For most of the 1980s, Ryder System Inc. was a Wall Street darling. M. Anthony Burns, its young, voluble chairman, charmed analysts as much with his outspoken optimism as with his 100 acquisitions and heady 15% annual profit growth. But when the cracks started to show in Ryder's growth-by-acquisition strategy in late 1988, Wall Street stopped listening. Burns's reaction was upbeat: "In the future, we'll let the numbers do the talking."
Well, the numbers have spoken volumes in two years, and what they've said isn't good. A slowing economy revealed Burns's $5.5 billion hot growth company to be a highly cyclical business with too many assets. As earnings slid, to $43 million last year from $197 million in 1988, Burns's chutzpah turned into a mea culpa. He has responded to investor gripes by paring down his empire. Now, the big question is whether Tony Burns can coax growth from Ryder's core truck-leasing businesses.
Ryder is best known for the bright-yellow trucks it rents one-way to families on the move. But Burns shoved the company into all manner of truck leasing, as well as fields he knew little about, such as aircraft leasing and insurance services. Since 1988, Burns has axed two freight-hauling units, its insurance company, and thousands of older trucks (table). In February, he took a $36 million write-off on airplane leasing, which had rented planes to troubled airlines such as Continental Airlines Inc.
All told, Burns has shaved $434 million worth of assets from Ryder. He has worked on the other side of the balance sheet as well. By cutting jobs and trimming capital spending, the company generated $96 million in free cash flow last year. That helped Burns buy back stock and cut $270 million from what was a $2.2 billion debt load.
Wall Street's confidence is returning--slowly. While Ryder's stock price is less than half its 1987 high of 40, it has moved from a low of 12 3/8 in November to about 17 1/2 now. Even some critics say that Burns has better matched Ryder's trucking services to demand. When the economy turns around, they hope, so will Ryder. The company has "owned up to its mistakes," says PaineWebber Inc. analyst Anthony B. Hatch.
BRIGHT SPOT. Burns is counting on Ryder's full-service commercial truck-leasing business to fuel the slimmer company's recovery. Producing half of Ryder's $3.3 billion in vehicle-leasing revenues, full-service leasing provides the truck, a driver, and maintenance. Margins are lower than those from consumer yellow-truck rentals, but contracts with the likes of PepsiCo Inc. and Kraft General Foods Group make the business less vulnerable to slumps. While the rest of Ryder has stalled, full-service leasing has grown 10% a year since 1985.
But Burns is hardly out of the woods. While he is pumping money back into the businesses he knows best, Ryder remains slowed by the recession and fierce competition. Sluggish new-car sales are holding back a business in leasing the tractor-trailers that ferry autos from plant to showroom. And the yellow-truck business, 27% of Ryder's vehicle-leasing revenues, is slumping. A soft housing market means fewer people are moving. Pressure is also coming from U-Haul International Inc. and smaller rivals.
Burns had pulled Ryder ahead of U-Haul in 1987 by beefing up his rental fleet. While Ryder was distracted by its other troubles, though, U-Haul came on strong. It bought its own new trucks and cut prices. That not only erased Ryder's lead but opened a wide gap in market share. U-Haul now has 52% of the market, vs. Ryder's 32%.
Burns plans to fight back with a new ad campaign and price discounts of up to 30% in some markets. But that's expensive, and the total market isn't expected to grow much this year. Investors fear that discounting to grab market share will act as a brake on Ryder's overall earnings recovery. "It makes me very nervous," says analyst Amy de Rham of Massachusetts Financial Services Co.
Ryder's profits will make everyone jittery until the economy picks up. The company might lose a nickel or a dime a share in the first quarter. Given all the work Burns has done, investors are more apt to blame the recession than him--for now. But Burns still stings from Wall Street's barbs of a year ago. "It was severe because it was personal," he says of the criticism. "We stood up, faced it, and continue to do what is necessary." Investors just hope Burns has smoothed out Ryder's rough ride.