ryder system (r) earnings report: q4 2015 conference call ... · i would like to introduce mr. bob...

CompanyName:RyderSystemIncCompanyTicker:RSector:ServicesIndustry:Diversif iedServices

EventDescription:Q42015EarningsCallMarketCapasofEventDate:2.84BPriceasofEventDate:51.52

RyderSystem(R)EarningsReport:Q42015ConferenceCallTranscriptThefollowingRyderSystemconferencecalltookplaceonFebruary2,2016,11:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

BobBrunn;RyderSystem;VP-IRRobertSanchez;RyderSystem;Chairman,CEOArtGarcia;RyderSystem;CFODennisCooke;RyderSystem;GlobalFleetManagementSolutionsJohnWilliford;RyderSystem;GlobalSupplyChainSolutions

OtherPart icipants

BenjaminHartford;RobertW.Baird;AnalystDavidRoss;AnalystStifelNicolaus;AnalystScottGroup;WolfeResearch;AnalystMattBrooklier;LongbowResearch;AnalystJustinLong;Stephens;AnalystKristineKubacki;AvondalePartners;AnalystArtHatfield;RaymondJames;AnalystJeffKauffman;BuckinghamResearchGroup;AnalystJohnBarnes;RBCCapitalMarkets;AnalystToddFowler;KeyBanc;AnalystCaseyDeak;WellsFargo;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodmorning.WelcometoRyderSystem,Incorporatedfourth-quarter2015earningsreleaseconferencecall.

Today'scallisbeingrecorded.Ifyouhaveanyobjections,pleasedisconnectatthistime.

IwouldliketointroduceMr.BobBrunn,VicePresident,CorporateStrategyandInvestorRelationsforRyder.Mr.Brunn,youmaybegin.

BobBrunn (VP-IR):

Thanksverymuch.Goodmorning.WelcometoRyder'sfourth-quarter2015earningsand2016forecastconferencecall.

Iwouldliketoremindyouthatduringthispresentation,youwillhearsomeforward-lookingstatementswithinthemeaningofthePrivateSecuritiesLitigationReformActof1995.ThesestatementsarebasedonManagement'scurrentexpectationsandaresubjecttouncertaintyandchangesincircumstances.

Actualresultsmaydiffermateriallyfromtheseexpectationsduetochangesineconomic,business,competitive,market,politicalandregulatoryfactors.Moredetailedinformationaboutthesefactorsis

containedinthismorning'searningsreleaseandinRyder'sfilingswiththeSecuritiesandExchangeCommission.

Presentingontoday'scallareRobertSanchez,ChairmanandChiefExecutiveOfficer;andArtGarcia,ExecutiveVicePresidentandChiefFinancialOfficer.Additionally,DennisCooke,PresidentofGlobalFleetManagementSolutions;JohnDiez,PresidentofDedicatedTransportationSolutions,andSteveSensing,PresidentofGlobalSupplyChainSolutions,areonthecalltodayandavailableforquestionsfollowingthepresentation.Withthat,letmeturnitovertoRobert.

RobertSanchez (Chairman,CEO):

Goodmorning,everyone,andthankyouforjoiningus.Thismorning,we'llrecapourfourth-quarter2015results,reviewtheassetmanagementarea,anddiscussourforecastsfor2016.Thenwe'llopenupthecallforquestions.

Withthat,let'sturntoanoverviewofourfourthquarterresults.Comparableearningspersharefromcontinuingoperationswere$1.66forthefourthquarter2015,up4%from$1.60intheprioryear.Comparableresultswerebelowourforecastrangeof$1.72to$1.82,butwereimpactedby$0.06ofunusualinsurance-relateditems.

Absentthis,wewereatthelowendofourforecastrangeduetoourusedvehiclesalesandrentalresults.Fourthquartercomparableresultsexclude$0.19ofrestructuringandothercosts,and$0.05ofnonoperatingpensioncosts.Therestructuringcostsduringthequarterarerelatedtoworkforcereductionsimpactingapproximately250employees,andtoalesserextent,thependingdivestitureofasmalllogisticsoperationinCanada.

Comparableearningsfromtheprioryearexclude$1.38primarilyforpensionbuyoutcost.Operatingrevenuewhichexcludesfuelandsubcontractedtransportationrevenuegrewby7%toarecord$1.4billionforthefourthquarter,andwashigherinallbusinesssegments.Excludingtheimpactofforeignexchange,operatingrevenuegrewby9%.

Totalrevenueincreasedby1%andwasimpactedbylowerfuelcostspassedthroughtocustomers,andforeignexchange.Page5includessomeadditionalfinancialinformationforthefourthquarter.Theaveragenumberofdilutedsharesoutstandingforthequarterincreasedto53.3millionshares,upfrom53millionshareslastyear.

InDecember,ourpriorrepurchaseprogramexpiredandwereceivedBoardauthorizationforanewtwo-year,2millionanti-dilutivesharerepurchaseplan.ThenewplanallowsManagementtorepurchaseupto1.5millionsharesissuedtoemployeesafterDecember1,2015,andanother500,000sharesfromtherecentlyexpiredplanthatwerenotrepurchasedwhileactivitywaspausedinearly2015.

Weexpecttobeginrepurchasesinmid-year2016,butwe'llcontinuetoevaluatetheappropriatetiming,primarilybasedonourdecliningbalancesheetleverage.

Excludingpensioncostsandotheritems,thecomparabletaxratewas32.1%,belowtheprioryear'srateof34.4%,reflectinga$2millionCanadianincometaxsettlement.Page6highlightskeyfinancialstatisticsonafull-yearbasis.Operatingrevenuegrewat6%to$5.6billion,orincreasedby8%,excludingFX.

ComparableEPSfromcontinuingoperationswere$6.13,up10%fromlastyear.Thespreadbetweenadjustedreturnoncapitalandcostofcapitalwidenedto140basispoints,up30basispointsfromtheprioryear,drivenprimarilybyhigherleverageandhigherearnings.I'llturnnowtopage7anddiscusskeytrendswesawinthebusinesssegmentsduringthequarter.

FleetManagementSolutionsoperatingrevenue,whichexcludesfuel,grew7%,drivenmainlybygrowth

infull-serviceleaseandcommercialrental.Excludingtheimpactofforeignexchange,FMSoperatingrevenuewasupby9%.Full-serviceleaserevenueincreased7%,or9%excludingFX,duetofleetgrowthandhigherratesonreplacementvehicles,reflectingthehighercostsofnewenginetechnology.

Theleasefleetgreworganicallyby6,800vehiclesyear-over-year,excludingtheimpactfromplannedreductionsofUKtrailers.Thiswasaboveourinitialforecastof4,000vehiclesfortheyear,andaboveourmostrecentforecastof6,000to6,500vehicles.Sequentiallyfromthethirdquarter,theleasefleetincreasedby1,600vehiclesexcludingUKtrailers.

MilesdrivenpervehicleperdayonUSleasepowerunitsincreased1%versustheprioryearandcontinuedtorunatnormalhistoricallevels.Contractmaintenancerevenueincreased2%.Theaveragecontractmaintenancefleetgrewbyapproximately3,900vehiclesfromtheprioryearand4,100unitssequentially,reflectingasignificantnewcustomerthatstarteduplateinthefourthquarterandwillprimarilybenefitrevenuein2016.

Contract-relatedmaintenancewasup14%fromtheprioryear.Includedincontract-relatedmaintenanceare7,200vehiclesservicedduringthequarterunderon-demandmaintenanceagreements,anincreaseof29%fromtheprioryear.Commercialrentalrevenuewasup6%forthequarter,or8%excludingFX.

AlthoughUSdemandincreased,itwasupbylessthanexpectedandreflectedabouttwoweeks'laterstarttotheholidayshippingseasonversusourforecast.Wealsosawlessrobustdemandthananticipatedinthetractorclass.Globalpricingwasup3%forthequarter,reflectinghigherpricingintheUSandCanada,andwasinlinewithourexpectation.

Theaveragerentalfleetgrewby7%fromtheprioryear.Rentalutilizationonpowerunitswas77.6%,down250basispointsfromtheprioryear,butstillatastronglevel.UtilizationcomparisonsreflectthedemanditemsImentionedearlier,aswellasunusuallyhighutilizationlevelsintheprioryear.

Althoughcommercialrentaldeliveredsolidgrowth,duetoahighlevelofuncertaintyregardingthemacroenvironmentandsomewhatlessrobustdemandconditionswithrentaltractors,wemadeadecisiontodownsizeourfleetduringthequarterinordertomoreconservativelypositionourfleetfor2016.Theendingrentalfleetdeclinedby1,700vehiclessequentiallyfromthethirdquarter.Usedvehicleresultswerenegativelyimpactedprimarilybylowerpricingontractors.

I'lldiscussthoseresultsseparatelyinafewminutes.Overall,FMSearningsincreasedduetohigherfull-serviceleaseresultsandsolidrentalperformance.Betterleaseresultsreflectfleetgrowthandvehicleresidualvaluebenefits.

Thesebenefitswerelargelyoffsetbylowerusedvehiclesalesresultsandmaintenancecoststodownsizeourrentalfleetandreduceout-of-servicevehicles.EarningsbeforetaxandFMSincreased1%.

FMSearningsasapercentofoperatingrevenuewere12.4%,down70basispointsfromtheprioryear.Ofthis70basispointdecline,60basispointswasduetousedvehiclesales.

I'llturnnowtoDedicatedTransportationSolutionsonpage8.Operatingrevenuegrowthwasstrongat11%duetonewbusiness,highervolumesandincreasedpricing.Totalrevenuewasup5%,reflectinglowerfuelcostspassedthroughtocustomers.

DTSearningsincreased1%duetohigheroperatingrevenueandoverheadcostimprovements,partiallyoffsetbyacustomerbankruptcychargeof$1.5million.Segmentearningsbeforetaxasapercentofoperatingrevenuewere5.9%,down60basispointsfromtheprioryear.ThebankruptcychargenegativelyimpactedEBTmarginsbyapproximately80basispoints.

I'llturnnowtoSupplyChainSolutionsonpage9.Operatingrevenuegrew4%duetonewbusiness,

higherpricing,andincreasedvolumes.SCSoperatingrevenuegrew7%,includingtheimpactofforeignexchange.

Totalrevenuewasslightlydown,ashigheroperatingrevenuewasoffsetbylowerthirdpartypurchasetransportationcosts,andlowerfuelcostspassedthroughtocustomers.SCSearningsbeforetaxwereup5%duetooperatingrevenuegrowth,improvedoperatingperformance,andoverheadcostimprovements,partiallyoffsetbyalargemedicalclaimof$2.2millioninthequarter.Segmentearningsbeforetaxasapercentofoperatingrevenuewere7.4%forthequarter,up10basispointsfromtheprioryear.

ThelargemedicalclaimnegativelyimpactedEBTpercentbynearly70basispoints.Page10showsthebusinesssegmentviewoftheincomestatementIjustdiscussed.Itisincludedhereforyourreference.

reflectsourfull-yearresultsbybusinesssegment.Intheinterestoftime,Iwon'treviewtheseresultsindetail,butwilljusthighlightthebottomlineresults.Comparableearningsfromcontinuingoperationswere$327million,up10%fromlastyear.

Atthispoint,I'llturnthecallovertoourCFO,ArtGarcia,tocoverseveralitems,includingcapitalexpenditures.

ArtGarcia(CFO):

Thanks,Robert.Turningtopage12,full-yeargrosscapitalexpenditureswere$2.7billion,toup$400millionfromtheprioryear.

Thisincreasereflectsfull-serviceleasefleetgrowthduetocustomercontractssigned,aswellasplannedrentalinvestments.Werealizedproceedsprimarilyfromthesaleofrevenue-earningequipmentof$427million.That'sdown$70millionfromtheprioryear.

Thedecreaseprimarilyreflectsplannedlowervolumesofvehiclessold.Full-yearnetcapitalexpendituresincreasedby$468milliontoalmost$2.3billion.Turningtothenextpage,wegeneratedcashfromoperatingactivitiesof$1.44billionfor2015,upapproximately$60million.

Theincreasewasdrivenprimarilybyhighercash-basedearnings.Wegeneratedalmost$2billionoftotalcashduringtheyear,consistentwiththeprioryear.Cashpaymentsforcapitalexpendituresincreasedbyaround$410millionto$2.7billion.

Freecashflowfor2015wasnegative$728million,versustheprioryearnegativeof$315million,reflectingincreasedcapitalexpenditurestosupportgrowth.Ourgrowthcapitalspendfor2015was$1.3billion.Page14addressesourdebttoequityposition.

Totaldebtofapproximately$5.5billionincreasedbyalmost$800millionfromyearend2014.Debttoequityattheendof2015increasedto278%,upfrom260%intheprioryear,andjustabovethetopendofourtargetrangeof225%to275%.Leverageincreasedduetoforeignexchange,aswellasvehicleinvestmentstofundgrowth.

Year-endequitywasjustunder$2billion,up$168millionfortheyear,primarilyduetoearningspartiallyoffsetbyforeignexchangeanddividends.

Atthispoint,I'llhandthecallbackovertoRoberttoprovideanassetmanagementupdate.

Thanks,Art.

summarizeskeyresultsforourassetmanagementarea.Usedvehicleinventoryheldforsalewas8,000vehicles,upfrom5,500vehiclesintheprioryear,and1,900vehiclesabovethethirdquarter.

Thisisatthehighendofourtargetrangeof[6,000]to8,000vehicles.Theincreasedinventoryreflectsourdecisionduringthefourthquartertodownsizerentalfleetinordertopositionitmoreconservativelyfor2016.Weexpecttoworkthisinventorydownoverthenextfewquartersandend2016closertothebottomendofourtargetrange.

Wesold4,500usedvehiclesduringthequarter,down2%fromtheprioryear,butup2%sequentiallyfromthethirdquarter.Wesold17,900vehiclesduringthefullyear.Duringthequarter,usedvehiclepricingdeclinedbymorethanforecasted,particularlyfortractors.

Comparedwiththefourthquarterof2014,proceedsfromvehiclessoldweredown5%fortractorsandup5%fortrucks.Fromasequentialstandpoint,tractorpricingwasdown9%andtruckpricingwasdown2%versusthethirdquarterof2015.Ascomparedtopeakpricesrealizedinthesecondquarter,overallusedpricesweredown9%,ascomparedtoourexpectationsofdown7%,drivenprimarilybyusedtractorpricing,whichwasdown11%fromthesecondquarterpeak.

Thenumberofleasedvehiclesthatwereextendedbeyondtheiroriginalleasetermdecreasedversuslastyearbyaround750units,or12%during2015,andiswellbelowrecessionarylevels.Thisreflectsalowernumberofleasecontractexpirationsthisyear.Earlyterminationofleasedvehiclesincreasedby70unitsthisyearandweregenerallyinlinewithlevelsseenoverthepastfiveyears.

I'llturnnowtopage18tocoverouroutlookfor2016.Pages18and19highlightsomeofthekeyassumptionswe'vemadeinthedevelopmentofour2016earningsforecast.Asyouknow,theeconomicandfreightenvironmentsarehighlyuncertainatthemoment,whichmakesforecastingchallenging.

Ourapproachtotheforecastwastoassumeasignificantnegativeimpactinusedvehiclesalesandaweakercommercialrentalenvironment,aswellassomeheadwindsinnewleasesales.Wethinkthisisaprudentapproachtoourinitialforecastfortheyearandwe'llmakeanyappropriateadjustmentasconditionsmerit.Whenlookingatourearningsforecast,itisespeciallyimportantthisyeartoconsidertheassumptionsthataredrivingthosenumbers.

In--our2016forecastanticipatesslowtomoderategrowthfortheoveralleconomy.We'reexpectingouraverageinterestratetobeconsistentwith2015,aslowerfixedraterefinancingratesoffsethighervariablerates.We'reassumingforeignexchangeratesremainstableattheircurrentlevels,whichwillresultinanegativeyear-over-yearimpacttobothrevenueandearnings.

Infleetmanagement,we'reexpectingcontinuedgrowthinfullserviceleasebasedonourstrongrecentsalesactivityandseculartrendsthatfavoroutsourcing,somewhatoffsetbysofterfreightconditions.For2016,we'reforecastingleasefleetgrowthof3,500vehiclesexcludingUKtrailers,whichwouldbeourfifthconsecutiveyearoforganicfleetgrowth.Thisissimilartotheinitialforecastweprovidedin2015of4,000vehicles.

Weexpectoverathirdofournewleasesalestocontinuetocomefromcustomersnewtooutsourcing,drivenbyourinitiativestopenetratethenon-outsourcedmarket.Inrental,we'reassumingsofterconditionswithdemandforecastsdown5%.Thisisworsethanwhatweexperiencedin2012,butnotasbadaswhatwesawinthelastfreightrecession.

Utilizationisexpectedtobedown,especiallyinthefirsthalf,whilepricingisforecasttobeupslightlyreflectinghighervehiclecosts.AsImentionedearlier,wetookactionsduringthefourthquartertomoreconservativelypositionourfleetinlightofasofteranduncertainmarketcondition.Forthefullyear,weexpecttheaveragerentalfleettobedown4%,or1,900vehicles.

Ourforecastalsoassumesusedvehiclepricingwilldecreasemateriallyin2016,particularlyfortractors.Tractorpricingisforecasttobedownby20%fromthepeakinthesecondquarterof2015,whichwoulddriveanoverallpricedeclineof11%acrossallvehicletypes.Thisisequivalenttothepricedeclineswe'veseeninotherrecentdownturns,includingthe2008-2009period.

Volumesareexpectedtobehigherasweworkdowntheinventoryofvehiclesthatwereout-servicedduringthefourthquarterof2015.Significantincreasesinusedvehiclepricingoverthepastfiveyearswillbenefitdepreciationratesin2016,astheseresultsareblendedintoourvehicleresidualcalculation.Thesebenefitswillpartiallyoffsetlowerexpectedgainsonusedvehiclessold.

Overall,weexpecthigherFMSearningsduetogrowthinourcontractualfull-serviceleaseproductline,partiallyoffsetbylowerusedvehiclesalesresults,andtoalesserextent,commercialrental.Turningtopage19,DTSrevenueisforecasttobenefitfromstrongnewsalesactivity,includingcontinuedconversionofleasecustomerstoDedicatedSolutions.

Dedicatedearningswillbenefitfromrevenuegrowth,lowerinsurance,andloweroverheadcosts.Insupplychain,weexpectrevenuegrowthdrivenbynewsales,partiallyoffsetbyforeignexchangeimpacts.We'reexpectingvolumestobestable,withearningsgrowthcomingfromnewbusiness.

We'vemadereductionsindiscretionaryandoverheadcostsinordertoalignourbusinesswithslowerexpectedmarketconditions.Weanticipateresuminganti-dilutivesharerepurchasesinthesecondhalfof2016,basedonourcurrentleverageprojections.Despitethismodestincreaseinshare--despitethis,amodestincreaseinsharecountwillnegativelyimpactearningssincerepurchaseshavebeenpausedsinceearly2015.

Finally,we'reforecastinganEPSheadwindduetoahighertaxrate,resultingfromincreasedearningsinhighertaxjurisdictions.Page20providesasummaryofkeyfinancialstatisticsforour2016forecastbasedontheseassumptions.We'reexpectingoperatingrevenuetogrow5%,withrevenuegrowthinallbusinesssegments.

Comparableearningspershareisforecastinarangeof$6.10to$6.30in2016,ascomparedto$6.13lastyear.Thisreflectscontinuedgrowthinourcontractualproductlines,offsetbyasofterexpectedenvironmentforourtransactionalbusinesses.Ouraveragedilutedsharecountisforecasttoincreaseto53.6millionsharesfrom53.3millionlastyear.

Weprojectacomparabletaxrateof36.3%,upfromlastyear'srateof35.3%.Thespreadbetweenourreturnoncapitalandcostofcapitalisforecasttonarrowto100to110basispoints,downby30to40basispointsfromlastyear,primarilyreflectinglowerresultsinusedvehiclesales.Our2016returnonequityforecastis15.3%.

Thenextpageoutlinesourrevenueexpectationsbybusinesssegment.Infleetmanagement,operatingrevenueisexpectedtoincreaseby4%in2016,or6%excludingforeignexchange.FMSgrowthisdrivenprimarilybyhigherfull-serviceleaseandcontractmaintenancerevenue,partiallyoffsetbyforecasteddeclinesincommercialrental.

FXisexpectedtonegativelyimpactrevenuegrowthby2percentagepoints.Full-serviceleaserevenueisforecasttogrowby6%,or8%excludingFX.Ahigherleasefleetcountduetonewsalesactivityandhigherleasefleetreflectincreasedvehiclecost--vehicleinvestmentcosts,areexpectedtobepartiallyoffsetbyweakerfreightconditions.

Longerterm,wecontinuetoexpectthatFMScandeliveroperatingrevenuegrowthinthehighsingledigitsduetobothmarkettrendsandourinitiativestodriveincreasedratesofoutsourcing.Weareforecastinga4%decreaseinrentalrevenue,reflectingexpectationsforweakerdemandconditions.

We'reexpectingoperatingrevenuegrowthof9%inDedicated,reflectingstrongnewsalesactivity.

Supplychainoperatingrevenueisexpectedtogrowby5%,or7%excludingforeignexchange,alsoreflectingnewsales.Page22providesachartoutliningthekeychangesinourcomparableEPSforecastfrom2015to2016.Weakermarketconditionsinusedvehiclesalesareexpectedtoimpactearningsby$0.62.

Pricingontractorsisforecastedtodeclineby20%frompeak,whiletruckpricing,whichhasbeenholdingupbetter,isexpectedtodeclineby5%fromthepeak.Salesvolumesareexpectedtobehigherduetothelimitedinventoryavailableforsalein2015.CommercialrentalisexpectedtodecreaseEPSby$0.28basedonlowerforecastdemandandutilizationonasmalleraveragefleet,partiallyoffsetbyhigherresidualvalues.

Highercompensationexpensesisexpectedtoimpactearningsby$0.25persharethisyear.0Thisincludesthecostofmeritincreases,highermedicalcosts,andplannedbonus.Wecontinuetomakestrategicinvestmentstodrivefuturegrowth,particularlyforITandsalesinitiatives,butataslowerpacethaninrecentyears.

TheseinitiativeswillreduceEPSby$0.09.HigherearningsfromotherFMSproductofferingssuchason-demandandcontract-relatedmaintenancewillbepartiallyoffsetbyfuel,drivenbyatighteningwholesaleversusretailspread.Intotal,theseitemsareexpectedtocontributeanadditional$0.09toEPS.

Growthindedicatedrevenuecombinedwithmarginexpansionshouldadd$0.20.Insupplychain,weexpectanadditional$0.25drivenprimarilybygrowth.Workforcerestructuringandothercostsavingsactionsweretakeninordertobetteralignourbusinesswithcurrentmarketconditions.

Theseactionsareexpectedtogenerateanannualbenefitof$0.38.Thelargestdriverof2015EPSimprovementisgrowthandincreasedreturnsinourcontractualFMSproductlines,totallinganadditional$0.73thisyear.Thisresult--thisresultsfromfleetgrowthandadepreciationbenefitfromhigherresidualvalues.

ThenetimpactoftheoperationalitemsI'vementionedsofarwillresultinanEPSof$6.54.Inaddition,however,weareforecastinganegative$0.24impactfromhighertaxrate,increasedsharecount,andimpactsfromforeignexchange.ThisbringsthehighendofourcomparableEPSforecastto$6.30withtherangeof$6.10to$6.30forecastfortheyear.

I'llturnthecallovertoArtnowtocovercapitalspendingandcashflow.

ArtGarcia(CFO):

Thanks,Robert.Turningtopage23,we'reforecastingtotalgrosscapitalspendingof$2billion,downalmost$700millionfromlastyear,withlowerspendinginleaseandsignificantlylowerspendinginrental.Leasecapitalisforecasttodecreaseby$280millionduetolowerforecastfleetgrowthinasofterfreightenvironment.

Weareplanningminimalcapitalspendingforrentalof$90million,down$430millionfromtheprioryear.Theaveragerentalfleetisforecastedtodeclineby4%.Theplannedspendinghereisrelatedtoachangeinthefleetmixtodriveactivitywithbetterperformingvehicletypes.

Proceedsfromusedvehiclesalesareforecasttoincreasebyabout8%to$460million.Highersalesvolumesareexpectedtobepartiallyoffsetbylowerpricing,particularlyontractors.Asaresult,netcapitalexpendituresareforecastat$1.6billion.

Thisrepresentsa$700milliondecreasefrom2015.Freecashflowisforecastatpositive$100million,reflectinglowergrowthspendinginleaseandonlyaminimalreplacementcapitalspendinrental.Withhigherexpectedfreecashflow,thebusinesswillde-leverandweexpectdebttoequitytocomedownto245%atyearend,justbelowthemidpointofourtargetrangeof225%to275%.

Thiswillprovideuswithadditionalbalancesheetflexibilitygoingforwardandwillbethekeydriverinrestartinganti-dilutivesharerepurchases.We'vetalkedinrecentyearsabouttheimpactthathighergrowthcapitalspendinghasonthebusiness.Page24highlightstheamountofgrowthcapitalspendingwe'vehadbyyear,drivenfrombothfleetgrowthandhighervehicleinvestmentcostsperunit,anditsimpactoncashflow.

For2016,weexpecttospend$680millioningrowthcapitalforfull-serviceleasewithnogrowthcapitalinrental.Thatcomparestogrowthcapitalspendof$1.3billionin2015.Theboxontheright-handsideofthepagehighlights2016growthcapitalspendinginlease.

Anincreaseinthenumberofleasedvehicleswillrequire$275millionofcapital,whilehigherper-unitcostswillrequireanadditional$405million.Freecashflowisfavorablyimpactedbyreducedcapitalexpenditures,demonstratingthecounter-cyclicalnatureofourbusinessmodel.Asyoucanseeinthebottomlineofthepage,growthcapitalspendinginrecentyearshassignificantlybenefitedoperatingcash.

Operatingcashflowisprojectedtobeover$1.6billionthisyear,upover60%since2009.Atthispoint,letmeturnthecallbackovertoRoberttorecapourEPSforecast.

Thanks,Art.Turningtopage25,we'reforecastingEPSof$6.10to$6.30versusacomparable$6.13lastyear.Thisimprovementisdespitea$0.24negativeimpactafromhighertaxrate,sharecount,andnegativeforeignexchange.

We'realsoprovidingafirstquarterEPSforecastof$1.03to$1.08versusacomparableprioryearEPSof$1.08.Thefirstquarterforecastreflectsusedvehiclesalesheadwindsandsofterrentalperformance,aswellasanatypicalfuelbenefitof$0.03lastyear.Thatconcludesourpreparedremarksthismorning.

Wehadalotofmaterialcoveredtoday,withboththefourthquarterresultsandthe2016outlook.Asaresult,Iwouldliketoaskyoutolimityourselftoonequestioneach.Ifyouhaveadditionalquestions,you'rewelcometogetbackinthequeueandwe'lltakeasmanyquestionsaswecaninthetimeallotted.

Atthistime,I'llturnthecallovertotheoperatortoopenupthelineforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

BenHartfordwithBaird.

BenjaminHartf ord (Analyst-RobertW.Baird):

Goodmorning,guys.Goodsummary.

Robert,ifIcouldjusttalkaboutlong-term,howyou'relookingattheFMSbusiness,whatistheconfidencetodayaftersomeofthechallengesinthebackhalfof2015,theoutlookthatyouprovidedherein2016withregardtosofteningusedtruckpricingandweakerrentalutilization?Whatisthe

confidenceofthegrowththatyou'veseeninthecontractualbusinessspecifically,wholeserviceleaseisleverageable,isproducingtheoperatingleveragethatyouhadexpected,suchthatasyoucontinuetogrowthatbookofbusinessandwegetthroughsomeofthesecyclicalheadwindsin2016,thatwewillstarttoseeoperatingleverageinFMSwithlineofsightexceedingpriorpeakmargins?

Ben,Ithinktheconfidencelevelisveryhigharoundthecontractualbusiness.Ifyoulookatthegrowththatwehadin2015,theleasefleetgrowthof6800vehicles,we'relookingatnextyeareveninasofterenvironmentofstartingoutwithaforecastof3500vehicles.Theseculartrendsthataredrivingthisoutsourcingcontinuetobeverystrong.

WehadaverystrongfourthquartersalesinFMS,sowehavenotseenreallyaslowdownthereatall.Andwefeelreallygoodaboutourabilitytodothat.Ithinkclearlyifyoulookattheoverall,yourquestionaboutearningsleverage,theheadwindfromUVSismeaningful,certainlywhatwehadforecastedin2016isameaningfulheadwindwithaprettysignificantdeclineinpricing.

Thesecycleshappeninusedtrucksales.Weknowtheytypicallylastfourtosixquarters,andit'stypicallyjustwhensupplyanddemandgetoutofwhackalittlebit.Butweseeusgettingthroughthislikewe'vegottenthroughtheminthepast.

Ifeelreallygoodaboutourabilitytorespondquicklytothem.Andseeuscontinuingourtargetofgettingaboveourpriorpeakoncewehavegottenpastthisslowdowninourtransactionalbusinesses.

AndIguesstothatpoint,giventheconfidence,giventhefactthatyouhavebeenthroughanumberofcycles,youpersonally,andthecompanyobviously,andyou'veseenthisbefore,kindofextendingtheanti-dilutivesharerepurchasescouldgeneratecashthisyear,whynotbemoreaggressiveasitrelatestobuybacks,givenwherethestockistradingrelativetohistoryonvariousvaluationmetrics?Whynotbealittlebitmoreaggressivegoingaboveandbeyondjusttheanti-dilutivesharerepurchase,giventheconfidencethatyouhaveintheoutlookofthebusiness?Thanks.

Well,Ithinkwhatwe'retalkingaboutrightnowisbasedon--rightnowwe'reinthehighendofourtargetleveragerange.We'realittlebitaboveit.Soclearlyinthisenvironment,it'sdifficulttodothat.

Aswelookout,wesayifthisenvironmentmaterializesin2016,ifwehaveaweakfreightenvironmentaswehaveforecasthere,weexpectourleveragewilldroptothemiddleofourrangeandwearegoingtoberestartingtheanti-dilutiverepurchaseprogram.Ithinkdependingonhowthisthingmaterializes,we'llmake--wecouldmakedifferentdecisionsaswegetthere.Ithinkaswesitheretodayonthehighendofourtargetleverage,thatit'sdifficultforustosaywe'regoingtodoanythingbeyondthatyet.

Okay.Thanksforthetime.

Operator :

DavidRosswithStifelNicolaus.

DavidRoss (Analyst-AnalystStifelNicolaus):

Goodmorning,gentlemen.

Hi,David.

Canwetalkalittlebitmoreaboutthedecelerationinthefleetgrowthintheleasingin2016?You'relookingatgoingbackdownto3500.Andthat'swithsomestrongfourthquartersalesatFMS.

Soarethosefourthquartersalesalreadybakedintothat,implyingIguessmoredecelerationthroughtheyear?

Ifyoucantalkalittlebitaboutwhythisenvironmentmattersforleasegrowth,ifalotoftheseleasesarelong-termcontractualinnature,theyaretrucksthepeopleneed,andnotascyclicalastherentaldivision?

Right.Well,letmepointout,wearestillforecastinggrowth.Thiswouldbethesecondlargestgrowthratethatwe'vehadinthecompany.

Sowe'renotreallybackingoffgrowth.Whatwe'relookingatsaying,ifyoulookattheoverallfreightenvironment--iffreightenvironmentslowsdown,italltricklesdown.Andatsomepointyouhaveafewer--lessofaneedfortrucks.You'reright.

Wearekindofassumingthat'sgoingtohappenlaterintheyear,becausewhatwe'reseeingrightnowisarelativelystrongenvironmentintermsoftruckleasing.Sowe'veputthatforecastouttherebasedon,again,averysoftfreightenvironmentin2016.Butastheyeargoeson,we'lladjustbasedonwhatwe'reseeing.

AndIfeelreallygoodabouttheworkthatDennisisdoingwithhisteamonconvertingmorepeopletoleasing.Thiswillbethefirsttimethatwehavefivestraightyearsofleasefleetgrowth,andwefeelgood.Wedidnot--theonlythingIwouldtellyouiswecutbackinsomeareas,wedidnotcutbackinthenumberoffrontlinesalespeoplethatwehave,knockingondoorsandfindingnewcustomers.

SoIwouldsaythat's,that'sjusttogiveyoualittlebettercolorastowhere--howwecameupwiththe3500.Butclearly,we'llseehowtheyearprogresses.Andifthefreightenvironmentcomesinbetter,thenyou'llseeusdobetterthanthat.

Idon'tknow,Art,Dennis,ifyouwanttoaddanythingtothat.

DennisCooke (GlobalFleetManagementSolutions):

Yes,David,IwouldaddaswelookatClass8productionfortheyear,we'relookingatanumberthat'ssimilartowhatitwasin2014.In2014,wehad3200unitsoffleetgrowth.Sowethinkthe3500numberisaprudentnumbertostarttheyearwith.

Andthenwhatistheaverageleasefleetagecurrently?Anddoyouthinkgiventhegrowthprospects,thatitshouldstillloweragainin2016,orshoulditflattenoutthisyear?

David,it'sDennisagain.Sothefleetagerightnowforpowerisat37months,andaswelookintonextyear,wedoseethatdecliningslightly,notmuch,butslightly.Sothat'swhatweseerightnow.

Ithink--Ithink,David,rememberthatthebenefitofthedecliningfleetagewassortofbehindus,evenwiththenewtechnologyandall,itdoesn'treallyplayasbigafactoranymore.

Excellent.Thankyouverymuch.

Allright.Thanks,David.

Operator :

ScottGroupwithWolfeResearch.

Scott Group(Analyst-WolfeResearch):

Thanks.Goodmorning,guys.

Goodmorning,Scott.

Soontheusedtruckpricing,Ithinkyousaiddown20%.Whathaveyouseentodaterelativetothatpeak?Howmuchincrementaldownsideonusedtruckpricingareyouassumingintheguidance?

IstheremaybeanycoloryoucangiveusonJanuarysofar?Andthenisthereanygoodsensitivitytouseifwewanttoassumea30%droporsomething,whatthatmeans?

Well,here'sthewayIwouldframeitup.We'veseen--we'retalkingabouttractorprices,primarilyClass8iswherethebiggerissueis.Sowhatwesawinthefourthquarterwas11%.

Sowe'reassuminganother9percentagepointsbeyondthat,whichisconsistentwithwhatwe'veseeninother-inpriorusedvehiclesalesdownturns,severalofthemostrecentonesincludingtheoneduringthelastfreightrecession.Sothat'ssortofhowwe'veteedthatup.Wehavenotseen20%,butwe'reassumingthere'sgoingtobesomefurtherdeteriorationastherecontinuestobe,appeartobeanoversupplyofclass8tractorsinthemarketplace.

Okay.Andjustgiventhatoversupply,whatareyouassumingforOEMpricingthatyou'repaying?Areyoustartingtoseethatcomedownyet,oristhatmorestable?

No,that--remember,we'rebuyingdirectlyfromtheOEM.Sowedon't--we'retypicallygettingsome

prettycompetitivepricingregardlessoftheenvironment.SoIdon'tseethatasabigchange.

Andyou'renotseeingthatcomedownwiththeOEMs.It'skindofjustflattish?

No,it'srelativelystable,yes.

Okay.Allright.Thankyou.

Thankyou,Scott.

Operator :

OurnextquestioniscomingfromMattBrooklierofLongbowResearch.

MattBrooklier (Analyst-LongbowResearch):

Thanks.Goodmorning.Iwantedtogobacktotheexpectationsforleasefleetgrowth.

The3500-unitadditionnumber,what--canyoutalktoroughlyhowmuchofthatyou'vealreadywon,howmuchofthatisalreadycontractsignedatthispointintime?

Remember,it's12months,soit'sreallyhardtokindofbreakthatout.Ithinkyou'regoingtoseeuscontinuetohaveprobablyhigherthanthatgrowthinthefirsthalfoftheyear,thenmaybeslowdowninthesecondhalf.Again,morebasedonwhatwepredict,orourassumptions-notwhatwepredict-ourassumptionsaroundaweakerfreightenvironment.

So,that'skindofthewayitlaysout.ButIwouldtellyou,though,fourthquarterwasastrongsalesquarterfor,forfull-servicelease,andwe'vegotahealthypipelinegoingintothefirstquarterandoursalesguysarebusy.Soasofrightnow,wehaven'tseenthatmaterialize.

Ithinkit'simportant--IguesswhatIwouldwanttoprobablypointoutisunlikeotheryearswhereIthinkwe'vehadbettervisibilitytotheyear,Ithinkthisyearprobablyisalittlemurkier.There'salotmoreuncertainty.You'veheardalotoftalkabouttheindustrialrecessionandasofterfreightenvironmentfromsomeofthetruckers.

We'veseenitmanifestitselfrightnowinourusedtruckpricingabit,andclearlyalittlebitmoreinrental,butthat'swhywefeltitwasprudenttoreallybuildthisplanaroundthattypeofanenvironment.Thetruthis,itcouldturnouttobebetter.Andifitdoes,Ithinkwe'rewellpositionedtocapitalizeonthat.

Certainlyourleasesaleswilldobetter,itcouldhelpourusedtruckpricingandrental-especiallyinthefirsthalfoftheyear-couldbenefitfromabetterenvironment.SoIjustwanttomakesureeverybodyisclearonthat.

Okay.Andthenjustkindofasegueintoarentalquestion,yourguidancetalkstothefleetbeingdown4%,butIguessyourpricingmixbeingprettymuchflat.SoI'mtryingtogetasenseforwhat'skindofyour

confidencelevelthatyou'reableto-Iguessmaintainpricingonayear-over-yearbasisatrentalandIguess,isthereanypotentialoffsetinthefactthatifmaybeifthemarket'salittlebitweakerthanweanticipatefromherethattherecouldbeincreaseddemandontherentalsideandyoucouldactuallyseeIguessbetterpricing?

Well,there'salotofquestionsinthere.Ithinkwedo--firstofall,thepriceincreaseissomethingwe'reimplementingearlyintheyear,andwedofeelinthisenvironmentwehaveanopportunitytogetit.Thevehiclescostmoreandtheoverallmarket,Ithink,ismovinginthatdirection.

Clearly,ifthings--wethinkthatwillcontinue.Webelieveintheenvironmentwe'vepaintedhere--withsofterfreightenvironment,wecanstillachievethatpricingincrease.

Thankyou.

Dennis?

Yes,Iwouldjustaddtothat,Matt,ifwedoseeastrongerrentalenvironment,we'llutilizeourcentralizedassetmanagementcapabilitytomoveunitsthatarecomingoffofleasethatstillhavelifewiththem.We'llmovethoseintotherentalproductline,ifwedoseeupside.WewoulddothatbeforewewouldspendCapExonvehicles.

Soagain,we'llleverageourcentralassetmanagementcapability.

Yes,it'sourabilitytoflexupifthingsarebetter.I'msorry,Art.Didyouwanttomentionsomething?

ArtGarcia(CFO):

IwantedtofollowbackuponMatt'scomment.Givenwedidhaveagoodsalesquarter,Q4,andwedoseeasofterenvironmentaswegointo2016,you'regoingtoseeourfleetgrowthprobablybealittlemorefront-endloadedthisyearthanitwaslastyear,giventhat.

Okay.Appreciatethetime.

Thankyou,Matt.

Operator :

OurnextquestioniscomingfromJustinLongwithStephens.

Just inLong (Analyst-Stephens):

Thanks,andgoodmorning.

Goodmorning.

Sothere'salotmoretalktodayaboutthepossibilityofarecessiononthehorizonandwiththatinmind,Iwaswonderingifyoucouldjusttalkabouthowoutsourcingtrendedduringthepastrecession?Didyouseeatrendtowardmoreoutsourcingasyourcustomerslookedtocutcosts?Ordidyouseemorehesitancyfromcustomerstomakestructuralchangestotheirnetworkinaweakeconomicenvironment?

Well,whenyousaythelastrecession,ifyoulookat2008/2009,that'sprobablyatoughcomp,becauseeverythingwasdownduringthattime.Butcertainlyin,inpriorrecessionstothat,Iwouldsaythereissomeheadwindclearlyonexistingcustomersnotneedingtogrow,butouropportunity,andIthinkwithourimprovedsalesandmarketingefforts,theadditionalsalespeoplewehaveonthestreet,theoverallseculartrendsthatfavoroutsourcing,Iseeitasanopportunity,becauseIthinkjustascustomersarelooking,prospectsarelookingforwaystocutcosts,andwe'vegotproductsthattypicallycangetyou10%to15%savings,Ithinkit'saniceopportunityforustobeabletogrow.SoIthinkthisisalittledifferentenvironmentthan--certainlydifferentenvironmentthanthepre-2008/2009recessions.Ithinktoyourpoint,itcouldcreateanopportunityforus.

Okay,great.Andjustgiventheuncertainty,couldyoutalkaboutthemonth-to-monthtrendsthatyousawinrental?I'mjustcuriousifthingsgotincrementallyweakeroverthecourseofthequarter.

Andalso,ifyoucouldsharewhatyou'reseeingsofar,orwhatyousawinJanuary.

Justin,thisisDennis.SoI'llstartwithQ4.AsRobertsaidinhisopeningremarks,welookedattheparcelcompanies.

Theywerepickingupunitsalittlelaterthanweexpected,thanwhatwehadforecasted.SoOctoberandearlyNovemberwerealittleweakerthanweexpected.AndthenitgotsignificantlystrongerasweheadedintothebackhalfofNovemberandDecember.

AndinJanuary,themarketslookeddecent,aswelookatthedemandhereintheUSinparticular.

Okay.That'sreallyhelpful.Thanksforthetime.

Thankyou.

Operator :

KristineKubackiofAvondalePartners.

Krist ineKubacki(Analyst-AvondalePartners):

Goodmorning,guys.Justaquickquestion.

Goodmorning,Kristine.

Wonderingifyoucantalkmoreaboutthemaintenancetrends,bothincontractandcontract-related.Youkeeptalkingaboutasofterfreightenvironmentandpresumablylessutilizationacrossthewholetruckfleet.Areyouabletocontinuetoaddmoretruckstothatandoffsetlessmaintenance,asIwouldassume,pertruck?

AndIguesstoaddontothequestion,itwasalittlebitearlier,isthisanareathatfleetswillcontinuetooutsourceduringasoftfreightenvironment?Orwilltheyeverthinkaboutbringingthatbackin-house?

Well,letmejust--I'llsplitoutcontractmaintenanceversuscontract-related.Contractmaintenanceisunderacontractwherecustomerspayingtypicallyaflatrateformaintenanceandthenwehandleallthemaintenanceassociatedwiththat.Sotherereally--itisn'tatoolthatacustomerwillpullbackonmaintenance.

Wemaintainthosevehiclestoourstandards.Contract-related,andwithinthaton-demandmaintenance,you'reright.Whenthingsslowdown,theymaypullbackonsomeofthe--[mayasbe]runningfewermiles.

ButIthinkinthisenvironment,givenouropportunitytosavecustomersmoney,wecouldoffsetthatwithgrowthofnewcustomers.SoIthinkthat'sthetwosidesofthecoin,ifyouwill,asitrelatestogrowthinthoseitems.

Okay.Verygood.Thankyouverymuch.

Thankyou.

Operator :

ArtHatfieldofRaymondJames.

Pleasegoahead.

ArtHatf ie ld (Analyst-RaymondJames):

Goodmorning,everybody.I'vekindofbeeninandout.Listeningtosomeofyourcommentary,justacouplequickones,ifIcould.

Youaretalkingaboutasofterfreightenvironmentin2016.Andthelastthreemonthsof2015,youdidseemilesperunitperdayincrease1.3%.

DoyouexpectthattogonegativeinQ1?Oristhatsomethingthatyoumaybeupalittlebit,butworsens

asweget--movethroughtheyear?

No.We'restillassumingthattobeflat,flattish,Iwouldsay.

Andthenontheusedvehiclesales,justthetwo-partquestiontothat.One,Ididn'thearyoucommentonthis,butthe8,000unitsheldforsaleattheendofthequarter,kindofwhat'syourthoughtonwherethatgoestooverthenextquarterortwo?

Andthensecondly,youcommentedonhowyou'relookingatthisrelativetopriordownturnsintheusedvehiclemarket.Isthereanyreasontobelievebecauseofmodelyearchangesoverthelastseveralyearsthatweshouldthinkabout--itcouldbedifferentthanwe'veseeninlastcycle?

Well,first,Art,onthe8000units,thatcameupreallyinthefourthquarterbecausewedidmovealotofunitsoutofrental.Wefeltitwastherightthingtodotostarttogettherentalfleetdownfurther,tobemoreconservativeinourfleeting.SothosevehicleswereoutservicedandputattheUTCforsale.

Soyoudidseeitcomeuptothe8000.Weexpectthattoprobablypeakalittlebitover8000inthesecondquarter.Andthenreallystarttoworktheirway,starttoworkitswaydown.

Sobytheendoftheyear,weexpectthattobeatclosertothe6000-unitrange.Sowellwithin--andagain,that'sprimarilyalsobecausewedon'thavealotofunitscomingupforrenewalthisyear,ascertainlywe'rebelowtheaverage.Sothatwillkindofhelpusthroughouttheyear.

Asitrelatestothepricingofusedtractorsorusedtrucks,newtechnologyversusold,Iwouldtellyouthatourexperiencecertainlythroughlastyearpriortothisdownturnwasthatthenew--weweregettingtheappropriatepricingonthenewtechnology.Sowe'vegottoseehowthatplaysout.We'vegotateamthat'soutdoingagreatjobofmarketingthenewtechnology.

Again,youdogettothepointwheretheoldtechnologybecomessooldthatacustomerwantingacertainamountofuptimehastogowithsomethingnewer.Andwe'reprobablygettingtothatpoint.Asyouknow,weholdourvehiclesprobablylongerthanmostintheindustry.

Sowefeelgoodabouttheopportunitytosellthenewtechnologyandtocontinuetomovethoseatappropriatepricing,especiallyaswegetpastthissoftpatchthatwe'reseeinginthemarket.

IfIcouldfollowuponthatrealquick,sowithinyourplantohavethatpeakalittlebitabove8000vehiclesheldforsaleandthenworkdownto6000andthehit,theheadwindof$0.62in2016,doesthatassumeallofthosevehiclesgetsoldthroughtheretailchannel?

No.We'regoing--wearedoingtheappropriatechangeinmixinordertobeabletomovethose.

Great.

Andbytheway,that'sbuiltintothe20%.

Okay.Okay.That'sveryhelpful.Thankyou.

Okay.Thanks,Art.

Operator :

OurnextquestioniscomingfromJeffKauffmanofBuckinghamResearch.

Jef f Kauf fman (Analyst-BuckinghamResearchGroup):

Thankyouverymuch.IwantedtofocusalittlebitonDCS.YoutalkedaboutthebigrevenueincreasethereandI'mlookingattheguidanceyou'regivingongainonsaleandkindofbridgingthegaponthe140-basispoint,110-basispointspread.

Whatkindofnewbusinessareyoubringingonthere?Andwhattypeof--sorry,blankingonthis.Whattypeoffleetgrowthareyoulookingforthere?

You'retalkingaboutontheDTSside?

DTSside,yes.BecauseitlookslikerevenueperunitonDTSisdownonayear-to-yearbasis,almost7%.MaybeI'mcalculatingthatwrong.

I'mjustwonderingwhatkindofnewbusinessiscomingonthere.

JohnWillif ord (GlobalSupplyChainSolutions):

Well,Jeff,thisisJohn.Letmetrytoaddressafewthings.First,onthegrowthside,Ithinkyouhititright.

Wehad11%growthondryrevenue.Sofirst,makesurethatyou'reworkingoffthedryrevenuenumber,becausethetotalrevenuenumberisimpactedbyfuelchangesandthepriceoffuelisdown30%.Butifyoulookatourbasemeasureofoperatingrevenue,we'reup11%.Andthat'sbeengrowinginthesecondhalf.

We'vehadsomeprettygoodtractionwithpriorfleetconversionsandsomeofthatistakingplaceinthesecondhalfoftheyear.Sothat'swhatimpactedfourthquarter,ifyoulookatthesalesinthepriorfleetconversionswesawduringthequarter.Andthenthatmomentum,weexpecttocarryoverforthefirsthalfof2016andthenitwilltemperinthesecondhalfof2016.

IthinkthefleetcountasitrelatestoDTScould--therevenueperunitcouldvarybasedonthetypeofaccounting.Theyhavemoretrailersthantractors.

SoIthinkyoufocusontherevenuegrowth.We'relookingat9%revenuegrowthin2016,sowe'rereallyexpectingthatcontinuedstrongsalesandstronggrowththereasweconvertcustomersthatleaseintodedicated.

Allright,andjustonedetailedfollow-up.YougaveagreatbreakoutonvehiclesbyleaseversusrentalversusDTS.Andyouspokeaboutthedifferencesyouwereseeingontruckpricingversustractorpricing.

Canyougiveusaroughideahowthefleetbreaksoutrightnow?Trucksversustractorsversustrailers.

ArtGarcia(CFO):

Heldforsalefleet.

You'retalkingaboutthefleetthat'sattheusedtruckcenters,orareyoutalkingabouttheoverallfleet?

Usedtruckcenters.Thankyou.

ArtGarcia(CFO):

Oh,attheusedtruckcenters.

Letme--

Wecantakeitoffline.That'sfine.

Wecangotothenextcallerandthenwe'llcomeback.

ArtGarcia(CFO):

Thankyou.

Allright,Jeff.

Operator :

JohnBarneswithRBCCapitalMarkets.

JohnBarnes (Analyst-RBCCapitalMarkets):

Couplethings.First,youmentionthatnormallytheseusedtruckcycleslastkindoffourtosixquarters--youobviouslywentthroughaperiodwhereyoukindofenjoyedlikethatthree-yearreprievewheretherewerenotalotofClass8truckdeliveriesduringthatkindof2010--2009,2010,2011timeframe.Nowwe'vegottenbackintoaseveral-yearperiodwherewe'rekindofwellabovereplacementlevelsofdeliveries.

Doesthatsuggestthatfourtosixquartersbecomessomethingdifferentandyougetintomaybethisisamorepronounceddownturn,ordoyouseewhatI'msaying?It'samuchdifferentenvironmentthanwhatwe'rekindofusedto.

Yes,look.Obviously,nobodyhasacrystalballhere,butIthinkifyoulookatevenattheratesthatClass8production,therateswesawin2011and2012and2013,theyarestillrelativelystable.Ifyoucomparethemtowhatwehadhistoricallydoneintheearly2000s,itisnotat--thepeaklevelsthatcausedthechaos,whichwerethesaleswehadin1995andin1999andin2006,thoselevelshavenotbeenachievedinthiscycle.SoIdon'tseethatasbeingdramaticallydifferentthanwhatwe'veseeninthepast.

Iwouldtellyoualso,remember,weholdvehiclessevenyears.Sowe'restillsellingvehiclesfrom2009inthisyear,andwearestill,we'restillatapointwherethere'snotalotofnewunit,there'snotbigproductionyearscomingintoourusedtruckenvironment.SoIthinkthatwillbodewellthroughthisdownturn,andaswegetoutofit,thenwe'llprobablyhavesomeadditionalunitscominginandwe'llbeinagoodpositiontosellthem.

Okay.Andthensecondly,Ijustwanttogobackandfollowuponthe3500unitsofleasegrowththatyou'reforecasting.Irecognizethatit'salongsalesprocess.

Yousayfourthquarterwasagoodquarterfromasalesperspective.Imean,canyoujust--aswethinkabouttryingtomodelthisin,isit--arewetalkingtwo-thirdsoftheseunitsshouldbelayeredintothefirsthalf?Andthenbegintolightenitupinthebackhalf?

Orshouldwe--shoulditbemorerateableperquarterthanthat?Iheardyousaythatprobablyalittlelighterinthesecondhalf.Butjustmaybemagnitude,canyougiveusalittlecoloronthat?

Yes,Iwouldsaythefirsthalfoftheyear--ifyoujustdidyear-over-yearcomps,thefirsthalfoftheyear,youshouldstillcontinuetoseeinthat5000to6000rangeasyou'redoingfirstquartertofirstquarter,secondquartertosecondquarter.Andthenitreallydrops,itreallyslowsdowninthesecondhalf,moretowhatwe'retalkingaboutending,rightaroundthat3000to4000range.

Okay.Allright.Thatmakessense.Thanksforyourtimetoday.Appreciateit.

Operator :

ToddFowlerwithKeyBancCapitalMarkets.

T oddFowler (Analyst-KeyBanc):

Great.Thanks.Goodmorning.

Andthanksforallthedetail.Robert,justontheexpecteddeclineintheusedtruckpricing,ifyoudidseethat20%dropfrompeaktotroughasyouhaveinyourguidance,wherewouldthatputtheresidualsfor2016?Wouldthosestillbefavorablerelativetotheresidualsyouwouldberollingoff?AndreallywhatI'mtryingtogetatis,asIthinkaboutthatdepreciationbenefitthatyou'vegotpenciledinforthisyear,howdoesthatlookgoingforward,ifweseethesoftnessintheusedtruckmarketplayoutthewayyou'reexpectingitto?

Ithinkasweconsideredthedepreciationpolicy,wedidlookatthatalso.Ifwehadatypeofbleakenvironment,aswe'vepaintedhere,youwouldstillbe--youwouldbeinasituationprobably2017wherethingswouldbeflat,right,intermsofdepreciation.Sotherewouldn'tbedepreciationpolicymovementonewayortheother.

ArtGarcia(CFO):

Right.

Okay.Thathelps.AndthisismaybealittlebitalongthelinesofwhatJohnwasjustasking,butdoyouhaveasenseofwhattheincreaseinusedtruckpricingwasthiscyclemayberelativetolastcycle?Andwhenwelookatequipmentgainsasapercentofyouroverallearnings,itdoesfeellikeit'sbeenelevatedmaybetowhereit'sbeeninthepastanditfeelslikethere'sbeenabitofabubbleontheusedtruckside.Sodidthe--wastheincreaseinusedtruckpricingthisgo-aroundconsistentwithwhereitwaslastcyclesothatthefallwouldbeconsistent,orisitkindofdifficulttomaybelookatitonanapplestoapplesbasis?

Well,remember,look,thepriceofusedtruckshasgoneupquiteabitbecauseofthenewtechnologyandallofthosethings.Remember,whatwe'rebakinginhereisapercentagedrop.It'sapercent--it's20%onabiggernumberversuswhat--thedropsthatwesawinpriorperiods.

SoIguesstheanswertoyourquestionisyes.Usedtruckpricinghasgoneupmateriallyoverthelastcycle,generallybecauseofnewtechnology.Andweareassuminginourforecasta20percentagedrop-offofthathighernumber.

Okay.ButIguessaskingitthesameway,wasthepercentincrease,wasthatsimilaror--areyoutryingtoadjustfortheabsolutepriceofthevehicle?

Right.No,thepercentageincreasewouldhavebeenhigherfromoverthelastseveralyears.

Okay.Okay.Thanksforthetime.

Itbasicallyboilsdownto--intoday'senvironment,whetheryou'regoingtobyanewtruckorusedtruck,itcostsalotmorethanitdid10yearsago.NewtruckjustcostsmeaningfullymorebecauseofalltheEPA-mandatedchanges.SoIthink,yes,we'veadjustedtoahighercostenvironmentinboththenewandusedtrucksales.

Yes.No,weunderstand,there'salotofmovingpartsanditseemstheguidanceistryingtotakeintoconsiderationthebestfactors.Justtryingtogetsomesensitivityaroundifthingsplayoutbetterorworse,kindofwhatthatcouldmean.Appreciatethetimethismorning.

Thankyou.

Operator :

Yournextquestion--

Hangononesecond.Beforewegetthenextcaller,IthinkArt'sgottheanswertothepreviousquestion.

ArtGarcia(CFO):

FollowinguponJeff'squestionfromearlier,relativetoourinventoryheldforsale-about40%aretrucks,50%aretractorsand10%aretrailers.

Operator :

CaseyDeakwithWellsFargo.

CaseyDeak(Analyst-WellsFargo):

Thankyou.Justhadaquestion,goingbacktothe3500leasefleetgrowth,whatareyouguysforecastingasfarasearlyterminationaswegothroughtheyear?Doyouanticipatethatthatisgoingtorampupasyou'veseensomerentalweaknesshere?Maybeforeshadowingthataswegothroughtheyear?

No.Wehavenotforecastameaningfulincreaseinearlyterminations.Again,we'retryingtopaintasrealisticapictureaswecanandatthesametime,alsoerringonthesideofcaution.Butasitrelatestoearlyterminations,no,wehavenotbuiltinanymeaningfulincreasethere.

Okay.Soyoujustassumethatitkindofstaysaroundthelevelswherewehavebeentrendingthepastyear?

Right,right.

Okay.Allright.I'llleaveisatthat.Thanks,guys.

Thankyou.

Operator :

Duetotimeconstraints,wewouldliketoturnthecallbackovertoMr.RobertSanchez.Mr.Sanchez,youmayproceed.

Great,thankyou.We'rejustpastthetopofthehour,soIappreciateyouallbeingonthecall.Goodquestions.

Andlookforwardtoseeingyouaswegetoutandvisitatsomeoftheconferencesandgetouttosomeroadshows.Takecare.

Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.

THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.

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