Krause Fund Spring 2016

April 17, 2016 Ryder System, Inc. Industrials – Trucking Stock Rating: NO ACTION

Analysts Carson Goodale Current Price $66.22 [email protected] Target Price $75.00-$80.00 Troy Radtke R – Attractive Long-term Investment [email protected] Nicole Gierman Diverse Customer Segments: Ryder provides custom product [email protected] and services solutions to the Automotive, Technology, Healthcare, Consumer Packaged Goods and Retail, and Industrials, Aerospace and Sam Stecker Defense, Oil and Gas, and Food and Beverage industries mostly in [email protected] North America, but also has operations in the U.K. Foreign market opportunities could arise in the foreseeable future. Company Overview Ryder System Incorporated is a transportation and supply Specialized Product Offerings: Ryder may have found a chain management solutions company. They operate under niche in the competitive trucking industry by offering two specialized three business segments: Fleet Management Solutions transportation solutions that caters to diverse industry segments. In (FMS), Supply Chain Solutions (SCS), and Dedicated addition, they recently introduced a new value-added business segment Transportation Solutions (DTS). FMS provides service that is expected to perform well in the long run. leasing, commercial rental, contract maintenance, fuel services, and used vehicles. SCS provides supply chain Unique Business Model: Combines a large portion of operating solutions, such as distribution and transportation services in. leases and operating generating equipment to accommodate the DTS provides vehicles and drivers in the United States. increasing trend third-party logistical outsourcing demand and Ryder employs 33,100 people and operates in the United manage internal debt obligations. States, Asia, Mexico, Canada, and the United Kingdom. Year After Year Profit Margin Growth: Ryder has Stock Performance Highlights consistently grown profit margins by increasing their prices on products 52 week High $100.64 and services even during times of economic uncertainty. 52 week Low $45.12 Beta Value 1.5 Consistent Earnings Growth: Earnings have grown 16.67% Average Daily Volume 471,971 compounded annually over the past 6 years and with the increase in expected demand for outsourcing in the various product Share Highlights segments, we forecast modest growth moving forward. Market Capitalization $3.56 B Shares Outstanding 53 M Consistent Dividend Growth: Since 2004, Ryder has Book Value per share $37.15 continued to increase their dividends. With the company estimated to EPS (TTM) $5.75 reduce lease fleet and expectations of growth, the company should P/E Ratio 11.61 continue to grow dividends for the foreseeable future. Dividend Yield 2.55% Dividend Payout Ratio 28.7%% One Year Stock Performance

Company Performance Highlights ROA 4.0% ROE 16% Sales $6.572 b

Key Financial Ratios Current Ratio .65 Debt to Equity 278%

XI Source: Yahoo! Finance 1 V circulation . On the other hand, inventory investments and net exports in Q4’15 decreased by 0.5% each, which is a cause for concern for freight and logistics Executive Summary because of the counterintuitive effect they have on real GDP compared to consumer spending V. We still Although we believe outsourcing is likely to continue, believe that the increase in consumer spending will currently Ryder is generating negative economic profit continue to support the growth of real GDP in the and negative free cash flow. To align with future and conclude that it will consistently grow in the management, we project positive free cash flow short-term. We project that real GDP will grow at a moving forward, however given a large amount of debt 2.15%-2.20% rate by Q4’16 with hopes that consumer due in 2016, we are uneasy about Ryder’s liquidity spending continues to rise and firms start investing position in the next year. Based on key growth rate more in inventory. By April 2018, we believe that real assumptions, economic, and industrial analysis, Ryder GDP levels will increase by 4.0%. We also foresee oil is currently undervalued and may be a bargain for prices increasing in the next year, but eventually investors who seek long-term growth potential. Ryder stabilizing, therefore having a largely positive impact appears to offset the negative cash flow through the use on freight, logistics, and road and rail firms. This of leverage and revenue generating equipment. assumption will hold if the economy adjusts to steady However, at this time we recommend NO ACTION to economic growth 2018 and consumers will be more be taken on Ryder System, Inc (R). willing to increase their personal and business consumption.

Economic Outlook Oil Prices As of April 17th, the cost of crude oil is currently Real Gross Domestic Product hovering just above $38/barrel VI. The price of oil has Real Gross Domestic Product has maintained a decreased significantly since the Civil War in Libya in consistent 2% annual average growth rate since 2010II 2014 and has allowed logistics companies to cut down and, despite a downturn in the industrial sector, came on one of their biggest expenses: fuel. in at an annualized rate of 2.43% in 2015III. The figure below shows the annualized quarterly change as well as year over year growth in real GDP.

Source: Macro Trends VII

The recent increase in oil prices has had a negative effect on trucking and logistics companies as they must incur a higher fuel expense, as well as change the way they operate. For example, decreasing the usage level Source: Econoday V of trucks and utilizing more direct, point-to-point The 0.7% annualized increase of real GDP in Q4’15 is transportations. When oil prices were significantly reflected primarily by an increase in consumer decreasing, many customers contemplated switching spending, residential fixed investment, and federal from rail to trucking due to the belief that trucking government spending, therefore increasing the demand provided more stable costs, efficiency, and reliability. for transportation services of the additional goods in We envision that the price per barrel will continue to rise to around $40-$45 in the next six months due to 2

increased production of oil and the contemplation to switch from rail to trucking will diminish. By April Interest Rates th 2018, we anticipate oil prices to be around $80/barrel, Since March 11 , 2016, the Federal Funds Rate has XI following the recent upward trend of production and been hovering around the current rate of 0.37% . The demand, and then leveling off. If our assumption holds, federal funds rate affects financial conditions of the the cost per barrel will remain lower than historical economy and therefore has an effect on specific prices over the next three years which will enable firms industry growth. The graph below provides 62 years of in the industrials industry to keep their fuel expenses the Federal Funds Rate, both historical and current. low.

Manufacturing Index Manufacturing industries only accounted for 12.5% of the United States’ total economy in 2013, but is often a critical indicator for total economic growth VII. The Manufacturing Index often changes before the economy does and is considered a leading indicator. An increase in the index usually shows that the

economy is improving, while a decrease in the index XIV suggests the economy is performing poorly. Source: St. Louis Fed

Bloomberg reported the index at 51.8 in the beginning Large capital expenditures are often made to finance of April 2016 IX. The graph below displays the Index revenue-generating equipment in the Industrials since June of 2015 and after a steep decline from July industry and companies with a large amount of to January, the country was able to rebound from poor borrowed money could default if the rate continues to manufacturing activity. The second graph shows the climb. Additionally, this would increase the firm’s rate of change over the past year. debt-to-equity ratio well over 150%. In the next six

months, we predict the Federal Funds Rate to increase to 0.5% and rise to 2.5% in the next three years. Members of the Federal Open Market Committee (FOMC) have recently been increasing their interest rate projections for the long-term XII. They plan on increasing the interest rate to control the money supply, impacting the debt capital intensive firms in the Transportation industry.

Capital Markets Outlook

During times of economic growth and low inflation, historical trends have shown that the Industrials sector Source: Bloomberg IX has outperformed most other sectors. The S&P 500 Industrials Index has had high, positive correlation 2 XVIII The decline was due to the strengthened dollar and (R =0.94) with the S&P 500 Index in times of ceased global growth, which caused American goods growth since 2013, as shown below. X to be less attractive in other countries . We predict that S&P 500 the Manufacturing Index will be around 52.5-53 in the next six months. The American dollar is still pretty strong but we do expect slight appreciation. By 2017, Industrials Index

we expect the Index will continue to increase to around XII 55 caused by a hopeful increase in foreign exports. Source: Yahoo! Finance

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Based on our research on the current economic The trucking industry is able to prosper in the state of outlook, we concluded that the Trucking, Railroads, or a healthy economy due to the increase in imports, Air Freight & Logistics industries would benefit the investments, government spending, and most most due to low current oil prices and comparative importantly, personal consumption expenditures. efficiency and reliability, but that the best time to Consumer spending confidence triggers a higher invest would be during a recession due to the cyclical circulation of goods in the United States, which nature of the Industrial sector. increases the demand for trucking. The trucking industry is able to maintain a large portion of market share by differentiating themselves from their Industry Analysis competitors by maintaining an efficient and reliable transportation process. Industry Overview The Industrials sector is made of three industry groups: Product & Services capital goods, commercial services, and transportation. Firms in the trucking industry are segmented into one The capital goods industry is broken down into of four categories: 1. truck, trailer, and bus leases; 2. aerospace & defense, building products, construction Truck, trailer, and bus rentals; 3. other vehicle and & engineering, electrical equipment, industrial equipment rentals and leases; 4. other services. conglomerates, machinery, and trading companies & distributors. The commercial services industry group only contains one industry: commercial services and supplies. Transportation is split up into air freight & logistics, airlines, marine, road & rail, and transportation infrastructure. Our report consists of an in-depth analysis on trucking, one of the sub-industries of road and rail.

Sub-Industry: Trucking As a sub-industry of Road & Rail, Trucking is the most dominant form of freight transportation in the United Source: IBIS World XVII

States by transporting almost 70% of domestic freight XV. The amount of trucks in the United States is As shown above, truck, trailer, and bus leases are projected to grow from 3.56 million in 2015 to 3.98 predicted to make up 46.5% of the trucking industry’s million in 2026 XV. Despite dominance and steady revenue in 2016. This source of revenue is typically only provided to public trucking companies and growth, the Trucking sub-industry is dealing with a XVII shortage of about 38,000 truck drivers due to an owner-operator truckers . Leasing, versus buying, abundance of factors, such as demographic, regulatory, is cost-effective when a firm needs to lease fleet in and because drivers are rarely home because of how times of high demand and when those leased trucks are much time they spend on the road XV. The shortage of never actually used. Truck and trailer rentals are drivers does not seem to be affecting revenue growth, expected take in 36.3% of revenue in 2016. This as there has been a positive growth rate each year since product segment is able to maintain a high share of 2010. industry revenue by renting trucks for a few days to independent consumers who are likely using the truck to move from home to home. Increases in home sales over the past few years has allowed rentals to thrive XVII. Other vehicle and equipment rentals and leases and other services will earn 9.3% and 7.9% of 2016 revenue, respectively. These other segments usually entail renting and leasing other vehicles such as RVs, tractors, and trailers.

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Based on the products and services segmentation, the major market segmentation provides an outlook on • Truck Driver Shortage: The trucking industry is which consumers and businesses contributed to the facing a deficit of nearly 38,000 drivers in 2015. revenues. CEO of CRST International, Dave Rusch has relayed the message that usually business expansion was negatively affected not by a shortage of freight, but instead, the shortage of drivers. The trucking industry plays a significant role in this issue because they have implemented a strict safety and professionalism policy for all truck drivers, therefore are extremely selective in the hiring process. The shortage plays a huge role in the overall economy due to the large amount of freight needed to transport. Additionally, the

XVII current average age of a truck driver is 49, which is Source: IBIS World XXI closing in on retirement age . This enables truck drivers to gain leverage and demand a higher pay.

Recent Developments & Industry Trends • Demand for Trucking: With a foreseen growth in • Increase in Housing Sales: From 2011-2016, the the economy and, therefore, levels of personal increase in housing sales has had a compound consumption, the demand for trucking has risen growth rate of 5.9% XIX. This trend has a significant tremendously since 70% of domestic freight is impact on the trucking industry, as the increase in transported via truck XV. Additionally, the shortage housing sales signifies an increasing demand for of truck drivers to provide transportation and the use of trucks. It would fall under the truck rental contribute to the higher trade volume, the demand revenue category, meaning that independent for trucking is at an all-time high. consumers will rent trucks for a couple days to help move them from their old domain to a new one. We • High Level of Capital Intensity: In truck lease anticipate this trend will continue to grow and and rental, it is pertinent that trucking firms are assist in the increase of revenue for the next five spending a significant amount of money on years. The only possible fault is that the Fed can purchasing and maintaining their fleet. Often, we raise interest rates, which would increase mortgage see trucking companies with high capital rates on homes and cause a decrease in housing expenditures, which would then lead to high, sales. negative free cash flow. As shown in the figure below, industry operators spend roughly $1.13 in • Increase in Fuel Prices: Although the WTI crude capital for every dollar they spend in labor, where oil prices per barrel are significantly lower than the dotted black line shows a large level of capital they were a year ago, it is still a cause for concern intensity XXI. for the trucking industry. The industry took a huge hit when the prices were hovering $100/barrel and with the price as of April 19th at $39.97/barrel, and rising, firms are worried they will not be able to sustain their current level of low operating expenses VI. Trucking firms will subsequently decrease their amount of profit if the trend continues, but we believe that, although fuel prices are increasing, they will not follow the same historical incremental growth. Local sourcing for supply chains is the most cost-efficient in this scenario because most, if not all, carriers must pay for the gas they use for every unfulfilled mile. 5

movement. Additionally, technological advancement could also hinder trucking’s ability remain on top, but we do not see this as an immediate threat.

Existing Competitive Rivalry There are several trucking companies that have been able to continuously provide exactly what their customers need. Their customers are loyal due to excellent customer service and efficiency throughout the process, so we believe that the existing competitive rivalry between firms such as Ryder, Paccar, AMERCO, and Hertz that are able to Source: IBIS World XXI consistently maintain high retention rates.

Markets and Competition We have compared six trucking firms that we Bargaining Power of Suppliers believed show immense competition. Although there We ranked the bargaining power of suppliers as are discrepancies, such as low market cap and high relatively low compared to the bargaining power of revenue, or vice versa, these firms all compete for buyers. There are a multitude of suppliers in the market share in the competitive trucking industry. trucking industry that are able to provide similar Listed from first to last are: Paccar, Inc., AMERCO, services to their customers, which enhances the Hertz, Ryder Systems, Inc., Penske Automotive increasing competitive nature throughout the industry. Group, Inc., Paccar, Inc., and Rush Enterprises, Inc. Firms are able to differentiate themselves from their competitors by providing distinctive services that go above and beyond the basic need for transportation, Ticker Market Cap Revenue (millions) such as providing supply chain solutions, having PCAR 19.66B $18,671.00 comparatively better pricing models, higher UHAL 6.85B $3,075.00 efficiency, consistency, and use intermodal services, HTZ 3.77B $10,535.00 which utilizes multiple forms of transportation such as railroads, trucks, and boats to gain competitive R 3.58B $6,571.00 advantage. PAG 3.13B $19,284.00

RUSHA 728.97M $4,979.00 Bargaining Power of Buyers

Compared to the bargaining power of suppliers, Porter’s 5 Competitive Forces bargaining power of suppliers as moderate, despite Barriers to Entry larger capital firms who are able to buy fleet in large We believe that the barriers to enter the trucking quantities who would obtain bargaining power by industry are fairly moderate. Since the industry is receiving high discounts. On the other hand, firms highly capital intensive, it would require new entrants who are buying fleet in small numbers would not be to make large capital investments that may hinder able to gain any bargaining power because of the their ability to break the barrier. Furthermore, new absence of a possible discount rate. entrants are at a major disadvantage to trucking companies that are well-branded and would be seen Industry Leaders and Followers as subordinate. We were able to compare competitors within the

trucking industry by taking an in depth look at a few Threat of Substitutes of their defining statistics. This comparative analysis We ranked the threat of substitutes as moderately is typically a strategy that allows investors to choose high. With increasing fuel prices, other modes of which stock they will invest in, depending on the transportation, such as railroads and boats, could indicators that mean the most to them. overtake trucking as the primary source of freight

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transportation and supply chain management solutions. Ticker Profit Operating P/E D/E ROA Profit margin Margin Margin 201 (%) (%) Profit margin is the net income over the net sales a 5 company earns in a given time period. We decided to PCAR 8.39% 12.18% 12.4 124.46 6.97 compare the profit margins of the six firms because it is able to tell us how much out of each dollar of sales UHAL 13.78 24.57% 15.36 109.68 6.77 a company is able to keep in earnings after expenses % XXIII have been paid off . A positive profit margin HTZ 2.59% 7.90% 14.92 710.52 - shows us that these companies are doing relatively R 4.64% 9.66% 11.68 277.68 3.81 well and that they all have a positive net income. UHAL, PCAR, and R had the highest profit margins PAG 1.69% 2.94% 9.98 254.18 4.64 at 13.78%, 8.39%, and 4.34%, respectively. RUSH 1.33% 2.45% 11.10 187.75 2.75

A Operating Margin Operating margin is derived by dividing operating income by net sales. This a good comparison metric because it is a measurement of what revenue is Company Analysis remaining after paying off variable production costs XXIII. Operating margin shows how much a company They operate business by leasing and renting can make on each dollar of sales, before tax and commercial vehicles to businesses and consumers. interest. A higher operating margin, the better off a Within the company, there are three major revenue company is performing. generating business segments: Fleet Management Solutions (FMS), Dedicated Transportation Solutions P/E 15 (share price/EPS) (DTS), and Supply Chain Solutions (SCS). The price-to-earnings ratio take share price divided by a company’s earnings per share. A higher P/E ratio shows us that a firm should continue to grow in the Revenue future. 14% D/E (%) (Total Debt/Total Equity) 23% The debt-to-equity ratio will tell us how much debt 63% the firm has compared to its equity. In this metric, the smaller the ratio, the better the firm is performing. As the trucking industry is highly capital debt intensive, it is not a surprise that these firms all have extremely FMS SCS DTS high debt-to-equity ratios.

ROA (%) Corporate Strategy Return on assets is calculated by dividing net income The strategy of Ryder System relies on their ability to by total assets, which will tell us how profitable a effectively grow fleet management and supply chain company is in relation to the total assets they own. outsourcing services. They plan to achieve these goals ROA is a ratio that can be controlled by management, by utilizing the FMS and DTS segments and targeting as they are responsible for utilizing their assets to private fleets, as well as the SCS segment to target key generate earnings XXIII. industries with innovative solutions, high operational performance, and information technology.

General Information Life Cycle Ryder System, Inc. is a trucking firm that specializes We have concluded that Ryder System, Inc. is in outsourcing their fleet of owned vehicles to provide currently in the growth/maturity stage of their life cycle. Ryder currently has a large amount of invested 7 capital, a key indicator of a growing firm, in order to offerings integrated into this business segment include have large fleets on hand. Recently, Ryder closed on a distribution management, dedicated services, deal with Shell Oil Company and sold them 15 transportation management, and other professional liquefied natural gas heavy-duty vehicles supporting services. The SCS segment focuses on the specific logistics in Louisiana and Texas. It is highly needs of their customers. Their offerings can be either anticipated that Ryder will also be a part of several offered independently or as a package. other hopeful deals by 2016. On the flipside, management announced that they expect to cut capital The third revenue stream at Ryder brings in 14% of expenditures to accommodate a more organic growth revenue, which is promising for a segment that was just rate. They also expect to be cash flow positive by 2016. introduced in 2015. They combine the equipment, According to our valuation, Ryder is undervalued by maintenance, and administrative services of a full 16.67% and looks to be a good long-term investment. service lease with drivers and additional services to There are several factors contributing to the possible improve risk management, as well as increasing their growth of Ryder, many of which rely on their ability to competitive position in the market. These services keep up with demand and competition within the include routing, scheduling, fleet sizing, safety, trucking industry. regulatory compliance, risk management, and technical support. Financial Summary Ryder had an EPS growth from continuing operations Expenses of 7% from Q3’14-Q4’15. Revenues over the past five As shown in the figure below, Ryder has had large years have increased on average 3.6% and the amounts of capital expenditures on lease and rental, operating margin has been hovering around 5.5%. We which cause their free cash flow to increasingly grow predict that total revenue growth will grow roughly 3% negative. In 2015, they spent almost $1.3 billion alone. on average until 2020. One concerning number to our If these expenditures continue to increase and not pay analysts was the debt-to-equity ratio of 2.78. Although off, they will be in a serious amount of debt. the trucking industry requires large amounts of capital expenditure, their debt-to-ratio was not as high as a few of their competitors, as Hertz had a ratio of 7.11. If the economy does not improve or has slow growth (which we expect), they could have a tough time managing their liquidity and solvency issues.

Products and Markets As previously stated, Ryder System, Inc. is separated into three revenue-generating business segments: Fleet Management Solutions (FMS), Dedicated Transportation Solutions (DTS), and Supply Chain Solutions (SCS).

FMS, the primary source of revenue at 63%, has product offerings within the segment that include full- service leasing, commercial rental, and contract maintenance. Additionally, they also work to provide Source: Ryder their customers with insurance, vehicle administration, necessary related equipment and fuel services; needs Catalysts for Growth and Change that in demand when customers of Ryder’s are too busy Growth: There are several factors that can contribute with supervising their own drivers and other to growth and change at Ryder. There are trends that equipment. point toward the increasing demand for companies to

outsource, such as increased demand for reliability and The second leading revenue stream at 23%, is their efficiency and the complexity of buying and Supply Chain Solutions segment. The product 8 maintaining several vehicles. There is a huge shortage of qualified truck drivers and mechanics, which Key Investment Negatives presents a problem. To contribute to their growth, Ryder does not need to worry about having drivers for their FMS segment, while saving on labor costs as well.

• Change: Poor anticipation of customer demand can Although Ryder has not breached any debt lead Ryder to make large capital investments that covenants, debt level has grown to over $5.5 would lead to a negative return. At the same time, it billion with nearly $930 million in debt due in could be just as detrimental to the firm to under 2016 and with interest rates likely to rise, this estimate customer demand because they would not be could pose a challenge to managements able to fulfill necessary orders and could lose expected strategies customers to competition. Additionally, the trucking • Highly competitive environment industry is highly competitive. Ryder must be able to • Shortage of drivers make continuous improvements if they want to be a • Increases in regulations household name. The Department of Transportation • Historical negative free cash flow (DOT) has additionally issued driver screening and training requirements and could cause a potential • Forecasted negative economic profit for two problem for Ryder if the requirements are too strict. years

Key Investment Positives

• Introduction of DTS business segment could generate an increase in percentage growth • Industry diverse customer segments that offers more specialized product services • Since 2010, Ryder has increased dividend payout to shareholders by an average of 8% • Leasing contracts are typically 3-7 years, plus historical acquisitions could provide competitive advantages in the highly competitive environment • Strong, consistent earnings over the last 5 years • Increase in demand for leasing services which will allow Ryder to increase prices and top line • P/E undervalued relative to industry peers and strong ROE • Excluding the decline in oil prices, management seems to do well pricing their products and services which is indicative of stable margins over the last 5 year

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growth moving forward. Earnings per share increased by 15.94% over 6 years Valuation Analysis compounded annually which suggests that Ryder is doing something correct. Currently they are generated negative economic profit We generated Ryder’s intrinsic values using as ROIC is less than WACC. We project the enterprise Discounted Cash Flow (DCF) that Ryder will hold its own in the valuation, enterprise Economic Profit (EP) competitive environment and will grow at a Valuation, Dividend Discount Model conservative CV of 3%. (DDM), and relative P/E valuation. Although we see long-term potential in Revenue Decomposition Ryder, our recommendation for now is a Lease and Rental Revenues Key Growth HOLD. We believe that Ryder needs to start Drivers generating positive economic profit as well • Higher prices on full service lease as look to gain a more strategic economic vehicles moat in the competitive industry before • Full service lease fleet growth taking another look. • Increase commercial rental revenue The DCF and EP valuation methods due to higher pricing and increase generated an intrinsic value of $77.40 per demand (specifically North America) share. Current stock price is trading at • Increase in depreciation and $66.53, which is trading at 16% discount maintenance costs due to increase in compared to current stock price. For long- vehicles term value investors this may be a good investment in 1-2 years. As of 4/19/2016, Lease and rental revenues are Ryder’s most the DDM valuation generated an intrinsic lucrative business segment and generated value of $81.86, which we believe is a more 6% return in 2015 to $3.12 billion, which is accurate estimation of current price and also included within the FMS business segment. is currently trading at a 20% discount Under the lease and rental revenues compared to the projected stock price. segment, Ryder claims to have 14,500 full Relative P/E (EPS16) and relative P/E service lease/contract maintenance 9EPS17) were $74.28 and $70.33 which customers and over 39,000 commercial would suggest that the stock price is rental customers. Full service contracts are currently trading slight below fair value long-term agreements (3-7 years) while estimates. commercial rentals are short term. With management expecting to increase vehicles General Assumptions by 3,500 we expect to see that business Continuing Value segment grow by 6%. Contract maintenance To determine the continuing value and fleet support services under FMS are assumption, we considered real GDP growth included in the services revenue portion and to be projected around low single-digit rate, the 6% growth doesn’t fully represent the cost of debt due to the highly leveraged true growth level in our opinion. As a result, environment in which Ryder operates, and we believe that the FMS generated more competitive industry. The trucking industry than 6% and we project a constant growth of is correlated closely with the overall that percentage out to 2020. economy and we are looking to match our CV with our projections of the economic

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Services Revenue Key Growth Drivers respectfully for the growth rate assumptions • New business because we believe that oil prices will • Increased pricing and higher rebound and the GDP will increase to 5% by volumes in SCS and DTS 2020. • Lower fuel prices and negative impacts from foreign exchange Income Statement Since 2010, Ryder’s revenues have grown Services revenues represent all the revenues 4.19% compounded annually. Last year associated with DTS and SCS business (2015), total revenue decreased 1% to $6.64 segments as well as contract maintenance. billion, while operating revenue (revenue Contract maintenance and fleet support less fuel and subcontracted transportation) services are associated within the FMS increased 6% in 2015 to $5.56 billon. business segment, which means there seems Revenues from lease, rental, and services to be overlap in the financial statements. It’s have remained relatively strong while fuel difficult to gauge the exact growth under services have declined. Although services revenue because of the overlap approximately 90% of revenue is derived within the three business segments. Over the from lease and rental and services revenue, a course of 6 years, services revenue sharp decline (-32%) in Fuel services generated an annual compound growth rate segment negatively impacted overall of 5.52%. In addition, a segment of SCS revenues due to lower fuel prices which are includes dedicated services. Basically, DTS passed through to the customers. Because is for companies who do not want to deal we believe oil prices are not rebounding with the logistics and supply chain is for anytime soon, we project continuing companies who want a complete outsource decreases over the next two years in the fuel of all supply chain related business. Ryder services revenue segment. has made significant acquisitions over the year combined with higher volumes and Ryder operates in a capital intensive pricing under SCS and DTS. This was offset environment which results in low profit by low fuel prices and a negative impact on margins. Net profit margins last year were foreign exchange, and for that reason we 4.64% and we expect a slight increase to project modest growth of 2%. 4.7% for 2016. Roughly 80% of revenues went toward covering expenses and another Fuel Services Key Growth Drivers 10% toward SG&A expense. Depreciation • Revenue decrease due to low fuel on revenue earning equipment and prices – passed through consumer maintenance costs account for gross margins Last fiscal year fuel services revenues on lease and rental revenues to be around declined 32%, which is the result of low oil 30%. Margins on services and fuel revenues prices. We do not expect oil to rebound are 17% and 3% respectively. SG&A $100/barrel anytime soon and we do not expense increased 3% to $844 million in expect oil to drop any lower. For that reason, 2015 which is the result of higher we expect continuing decline in fuel services professional fees and compensation-related for the next two years and then will start to expenses, investments in newer rebound back to normal growth levels at technologies. Due to the low margins from around 2% (which was the common growth operating revenue segments, we believe that rate prior to the sharp decline in oil prices). management is going to have to make some We project 4% and 5% for 2019 and 2020 changes in the SG&A account to

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compensate for the high costs relating to fiscal year 2015. Revenue generating and operations. Ryder covers the residual costs operating equipment account for nearly 80% associated with the vehicles and over the of total assets. Ryder’s return on assets has course of 6 years; Ryder has increased the been around 2% the past 10 years because net sale of their used vehicles by 26.91% most of their invested capital is derived from annually. While management expects to accounting for the PV of Operating Leases decrease capital expenditures, pricing used and PP&E which suggests that they do not vehicles will continue to be a growing utilize their assets efficiently. Revenue concern as this could negatively affect their earning equipment is included in operating bottom line. We anticipate the cost of equipment under non-operation assets. services and cost of lease growth rates to Many of Ryder’s assets are leased which stay at 4% each due to the increase demand results in negative working capital. Because for drivers as well as depreciation and operating leases are an off balance sheet maintenance costs. item, net operating working capital has been negative because they pay income taxes Comparable to industry peers, Ryder has payable from the off balance sheet account maintained solid earnings growth despite and as a result net operating working capital uneven economic conditions. Fleet for 2015 was (-$1.529 billion). After management solutions segment accounts for including Net PPE, PV of operating leases, nearly 60% of total revenues and we expect and other tangible assets, invested capital for Ryder to increase their competitive 2015 was $10.990 billion. Ryder’s return on advantage in this segment, which will invested capital for 2015 was 6.88% was is continue to drive earnings. In addition, slightly above the weighted average cost of Ryder pays a 2.55% dividend yield or $1.56 capital. Because management plans to cut per share. We expect management to capital expenditures, we project ROIC to continue to repurchase shares over the next decrease next year, but announcements of 5 years, decreasing overall shares increasing vehicle spending in their most outstanding, which will result in some lucrative business segment leads us to manipulation of earnings. However, believe that ROIC will reach around 7.25% consistent/increases in share repurchases over the last 5 years suggest that A red flag for Ryder has been the increase in management feels that their current stock debt levels. With $634.5 million in short price could be undervalued. term debt and another $5.029 billion, debt to equity is over 270%, which is high but Balance Sheet comparable given the industry analysis. The industry in which Ryder operates is Although their quick ratio is .62 and current extremely capital intensive and highly ratio is .65 we believe that the debt is leveraged. Due to managements plans to cut reaching climax to be considered capital expenditures and no anticipation for manageable. Moving forward we expect acquisitions we anticipate an increase in management to decrease their debt to equity cash over the next five years. Management ratio to a more manageable level. On the has done well in decreasing their inventory positive side, Ryder’s return on equity has ratios over the past 5 years. Current assets been around 15%, which suggests are largely due to the receivables ($845.5 management is doing a good job with million in 2015) but they have decreased shareholder investment. their turnover from 16.29 in 2012 to 7.87 for

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Statement of Cash Flow Cost of Debt Net cash flows from operations have To arrive at the cost of debt we identified increased by 5.79% compounded annually the outstanding bond with the longest yield over the last 6 years; however, there has to maturity and credit rating of BBB+, been negative working capital during that which was a pre-tax cost of debt of 4.44%. same period. To meet management’s Then we added the risk free rate of 2.57% to expectations, we decreased over capital arrive at a pre-tax cost of debt of 7.01%. expenditures to approximately $2 billion for FY 2016. However, due to the highly Capital Structure and WACC leveraged position, Ryder has generated We do not forecast any capital structure negative free cash flow over the last 5 years. changes for the foreseeable future as Ryder Management anticipates reaching positive is a capital intensive company that relies free cash flow for FY 2016, and with the heavily on debt to fund operations. As a decrease in capital expenditures we agree. result, we calculated the WACC to be 6.5%. Management has not made any note of To come to this conclusion used a cost of acquisitions for the foreseeable future so we equity equal to 10.06%, risk-free rate of made no forecast projections. We believe 2.57%, cost of debt of 7.01%, and marginal that the decrease in capital expenditures will tax rate of 36.7%. The market value of debt create more cash available which will likely is $5.5 billion while the market value of be used to cover debt obligations of $930 equity is $3.267. We expect the WACC to million coming due during 2016 followed by stay around these levels due to their high $1.5 billion over the next couple of years. leveraged business To offset the negative free cash flow, Ryder used leveraged to generate a high levels of Discounted Cash Flow and Economic revenue earning equipment assets, which Profit Analysis directly increases shareholders’ equity. We Our DCF and EP valuation for Ryder think management will participate in share resulted in a per share price of $77.40. As repurchases over the next 5 years and previously stated, we expect capital continue to pay at an 8% growth rate in expenditures to be $2 billion. After adjusting dividends per share. for Net PPE, PV of operating leases, and other tangible assets, we project a positive Weighted Average Cost of Capital (WACC) change in invested capital. We project FCF Cost of Equity of approximately $100 million for the next We used the Capital Asset Pricing Model four years, and after discounting it back to (CAPM) to estimate the cost of equity for the present, the carrying value of $17,246 Ryder Systems Inc. For the risk-free rate we billion is where most of the price is derived. used a 30 Year Treasury bond, which was After discounting each year’s free cash 2.57%. Given key economic drivers moving flows and the CV by the calculated WACC forward, we expect investors required rate of of 6.53% we arrived at an operating value of return to be around 7.5%. The implied $13.838 billion. To arrive at the value of market risk premium is 5%, which is slightly equity we adjust for non-operating assets higher than the geometric average of 4.57% and liabilities. As of 4/19/2016 we from 1928-2008 to compensate for the calculated the partial year adjusted intrinsic additive risk. To calculate beta, we used value price of $77.40. When calculating Bloomberg raw input of 1.5. 13 economic profit, we project that ROIC for PEG ratio, we obtained Ryder’s 2016 2016 and 2017 will be 6.21% and 6.42% implied value through the relative PEG ratio respectively. Because our WACC is 6.5%, by multiplying there 2016 EPS estimate by we estimate that Ryder will not reach projected estimated growth, multiplied again positive economic profit until 2018. Given by industry peers. Relative to industry peers, its nature of operating leases and high Ryder appears to be priced slightly amounts of PPE it is not surprising that undervalued as their PEG ratios are 1.2 for economic profit remains negative. We 2016 and 2017 compared to the average remain confident in our target price because PEG ratios of 2.1 and 2.0 for 2016 and 2017 our key inputs accurately and realistically respectively. reflect historical growth assumptions and are comparable to DDM and Relative Valuation Management forecasts 2016 earnings of models. $6.10 and they expect growth of 6% to approximately $7.0 billion. We think Dividend Discount Model (DDM) management is overly optimistic and given Over the course of 6 years, Ryder has the uncertainty of the economic condition increased dividends per share by 7% and industry competition, we expect net compounded annually. In addition, Ryder earnings of $6.07 and revenues of has done well in retaining shareholder value approximately $6.8 billion. This is a line as ROE has been on average around 14% the with our current relative valuation as the last 5 years. We expect management to intrinsic value relative to industry peers is maintain the payout ratio and continue to about $74 which is a 12% premium relative increase dividends per share by 8% to the current price. annually. Using a conservative CV growth rate of 3% and our cost of equity rate of Ryder offers specialized products through 10.07% we arrived at a partial year adjusted various segments and as a result we believe intrinsic value of $81.86 as of 4/19/2016. that is the reason they are trading at a lower P/E ratio relative to industry peers. High P/E Relative Valuation ratios as seen by UHAL is because they For our relative valuation, we used the P/E focus solely on leasing whereas Hertz and PEG ratios for 2016 and 2017. We operates under rental car business. Ryder decided to eliminate two companies because business segments that focus on offering they were projected to have negative specialized products through various earnings per share and PEG ratios. As a industry makes them an attractive purchase result, we decided to use PAG, HTZ, for the long-term. Historically, the company RUSHA, UHAL, and PCAR to determine has trades as high as 23 times earnings our relative valuation projection. We during 2014, but conservatory should trade calculated an industry average P/E ratio of more in the 15-16 times earnings level over 12.1 and 10.9 for 2016 and 2017. In order to the long term given their strategic market obtain Ryder’s relative 2016 P/E value, we position. Should this situation occur we multiplied our 2016 EPS estimate by could expect to see a price break out to industry peers average P/E ratio. The around $90/share. This could be attractive to implied relative P/E valuation for Ryder for long-term investors. 2016 was $74.28, which suggests that the current stock price is slightly undervalued relative to the industry. With respect to the

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compares to changes in beta does not have significant impacts on Ryder. This is due to the fact that Ryder has a high debt to equity to finance operations.

Sensitivity Analysis ROIC and WACC ROIC and WACC are the two biggest value WACC drivers when determining the stock price Our model is sensitive to changes in WACC. and Ryder is very sensitive to change in At the current level of 6.53% a .5% increase both. We expect Ryder to maintain current in WACC will result in a price drop of capital structure for the foreseeable future $42.71. On the flipside, a decrease in the and if they are able to increase their ROIC to WACC to 6.00% would result in a price of 8.5%, stock prices would increase to just $129.57. We believe that if capital structure below $100 or a 50% premium to the current were to change, it would likely increase the stock price of $66. WACC, which would result in a significant decrease in the current stock price. If CV % Sales Growth for Leasing Revenue growth rates maintains 3% while WACC Leasing revenue which accounts for their increases, this would reflect significant FMS business segment could see an increase negative impacts on the current stock price. in growth due to the fact that management plans to add 3,500 vehicles to their fleet. CV Growth Sales growth services revenues are fairly CV Growth and ROIC are key drivers in our correlated with this change but if we value assumptions. For the fiscal year 2015 maintain current levels of growth at 2% ROIC is slightly below the WACC but we while increasing leasing revenues to 8% we forecast that ROIC levels will increase could see Ryder break $100. More within the next two years above the WACC. conservatively, a 1% increase in the growth Our conservative approach to choosing 3% rate assumption under leasing revenue is in our favor. An increase in 1% in the CV would result in a stock price of $89.24. On Growth while maintaining our assumption the flip side, we acknowledge that the of 7.45% of NOPLAT would increase share trucking industry is very competitive and if price to $98.66. In our opinion, we believe Ryder is not able to offer specialized that Ryder’s ability to offer specialized products and services and saw a decrease in products to a diverse customer segment growth to 4% the stock price could hit $53 would more than likely increase the CV which would suggest that the current stock Growth and ROIC. In any case, we would price is overvalued. expect stock prices to peak over $100 per share which would make the current price an attractive buy.

Risk free Rate Ryder’s beta is currently at 1.5 which means it fluctuates more relative to market moves. A quick look at the beta and it suggests that the company is a pretty risky investment. Nonetheless, changes in the risk free rate

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% Sales Growth for Services Revenue Services revenues which accounts for SMS and DTS solutions is the wild card. DTS solutions are a new business segments as of

2015 which could imply value-added to companies looking to outsource their logistics completely. In the case of services revenue increasing anywhere from 4%-5% would see an increase in the overall stock price to $84.74-$94.34, assuming a leasing revenue growth stays constant. We believe that most companies will likely start to outsource most of their logistics and supply- chain related problems as increases in regulatory concerns, oil prices, and employees cause added stress to companies. With this increase in demand for SMS and DTS solutions, FMS may decrease. In this case a decrease to 4% growth in leasing revenue (which Ryder has maintained at least 6% over the last 5 years) and an increase to 5% growth in services revenue would result in a stock price of $82.49 which is a 25% premium relative to the current stock price of $66.

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X. One key metric for U.S. manufacturing - - the ISM manufacturing index Retrieved April 19, 2016, from http://money.cnn.com/2015/10/01/ne References ws/economy/us-manufacturing-index- declines/index.html XI. US Federal Funds Rate Analysis. (n.d.). Retrieved April 19, 2016, from http://www.bloomberg.com/quote/FDF I. Bond Definition | Investopedia. (2003). D:IND Retrieved April 19, 2016, from http://www.investopedia.com/terms/b/ XII. OPEC Lowers US Production Totals bond.asp Again | Myinforms. (n.d.). Retrieved II. Can An Industrial Recession Coincide April 19, 2016, from With Steadily Growing Real GDP? http://myinforms.com/en- (2016). Retrieved April 19, 2016, from us/a/17565089-opec-lowers-us- http://seekingalpha.com/article/379704 production-totals-again/ 6-can-industrial-recession-coincide- XIII. Yahoo Finance - Business Finance, Stock steadily-growing-real-gdp Market, Quotes, News. (n.d.). Retrieved III. Data. (n.d.). Retrieved April 19, 2016, April 19, 2016, from from https://data.oecd.org/gdp/real- gdp-forecast.htm http://finance.yahoo.com/ IV. News Release: Gross Domestic XIV. Effective Federal Funds Rate. (n.d.). Product. (n.d.). Retrieved April 19, Retrieved April 19, 2016, from 2016, from https://research.stlouisfed.org/fred2/se http://www.bea.gov/newsreleases/nati ries/FEDFUNDS onal/gdp/2016/gdp4q15_3rd.htm XV. New Report Predicts Continued Growth V. 2016 Economic Calendar. (n.d.). in Freight Trucking. (n.d.). Retrieved Retrieved April 19, 2016, from April 19, 2016, from http://mam.econoday.com/byshoweve http://www.trucking.org/article.aspx?ui ntfull.asp?fid=472135 VI. 2016 Economic Calendar. (n.d.). d=4caa8338-9128-40fe-ab45- Retrieved April 19, 2016, from c6fb0c24e417 http://mam.econoday.com/byshoweve XVI. U.S. freight trucking industry: Revenue ntfull.asp?fid=472135 growth 2004-2017 ... (n.d.). Retrieved VII. Crude Oil Price History Chart | April 19, 2016, from MacroTrends. (n.d.). Retrieved April http://www.statista.com/statistics/255 19, 2016, from 949/revenue-growth-of-us-freight- http://www.macrotrends.net/1369/crud trucking-industry/ e-oil-price-history-chart XVII. “International Trade: Products and VIII. The Manufacturing Footprint and the Importance of U.S. Manufacturing Markets: Products and ... (n.d.). Jobs. (n.d.). Retrieved April 19, 2016, Retrieved April 19, 2016, from from http://clients1.ibisworld.com/reports/u http://www.epi.org/publication/the- s/industry/productsandmarkets.aspx?e manufacturing-footprint-and-the- ntid=749 importance-of-u-s-manufacturing-jobs/ XVIII. Bloomberg Terminal IX. ISM Manufacturing PMI SA Analysis. XIX. Clients1.ibisworld.com. (n.d.). Retrieved (n.d.). Retrieved April 19, 2016, from April 19, 2016, from http://www.bloomberg.com/quote/NAP http://clients1.ibisworld.com/reports/u MPMI:IND s/bed/default.aspx?bedid=64

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XX. ATA Truck Driver Shortage Analysis 2015. (n.d.). Retrieved April 19, 2016, from http://www.trucking.org/ATA Docs/News and Information/Reports Trends and Statistics/10 6 15 ATAs Driver Shortage Report 2015.pdf XXI. Investigative Report: 2016 Trucking Industry Forecast/Expectations. (n.d.). Retrieved April 19, 2016, from

http://www.roadscholar.com/investigat

ive-report-2016-trucking-industry-

forecastexpectations/

Clients1.ibisworld.com. (n.d.). Retrieved XXII. April 19, 2016, from http://clients1.ibisworld.com/reports/u s/industry/operatingconditions.aspx?en tid=1090 XXIII. Profit Margin Definition | Investopedia. (2003). Retrieved April 19, 2016, from http://www.investopedia.com/terms/b/ bond.asp

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Ryder System, Inc. Revenue Decomposition (In Millions, except vehicles and customers in thousands) Segment % of Total Revenue 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020E Fleet Management Solutions 63.50% 63.60% 62.90% 62.90% 62.80% 62.80% 62.80% 62.80% 62.80% 62.80% Supply Chain Solutions 26.50% 36.40% 37.10% 37.10% 23.60% 23.60% 23.60% 23.60% 23.60% 23.60% Dedicated Transportation Solutions 0% 0% 0% 0% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% Eliminations (Net Vehicle Gains) 9.90% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Revenue by Market 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020E Domestic 5,075 5,232 5,411 5,614 5,604 5,636 6,164 6,264 6,371 6,481 % of Total Revenue 83.88% 83.62% 84.30% 84.56% 85.27% 83.98% 90.41% 90.43% 90.54% 90.66% International 975 1,025 1,008 1,025 968 1,075 654 662 665 668 % of Total Revenue 16.11% 16.38% 15.70% 15.44% 14.73% 16.01% 9.60% 9.56% 9.46% 9.35% Total 6,051 6,257 6,419 6,639 6,572 6,711 6,818 6,926 7,037 7,149

# of Vehicles by Market (in thousands) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020E Domestic: Full service leasing 95.5 96.9 98.9 101.4 107.8 111.0 114.4 117.8 121.3 125.0 % Growth 2.47% 1.47% 2.06% 2.53% 6.31% 3.00% 3.00% 3.00% 3.00% 3.00% Commercial rent 31.3 33.1 29 31.3 33.5 34.6 35.6 36.8 37.9 39.1 % Growth 7.56% 5.75% -12.39% 7.93% 7.03% 3.15% 3.15% 3.15% 3.15% 3.15% Contract maintenance 28.7 27.8 33.3 36.7 41.2 44.5 48.1 51.9 56.1 60.5 % Growth 16.67% -3.14% 19.78% 10.21% 12.26% 8.00% 8.00% 8.00% 8.00% 8.00% Total Domestic 155.5 157.8 161.2 169.4 182.5 190.1 198.1 206.5 215.3 224.6 International: Full service leasing 25.5 25.5 24 24.1 24 24.8 25.7 26.6 27.5 28.5 % Growth 42.46% 0.00% -5.88% 0.42% -0.41% 3.50% 3.50% 3.50% 3.50% 3.50% Commercial rent 4 4.7 9.2 8.6 8.6 8.9 9.3 9.7 10.1 10.5 % Growth -6.98% 17.50% 95.74% -6.52% 0.00% 4.00% 4.00% 4.00% 4.00% 4.00% Contract maintenance 10.9 10.2 4.1 5.7 5.5 5.6 5.7 5.8 6.0 6.1 % Growth 113.73% -6.42% -59.80% 39.02% -3.51% 2.00% 2.00% 2.00% 2.00% 2.00% Total International 40.4 40.4 37.3 38.4 38.1 39.4 40.7 42.1 43.6 45.0 Total # of Vehicles 195.9 198.2 198.5 207.8 220.6 229.5 238.8 248.6 258.9 269.7

# of Customers by Market (in thousands) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020E Domestic: Full service leasing 10.6 10.6 10.5 10.5 10.9 11.3 11.7 12.1 12.5 12.9 % Growth 1.92% 0.00% -0.94% 0.00% 3.81% 3.50% 3.50% 3.50% 3.50% 3.50% Commercial rent 33.2 32.2 31.7 32.1 32.9 33.5 34.1 34.7 35.3 36.0 % Growth 304.88% -3.01% -1.55% 1.26% 2.49% 1.80% 1.80% 1.80% 1.80% 1.80% Contract maintenance 1.2 1.3 1.3 1.4 1.5 1.6 1.6 1.7 1.8 1.8 % Growth 0.00% 8.33% 0.00% 7.69% 7.14% 4.00% 4.00% 4.00% 4.00% 4.00% Total Domestic 45 44.1 43.5 44.0 45.3 46.3 47.4 48.5 49.6 50.7 International: Full service leasing 2.4 2.4 2.4 2.8 2.7 2.7 2.8 2.8 2.8 2.8 % Growth 9.09% 0.00% 0.00% 16.67% -3.57% 1.00% 1.00% 1.00% 1.00% 1.00% Commercial rent 6.5 6.5 6 6.6 6.4 6.5 6.7 6.8 6.9 7.1 % Growth 12.07% 0.00% -7.69% 10.00% -3.03% 2.00% 2.00% 2.00% 2.00% 2.00% Contract maintenance 0.2 0.2 0.2 0.3 0.4 0.4 0.4 0.5 0.5 0.5 % Growth 0.00% 0.00% 0.00% 50.00% 33.33% 6.00% 6.00% 6.00% 6.00% 6.00% Total International 9.1 9.1 8.6 9.7 9.5 9.7 9.9 10.0 10.2 10.4 Total # of Customers 54.1 53.2 52.1 53.7 54.8 56.0 57.3 58.5 59.8 61.2

Lease and Rental Services 2553.877 2695.376 2770.03 2939.42 3121.55 % Growth 10.57% 5.54% 2.77% 6.12% 6.20% Services Revenue 2609.174 2707.013 2819.67 2911.47 2912.06 % Growth 23.7% 3.7% 4.2% 3.3% 0.0% Fuel Services 887.483 854.578 829.59 787.89 538.28 % Growth 23.80% -3.71% -2.92% -5.03% -31.68% Ryder System, Inc Statement of Earnings Years ended December 31 (in millions) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Lease and rental revenues 2,770.03 2,939.42 3,121.55 3,308.85 3,507.38 3,717.82 3,940.89 4,177.34 Services revenue 2,819.67 2,911.47 2,912.06 2,970.30 3,029.71 3,090.30 3,152.11 3,215.15 Fuel services revenue 829.59 787.89 538.28 511.36 501.14 496.12 515.97 541.77 Total revenues 6,419.29 6,638.77 6,571.89 6,790.51 7,038.22 7,304.25 7,608.97 7,934.26

Cost of lease and rental 1,925.55 2,036.88 2,153.45 2,239.59 2,329.17 2,422.34 2,519.23 2,620.00 Cost of services 2,359.88 2,447.87 2,413.16 2,509.68 2,610.07 2,714.47 2,823.05 2,935.97 Cost of fuel services 814.06 768.29 519.84 509.45 499.26 489.27 479.49 469.90 Other operating expenses 131.66 126.57 135.04 137.81 140.63 143.51 146.46 149.46 Selling, general and administrative expenses 790.68 816.98 844.50 869.83 895.93 922.80 950.49 979.00 Pension lump sum settlement expense - 97.23 ------Gains on vehicle sales, net (96.18) (126.82) (117.81) (119.58) (121.37) (123.19) (125.04) (126.91) Interest expense 140.46 144.74 150.43 153.82 157.28 160.82 164.44 168.14 Miscellaneous income, net (15.37) (13.61) (10.16) (10.36) (10.57) (10.78) (10.99) (11.21) Restructuring and other charges (recoveries), net (4.70) 2.39 14.23 14.25 14.28 14.31 14.34 14.37 6,050.27 6,300.51 6,102.68 6,304.49 6,514.68 6,733.56 6,961.46 7,198.71

Earnings from continuing operations before income taxe 369.02 338.27 469.22 486.02 523.54 570.69 647.51 735.55 Provision for income taxes 125.74 118.04 163.23 166.90 170.65 174.49 178.42 182.43 Earnings from continuing operations 243.28 220.23 305.99 319.12 352.89 396.19 469.09 553.12 Loss from discontinued operations, net of tax (5.40) (1.88) (1.22) - - - - - Net earnings 237.87 218.34 304.77 319.12 352.89 396.19 469.09 553.12

Earnings (loss) per common share — Basic Continuing operations 4.67 4.18 5.78 6.07 6.76 7.65 9.13 10.86 Discontinued operations -0.10 -0.04 -0.02 -0.10 -0.10 -0.10 -0.10 -0.10 Net earnings 4.57 4.14 5.75 5.97 6.66 7.55 9.03 10.76

Shares Outstanding 52.05 52.74 53.00 52.59 52.18 51.77 51.36 50.95 Dividends Per Share 1.30 1.42 1.56 1.68 1.82 1.97 2.12 2.29 Ryder System, Inc Statement of Earnings Years ended December 31 (in millions) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Lease and rental revenues 43.15% 44.28% 47.50% 48.73% 49.83% 50.90% 51.79% 52.65% Services revenue 43.93% 43.86% 44.31% 43.74% 43.05% 42.31% 41.43% 40.52% Fuel services revenue 12.92% 11.87% 8.19% 7.53% 7.12% 6.79% 6.78% 6.83% Total revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of lease and rental 30.00% 30.68% 32.77% 32.98% 33.09% 33.16% 33.11% 33.02% Cost of services 36.76% 36.87% 36.72% 36.96% 37.08% 37.16% 37.10% 37.00% Cost of fuel services 12.68% 11.57% 7.91% 7.50% 7.09% 6.70% 6.30% 5.92% Other operating expenses 2.05% 1.91% 2.05% 2.03% 2.00% 1.96% 1.92% 1.88% Selling, general and administrative expenses 12.32% 12.31% 12.85% 12.81% 12.73% 12.63% 12.49% 12.34% Pension lump sum settlement expense 0.00% 1.46% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Gains on vehicle sales, net -1.50% -1.91% -1.79% -1.76% -1.72% -1.69% -1.64% -1.60% Interest expense 2.19% 2.18% 2.29% 2.27% 2.23% 2.20% 2.16% 2.12% Miscellaneous income, net -0.24% -0.21% -0.15% -0.15% -0.15% -0.15% -0.14% -0.14% Restructuring and other charges (recoveries), net -0.07% 0.04% 0.22% 0.21% 0.20% 0.20% 0.19% 0.18% 94.25% 94.90% 92.86% 92.84% 92.56% 92.19% 91.49% 90.73%

Earnings from continuing operations before incom 5.75% 5.10% 7.14% 7.16% 7.44% 7.81% 8.51% 9.27% Provision for income taxes 1.96% 1.78% 2.48% 2.46% 2.42% 2.39% 2.34% 2.30% Earnings from continuing operations 3.79% 3.32% 4.66% 4.70% 5.01% 5.42% 6.16% 6.97% Loss from discontinued operations, net of tax -0.08% -0.03% -0.02% 0.00% 0.00% 0.00% 0.00% 0.00% Net earnings 3.71% 3.29% 4.64% 4.70% 5.01% 5.42% 6.16% 6.97% Ryder System, Inc. Balance Sheet (Industrial) (In Millions)

Assets: 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Current Assets: Cash and cash equivalents 61.6 50.1 60.9 144.5 204.3 310.5 503.4 747.6 Receivables, Net 777.4 794.9 835.5 935.7 1,048.0 1,173.8 1,314.7 1,472.4 Inventories 64.3 66.0 63.7 64.4 65.0 65.7 66.3 67.0 Prepaid expenses and other current assets 159.3 132.7 138.1 140.9 143.7 146.6 149.5 152.5 Total Current Assets 1,062.5 1,043.6 1,098.3 1,285.5 1,461.1 1,696.5 2,034.0 2,439.6 Revenue Earning and operating equipment, Net 7,124.7 7,901.5 8,899.7 9,371.6 9,920.2 10,486.6 11,061.8 11,694.5 Goodwill 383.7 393.0 389.1 389.1 389.1 389.1 389.1 389.1 Intangible assets 72.4 66.6 55.2 55.2 55.2 55.2 55.2 55.2 Direct financing leases and other assets 460.5 446.1 525.5 568.8 615.8 666.6 721.6 781.1 Total Assets 9,103.8 9,850.9 10,967.8 11,670.3 12,441.4 13,294.1 14,261.7 15,359.5

Liabilities and shareholders' equity: Current liabilities: ST Debt and current portion of LT debt 259.4 36.3 634.5 687.4 744.7 806.7 874.0 946.8 Accounts payable 475.4 560.9 502.4 552.6 607.9 668.7 735.5 809.1 Accrued expenses and other current liabilities 496.3 513.7 543.4 588.4 637.3 690.2 747.5 809.5 Total current liabilities 1,231.1 1,110.8 1,680.3 1,828.5 1,989.8 2,165.6 2,357.0 2,565.4 Long-term debt 3,930.0 4,694.3 4,883.3 5,029.8 5,180.7 5,336.1 5,496.2 5,661.1 Other non-current liabilities 655.1 783.3 829.6 935.4 1,054.6 1,189.1 1,340.7 1,511.7 Deferred income taxes 1,390.9 1,443.3 1,587.5 1,714.5 1,851.7 1,999.8 2,159.8 2,332.6 Total Liabilities 7,207.1 8,031.8 8,980.7 9,508.2 10,076.9 10,690.7 11,353.7 12,070.7

Shareholders' equity: Preferred stock ------Additional paid-in capital & common stock 944.2 988.9 1,032.8 1,005.0 977.2 949.5 921.7 893.9 Retained earnings 1,390.8 1,450.5 1,667.1 1,869.8 2,100.0 2,366.7 2,699.0 3,107.6 Accumulated other comprehensive loss (438.2) (620.3) (712.7) (712.7) (712.7) (712.7) (712.7) (712.7) Total shareholders' equity 1,896.7 1,819.1 1,987.1 2,162.1 2,364.5 2,603.4 2,908.0 3,288.7 Total liabilities and shareholders' equity 9,103.8 9,850.9 10,967.8 11,670.3 12,441.4 13,294.1 14,261.7 15,359.5 - - - 0.0 0.0 0.0 0.0 0.0 Ryder System, Inc. Common Size Balance Sheet (Industrial) (% of sales) Assets: 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Current Assets: Cash and cash equivalents 0.96% 0.75% 0.93% 2.13% 2.90% 4.25% 6.62% 9.42% Receivables, Net 12.11% 11.97% 12.71% 13.78% 14.89% 16.07% 17.28% 18.56% Inventories 1.00% 0.99% 0.97% 0.95% 0.92% 0.90% 0.87% 0.84% Prepaid expenses and other current assets 2.48% 2.00% 2.10% 2.07% 2.04% 2.01% 1.97% 1.92% Total Current Assets 16.55% 15.72% 16.71% 18.93% 20.76% 23.23% 26.73% 30.75% Revenue Earning Equipment, Net 101.12% 108.48% 124.54% 138.01% 140.95% 143.57% 145.38% 147.39% Goodwill 5.98% 5.92% 5.92% 5.73% 5.53% 5.33% 5.11% 4.90% Intangible assets 1.13% 1.00% 0.84% 0.81% 0.78% 0.76% 0.73% 0.70% Direct financing leases and other assets 7.17% 6.72% 8.00% 8.38% 8.75% 9.13% 9.48% 9.84% Total Assets 141.83% 148.38% 166.89% 171.86% 176.77% 182.00% 187.43% 193.58%

Liabilities and shareholders' equity: Current liabilities: ST Debt and current portion of LT debt 4.04% 0.55% 9.66% 10.12% 10.58% 11.04% 11.49% 11.93% Accounts payable 7.41% 8.45% 7.64% 8.14% 8.64% 9.15% 9.67% 10.20% Accrued expenses and other current liabilities 7.73% 7.74% 8.27% 8.67% 9.05% 9.45% 9.82% 10.20% Total current liabilities 19.18% 16.73% 25.57% 26.93% 28.27% 29.65% 30.98% 32.33% Long-term debt 61.22% 70.71% 74.31% 74.07% 73.61% 73.06% 72.23% 71.35% Other non-current liabilities 10.21% 11.80% 12.62% 13.77% 14.98% 16.28% 17.62% 19.05% Deferred income taxes 21.67% 21.74% 24.16% 25.25% 26.31% 27.38% 28.38% 29.40% Total Liabilities 112.28% 120.98% 136.65% 140.02% 143.17% 146.36% 149.21% 152.13%

Shareholders' equity: Preferred stock - - - Additional paid-in capital & common stock 14.71% 14.89% 15.71% 14.80% 13.88% 13.00% 12.11% 11.27% Retained earnings 21.67% 21.85% 25.37% 27.54% 29.84% 32.40% 35.47% 39.17% Accumulated other comprehensive loss -6.83% -9.34% -10.85% -10.50% -10.13% -9.76% -9.37% -8.98% Total shareholders' equity 29.55% 27.40% 30.24% 31.84% 33.60% 35.64% 38.22% 41.45% Total liabilities and shareholders' equity 141.83% 148.38% 166.89% 171.86% 176.77% 182.00% 187.43% 193.58% Ryder System, Inc. Statement of Cash Flows (Industrial) (in Millions) Fiscal Year Ending December 31st 2013 2014 2015

Operating Activities Net Income / Starting Line 243.20 220.46 305.99 Depreciation, Depletion & Amortization 965.14 1,040.26 1,146.92 Deferred Taxes & Investment Tax Credit 113.58 104.76 154.04 Other Funds (28.48) 38.58 (32.87) Funds from Operations 1,293.44 1,404.05 1,574.09 Changes in Working Capital (70.36) (34.06) (132.30) Net Operating Cash Flow 1,223.08 1,369.99 1,441.79

Investing Activities Capital Expenditures (2,140.46) (2,259.16) (2,667.98) Acquisitions (1.86) (9.97) - Sale of Fixed Assets & Businesses 452.37 622.79 427.50 Other Funds 62.50 65.94 69.88 Net Investing Cash Flow (1,627.45) (1,580.41) (2,170.60)

Financing Activities Cash Dividends Paid (67.72) (74.87) (83.20) Change in Capital 90.65 (59.72) 17.49 Issuance/Reduction of Debt, Net 365.56 332.54 800.37 Other Funds 5.15 0.70 (3.18) Net Financing Cash Flow 393.64 198.65 731.49

Exchange Rate Effect 5,558.00 297.00 37.00 Miscellaneous Funds - - -

Net Change in Cash (4.83) (11.47) 10.85 Ryder System, Inc. Statement of Cash Flows (Industrial) (in Millions) Fiscal Year Ending December 31st 2016E 2017E 2018E 2019E CV 2020E

Operating Activities: Net Income 319.1 352.9 396.2 469.1 553.1 Depreciation, Depletion & Amortization 1,169.9 1,193.3 1,217.1 1,241.5 1,266.3 Deferred Taxes & Investment Tax Credit 127.0 137.2 148.1 160.0 172.8 Gains on sales of vehicles (119.6) (121.4) (123.2) (125.0) (126.9) Funds from Operations 1,496.4 1,561.9 1,638.3 1,745.5 1,865.3 Changes in Working Capital and other 54.1 60.7 68.1 76.3 85.6 Receivables (100.3) (112.3) (125.8) (140.9) (157.8) Inventories (0.6) (0.6) (0.7) (0.7) (0.7) Prepaid Expenses and Other Assets (2.8) (2.8) (2.9) (2.9) (3.0) Accounts Payable 50.2 55.3 60.8 66.9 73.6 Accrued Expenses and Other Liabilities 45.1 48.8 52.9 57.3 62.0 Other non-current assets and liabilites 62.4 72.3 83.7 96.6 111.4 Net Operating Cash Flow 1,550.5 1,622.6 1,706.3 1,821.8 1,950.9

Investing Activities Capital Expenditures (2,001.0) (2,061.0) (2,122.8) (2,186.5) (2,252.1) Acquisitions - - - - - Sale of revenue generating equipment 478.8 440.5 462.5 494.9 480.1 Other Funds - - - - - Net Investing Cash Flow (1,522.2) (1,620.5) (1,660.3) (1,691.6) (1,772.1)

Financing Activities Cash Dividends Paid (88.6) (95.0) (101.7) (109.0) (116.8) Change in Capital Stock (27.8) (27.8) (27.8) (27.8) (27.8) Sale of Common Stock 12.2 12.2 12.2 12.2 12.2 Share repurchases (40.0) (40.0) (40.0) (40.0) (40.0) Change in debt 199.4 208.2 217.5 227.3 237.7 Other Funds Net Financing Cash Flow 55.2 57.7 60.2 62.8 65.4

Net Change in Cash 83.6 59.8 106.2 193.0 244.2 Cash, Beg of year 60.9 144.5 204.3 310.5 503.4 Cash, End of year 144.5 204.3 310.5 503.4 747.6 Ryder Systems, Inc Value Driver Estimation (In Millions) Fiscal Years En 2,012.0 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

NOPLAT COMPUTATION Net Sales 6,257.0 6,419.3 6,638.8 6,571.9 6,790.5 7,038.2 7,304.2 7,609.0 7,934.3 Less: Cost of Lease and Ren 1,925.6 2,036.9 2,153.5 2,239.6 2,329.2 2,422.3 2,519.2 2,620.0 Less: Cost of Services 2,359.9 2,447.9 2,413.2 2,509.7 2,610.1 2,714.5 2,823.1 2,936.0 Less: Fuel Services 814.1 768.3 519.8 509.4 499.3 489.3 479.5 469.9 Less: Other Operating Expe 131.7 126.6 135.0 137.8 140.6 143.5 146.5 149.5 Less: SG & A 766.7 790.7 817.0 844.5 869.8 895.9 922.8 950.5 979.0 Plus: Implied 160.9 185.4 203.1 217.0 228.5 241.9 255.7 269.7 285.1 EBITA 582.9 645.3 722.9 752.6 805.0 867.5 959.9 1,065.0

Income Tax Pr 102.2 125.7 118.1 163.2 166.9 170.7 174.5 178.4 182.4 Plus: Tax Sh 52.7 49.0 52.8 55.2 56.5 57.7 59.0 60.3 61.7 Less: Tax on 4.4 5.4 5.0 3.7 3.8 3.9 4.0 4.0 4.1 Plus: Tax Sh - - 35.5 ------Plus: Tax Shield on Restruct 0.2 0.9 5.2 5.2 5.2 5.3 5.3 5.3 Plus: Tax Shield on Non-Ope (5.4) (1.9) (1.2) - - - - - Less: Tax on Gains on Vehic 33.6 46.3 43.2 43.9 44.5 45.2 45.9 46.6 Plus: Tax Sh 11.3 13.0 14.2 15.2 16.0 17.0 17.9 18.9 20.0 Total Adju 154.9 143.5 168.4 190.7 196.9 202.2 207.5 213.0 218.7

Deferred Tax L 1,753.2 1,390.9 1,443.3 1,587.5 1,714.5 1,851.7 1,999.8 2,159.8 2,332.6 Deferred Tax C 605.3 ------Net Deferre 1,147.9 1,390.9 1,443.3 1,587.5 1,714.5 1,851.7 1,999.8 2,159.8 2,332.6

Net Change in Deferred T 242.9 52.4 144.2 127.0 137.2 148.1 160.0 172.8

NOPLAT 682.2 529.3 676.4 682.7 740.0 808.1 906.9 1,019.1

INVESTED CAPITAL Operating Current Assets "Normal" Ca 0.7 213.1 104.6 66.4 61.6 50.1 60.9 144.5 204.3 Accounts Re 775.8 777.4 794.9 835.5 935.7 1,048.0 1,173.8 1,314.7 1,472.4 Inventories 64.1 64.3 66.0 63.7 64.4 65.0 65.7 66.3 67.0 Prepaid Exp 133.9 159.3 132.7 138.1 140.9 143.7 146.6 149.5 152.5 Operating 974.5 1,214.0 1,098.1 1,103.8 1,202.6 1,306.9 1,447.0 1,675.0 1,896.2

Operating Current Liabilities Accounts Pa 399.0 475.4 560.9 502.4 552.6 607.9 668.7 735.5 809.1 Accrued Exp 505.7 496.3 513.7 543.4 588.4 637.3 690.2 747.5 809.5 Income Taxe 1,177.1 1,390.9 1,443.3 1,587.5 1,714.5 1,851.7 1,999.8 2,159.8 2,332.6 Operating 2,081.8 2,362.6 2,517.8 2,633.2 2,855.6 3,096.8 3,358.7 3,642.8 3,951.2

Net Operating (1,107.3) (1,148.6) (1,419.7) (1,529.5) (1,653.0) (1,790.0) (1,911.7) (1,967.8) (2,055.0)

Plus: Net PPE 6,379.5 7,124.7 7,901.5 8,899.7 9,371.6 9,920.2 10,486.6 11,061.8 11,694.5 Plus: PV of Op 2,295.8 2,644.7 2,896.8 3,095.2 3,259.3 3,450.1 3,647.1 3,847.1 4,067.2 Plus: Tangible 434.6 460.5 446.1 525.5 557.0 590.4 625.9 663.4 703.2

Invested C 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 14,410.0

VALUE DRIVERS NOPLAT 682.2 529.3 676.4 682.7 740.0 808.1 906.9 1,019.1 BEG. INVESTED CAPITAL 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 ROIC 8.53% 5.83% 6.88% 6.21% 6.42% 6.64% 7.06% 7.49%

BEG. INVESTED CAPITAL 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 ROIC 8.5% 5.8% 6.9% 6.2% 6.4% 6.6% 7.1% 7.5% WACC 8.0% 8.0% 8.0% 6.5% 6.5% 6.5% 6.5% 6.5% EP 42.0 (197.2) (109.6) (34.9) (13.2) 13.4 68.0 130.8

NOPLAT 682.2 529.3 676.4 682.7 740.0 808.1 906.9 1,019.1 BEG. INVESTED CAPITAL 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 ENDING INVES 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 14,410.0 FCF (8,002.6) (396.4) (214.1) (489.8) 138.7 104.2 131.0 150.2 213.7 Ryder Systems, Inc. Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM) Risk Free Rate 2.57% Implied Market Risk-Premium 5% Beta (Bloomberg) 1.5 Cost of Equity 10.068%

Risk Free Rate 2.57% Corporate Bond Spread (BBB+) 4.44% Pre-tax Cost of Debt 7.01% Marginal Tax Rate 36.70% After-tax Cost of Debt 4.43%

Cost of Preferred Stock 0%

Target Weights: Debt 62.81% Equity 37.19% Preferred 0% Total 100%

WACC Calculation: Cost of Equity (Re) 10.07% Cost of Debt (Rd) 7.01% Cost of Preferred (Rpfd) 0% Marginal Tax Rate (t) 36.70% MV of Equity E $ 3,267.64 MV of Debt (D) $ 5,517.80 MV of Firm (E+D+PFD) $ 8,785.44 WACC 6.53% Ryder Systems, Inc. Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 3.00% CV ROIC 7.45% WACC 6.53% Cost of Equity 10.07%

DCF Model: Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E

NOPLAT 682.73 740.03 808.12 906.91 1,019.12 Δ Invested Capital 544.04 635.88 677.13 756.67 805.37 FCF 138.68 104.16 131.00 150.24 213.74 CV 17,246.55 Periods to Discount 1 2 3 4 4 Discounting Factor 1.065 1.135 1.209 1.288 1.288 PV(CF) 130.18 91.78 108.35 116.65 13,391.25

Value of Operating Assets 13,838.2 Plus: Excess Cash - Plus: Direct Financing Leases 525.5 Plus: Intangible Assets 55.2 Less: Short & Long-Term Debt 5,517.9 Less: ESOP 18.6 Less: PV Operating Lease 4,067.2 Less: Other Liabilities 829.6 Value of Equity 3,985.6 Shares Outstanding 53.0 Intrinsic Value 75.20

Fraction of FY elapsed 30.05% Intrinsic Value Partial Year Adjusted as of 4/19/2016 $ 77.40

EP Model Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020CV NOPLAT 682.7 740.0 808.1 906.9 1,019.1 Beg. Invested Capital 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 ROIC 6.21% 6.42% 6.64% 7.06% 7.49% WACC 6.5% 6.5% 6.5% 6.5% 6.5% Economic Profit (34.9) (13.2) 13.4 68.0 130.8 Continuing Value 3,641.9 Periods to discount 1 2 3 4 4 Discounting Factor 1.065 1.135 1.209 1.288 1.288 PV EP -32.79287 -11.590757 11.0975926 52.794474 2827.81907

PV of EP 2,847.3 Add: Beg. IC 10,990.9 EP Value of Operations 13,838.2 Add: Excess Cash - Direct financing leases 525.5 Intangible assets 55.2 Less: Short & Long-Term Debt 5,517.9 ESOP 18.6 PV operating lease 4,067.2 Other Liabilities 829.6 Equity Value 3,985.6 Shares Outstanding 53.0

Intrinsic Value $ 75.20

Intrinsic Value Partial Year Adjusted as of $ 77.40 4/14/2016 Ryder Systems, Inc. Dividend Discount Model (DDM)

Key Assumptions CV Growth 3.00% CV ROE 11.00% Cost of Equity 10.07%

Fiscal Years Ending December 31 2016E 2017E 2018E 2019E CV2020 EPS 5.97 6.66 7.55 9.03 10.76 Dividend per share 1.68 1.82 1.97 2.12 2.29 Future Stock Price 110.6681 Period 1 2 3 4 4 Discounted Cash Flow 1.53069 1.501931 1.473712 1.446023 75.40119 Intrinsic Value $ 81.35

Fraction of FY elapsed 30.05% Intrinsic Value Partial Year Adjusted as of 4/19/2016 $ 81.86 Ryder Systems, Inc. Relative Valuation Models EPS EPS Est. 5yr Ticker Company Price 2016 2017E P/E 16 P/E 17 EPS gr. PEG 16 PEG 17 PAG Penske Aut$35.93 $3.86 $4.20 9.3 8.6 10.3 0.91 0.83 HTZ Hertz Globa $8.83 $1.00 $1.23 8.8 7.2 23.2 0.38 0.31 RUSHA Rush Enterp$17.82 $1.23 $1.55 14.5 11.5 6.8 2.13 1.69 UHAL AMERCO $341.53 $25.10 $27.75 13.6 12.3 15.0 0.91 0.82 PCAR Paccar Inc. $55.98 $3.90 $3.80 14.4 14.7 2.4 6.06 6.22 Average 12.1 10.9 2.1 2.0

R Ryder Syste$66.48 $6.13 $6.48 10.8 10.3 8.90 1.2 1.2

Implied Value: Relative P/E (EPS16) $ 74.28 Relative P/E (EPS17) $ 70.33 PEG Ratio (EPS16) 1.512 PEG Ratio (EPS17) 1.520 Ryder Systems, Inc. Sensitivity Analysis

WACC $ 77.40 6.00% 6.25% 6.53% 6.75% 7.00% 2.80% 123.21 98.35 74.51 58.12 41.63 2.90% 126.29 100.51 75.91 59.06 42.16 CV Growth of NOPLAT 3.00% 129.57 102.81 77.40 60.05 42.71 3.10% 133.08 105.25 78.96 61.10 43.30 3.20% 136.83 107.85 80.63 62.20 43.91

Beta $ 77.40 1.3 1.4 1.5 1.6 1.7 2.40% 77.16 77.26 77.37 77.47 77.58 2.50% 77.17 77.28 77.38 77.49 77.60 Risk-Free Rate 2.57% 77.18 77.29 77.40 77.50 77.61 2.70% 77.20 77.31 77.42 77.52 77.63 2.80% 77.22 77.33 77.43 77.54 77.64

CV Growth of NOPLAT $ 77.40 1.00% 2.00% 3.00% 4.00% 5.00% 6.45% 52.16 51.40 50.22 48.09 43.19 6.90% 54.97 58.26 63.42 72.66 93.98 ROIC 7.45% 57.94 65.52 77.40 98.66 147.72 8.00% 60.51 71.78 89.45 121.08 194.07 8.45% 62.36 76.30 98.14 137.25 227.51

WACC $ 77.40 5.00% 6.00% 6.53% 7.00% 8.00% 6.50% 256.01 98.82 51.74 20.50 -26.28 7.00% 282.85 116.04 66.09 32.94 -16.69 ROIC 7.45% 303.92 129.57 77.36 42.71 -9.16 8.00% 326.46 144.03 89.41 53.16 -1.11 8.50% 344.42 155.56 99.01 61.49 5.31

% Sales Growth Leasing Revenue $ 77.40 4.00% 5.00% 6.00% 7.00% 8.00% -1.00% 24.92 36.76 48.61 60.45 72.30 0.00% 34.52 46.36 58.20 70.05 81.89 1.00% 44.11 55.96 67.80 79.64 91.49 % Sales Growth Services Rev 2.00% 53.71 65.55 77.40 89.24 101.08 3.00% 63.30 75.15 86.99 98.83 110.68 4.00% 72.90 84.74 96.59 108.43 120.27 5.00% 82.49 94.34 106.18 118.03 129.87 Ryder Systems, Inc. Key Ratios Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020E

Liquidity Ratios Current Ratio 0.86 0.94 0.65 0.70 0.73 0.78 0.86 0.95 Quick Ratio 0.81 0.88 0.62 0.67 0.70 0.75 0.83 0.92 Net Working Capital (168.65) (67.18) (581.96) (542.95) (528.79) (469.04) (323.02) (125.84)

Activity or Asset-Management Ratios Total Asset Turnover 0.71 0.67 0.60 0.58 0.57 0.55 0.53 0.52 Fixed Asset Turnover 0.90 0.84 0.74 0.72 0.71 0.70 0.69 0.68 Receivables Turnover 8.26 8.35 7.87 7.26 6.72 6.22 5.79 5.39

Financial Leverage Ratios Debt to Equity Ratio 220.88% 260.05% 277.68% 264.43% 250.60% 235.96% 219.06% 200.93% Equity Ratio 20.83% 18.47% 18.12% 18.53% 19.01% 19.58% 20.39% 21.41% Debt Ratio 46.02% 48.02% 50.31% 48.99% 47.63% 46.21% 44.67% 43.02% Capitalization Ratio 68.84% 72.23% 73.52% 72.56% 71.48% 70.23% 68.66% 66.77%

Profitability Ratios ROA 2.61% 2.22% 2.78% 2.73% 2.84% 2.98% 3.29% 3.60% ROE 12.54% 12.00% 15.34% 14.76% 14.92% 15.22% 16.13% 16.82% Net Profit Margin 3.71% 3.29% 4.64% 4.70% 5.01% 5.42% 6.16% 6.97%

Payout Policy Ratios Dividend Payout Ratio 28% 34% 27% 28% 27% 26% 23% 21% Dividends per Share $ 0.92 $ 0.96 $ 1.04 $ 1.12 $ 1.20 $ 1.30 $ 1.42 $ 1.56 Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013)

Operating Operating OperatingOperating Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases Leases 2016 1049 2015 974 2014 887 992 2017 857 2016 795 2015 718 749 2018 678 2017 627 2016 568 577 2019 481 2018 465 2017 420 434 2020 298 2019 296 2018 277 284 Thereafter 241 Thereafter 219 Thereafter 216 189 Total Minimum Payments 3604 Total Minimum Payments 3376 Total Minimum Payments 3086 3225 Less: Interest 509 Less: Interest 479 Less: Interest 441 449 PV of Minimum Payments 3095 PV of Minimum Payments 2897 PV of Minimum Payments 2645 2776

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 6.00% Pre-Tax Cost of Debt 6.00% Pre-Tax Cost of Debt 6.00% 6.00% Number Years Implied by Year 6 Payme 1.0 Number Years Implied by Year 6 Payme 1.0 Number Years Implied by Year 6 Payme 1.0 1.0

Lease PV Lease Lease PV Lease Lease PV Lease PV Lease Year Commitment Payment Year Commitment Payment Year Commitment Payment Payment 1 1049 989.6 1 974 918.9 1 887 836.8 935.8 2 857 762.7 2 795 707.5 2 718 639.0 666.6 3 678 569.3 3 627 526.4 3 568 476.9 484.5 4 481 381.0 4 465 368.3 4 420 332.7 343.8 5 298 222.7 5 296 221.2 5 277 207.0 212.2 6 & beyond 241 169.9 6 & beyond 219 154.4 6 & beyond 216 152.3 133.2 PV of Minimum Payments 3095.2 PV of Minimum Payments 2896.8 PV of Minimum Payments 2644.7 2776.1

Forecasted PV of Operating Leases:

2016 2017 2018 2019 2020 3259.31 3450.11 3647.10 3847.15 4067.19

Net PPE 2015 2016 2017 2018 2019 2020 8,899.71 9,371.61 9,920.25 10,486.64 11,061.85 11,694.54 Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 1,263,000 Average Time to Maturity (years): 6.60 Expected Annual Number of Options Exercised 191,364

Current Average Strike Price: $ 63.93 Cost of Equity: 10.07% Current Stock Price: $66.53

2016E 2017E 2018E 2019E 2020E CV2021 Increase in Shares Outstanding: 191,364 191,364 191,364 191,364 191,364 191,364 Average Strike Price: $ 63.93 $ 63.93 $ 63.93 $ 63.93 $ 63.93 $ 63.93 Increase in Common Stock Account: 12,233,901 12,233,901 12,233,901 12,233,901 12,233,901 12,233,901

Dollar shares repurchased 40 Expected Price of Repurchased Shares: $66.53 Number of Shares Repurchased: 0.60123

Shares Outstanding (beginning of the year) 53.00 51 Plus: Shares Issued Through ESOP 0.19 0.19 0.19 0.19 0.19 0.19 Less: Shares Repurchased in Treasury 0.60 0.60 0.60 0.60 0.60 0.60 Shares Outstanding (end of the year) 52.59 52.18 51.77 51.36 50.95 50.54 VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol R Current Stock Price $66.53 Risk Free Rate 2.57% Current Dividend Yield 0.00% Annualized St. Dev. of Stock Returns 15.18%

Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 1,263,000 68.13 6.60 $ 14.75 $ 18,631,123 Total 1,263,000 $ 68.13 6.60 $ 14.75 $ 18,631,123