Ryder System, Inc. faces class action lawsuit alleging it grossly overstated the residual values of its trucks, artificially inflated its earnings
Ryder System Inc. (NYSE:R) is facing a class action lawsuit alleging that between 2015 and 2020, Ryder grossly overstated the residual values assigned to its trucks. As a result, Ryder is alleged to have recorded smaller depreciation expenses and artificially inflated its earnings.
Headquartered in Miami, Florida, Ryder is a global provider of transportation and
supply chain management solutions. The Company operates through three segments: Fleet
Management Solutions (FMS); Dedicated Transportation Solutions (DTS); and Supply Chain
Solutions (SCS). According to the complaint, the FMS segment, which includes truck leasing, maintenance options and commercial rentals, accounts for 60 percent of the company’s revenue.
As part of Ryder’s truck leasing model, Ryder assigns residual values to each of its trucks for depreciation purposes and then sells the vehicles “and the end of their useful lives.” The complain alleges that for each year between 2011 and 2016, Ryder adjusted the residual values of certain assets “upwards between $10 million and $40 million, enabling the company to decrease the incremental depreciation charge it records on a particular asset each year.
“This is because depreciation is calculated as the present value of the asset, less the residual value, divided by the number of years in the asset’s useful life. Thus, the higher a company reports its assets’ residual value, the less depreciation the company must record per year, which has the effect of increasing earnings on a dollar-for-dollar basis. In total, Ryder’s upward adjustments resulted in a cumulative benefit of $158 million, or $1.92 per share, over this six-year span,” the complaint states.
The complaint alleges that the Defendants misrepresented Ryder’s financial position by overstating the residual value of the trucking fleet, allowing the company to record a smaller depreciation expense each year, artificially inflating the company’s earnings.
The truth was revealed between July 2019 and February 2020, when Ryder drastically reduced its 2019 full year earnings forecast, and recorded hundreds of millions of dollars in additional depreciation expenses due to reductions to the residual value of its fleet, and recorded tens of millions of dollars in losses on sales of used vehicles. Ryder’s stock price fell from a July 30, 2019 price of $59.32 per share to a close of $40.12 per share on February 14, 2020.
The complaint alleges that Ryder and its listed defendants “willfully or recklessly made and/or caused the Company to make false and misleading statements to the investing public that failed to disclose that the Company’s financial results were inflated as a result of the Company’s practice of overstating the residual values of the vehicles in its fleet because there was no reasonable basis to believe that the Company would sell its used vehicles for
the amounts that it had assigned to them.”
“In truth, the Company’s residual values for its fleet of vehicles exceeded the expected future values that would be realized upon the sale of those vehicles 16 by such a degree that the Company ultimately took a $357 million depreciation charge in 2019 related to Ryder’s reduction of its residual values to align them with the amounts for which they could realistically be sold.”
