TEXT-Fitch: truck leasing growth to outpace comm rental in 2013

Mon Dec 10, 2012 4:06pm EST

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Dec 10 - The revenue outlook for truck leasing firms is undergoing a shift
as truck operators begin to re-assess the economics of long-term leasing
opportunities, according to Fitch Ratings. Demand for short-term commercial
truck rentals has been relatively strong since the economic downturn, but we
expect demand to shift to longer term leasing solutions, which will support
operating fundamentals for lessors such as Ryder and Penske in 2013, even as
U.S. economic growth remains sluggish.

Healthy commercial truck rental demand and good used vehicle sales have boosted
operating results for truck leasing companies since the downturn. Much of this
strength has been influenced by customers' reluctance to sign up for long-term
leasing contracts (often five years or more) in favor of shorter term
arrangements that preserved flexibility and kept costs down in a period of
continuing demand uncertainty when trucking volume growth lagged previous
economic recoveries.

However, as customer truck fleets have aged and newer, more fuel-efficient
trucks have become available for long-term leasing solutions, the key growth
drivers for firms such as Ryder and Penske are expected to shift away from
commercial rental markets.

As commercial rental demand has slowed in recent months, leasing companies have
reduced the size of their rental fleets through more aggressive sales of used
vehicles and by trimming rental fleet capex. Ryder indicated at a recent
investor conference that in 2013, it expects to spend significantly less than
this year's level of approximately $500 million on commercial rental fleet
capex.

Despite the expected decline in rental demand next year, long-term leasing
contract volumes are likely to pick up as lessees weigh the benefits of locking
in lower operating costs and better fuel efficiency in new trucks being leased
to them over a longer term.

Capital investment in the leased fleet for Ryder and Penske is therefore
expected to remain high in 2013, yielding negative free cash flow as leased
fleets are modernized and the average age of the fleet is driven down.

While free cash flow is expected to be negative in 2013, the fleet investment is
expected to yield growth in revenues, which is positive from an earnings
perspective. Free cash flow should improve as the vehicle replacement cycle
subsides or if truck leasing firms scale back capital investments in the event
of a return to recessionary conditions.

Contact:

Katherine Hughes
Associate Director
Financial Institutions
Fitch, Inc.
+1-312-368-3123


Bill Warlick
Senior Director
Fitch Wire
+1-312-368-3141
Fitch, Inc.
70 W. Madison
Chicago, IL 60602


Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email:
brian.bertsch@fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.

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