today. Thank you.

Thanks, Brian.