Ryder’s company debt rating has been upgraded one notch by Moody’s.

The move was announced Thursday. It takes Ryder’s debt rating to Baa1 from Baa2. The higher grade cuts across several ratings Moody’s has on Ryder’s various debt instruments.

Baa1 is three notches above the cutoff between investment grade and non-investment grade debt. It is eight notches below the top grade of Aaa, which only a handful of companies currently hold.

Moody’s (NYSE: MCO) had affirmed Ryder’s Baa2 rating in July 2024, and at the same time changed the outlook to positive. A positive outlook often precedes an upgrade. As the time between Moody’s positive outlook on Ryder (NYSE: R) and the action taken Thursday shows, that period of knocking on the door of an upgrade or downgrade can be lengthy.

Prior rating a pandemic legacy

The Baa2 rating had been in place on Ryder since a downgrade to that level from Baa1 in June 2020, when the company was getting slammed by a huge dropoff in rental business at the start of the pandemic.

Ryder has seen the share of its revenue and profits from its traditional rental business relative to total revenue decline, which has long been part of its strategy. Its focus has been on growing its Supply Chain Solutions (SCS) and Dedicated Transport Service (DTS) sectors so that they take a greater combined share of Ryder’s overall revenue and profitability.

And that was the first reason Moody’s cited in its report as a factor in the upgrade.

The upgrade, the ratings agency said, “reflects Ryder’s progress in de-risking its business model to rely less on short-term rentals and used vehicle sales proceeds to boost returns, while expanding its less capital intensive businesses of logistics and dedicated transport.”

Moody’s said those two sectors are now about 60% of revenue. They were less than 40% in 2015.

That Ryder saw its debt rating downgraded by Moody’s during the pandemic six years ago, and only now seeing it get back to its pre-pandemic level, shows how impactful ratings changes can be. They do not always change back quickly even if a short-term event caused it in the first place.

Nice start for a new CEO

It’s also ironic that it was announced on April 2. Ryder CEO Robert Sanchez retired from the company’s top job two days earlier, and was succeeded by the company’s President and Chief Operating Officer John J. Diez on that same day. Diez now is running a company that should face reduced borrowing costs as a result of the improved debt rating and the lower debt rating is like a welcoming gift as he launches his tenure as CEO.

By putting Ryder back at Baa1, Moody’s now has the company at the equivalent level to S&P Global (NYSE: SPGI), which has a BBB+ rating on Ryder.

S&P has rated Ryder at BBB+ since April 2023. When the pandemic hit, S&P Global had Ryder at BBB, which is equivalent to Baa2, the Moody’s rating Ryder had been before Thursday’s move. But S&P Global never reduced its rating on Ryder as a result of the pandemic.

In April 2023, S&P Global increased Ryder to BBB+, equivalent to where Moody’s is now.

Moody’s, in its report, recapped the financial profile of the vehicle leasing segment at Ryder, which is known as Fleet Management Solutions (FMS).

With free cash flow an important metric for ratings agencies, because that cash flow is seen as a guarantor of debt repayment when it is high, Moody’s reviewed the cash flow position of FMS.

Positive outlook for cash flow

“The lease portfolio generates large and relatively stable cash flows that support investments during growth periods and can provide a cushion to operating pressures during economic downturns,” the Moody’s report said. “The credit profile reflects the capital intensity of the fleet management business, which typically results in negative free cash flow during periods of growth. However, free cash flow is positive when fleet investments are curtailed as demand weakens.”

Ryder should have free cash flow this year that will be “robust.” Moody’s said. That assumes capital expenditures of less than $2.5 billion, and about $500 million in used vehicle sales revenue.

On the company’s first quarter earnings call, Deiz said Ryder expected free cash flow this year of $700 million to $800 million after producing $946 million in free cash flow last year.

According to the company’s presentation materials released with its first quarter earnings, Ryder had net capital expenditures of $1.6 billion in 2025 and is projecting $1.9 billion in 2026.

Ryder releases a figure on net vehicle sales revenue but not gross figures.

Despite what Moody’s said was “an extended trucking downturn”–which has sent out numerous signals of disappearing–Moody’s said Ryder will “generate modest margin growth despite flat revenue.”

“Continuous improvement initiatives to drive maintenance and operating efficiencies within the Fleet Management Solutions segment as well as cross-selling opportunities among all three segments will support margins,” Moody’s said.

Ryder is expected to have an EBIT margin of 9.5%, defined as operating income divided by revenue. It debt-to-EBITDA margin is expected to settle in the mid-2X range, which is considered healthy.

Moody’s said Ryder’s debt at the end of December stood at $819 million in debt maturities and $865 million in commercial paper.

Fuel costs are a pass through at Ryder, Moody’s said.

Stable outlook

With the increase in the rating, Moody’s has taken off the positive outlook and switched it to stable, which is usually but not always what occurs with an upgrade.

“The stable outlook reflects our expectation that key secular trends will continue to support outsourcing for Ryder’s services,” Moody’s said. “The outlook also reflects our expectation that domestic trucking market fundamentals will not deteriorate further during 2026, allowing Ryder to improve its fleet utilization level.”

Moody’s noted that while capacity is exiting the trucking market, it does not expect “markedly improved fleet utilization” until 2027. “Margin stability, and potential growth, will be supported by contractual lease pricing initiatives and fleet maintenance savings,” Moody’s said. Sanchez has spoken often of a multi-year maintenance improvement initiative as having been a key driver of improved profitability.

A spokeswoman for Ryder declined further comment on the Moody’s move, saying the agency’s report “articulates the rationale for their rating upgrade.”

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