Fitch Ratings has affirmed Ryder System Inc.'s BBB+ senior debt and F2 commercial paper ratings. The Rating Outlook is stable.

About $1.6 billion of debt securities are covered by Fitch's actions.
Ryder's ratings reflect the company's leading market position in the full-service truck leasing sector, improved operating efficiency as a result of management's cost reduction initiatives, diverse funding alternatives, good liquidity, and improving capitalization and leverage, according to the firm.
Rating concerns center on Ryder's subpar profitability, success in logistics business, trends in truck residual values and the continuation of weak global demand for capital goods and services.
Ryder has evolved from a diversified transportation equipment lessor with business activities ranging from aircraft leasing to automobile transportation, to a company focused on commercial truck leasing and logistics. With the arrival of new management in 1999, the importance of business efficiency, cost-cutting and free cash flow became heightened in Ryder's corporate metamorphosis. Significant restructuring charges aggregating $211 million, excluding year-2000 remediation expense, were taken between 1999 and 2001 to right-size Ryder. Improved working capital management and restraining equipment capital expenditures have helped to increase free cash flow, which totaled $290 million for the nine month period ending Sept. 30, 2002 -- up from $52 million for the same period in 2001.
Equally as important as reducing expenses was transitioning Ryder's culture from an emphasis on revenue growth to one of profitable growth. Economic Value Added (EVA) has been an important tool in Ryder's focus on profitable growth.
Nevertheless, implementation of this has been more difficult than the cost reductions. Despite lower revenues, the supply chain solutions business has reduced its pre-tax operating loss by 50% over the last year and could be breakeven on an operating basis in 2003.
Management's cost-cutting initiatives and operating conservatism were timely as the over-the-road truck sector entered into a sharp downturn beginning in 2000. Ryder said it has done a good job navigating through the sector's problems. Ryder, like other lessors, was assisted by the implementation of new Environmental Protection Agency engine emission requirements, which resulted in strong short-term demand for used class 8 trucks. However, the operating environment remains difficult as new equipment demand is essentially flat with 2001's levels. This results in weak lease pricing and collateral values continuing to be under pressure.
Although still remaining profitable during the current economic downturn, Ryder's profitability remains subpar. The full impact of management's emphasis on profitable growth is not likely to become apparent until Ryder strengthens and demand for capital goods improves. In the meantime, return on equity since 2000 has been below 10% as management strengthens the capital base and de-leverages the balance sheet.