Good morning, and welcome to Ryder System Incorporated Second Quarter 2014 Earnings Release Conference Call. All lines are in a listen only mode until after the presentation. (Operator Instructions). Today's call is being recorded. If you have any objections, please disconnect at this time. I would like to introduce Mr. Bob Brunn, Vice President, Corporate Strategy and Investor Relations for Ryder. Mr. Brunn, you may begin.

Thanks very much. Good morning, and welcome to Ryder's second quarter 2014 earnings conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors. More detailed information about these factors is contained in this morning's earnings release and in Ryder's filings with the Securities and Exchange Commission. Presenting on today’s call are Robert Sanchez, Chairman and Chief Executive Officer; and Art Garcia, Executive Vice President and Chief Financial Officer. Additionally, Dennis Cooke, President of Global Fleet Management Solutions; and John Williford, President of Global Supply Chain Solutions are on the call today and available for questions following the presentation. With that let me turn it over to Robert.

Good morning everyone and thanks for joining us. This morning we'll recap our second quarter 2014 results, review the asset management area and discuss the current outlook for our business. Then I'll open up the call for questions. With that let's turn on overview of our second quarter results. Comparable earnings per share from continuing operations were a record $1.44 for the second quarter of 2014, up from a $1.25 in the prior year. This reflects an improvement of $0.19, or 15%. Second quarter comparable results for both years exclude non-operating pension costs. We beat the second quarter forecast range of $1.35 to a $1.40 by $0.04 to $0.09. Our outperformance was driven by better-than-expected used vehicle pricing and commercial rental performance. This was partially offset by lower supply chain results. Operating revenue, which excludes FMS fuel and all subcontracted transportation revenue, was up by 6% to a record $1.39 billion for the second quarter. We saw revenue growth in both segments and in all major product lines. Page five includes some additional financials for the second quarter. The average number of diluted shares outstanding for the quarter increased by 1.1 million shares to 53 million. This reflects the pause of our anti-dilutive share repurchase program last year. In December of 2013, we announced a new 2 million share anti-dilutive repurchase program and started buying under the program in early February. During the second quarter, we bought 464,000 shares at an average price of $84.06. Our second quarter 2014 tax rate was 36.9% which includes the impact of non-operating pension cost. Excluding this item, the comparable tax rate is 37.1% above the prior year of 36%. The increased rate reflects the impact of non-deductible foreign operating losses resulting in a higher than expected tax rate. Page six highlights key financial…

Thanks Robert. Turning to page 11, year-to-date gross capital expenditures were around 1.25 billion, up nearly $270 million from the prior year. This increase reflects planned investments in our commercial rental and lease fleets as well as $40 million for the purchase of our headquarters facility during the second quarter (audio gap) to $2.31 billion. The increase reflects additional rental capital of $100 million for targeted spending in certain vehicle classes which are in high demand as well as for replacement of some rental vehicles used to fulfill lease sales. The forecast also includes $50 million of higher lease capital related to increased sales activity. We realized proceeds primarily from sales of revenue earning equipment of $277 million, up by $48 million or 21% from the prior year. The increase reflects higher sales prices per vehicle across all channels. Given strong used vehicle pricing trends we are increasing our outlook for full year sales proceeds to 530 million. We're also forecasting an increase of 25 million in our planned sale lease back transaction which should now total 125 million. Year-to-date, net capital expenditures increased by $220 million to $980 million. Full year net capital expenditures are now forecast at $1.66 billion, up by $60 million from our prior forecast. Turning to the next page we generated cash from operating activities of approximately $540 million during the first half, down slightly from the prior year. This decrease was driven primarily by the timing of annual pension contributions and higher working capital needs partially offset by higher cash based earnings. We generated $845 million of total cash year-to-date, slightly up from the prior year primarily due to higher sales proceeds which more than offset lower operating cash flow. Cash payments for capital expenditures increased by about $300 million to $1.26 billion year-to-date. Company had negative free-cash flow of 410 million year-to-date, below the prior year by about 300 million. This decrease was driven primarily by planned higher spending on rental and leased vehicles compared to the prior year and was in line with our plans. Our full year outlook for free-cash flow is unchanged at negative $300 million. Higher forecasted gross capital spending is expected to be offset by stronger used vehicle sales proceeds and increase in the sale lease back transaction and higher cash from operations. Page 13 addresses our debt-to-equity position. Total obligations of 4.8 billion increased by about $520 million from year-end 2013. Total obligations as a percent equity at the end of quarter or 245%, up from 226% at the end of 2013. Leverage is just below the mid-point of our target range of 225% to 275% and is expected to decline by year-end. Equity at the end of the quarter was $1.97 billion, up by $68 million from year-end 2013 as increased earnings more than offset share repurchases and dividends. At this point, I'll hand the call back over to Robert to provide an asset management update.

Thanks, Art. Page 15 summarizes key results from our asset management area. We continue to reduce used vehicle inventories, which are at the lowest levels in the past two years. Used vehicle inventory held for sale was 6,300 vehicles, significantly down from 9,600 units from the prior year and 900 units below the first quarter. Used vehicle inventory is in our target range of 6,000 to 8,000 vehicles following higher levels for the past two years due to the lease replacement cycle. Pricing from used vehicles was strong for both tractors and trucks. Compared to the second quarter of 2013, proceeds from vehicles sold were up 15% for tractors and 16% for trucks. From a sequential standpoint, tractor pricing was up 9% and truck pricing was up 4%. Pricing benefited significantly as we have shifted more of our sales to retail instead of wholesale now that inventories are in our target range. In addition, retail pricing levels also improved versus the prior year especially for tractors. The number of leased vehicles that were extended beyond the original lease term increased versus last year by around 200 units or 6% but remained below the 2010, 2012 levels. Early termination of lease vehicles declined 11% and remained well below recessionary levels. Our average commercial rental fleet was up 8% versus the prior year and up 4% from the first quarter. I will turn now to page 18 to cover our outlook and forecast, actually page 17. Our stronger full year earnings outlook reflects improvements in fleet management solutions partially offset by lower supply chain results. Strong performance in both used vehicle sales and rental has continued into early July and we expect these trends to continue throughout the second half. In rental, we increased capacity during the second quarter through redeployment of…

Thank you. (Operator Instructions). The first question today is from Scott Group with Wolfe Research.

Hey, thanks. Good morning guys.

Good morning Scott.

So, I wanted to ask first about the rental fleet. And you guys are growing that a little bit more, even though I think you mentioned that utilization was down. So want to understand the rationale there and how comfortable are you growing the fleet. I know in the past it's created some issues. What are you seeing differently this time that gives you comfort to accelerate that growth?

Yes. I guess Scott, I’d start with we’re in a healthy rental environment right now. Utilization has been very high. The only reason utilization is down is really primarily due to the fact that we had some deferred maintenance from the first quarter because of the weather and they got pushed off in the second quarter. So we had more of those rental vehicles in the shop being maintained and not available to be rented. So we're seeing a very healthy rental environment. It actually is impacting even some of our lease customers who expect us to have rental vehicles available. So we’re making a modest increase in the rental fleet in order to meet that demand. So we feel pretty comfortable where we're at. I think we’ve also as you know over the last several years, have implemented other ways of adjusting the fleet including redeploying units from lease which we've been doing a lot of this year. And this is just on the margins, some additional units to help us meet the increased demand.

Yes, got it. Also it's targeted as I said at certain vehicle classes. So it’s not a broad based increase across our fleet. It’s going to be the class that we've seen the most demand and we see the opportunity to rent those units.

Okay, that makes sense. And then just in terms of leasing fleet, getting some questions on, why was it down slightly sequentially from the first quarter but you're still raising the full year expectations? Is that just a timing issue? And then in terms of that 2,500 for the year, is that all based on sales momentum in the first half there? Are you assuming any additional sales momentum in the back? I guess I'm just wondering if there is up side to that 2,500 number.

Well, let me start with the fleet and flat or slightly down this quarter. That is just a timing issue. Sales don’t always come in exactly prorated throughout the year, so you have some ins and outs and you also have business that goes away throughout the year. So this was in line with what we expected for the quarter, even when we had the 2,000 -- the 2,500 is primarily due to what we've seen in the first half of the year. We had a very strong quarter lease sales quarter and extremely strong June, it was the highest sales month we've had in the last decade. So that is really what's helping to drive that forecast for the full year still some stuff can happen in the second half, lead times now are just over three months. So clearly after you get pass this quarter you're going to run out of time. So we probably still have a little bit more room that things can having, but things can having on the up side, things can having on the down side. So we think the 2,500 is a good balance in order to place a forecast.

Okay. I appreciate the color. Thanks.

Thank you. The next question is from John Barnes with RBC Capital Markets.

Hey good morning guys. First looked like in the quarter that early terminations trended down again. What's your outlook for looking at your book of business on early terminations for the balance of the year, should we continue to that see that sequential decline?

Yes. They are pretty low levels. I think you could expect to see that kind of these lower levels, if they really get to the point we're not very material. And a lot of that is really reflection of economies improving some because usually early terminations could be because of bankruptcies and things that go on with on the customers side. So I think it's safe to expect that to continue at these levels.

Okay. And then can you refresh our memory as to how much longer do you have to kind of climb to the still higher trailer issue and when will that eventually go away in terms of the retirement of that equipment?

Yes. It still had probably a few years left because these are long live pieces of equipment. But if -- when you say [grand], it's really, it's a grand, because we talk about fleet count operationally, the margin impact is not very significant. And I would say the trails even the revenue is not as significant. So we still probably got a couple of years left of it, where we're going to see, we're going to continue to defleet some of those units because again remember these are vehicles that came with an acquisition, they were written down by the company that we acquired from so they were profitable they had some profitability when we bought them but when it came time for renewal we never expected that we would renewing too many of them and that’s kind of what we are seeing. So again grand because we are going to have to talk about them on fleet count but I wouldn’t worry too much in terms of earnings and revenue impact.

Okay. Thanks for your time.

Thank you. The next question is from David Ross with Stifel.

Yes good morning.

Good morning David.

On the rental side how much of that strong demand that you saw in the second quarter and I guess continuing into the third quarter is coming from existing customers and how much is what I would call kind of the pure renters or looking for capacity and any other color you could add to kind of where that demand is coming from?

Yes I will let Dennis give you a little bit more color on that. But I think what we have seen in the last -- and I would say this started, remember this started early 2013, we started to see rental really strengthen since the beginning of 2013. And I would say what we see as a continuation of that trend in an environment where the economy seems to be picking up a little bit people are running out and they are running trucks. Some of those are our lease customers some of them are not. So we are really seeing it on both ends with maybe a little bit more on the pure side than on the lease side. But I would tell you this is an indication of some economic activity and we see that now really continuing to move in the right direction and continue to strengthen. So Dennis you want to…

Yes David this is Dennis. We saw pure rental up double digit in revenue but we also saw a lease support of strong also and that’s really reflective of I think a couple of things one is strong sales that we are having seeing lease units getting ready to come in and providing support there. And second we're seeing a trend which is interesting and that is that a lot of these customers who maybe don't want to carry the same number of trucks that they have in the past for excess surge capacity, where they would meet it with trucks that they have in their fleet, to finding those new trucks to be so expensive that they prefer to go with the rental route. So, we're seeing demand come there also. So to answer your question we are seeing double-digit growth with pure, we're also seeing strong lease support and we're seeing this phenomena of customers who in the past have carried excess units for surge capacity we're now renting from us.

That's helpful. Thanks. And then just one mid on the -- gain on vehicle sales. You talked about proceed per unit were up 15%, 16%, but units sold were down about 9%. So, I'm trying to kind of get from where you were on gain on sales last year to this year, it seems like the gain on sales came up much more than it should have been?

The gain on sale…..

You are saying the total amount?

Yes, the total amount is up 40% or so, but it doesn't seem given what's going on the proceed per unit, number units that it would have been up that much. I just want to know, if there is something else going on there?

No, that could be book value, but I would probably look more at sales proceeds. If you did the math around the sales proceeds, it just lines up the way you would expect. Proceeds are just a total dollars for getting on the sales of vehicles versus whatever the book value might be at any given time.

And remember David, when you see proceeds going up like this, you are going to get the benefit ultimately in residuals and lease margin overtime.

Yes. Thank you very much.

Okay.

Thank you. The next question is from Ben Hartford with Baird.

Hey good morning guys. Just my line got dropped so this is covered I apologize. When you look at the greater than expected full service fleet sales year-to-date, can you talk about the dynamics both in terms of your success penetrating the private fleet market versus the trend that you are seeing with existing customers, are you seeing more of the growth, more of the upside from traction from sales efforts with regard to private fleet conversions or are you seeing growth absolute unit growth with existing customers?

Yes. I would probably characterize it this way, obviously it's both right. We are clearly in an environment now where you are seeing the OEMs are building more trucks. And they'll tell you that the vast majority of that is replacement. So the customer who has 10 trucks is still asking for 11. What we're getting is we're getting some more activity around customers that need trucks to replace trucks that they -- that are may be aged. And then we're getting, we're making progress on some of these conversions again we mentioned it on the script but a third of the add that we had in the fleet count came from conversions. These are customers that were in ownership and are now doing lease. So these initiates that we've really been hammering around total cost of ownership, total we put in the hands of our sales people that are really having some nice success, some of the sales and marketing efforts and I have talked about briefly but this ad campaign the we're going to put out there is also to help drive that. I think we're seeing that continue to play out along with these macro trends that we've been talking about for a while. Those continue to be key drivers to customers who have to make decisions around the next vehicle that they are going to purchase or lease. So I would tell you clearly it's a healthier environment than it was a year ago from an overall market. But we are certainly making some good progress and a good part of that contribution is from the efforts that we have around converting fleets from ownership to leasing.

Good and then Art to clarify the comment a moment ago about gains on sale. Should we assume the second quarter run rate through the balance of the year based on what you are seeing from fundamental standpoint and then all things equal as we look into ‘15 that gains on sale should fall but it would be offset by a lower depreciation expense as residuals presumably would marked higher is that generally correct?

Yes. Ben, I would say if you think about the first half we have had gains of about 60 odd million year-to-date so we are forecasting that kind of range directionally in the second half. So it won’t be as high as Q2 but it should comparable to the first half. And then to your point as you look out into ‘15 gains you would think would come down somewhat but right now we haven’t done all that work but there will be some offset from better residual values as we sit here today.

Okay, that’s helpful. Thank you.

Hey Ben this is Rob. Another thing to keep in mind as it relates to used vehicle sales clearly we are in a strong robust used vehicle market and environment. And I think what’s important to keep in mind is that we are still entering a period where we expect overall inventory of used vehicles to continue to drop, right, because our holdings period is six to seven years, today we are selling 2008 to 2009 as we get into next year we are going to still have 2009s to sell and 2010. So you really didn’t get a pick up in new vehicles that were produced until 2011 really. So I would expect used vehicle inventories to continue to tighten over the next couple of years and that bodes well for the market and for the overall pricing environment. So we'll have to see that all play out, but I think that we're in a robust market, but there is still some room to run here at these pricing levels.

And just to finalize [the proxy], you benefit not only from healthy used pricing environment, but also I would imagine from just a lasing services perspective as well, it helps on both fronts within your business?

Absolutely, because certainly all these -- this type of an environment believes into our residual value calculation. So as we continue to see these healthy used vehicle pricing years come into that five year average, our overall residuals that we're able to sustain both from an account standpoint and from a pricing standpoint will also benefit making our product more and more competitive.

Hey Ben, it's Dennis. Just one final thing I would add is when you look at inventory levels down around 6,300 and as Robert said you expected to stay there if not tighten more. We're obviously driving more retail activity as a result. So we'll keep pushing the proceeds up.

That's helpful. Thanks.

Thank you. The next question is from Todd Fowler with KeyBanc Capital Markets.

Great, thanks, good morning. Congratulations on the quarter. I guess Robert in the prepared remarks, you talked about the FMS margins on a full year basis getting closure to 12% and kind of getting back to the pre-recession levels. How do you think about the margin progression going forward, it sounds like the growth is going to be a component on top of that? But do you have an idea of what the cadence margin improvement can be after you hit 12% and what are some of the main factors that are going to be driving that?

Well, if you think about it over the last several years we've been doing 70 to 80 basis points a year. And if you exclude some of the used vehicle sales performance this quarter, that’s kind of where cliff that we are at. So I would expect this to be able to continue to benefit from used vehicle sales performance over the next, certainly the next several quarters at least if not beyond that. And then I would expect us to continue to see margin improvement as we grow the top line and we are able to grow the fleet. Remember we are targeting now 2,500 units in the full service lease fleet. We think there is opportunity to go; if we crack the code if you will on these large non-outsource market, we can get even well beyond that. So I would say just looking at historicals, you are looking at 70-80 basis points. And again the growth will dictate what else we can do beyond that.

Right. So Todd, those are going to be the factors we have talked about obviously. Fleet growth is key, the new products, on-demand and the like as well as continuing good residuals and then we got to look at the cost side of the equation; also to manage that side of the business.

Okay. So if you see, if you are able to see let’s call it, lease fleet growth somewhere in the low single digits, the 2% to 3% and those other variables are kind of held constant, if 70 basis points give or take of margin improvements realistic?

Yes, I guess without laying out our 2015 guidance, I think over a longer period of time, yes, I think those are reasonable metrics.

Everything being equal.

Okay good, that helps. And then just for a follow-up on kind of the question about the cadence of the lease growth this year, 2,500 units. I guess is my math correct that you have done 500 organic units year-to-date so you have got 2,000 in the back half of the year; is that a 1,000 per quarter? And then the visibility on that, are those signed leases at this point that you have in place and you just haven’t put the assets into service or is there other pieces that are factored into that?

Well, there is a few things, right. There are signed leases, yes, we got those. There could be some additional leases that we would expect in the third quarter that could impact -- that are going to impact that number. Now those could be, can end up being more than what we have in or maybe less. And then also what we don't have is lost business. We don't know what customers will be reducing their fleets in certain parts of the country and that could work against us. So, there is still some unknowns there that could go on the upside or the downside. But right now our best estimate is 2,500.

Okay. Is the math right that it's 2,000 now in the back half of the year…

Yes, the math is right, 2,000.

Okay. Just lastly, this is just a comment. Any time you guys want to come to Cleveland and see LeBron James, you're more than welcome.

We're rebuilding without him.

Believe me, we've done that.

Thank you. The next question is from Thomas Kim with Goldman Sachs.

Hi, good morning everyone. I want to just ask on the conversion rate from rental releasing, how is the sort of pace compared to prior cycles? And is there any reason to think that the conversion rate should be any different from prior cycles?

Yes, actually it's a good point. It's something we've been trying to kind of figure out is -- this environment is different. I think we've had an extended recovery period here and a muted recovery from the 2008 recession. So, the rental being sort of the spot or the place that companies go and there is more uncertainty, rental has taken a much longer road up in this recovery than we've ever seen. So, it’s hard to predict exactly what it's going to do. I think clearly rental is still running very strong. And this is in an environment where the GDP has not really taken off. So I would expect if we get into periods where GDP starts to grow at 3%, may be 3 plus, that's an environment where rental should really strengthen, not weaken because, customers are going to have demand for moving product that they won't be able to fill. So I think the transition of when they decide to go to lease is going to be dictated on more and more on confidence in the economy. I think since the middle of last year, we started to see some improvement in that and lease sales really began to strengthen as you know middle last year. So we continue to see that, we continue to see that but I wouldn't say it's an accelerated -- we would like to see is -- over time start to see GDP growing a little bit more robustly, confidence in the economy and that's when you start to get then a larger scale of customers making that transition. So Dennis, do you want to add to that?

Yes Robert. Thomas, I want to make sure we get definitions right because we use this term rental to lease in kind of two contexts. First, we'll talk about an asset management move where we take our rental fleet and you really look at it as used equipment. And we open that up to lease customers. So you may have a customer who is renting the unit and then you have a new lease customer where we'll take that rental unit and lease it to that new customer and that's asset management play where we’ll often times backfill that used piece of equipment in the rental fleet when rental demand is strong; when it's not strong we won't backfill and we'll de-fleet the runner fleet. So it's a nice asset management move. Then you got the rental customer who is currently renting within the size to lease from us and that in fact is increased year-over-year. So rental to lease with an asset management play has been steady every month; it's pretty consistent in terms of our asset management moves. But the rental customers who then convert to lease has actually increased year-over-year.

That’s really helpful. And then just, can you comment on the tightness of the trucking market and to what extent you could actually see maybe upside to the rental rate sort of guidance that you highlighted earlier in the year?

Well, the tightness of the transport market does help us I guess on rental, allows us to -- we see some of that but again a lot of our customers are on the private fleet side in addition to the transport side. The tightening there definitely helps private fleets and definitely helps Ryder. We implemented a price increase in rental, Dennis, was it in end of the -- beginning of the second quarter price increase?

Right, correct.

And as you see that’s being reflected in the pricing increase that we’ve seen. So we expect that to kind of -- there is still a little bit [bleeding] that needs to happen. We think that’s really going to hold throughout the balance of the year. And we see continued tightening; obviously there could be opportunities for more but right now that’s sort of we are in the forecast.

Okay. Thanks for the time.

Thank you. The next question is from John Mims with FBR Capital Markets.

Hey, good morning guys. So most of my -- the fleet management questions have been answered, but so maybe one for Robert on supply side. When you look at, I understand the start up costs that were in the second quarter a bit over in the third quarter and you’ve got some lost automotive business. But when you look at the pipeline of new business in your division, yes, what sort of the general lead time on that pipeline? I mean is there enough potential new business wins in the third quarter that could offset the start up costs or is it all any new business you bring in now will be accretive to maybe fourth quarter but really 2015?

Yes, hi. This is John Williford. Yeah, first of all we sold a record amount of new business in the first half and we have a very, very strong pipeline. So we are going to see strong growth eventually. The lost automotive business we talked about that came off in June. Basically two automotive trucking accounts that came off in June that will be about a two to three point headwind, but we have a lot of business coming on. So you'll see the growth rate dip a little bit in the third quarter and start to come back in the fourth quarter and start to get, I would expect to be very strong into 2015. The lead time varies by the type of project and we've run a lot of projects in dedicated it's a little shorter there. And but we've also we're winning a lot of projects in CPG and high-tech and really have a lot of new business schedule to come on in the second half of the year to the extend you'll start to really see the impact by Q4.

Okay. And is at a really strong is that kind of low-double-digits or how should we frame kind of once this is really ramped up in the beginning of '15?

Well, it's hard to come out with the 2015 forecast right now.

Sure.

So it's a little too early for that. But I guess last year we've sold a lot of new business, now we've sold a lot more than that.

Sure.

So we feel very confident about that long-term prospects.

Okay. So stronger than what you've seen in the last few quarters. And then Art, one for you actually maybe just kind of 1.5 for you. The leverage ratio you said was going to trend down is the year of runs on. Is there incentive or any leverage you can pull to kind of push that towards higher end if your target range right now, we are thinking this current financing environment the (inaudible) incentive to kind of lever off as much as you can and return and boost equity returns. But am I missing something on how fluid that is?

Well it can move around John somewhat obviously our target at the beginning of the year was to get in around 230 I think it was. So as we sit here today maybe a little bit higher than that we have been buying back more shares than we thought when we entered year. Also the number is subject to vagaries of pension accounting as you know and so right now pension is probably a negative the discount rate has dropped 50-60 basis points this year. So we would expect that could have some pressure on our target leverage, if you will. So we are kind of trying to balance that with where we stand from a free cash flow perspective.

But the all time down just like 275 is given the pension is not realistic.

It’s still within our target range I think as we sit here today we are envisioning more in that 225 to 250 range in the near-term.

Okay. And then on the buyback now of given back but the stock up here near of 90 bucks looks like it like we continue to trend higher any thoughts on splitting the stock here you are at kind of all time high here and just from a liquidity standpoint does it make sense to split the stock?

I think right now we are comfortable where we are I mean it’s questionable what that really does longer term for us we have very much of an institutional base of investors I mean I see the value in that for us right now.

Great, fair enough. Thanks so much.

Alright, thanks John.

Thank you. The next question is from Kevin Sterling with BB&T Capital Markets. Kevin Sterling - BB&T Capital Markets: Well, thank you, good morning gentlemen.

Good morning Kevin. Kevin Sterling - BB&T Capital Markets: John you talked little bit about losing the auto business and the SCS pipeline being full and replacing it, that lost auto business I think you mentioned two trucking customers was it lower margin business and you guys kind of had maybe okay to see it walk away? Did it go to another mode and the business you're possibly replacing it with, would it be higher margin business? How should we think about that?

Yes. First of all automotive dedicated business has a little lower margin on average than our Ryder dedicated business. And these accounts were a little lower margin than average for auto dedicated. If you can follow all that. So, yeah they were lowish margin, accounts that were each unique situations totally had to do with price we got to the end of the contract terms on them. They were rebid at buy, I would characterize as substitute competitors at much lower rates. And there were situations that I don't see repeating that, anything can I guess happen in the future. But I don't see us having similar risks with other business anywhere in our pipeline. Kevin Sterling - BB&T Capital Markets: Okay, great. Thank you. And you guys talked earlier about the increased capital spend on certain commercial rental vehicles. Could you maybe elaborate a little bit more, what type of vehicles you're seeing the most strength, the greatest demand? And then, are you seeing some of The strong commercial rental demand and this type of equipment spill over into lease?

First, let me just clarify that, I think it was in the prepared remarks, but I want to make sure, everybody got it that of the 100 million that were increasing half of that is really to replace vehicles that went from the rental fleet as Dennis articulated went from the rental fleet into a lease customer. So, we're spending some additional money to replace those units that are now running with a contracted lease customer. The other half is really to increase the fleet size. And in terms of the types of vehicles, Dennis the types of vehicles that we're adding to rental fleet?

Yes, I mean it's a combination of tractors and trucks. But I will say that tractor demand in particular has been high but also trucks as we look at it early in the year we added to the tractor fleet and so to answer your question Kevin its buying trucks. But again the tractor demand has been high also.

Its really across the board. Kevin Sterling - BB&T Capital Markets: Okay, great thanks for your time this morning.

All right thank you Kevin.

Thank you. The next question is from Jeff Kauffman with Buckingham Research.

Thank you hey guys.

Hey Jeff.

Lebron plays in New York too. Two thought questions, with the stock was down a little earlier on the initial reports this morning it's come back nicely. And I think some of the disconnect is if I take your comments about the 12% margin in FMS in theory that would add about $0.40 annualized to an earnings number. And if I take John's view on some of the short-term headwinds in logistics, it would still imply earnings almost $0.20, $0.25 higher and yet the guidance is almost flattish given that the results were a little bit above what consensus was looking for. I am going to probably answer the question myself but how do I bridge this gap in terms of reconciliation. I know tax rate if it goes up 100 basis points that's a dime annualized tax rate has been running 37% I know the beginning your guidance was kind of 35% to 36%. Can you help me reconcile the difference here?

Well I am not sure…

I can reconcile all those. Let me just reiterate sort of what we're looking after the second half we are looking at approaching 12% full year approaching a 12% EBT for FMS approaching. So you have that right. In supply chain as John articulated in the third quarter we’re going to see some headwinds from some lost business in automotive and so that’s going to hurt us the year-over-year comps. And as we get into the fourth quarter we expect that to subside with some of the new business coming on. So clearly still some challenges versus what we had originally forecasted but year-over-year comps should look much better. So that’s the combination of those two things is what’s really driving our the full year range that we gave. So I am not sure if you’ve captured all the pluses and minuses in that and especially on the supply chain side, but that’s really what makes up the guidance.

Okay. Should I be using a higher tax rate just given what we’ve seen in the first half of the year on the non-deductible losses?

Our full year tax rate I think starting the year it was about 35.7. I want to say right now we’re probably up a little bit some of it due to the international lawsuits. But I think full year Jeff we’re looking at a 36 tax rate so you probably want to think about it will typically higher in the first half so we’ve been 37% to first half, second half we’re looking in that 35% range.

All right. And second question again a thought question, the cost of new vehicles is materially higher than it was a cycle ago I don’t know whether it’s 50%, 60% it kind of depends on what you’re buying and that’s part of the reason the CapEx has been so high and the free cash flow hasn’t really started yet. You mentioned okay our spread is now a 100 basis points and our rates are now up almost 3% on full service lease vehicles. Is that enough to recapture the additional capital you have to outlay for new equipment. How much after we deduct residual values over life. Are you using up and kind of what type of return do you need to generate to recapture that higher equipment costs over the life of the trucks?

Yeah, we moreover there is another thing our play is each year during the six year lease of a vehicle, there is a CPI increase that's implemented based on what's going on with CPI. So even though it's a 40% increase in net vehicle investment. The rate by the time we get to the end of it's like already has built in some additional cost increases that already been captured in the rate. So that's why you wouldn't expect I'm going to see a 40% increase. So yeah, the rates that we're seeing as you might imagine appropriate for this type of an increase. Remember when we do price I mean run a discounted cash flow on every vehicle and we look at what we think our maintenance costs are going to be, we build in a residual value and we look for a positive return and the type of spread that you just articulated. So that's how the numbers fallout.

Okay. Guys thanks and congratulations.

Thank you.

Thank you. The next question is from Justin Long with Stephens.

Thanks and congrats on the quarter guys.

Thank you, Justin.

Robert I guess first question. I wanted to ask about the on-demand maintenance business, it seems to be getting a lot of traction and I know it's a small piece of the pie today. But longer term, where do you envision that operating going. Is there a longer term target you have in mind, whether it's a certain number of customers or revenue contribution that you are shooting for?

You know what, somebody asked about that. Because there is a lot of exciting things going on there. I'll let Dennis expand on it. But, yeah we view this as a really important part of our growth story going forward, still a small piece of the total business but an important part of the growth story. And again we haven’t really even officially rolled it out we are still doing some work. Dennis' team is doing some work behind the scenes to work on process and some technology changes we need to make to be able to do this at a larger scale. We think we will be done with that by the end of the year maybe next year and we will be in a position to really roll it out more broadly. But I will let Dennis give you some of the updates on what we have seen so far this year.

Yeah, Justin, I will give you a number just to give you a feeling for how it’s going. We started the year with about 10 customers and we told you we said about 20 customers by the end of the year we are currently at 25 customers and we will focus on the larger customers who are looking for help with our outsource maintenance and when you look at the difficulties I will call it the complexities associated with the new truck technology we can really help these customers out. And so as they are coming to us what we are doing is making sure that we have got all of our processes set up to handle the transactional nature of this business and to your point we are getting a lot of traction with it. We haven’t launched it in a meaningful way because we are waiting to make sure that we have got everything ready to go in terms of our internal processes where it’s not this fixed monthly dollar amount it’s a pay by the drink nature in terms of the billing process and so forth. So we are getting all that in place and I think you are going to see from us by the end of this beginning in next year a more significant launch and I think what’s most exciting is once customers get a taste of what Ryder can do what we are finding is that they are looking at for example buying fuel from us. They are looking at renting trucks from us. Frankly, we're starting to see rental demand out of these customers as they bring their unit in, they need to leave it for a period of time, they are renting trucks from us. And they are asking us to look at potentially doing what we call an on-sight maintenance facility for them. And ultimately again as they get a feel, we think it leads to a Full Service Lease relationship. So, we're very excited and there is a lot of traction on the product line.

That's great. I appreciate it, that's helpful color. Second question real quick, I know it's been a long call, but could you talk about the number of trucks in your Full Service Lease business that you feel like could make sense in the dedicated contract today?

Yes. We have historically talked about 15% of those vehicles are with customers that have us, a size that's more applicable to a dedicated. However, it could go a little bit beyond that if we expand it to maybe even a little fleets that might be a little smaller. But probably a good roll of thumb would be about 15% of the fleet.

Okay, great. I appreciate the time.

Great. Thank you.

Thank you. The next question is from Matt Brooklier with Longbow Research.

Hey, thanks. Good morning. The maintenance that was deferred at FMS from 1Q into 2Q. How much of a headwind was that in terms of margin?

2.5 million.

About some about $0.03 for the quarter.

Okay. And you are caught up on maintenance at this point of time?

Yes, generally we are. There is still a little bit trickling through, but we're generally done with that.

Got you. We've heard more from some of your competitors on the dedicated side, regarding driver shortages and just in general across trucking, but driver shortages hindering a fleet growth and b also pushing up wages.. I am just curious to hear your commentary in terms of how driver shortages here may be impacting your dedicated operations.

I guess a couple of points first. The fact that it's getting tougher is good because more people are going to want to outsource it. So we view that challenge as a positive thing. We do play in the same market that everybody else does for driver so certainly we feel some of that as we go on recruit drivers. But we feel we are in a great position to do that because we have got a great recruiting network and we've got we're positioned very well with almost 6,000 commercial drivers that are our employees. On the wage side that we're probably in a little bit of a different situation probably more favorable in that a lot of our -- all of our contracts are dedicated, they are tied -- the driver wages tend to get adjusted in agreement with our contract and with our customer. So we don't necessarily just give increases and get a squeeze on margin certainly over a longer period of time that’s usually pass through. So I'll let John give you more color around that but I think that's an important differentiator from what you hear may be from some of the other competitors.

Yes, sure. Absolutely, there has been a structural driver shortage for some time. We expected it to get worse as the economy got stronger and as we got into the summer where there are more construction jobs. And it has gotten worse. I think as Robert said this is a good thing for us and it's driven some of this new business that I've talked about, you can't always be 100% sure why someone converts the private fleet but we're seeing a lot more of it and a lot of the customers we're talking to both the new wins and the ones in our pipeline re talking to us at least partly because they are having trouble with drivers. We’ve seen our turnover rate tick up a little bit but it’s very low compared to the industry and it’s something we think we’re very good at. There has historically been very little profit impact from this as Robert points out that we pass it on. There is a little now as it’s ticked up and it’s probably a little noise in our number like maybe $1 million to $2 million a quarter from the higher turnover where we replaced drivers with lease drivers who are little more expensive. But that’s something that it’s in our numbers and its impact is dwarfed by the positive impact of growth.

Okay. So, it’s fair to say you feel given the current environment relatively confident that you’ll be able to keep your turnover down, be able to attract drivers and this drivers shortage situation shouldn’t be a hindrance in terms of meaningfully growing the dedicated fleet from here?

Yes. I mean the way I think that we have to be better at recruiting and retention than our private fleet potential customers and then our competitors. And if we are we’re going to grow and add value. And so, we do a lot of things that are focused on that at being better at recruiting and retention and then the worse, the drivers shortages really the better for us.

Okay. I appreciate the color. Thanks.

Thank you. Our final question today is from [Robert Reitzes, Broad Arch Capital].

Yes, hi. Thanks for taking the call. I’ll make it easy for you. If you were looking back a year ago and you saw -- and you knew business was this good would that be surprising to you how good the business is a year ago when you were looking at business? In other words from your vantage point, do you think things are a lot better than you thought maybe 6 months to 12 months ago or about as you predicted?

I think the short answer is things are better than what we would have expected a year ago. Certainly the activity around freight movement and rental has been better than what we expected. Certainly look at the truck OEMs and manufacturers; they’re exceeding what they had originally expected in terms of new trucks being built. So the environment in our industry in general is better than what I think any of us expected at the beginning of the year. And then I would say in addition to that, I think I’m also very pleased with the progress that we’re making on the strategic initiatives that we have around getting after these non-outsourced fleets and the non-outsourced supply chain activity that we feel is really the long-term growth strategy that is going to get us where we need to be. So yes, the short answer is yes. The environment is better than what we had originally expected.

Thanks for the update.

Okay. Thank you, Rob.

Thank you. I would now like to turn the call over to Mr. Robert Sanchez for closing comments.

Well, great. Well, thank you I think we're few minute past the top of the hour. I want to thank everybody for being on the call. And I want to again remind you that we're going to be launching our new ad campaign on Friday. So be on look out for some Ryder ads in the Wall Street Journal, some commercials on the golf channel. So this is all part of our effort to get out to the see sweet and make sure people are aware all of the different services that we provide at Ryder and I believe that we can help business grow. So thanks for everything and have a safe day.

Thank you. This does conclude today’s conference. Thank you for joining. You may disconnect at this time.