Image source: The Motley Fool.
Ryder System, Inc. (R 0.15%)
Q3 2018 Earnings Conference Call
Oct. 26, 2018, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Ryder System Third Quarter 2018 Earnings Release Conference Call. All lines are in a listen-only mode until after the presentation. Today's call is being recorded. If you have any objections, please disconnect at this time.
I would now like to introduce Mr. Bob Brunn, Vice President, Investor Relations; Corporate Strategy and Product Strategy for Ryder. Mr. Brunn, you may begin.
Bob Brunn -- Vice President of Investor Relations; Corporate Strategy and Project Strategy
Thanks very much. Good morning and welcome to Ryder's Third Quarter 2018 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.
This conference call also includes certain non-GAAP financial measures. You'll find reconciliations of each non-GAAP measure to the nearest GAAP measure in the written presentation accompanying this call, which is available on our website at investors.ryder.com.
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; John Diez, President of Dedicated Transportation Solutions; and Steve Sensing, 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.
Robert Sanchez -- Chairman and Chief Executive Officer
Good morning, everyone, and thanks for joining us. This morning, we'll recap our third quarter 2018 results, discuss the current outlook for our business, and highlight progress on some of our strategic initiatives. Then we'll open the call for questions.
With that, let's turn to an overview of our third quarter results. Comparable earnings per share from continuing operations were $1.64 for the third quarter 2018, up 22% or $0.30 from the prior year, reflecting a lower tax rate from tax reform and improved operating performance. Comparable results were toward the upper end of our forecast range of $1.55 to $1.65. Better than expected performance in commercial rental and used vehicle sales was largely offset by start-up costs on a new dedicated account and higher than anticipated maintenance cost.
Pretax earnings grew up 6%, despite used vehicle sales and depreciation headwinds of $18 million, or 17% of prior year pre-tax earnings. Sales activity remained strong, and we're on track with our second -- for our second consecutive year of record sales, driven by ChoiceLease and Dedicated. We delivered double-digit revenue growth with strong increases in all segments, benefiting from new outsourcing wins and a favorable freight environment. Operating revenue, which excludes fuel and subcontracted transportation revenue, increased by 13% to a record $1.7 billion for the third quarter. Both total revenue and operating revenue increased due to new business and higher volumes.
Page five includes additional financial information for the third quarter. Comparable EBITDA was $526 million, up 12% from the prior year, primarily reflecting growth in our contractual businesses and strong rental performance. The average number of diluted shares outstanding for the quarter was $52.8 million, unchanged from the prior year. We began repurchasing shares under a two-year, $1.5 million share anti-diluted repurchase program in February of 2018. During the quarter, we bought approximately 134,000 shares at an average price of $77.82. Excluding pension costs and other items, the comparable tax rate was 26.2% for the third quarter 2018, significantly lower than the prior year's rate of 36.2%, reflecting a lower federal tax rate from U.S. tax reform.
Page six highlights key financial statistics on a year-to-date basis. Operating revenue increased 10% to $4.9 billion. Comparable EPS from continuing operations were $3.97, up 25% from last year. Comparable EBITDA was $1.49 billion, up 10% from last year. The return on capital spread was break-even, up from a negative 30 basis point spread in the prior year. Our OC spread has been impacted by lower used vehicle sales results and related depreciation due to the significant multiyear downturn in the used vehicle market. We expect full-year return on capital spread to be 10 basis points, above our original forecast of break-even.
I'll turn now to page seven and discuss key trends that we saw in the business during the quarter. Elite Management Solutions operating revenue, which excludes fuel, increased 9% organically from the prior year, driven by growth in all product lines. ChoiceLease revenue increased 6%, due to fleet growth and higher rates on replacement vehicles, reflecting their higher cost. The lease fleet increased organically by 600 vehicles since yearend 2017. ChoiceLease sales activity remained very strong and was a record for third quarter sales. We continue to effectively penetrate the non-outsourced market with around a third of our recent fleet growth coming from customers new to outsourcing. We also continue to see growth from customers expanding their fleet sizes. We remain on track to achieve organic lease fleet growth this year of 8,500 vehicles, which would be a new record for the company. ChoiceLease results in the quarter benefited from fleet growth, although this was partially offset by higher depreciation due to residual value changes and higher maintenance costs on certain older model year vehicles.
SelectCare revenue increased 8%. The average SelectCare full service and preventative fleet grew up 3,300 vehicles from the prior year, reflecting new customer wins. Commercial rental revenue was up 19% year-over-year, driven by higher pricing and demand. Global rental demand was up 17%, reflecting a strong freight environment. We experienced very strong sequential rental demand throughout the quarter and continue to see the strong sequential demand trend into October. Global pricing was up 3%, as expected. Rental utilization on power units was 80.4%, up 240 basis points on a 13% larger average fleet. Used vehicle results for the quarter were down year-over-year, primarily reflecting lower gains and challenging prior year comparisons on valuation adjustments. I'll discuss those results separately in a few minutes.
Overall, earnings before tax and FMS decreased 6%, driven by used vehicle and depreciation headwinds of $18 million, or 18% of the prior year earnings. These headwinds offset higher commercial rental and ChoiceLease performance. FMS earnings as a percent of operating revenue were 8.5%, down 130 basis points from the prior year.
I'll turn now to Dedicated Transportation Solutions on page eight. Total revenue increased 25% and operating revenue was up 12% this quarter, due to new business and higher volumes. Favorable outsourcing trends, including a very challenging driver market and tight freight conditions contributed to record DTS sales results again this quarter. Our sales team continues to focus on upselling our lease customers to Dedicated, which remains a significant ongoing growth opportunity for this business. In addition, we continue to see strong growth with Dedicated services provided as part of a multiservice solution, which is reported in our supply chain segment. Dedicated operating revenue within our reported supply chain segment grew by 28% for the third quarter and 19% year-to-date.
ETS earnings increased slightly this quarter due to the benefit of revenue growth, which was largely offset by an unusually high start-up cost on a new customer account. This start-up challenge resulted from the need to higher a large number of drivers in a short period in a location experiencing particularly tight labor conditions. Additionally, this was a new green field operation for the customer, and we did not have the opportunity to transition any drivers from their current operation. In the fourth quarter, we expect considerable sequential improvement in the account's performance, as we've already made substantial progress in working through these start-up issues. Due to this unusual start-up issue, segment earnings before tax as a percent of operating revenue were 6.3% this quarter, down 60 basis points from the prior year.
I'll turn now to Supply Chain Solutions on page nine. Total revenue grew 29%, and operating revenue grew 23% due to higher volumes in new business. Revenue growth includes Ryder Last Mile business, with the second quarter acquisition of the MXD Group, a provider of e-fulfillment and last-mile delivery services for the big and bulky e-commerce market. Excluding the acquisition, supply chain total and operating revenue grew organically by 18% and 17% respectively. Supply chain earnings before tax were up 69% due to revenue growth, better operating performance across all industry verticals, and improved performance on a prior year start-up account. Segment earnings before tax as a percent of operating revenue were 8.1% for the quarter, up 220 basis points from the prior year.
At this point, I'll turn the call over to our CFO, Art Garcia, to cover several items, including capital spending.
Art Garcia -- Executive Vice President and Chief Financial Officer
Thanks, Robert. Turning to page 10, year-to-date gross capital expenditures totaled just over $2.3 billion, up by around $920 million from the prior year. This increase primarily reflects higher planned investments to grow and refresh the lease and rental fleets. We realized proceeds, primarily from the sale of revenue-earning equipment of around $300 million. Net capital expenditures increased by around $930 million to just over $2 billion. Our forecast for full-year gross capital expenditures and net capital expenditures is unchanged, at $3.1 billion and $2.7 billion respectively.
Turning to the next page, we generated cash from operating activities of $1.2 billion year-to-date, up 4%. The increase was driven primarily by higher cash-based earnings, partially offset by higher working capital needs. We generated around $1.6 billion of total cash year-to-date, up $40 million from the prior year, reflecting higher operating cash. Cash payments for capital expenditures increased by almost $900 million to just over $2.2 billion year-to-date. The company's free cash flow was negative $638 million year-to-date versus the prior year of positive $210 million, reflecting increased net capital spending. Our full-year forecast for free cash flow remains unchanged, at negative $750 million.
Page 12 addresses our debt-to-equity position, a total debt of just under $6.3 billion, increased by around $870 million from yearend 2017, primarily reflecting higher capital spending and acquisitions. Debt-to-equity at the end of the third quarter increased to 215% from 191% at the end of 2017 and reflects investments in fleet growth, as well as two acquisitions early in the year. Our balance sheet leverage is toward the low end of our target range of 200% to 250%. Our yearend forecast for balance sheet leverage remains unchanged at 210%. Equity at the end of the quarter was just over $2.9 billion, up from yearend 2017 due to earnings partially offset by dividends.
At this point, I'll hand the call back over to Robert to provide a used vehicle sales update.
Robert Sanchez -- Chairman and Chief Executive Officer
Thanks, Art. Page 14 summarizes key results for global used vehicle sales. Used vehicle inventory held for sale was 6,200 vehicles at quarter end, around the low end of our target range of 6,000 to 8,000 vehicles and below prior year. Adjusted for an elevated number of leased vehicles that were being prepared for sale last year, used vehicle inventory declined year-over-year by 500 vehicles. Sequentially, inventory increased by 600 vehicles. We sold 4,100 used vehicles during the quarter, down by 13% from the prior year and sequentially. Proceeds per vehicle sold were up 22% for tractors and up 15% for trucks compared to a year ago. This reflects a greater use of our retail sales channel, where we received better pricing, and also reflects a younger average age of vehicles sold.
Retail proceeds were up 11% for tractors and 6% for trucks. From a sequential standpoint, tractor pricing was up 11%, and truck pricing was up 7%. The improvement partially reflects age and mix differences, but prices on similar vehicles were still up by mid-single digits sequentially. Compared to peak prices realized in the second quarter of 2015, tractor proceeds were down 16% and truck proceeds were down 5%.
I'll turn now to page 16 and cover our outlook. Our overall earnings outlook for the fourth quarter remains on track with our prior expectations. We anticipate year-over-year earnings growth will be positive in FMS, driven by strong operating performance and a lower impact from used vehicle sales and depreciation headwinds. Based on robust sales activity and a strong sales pipeline, our organic ChoiceLease fleet growth forecast remains at a record 8,500 vehicles for the full year. We expect a continued strong rental demand environment and favorable results, although to a lesser extent than earlier in this year, due to more challenging prior year comparisons.
We anticipate rental fleet growth of 9% for the full year average and 10% for the yearend fleet, with a 3% price increase. We're forecasting used vehicle pricing to remain generally consistent with recent trends. We anticipate Ryder's used vehicle inventory to remain near the low end of our target range, positioning us well for 2019.
Dedicated Transportation Solutions is anticipated to deliver continued double-digit revenue growth and improved earnings performance as compared to the third quarter. We also expect strong year-over-year improvement in Supply Chain Solutions results, consistent with year-to-date performance. In light of these factors, we're narrowing the full-year comparable EPS forecasts range to $5.72 to $5.82, versus the prior range of $5.62 to $5.82. Our fourth quarter comparable EPS forecast is $1.75 to $1.85, an increase of 29% to 36% from $1.36 in the prior year.
Turning to slide 17, I'd like to provide you a brief update on the progress that we're making on some of our strategic initiatives. First, we continue to focus on driving long-term profitable growth and are very pleased that the momentum from record contractual sales in 2017 has continued into 2018 with record sales year-to-date. In addition to benefiting from strong secular trends driving more outsourcing, we're realizing success from our initiatives to expand the size of our sales team, increased collaborative selling across the organization, and launch new products. We're on track to deliver our seventh consecutive year of organic lease fleet growth. We're expecting record organic lease fleet growth from 8,500 vehicles this year. As I mentioned, strong sales activity and extended OEM lead times means that we're having -- we have been signing new lease businesses for deliveries well into 2019.
We're pleased with the integration and better than expected performance of MXD, the last-mile service provider for big and bulky goods that we acquired in April. Sales activity and volumes for Ryder Last Mile have been strong, and we recently expanded the network in 11 markets. With this acquisition, we are a leading last-mile provider in the fast-growing big and bulky e-commerce space.
We continue to invest in customer-facing technology, and recently launched our second release of RyderGyde, our mobile fleet-management app. This app already has over 4,000 users who can now rent vehicles from their mobile devices as well as browse used vehicle inventory. With RyderGyde, we expect to enhance customer retention and increase our share of wallet through users' daily engagement with the system to manage their fleets and purchase existing and new services. Finally, we're on track to achieve full-year cost savings expected from our new zero-based budgeting process. We expect additional opportunities to lower cost and drive efficiencies in the future.
Page 18 provides our expectations for 2018 result as compared to our longer-term financial targets that we discussed earlier in the year. There are no changes to this outlook from the last quarter. All segments are expected to organically reach or exceed their operating revenue growth targets this year. FMS and Supply Chain are expected to beat their targets, while Dedicated should be on target.
Earnings before tax as a percent of operating revenue for FMS is expected to come in below the target this year, primarily due to the impact of used vehicle sales and higher maintenance costs on certain older model year vehicles. We expect these older model year vehicles to be mostly out of the operating fleet by mid-2019, benefiting maintenance cost after that, and to be largely sold by the end of 2019. Dedicated is forecast to come in somewhat below their target EBT percent, while Supply Chain is expected to be near the bottom end of their target this year. The return on capital spread is forecast to be 10 basis points this year, below our target of 100 basis points to 150 basis points. Again, this primarily reflects the impact of used vehicle sales and higher maintenance costs of certain older model year vehicles.
We're focused on realizing operating leverage on our current maintenance facility network as we grow, lowering maintenance cost through fleet turnover and initiatives, improving used vehicle sales results, expanding non-asset-based earnings, and continuing cost reduction opportunities to drive ROC to the target range. Balance sheet leverage is forecast to be in the lower end of the target range, which provides room for capital to support growth and/or additional acquisitions in the near-term.
Now I'll turn the call over to Art so that he can provide you with an overview of the upcoming lease accounting changes.
Art Garcia -- Executive Vice President and Chief Financial Officer
Thanks, Robert. As many of you know, the FASB has issued new guidance around lease accounting. This standard will be adopted by Ryder, effective January 1, 2019, and be reflected in our first quarter 10-Q. The new guidance requires at Ryder separates the recognition of lease and non-lease components of our ChoiceLease product. The non-lease component, which is maintenance service in our case, will be recognized as the services are provided on a more backend-loaded basis, rather than as customers make payment, which is more on a straight line basis over the duration of the contract. This will result in a timing adjustment for revenue and earnings recognition for maintenance-related revenue that will have no impact on cash flow or the lifetime earnings of a lease contract.
A deferred revenue account will be established to reflect the timing difference between cash receipt and revenue recognized for the maintenance portion of our customer leases. There will be no impact to current or future cash flow resulting from the accounting change. As such, we do not expect to make any change to our capital allocation as a result. We will see a significant one-time reduction in shareholder's equity upon adoption of the new guidance, but expect to increase our debt-to-equity target accordingly. In addition to these one-time impacts, there will be ongoing impacts as well that are shown on the next page.
The accounting change, again, will not impact total earnings over the lifecycle of a lease. Moreover, we expect earnings volatility associated with fleet age will be reduced following the adoption of the standard, as maintenance revenue will be more aligned with maintenance costs. Given typical maintenance patterns, more revenue will be recognized during the second half of a lease, since maintenance costs increase with age. The annual impact to our results may be significant and will vary depending on, among other factors, the volume of new sales, timing of in service, average fleet age, lease term, lease early terminations, and equipment class. Most importantly, higher revenue deferrals will typically be expected during periods of declining fleet age.
The estimate of the impact of 2019 EPS is dependent upon our 2019 forecasts assumptions. As such, this estimate will be provided in conjunction with our 2019 forecast conference call in February. The new standard does not impact the overall economics of our ChoiceLease product, and based on customer discussions, we do not anticipate any material impact on our ability to sell new business or retain existing business as a result of the new standard.
Let me now turn the call back over to Robert for closing comments.
Robert Sanchez -- Chairman and Chief Executive Officer
Thanks, Art. That concludes our prepared remarks this morning. At this time, I'll turn it over to the operator to open up the line for questions. In order to give everyone an opportunity, please limit yourself to one question each. If you have additional questions, you're welcome to get back in the queue, and we'll take as many calls as we can.
Questions and Answers:
Operator
Thank you. Again, if you'd like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press *1 to ask a question. And we'll pause for just a moment to allow everyone the opportunity to signal for questions.
And our first question will come from Todd Fowler of KeyBanc Capital Markets.
Todd Fowler -- KeyBanc Capital Markets -- Analyst
Great, thanks. Good morning, everyone.
Robert Sanchez -- Chairman and Chief Executive Officer
Good morning.
Todd Fowler -- KeyBanc Capital Markets -- Analyst
Maybe just to start -- good morning. Robert, just to start, can you talk a little bit about the visibility that you have on the rental fleet going into the fourth quarter? I think in your prepared remarks, you said that you're seeing a continuation of the strong demand into October that you saw in the third quarter. But can you give us a little bit of a sense of what you're hearing from the customer base and how much of the rental fleet might be locked up? And then also, some thoughts going into 2019 if the freight environment normalizes from where we've been, what would the approach to the rental fleet be going into next year?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. Todd, I can tell you that the rental market has been very strong this year. As you might expect, as we got into the second half of the year, which when you get into kind of more of a peak rental demand period, we're redlined at this point. I mean, we are renting every vehicle we could possibly get our hands on. So, I would tell you it's extremely strong certainly going into October, and the expectation is that that would continue to through the fourth quarter.
As we look into next year, I think all indications are that at least the first half of the year should be to continue to be strong, as vehicles are still gonna be getting in service, the new vehicles that are coming in for customers. And then beyond that, obviously, the visibility gets a little bit murkier, maybe things slow down a little bit going into the second half. But it's probably a little too early to tell. I think the key is for us to be able to adjust our fleet accordingly as these changes happen, which I'll let Dennis kind of give you a little bit of color on kind of how that works. But it's really the process we go through to redeploy and do different things with the vehicles.
Dennis Cooke -- President of Global Fleet Management Solutions
Yes. Todd, just adding to what Robert said, as we head into Q4, we'll see a seasonal decline in the -- as we head into first quarter, so as we're preparing for first quarter, we'll take the fleet down by about a thousand units. And then if we see any impact up or down, then we use our asset management techniques to either increase the fleet or decrease it throughout 2019. So, we're ready for that to happen either way.
Todd Fowler -- KeyBanc Capital Markets -- Analyst
Great, that helps. And just for a quick follow-up, can you remind us how much of the rental revenue is kind of pure transactional? I think there's a big component that's tied to the lease fleet, and then you've got some contract piece, but how much of the rental revenue at this point is just transactional?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. Todd, you got about 40% just supporting the lease fleet and 60% that is transactional.
Todd Fowler -- KeyBanc Capital Markets -- Analyst
Okay. I'll turn it over and get back in the queue. Thanks for the time.
Robert Sanchez -- Chairman and Chief Executive Officer
Hey, Todd, I would remind you of one other stat. We've always said that rental, we want to keep between 20% and 25% of our FMS revenue. It peaked at 25% back in 2015. Even this year with as a strong a demand as we've had, we're still gonna be around 22%, 23%. So, we're still not -- we're not chasing rental all the way to the top because we know there could be some movements up and down. So, we are refreshing the fleet, but again, not becoming too overly dependent on rental as the source of earnings growth.
Todd Fowler -- KeyBanc Capital Markets -- Analyst
Yeah, that makes sense, and we understand that relationship. It's obvious, I think, just in some broader concerns with what people are thinking about just the environment going into next year. So, that's where the question was coming from.
Robert Sanchez -- Chairman and Chief Executive Officer
Right. Okay.
Todd Fowler -- KeyBanc Capital Markets -- Analyst
Thank you.
Robert Sanchez -- Chairman and Chief Executive Officer
Thanks, Todd.
Operator
If you find that your question has been answered, you may remove yourself from the queue by pressing the * key followed by the digit 2. We will now move to Jeff Kauffman with Loop Capital Markets.
Jeffrey Kauffman -- Loop Capital Markets -- Analyst
Thank you very much. Hey, everybody.
Robert Sanchez -- Chairman and Chief Executive Officer
Good morning, Jeff.
Jeffrey Kauffman -- Loop Capital Markets -- Analyst
Quick question. When we've been sitting on other company's calls, particularly truckers, they talk about how there's been delayed deliveries of vehicles from the OEMs. And they also mentioned that they were seeing 10% increases in what they were realizing on their trades. Now, that seemed to be consistent, the 10%, with what you were saying on the used proceeds. But I was just wondering, are you seeing delays in your vehicle deliveries as well? And if so, where is that impact more concentrated?
Dennis Cooke -- President of Global Fleet Management Solutions
Yeah. So, Jeff, this is Dennis. We have seen delays with the spike in demand, and just to kind of give you some color on it, we have about 800 units right now that are overdue, and the lead times have extended out longer than we normally see. But I got to tell you, the overdue units are coming down. They've been declining, and that's what we're working with the OEMs on every day.
Jeffrey Kauffman -- Loop Capital Markets -- Analyst
All right. And is that -- just following up on the same question here, how is that impacting you from a utilization or a P&L standpoint? Because you've got vehicles that you're looking to trade back in, and then arguably, these are vehicles you assumed you would have in service. So, is that affecting the rental fleet? Where is that having a larger influence?
Art Garcia -- Executive Vice President and Chief Financial Officer
So, with our lease customers, it does lead to them running older units longer. We are seeing that as we wait for the new units to come in. From a rental point of view, as Robert said earlier, the demand has been so high that we've had the rental units coming in earlier to support our lease customers, frankly, along with the demand we're seeing in rental.
Jeffrey Kauffman -- Loop Capital Markets -- Analyst
Okay.
Robert Sanchez -- Chairman and Chief Executive Officer
The other thing I would add, Jeff, is that, is that we're really not trading whole lot of units in. So, from a trade standpoint, it doesn't impact us. I think the -- your comment about the pricing and the trade values that some of the truckers are getting -- remember, they're turning over their fleets earlier, so maybe three, four years. Ours is a seven-year holding period. So, as I said in the prepared remarks, if you look at the like-for-like used vehicles, we did see an increase in the quarter, maybe mid-single digits; not that 10% or 12% that you're hearing from some of the other folks. So, what we're seeing is on the older model year vehicles, we're still not seeing the big uptick in pricing. We did see some uptick after -- the last couple of quarters have been relatively flat. So, early signs, but -- so, maybe some improvement, but nothing material yet.
Jeffrey Kauffman -- Loop Capital Markets -- Analyst
All right. That's my one. Thank you.
Robert Sanchez -- Chairman and Chief Executive Officer
Thank you.
Operator
We will now move to a question from Amit Mehrotra of Deutsche Bank.
Amit Mehrotra -- Deutsche Bank -- Analyst
Thanks, Operator. Hi, everybody. Thanks for taking the question. So, obviously, the company has endured, I guess, the challenges associated with the used truck market. But we've had just a record amount of new truck orders as well. And so, I'm just trying to understand, if those go disproportionately for replacement as opposed to growth, how do you think about the used truck market? I mean, could we see maybe another letdown in used values given those record orders, or just any help there in terms of -- I know you've updated your residual values quite a bit, so you might be somewhat protected against that. But just help us think about that relationship a little bit.
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. I mean, it's hard to tell exactly what's gonna happen in the market. I think you're right that we should see some additional inventory coming into the market as these units gets replaced. However, I would tell you there's probably some upward pressure on pricing in the market right now in used trucks. So, as we look at next year, we kind of are viewing those two as probably offsetting forces, because you're gonna have, again, uplifting -- up pressure on pricing because of more demand, and then maybe some down pressure more -- from more inventory coming in. So, we kind of view those as probably offsetting as we sit here today going into next year, and maybe looking at a continued stable used truck environment going into next year.
Amit Mehrotra -- Deutsche Bank -- Analyst
Okay. Just as a follow-up to that, I mean, can you just update us on where the lead times are today with the OEMs? I think that's obviously a factor in thinking about what the used truck market could do over the near-term, at least.
Dennis Cooke -- President of Global Fleet Management Solutions
Yes. Amit, this is Dennis. Typically it's in the three-month range, and runs at about 2X that right now, about six months.
Amit Mehrotra -- Deutsche Bank -- Analyst
Got it. Okay, thanks. The second one for me is just on the lease accounting change. Art, I understand that 2019 impact is still being worked through, but any help on what the impact would be in 2018, if you're pro forma the ChoiceLease revenue and earning streams. I'm not sure if that's the right way to look at it given that the higher level of new leases this year.
And then just a little bit of an accounting question, if you will, on the impact of book equity, because the cumulative catch-up adjustment, I guess, to the equity is just a reflection maybe of the current mix of the lease, or is there anything else I'm missing? I'm just trying to understand why it would be a debit to the equity of the company.
Art Garcia -- Executive Vice President and Chief Financial Officer
Right. Okay. First, on just the accounting piece, it's gonna be always a deferral because our -- remember, our maintenance costs are incurred more in the backend. So, you start deferring under this new guidance effectively in the very first month of a lease because the maintenance costs are very low in the first couple of years. So, really, every asset has a deferred revenue balance after the first year. It grows for a period of time, and then it will start to unwind over the last half. So, really, that's why there's going to be deferred revenue.
As far as 2018, right now, we're in the throes of finalizing everything, so we're really not in a position to talk about that yet. The thought is, because it is gonna vary -- there's a lot of factors, as I highlighted in my prepared remarks, that drive the calculation. So, I think we're gonna be in a better position come February to give a view into 2017 and 2018, as well as a forecast on 2019.
Amit Mehrotra -- Deutsche Bank -- Analyst
I understand the deferral of the revenue piece. I just -- I guess any help on a new lease, what maybe the allocation is between the lease payments and what's being accrued for maintenance? I mean, any help there?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. I mean, right now, I will tell you, it's primarily -- there's more associated with finance. That's typically how you would expect, just given the amount of investment. But we'll probably provide more clarity here in a few months.
Amit Mehrotra -- Deutsche Bank -- Analyst
Okay. All right. Thanks, guys. Have a good weekend.
Art Garcia -- Executive Vice President and Chief Financial Officer
All right. Thank you, Amit.
Operator
We will now take a question from Matt Reustle of Goldman Sachs.
Matthew Reustle -- Goldman Sachs -- Analyst
Hey, thanks for taking the question. Just wanted to follow up on ChoiceLease a bit. You mentioned lead times of about six months now, and you have vehicles being delivered well into 2019. I mean, I guess how far out are you booking business at this point? And it seems like there's some nice acceleration in that top line there. Is there any reason that shouldn't continue for at least the first half of next year?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. That's a good question, Matt. I don't see any reason why it doesn't continue. I mean, we're continuing to see very, very healthy sales. As I mentioned, we had record third quarter sales for our lease business. Pipeline is still very active. There are not enough trucks on the road for the number -- for the amount of freight that's moving, and there's also replacement that's going on. So, we expect this to continue certainly, as I mentioned, at least through the first half of next year. We're now selling vehicles into late first quarter, early second quarter of next year. So, if you think about it, historically, we usually have about a three-month lead time. We now have a six-month lead time. So, as we end December, we'll have half of our year's -- if things continue the way they are, we'll have half of our year's lease business already locked in contractually with the customer. So, we'll have a lot more certainty, I think, as we go into 2019 around our contractual lease business than we typically do.
Matthew Reustle -- Goldman Sachs -- Analyst
Understood. Thank you. And then, just a follow-up on the used sales. In terms of the sequential decline there, I mean, is there anything strategic there? Is there any consideration for selling into the environment or the uptake that we've seen in pricing recently just to reduce the risk of a double dip of some of these new vehicles that come online? And just in terms of as you look forward, is the -- in terms of accelerated depreciation for next year, I know you haven't finalized anything, but are you still seeing the same environment that would imply that $40 million to $45 million for next year? That would be helpful.
Dennis Cooke -- President of Global Fleet Management Solutions
Matt, this is Dennis. I'll take the first part of the question, and then Art, you can take the second. First part is, we started the quarter with 5,600 units in inventory, which is below our target range. And frankly, our teams were looking for more units to sell, and one of the things we've started to do, by the way, is for our rental fleet, we'll actually put the fleet online while it's still running, and we'll presell it before it actually gets to the used truck center. What happened is, with that lack of inventory, we weren't selling as much, and now we've rose -- we're at 6,200 units, so 600 units up. That pretty much came to the used truck center in September. So, now we have more inventory available for our teams to sell. So, that was the reason for the decline.
Robert Sanchez -- Chairman and Chief Executive Officer
But I think the key is we are keeping -- think about it, we're keeping our inventory at the low end of our target range. So, we're not taking our foot off the pedal on just selling as many of these units as we can in this environment. And Art, you want to address these?
Art Garcia -- Executive Vice President and Chief Financial Officer
Yeah. Yeah, Matt, last quarter as you mentioned, I did discuss that we were looking at depreciation headwinds of $40 million to $45 million. Right now, where we stand, I would tell you, that was just on the depreciation side. Now we're looking at a total about $45 million for next year, and that would include the depreciation headwinds, as well as any change in used vehicle sales results. So there's kind of been a slight move to the top end, but that does include our view around new vehicle sales.
Matthew Reustle -- Goldman Sachs -- Analyst
Okay, that's helpful. Thank you.
Operator
We will now take a question from Scott Group of Wolfe Research.
Christian Theodoropoulos -- Wolfe Research -- Analyst
Hi, guys. This is actually Christian Theodoropoulos on for Scott. Can you guys just provide a ballpark estimate around the lease change for 2019? Could it be 5% of EPS? Bigger or smaller?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. We're not ready right now, Chris, to do that. We're still -- there's a lot of moving parts in the calculation. There's a lot of work we have to do internally in our systems to make sure that we've tested a lot of controls before we go out with any specific number right now. That's kind of where we are.
Christian Theodoropoulos -- Wolfe Research -- Analyst
Okay. And then, how many years out before this lease accounting change becomes more of a tailwind?
Art Garcia -- Executive Vice President and Chief Financial Officer
Yeah. It's gonna be -- obviously, as we talked about, it's gonna be -- I mean, it's a tailwind if you just separate the business when fleet age is going up in that sense, right? So, if you think about it, it's all dependent on what happens in the future from a growth perspective also, right? We're gonna grow 8,000 units this year. If stay on the track of growing 8,000 units every year, then it probably levels out and doesn't do anything. So, it depends on what happens with the fleet itself. So it's hard to really tell you when the thing moves. I think over time, this should just become part of our normal results. It's gonna actually make the business -- I know it's a little confusing now, but once it's implemented, it's gonna give us less volatility, less discussion about fleet age in our business, and it's more gonna be how much are we growing the fleet, right? And that's gonna drive earnings growth.
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. I think there's a couple things to keep in mind with this. Number one is, it doesn't impact the cash flow of the business. Number two is, it doesn't impact the overall earnings from any deal over the life of the deal. I think that the third thing that's very important, that is in the long run, this is actually a good thing from a standpoint of we've had periods, where we've had to talk about earnings impact from the fleet getting older or the fleet getting younger. That kind of goes away with this new accounting treatment, because the revenue will better match the maintenance costs as the vehicle ages. So, some of the discussions we've had in the not too distant past and even before that, where we had to say, hey, our margins are down because the fleet is aged, or our margins are better because the fleet is younger. Those kind of go away. This kind of equalizes all that. And what you're gonna get is just earnings growth from the growth that you get and earnings growth from operational improvements, but not so much having to do with what happens with the age of the fleet at any given time.
Christian Theodoropoulos -- Wolfe Research -- Analyst
Helpful. And then, can you guys just provide an update in terms of residual values looking into 2019? And then, does your fourth quarter guidance assume any accelerated depreciation, or if there is more accelerated depreciation to come, will that be a potential additional headwind?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah, I would say as it relates to next year, and I think you got that from Art earlier -- bottom line is, we're assuming that there's a continuation of the current used truck market going into next year. Again, some of the upward benefits that we've seen recently, probably offset by more volume and kind of keep us flat. So, that's really the assumption. As it relates to the fourth quarter, we do not have accelerated depreciation in there. So, I think no incremental. We would expect that to really -- if we've got to do that, we're within the number that you got for 2019 that Art gave you earlier. So, that's where the accelerated depreciation would happen.
Christian Theodoropoulos -- Wolfe Research -- Analyst
Got it. Thank you, guys.
Robert Sanchez -- Chairman and Chief Executive Officer
Thank you.
Art Garcia -- Executive Vice President and Chief Financial Officer
Thank you.
Operator
We will now go to Ben Hartford of Baird.
Ben Hartford -- Baird -- Analyst
Hey. Good morning, guys. Robert, just sticking on the topic of used equipment prices, as you look at the various models -- you alluded to this, I think, in your prepared remarks about older trucks, largely mid-2019, fully out by the end of the year. As you look at these model years, the 2012s, exiting, looking at the 2013s, any read on what the residual value profile looks like? Or, as I should say, what the proceeds profile looks like for these 2013 model year trucks relative to the 2012s in the context of what you've talked about with regard to stability overall and a little bit of upward bias to use for certain prices through the quarter?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. I would tell you that our view is the 2012s are probably the most challenged of the vehicles. I can tell you from a maintenance cost standpoint, they have been. So, I would expect if anything to get some uplift as we get into 2013s. But again, what we'll be selling through next year is probably mostly the 2012s, which is kind of what -- we've been selling some of that already this year. So, yeah, I would expect once we get past the 2012, we might have some -- if you just compare apples to apples, some uplift of the 2013 versus the 2012.
Ben Hartford -- Baird -- Analyst
And then, as you look at that three-year target for FMS, what would drive risk to the downside on the 10% number, and what would it take to reach the 12% level as it stands today? What's the risk? What's the upside?
Robert Sanchez -- Chairman and Chief Executive Officer
I think in the FMS business, we're seeing really strong earnings benefits from the contractual growth in ChoiceLease. So, the things that could keep it from going up and the things that we've been challenged with so far in the last couple of years as we go into the future, used vehicle sales and the depreciation are obviously gonna continue to be some headwind. And then rental, we're expecting rental to be -- rental was a bang-up year this year. We're not expecting it to be a bang-up year every year, but just stable rental, some growth, and it's consistent with leased. I think it would get us there also. So, short of a big dip in rental or some incremental headwinds from UBS -- we know we're going to have some of that -- that's really what keeps you from getting, as you mentioned in your question, how do we get to the 2012? We would need those two to really be -- really come back for us to get to that higher end.
Ben Hartford -- Baird -- Analyst
Okay. Thank you.
Robert Sanchez -- Chairman and Chief Executive Officer
Thanks.
Operator
We will now take a question from Brian, of Stephens.
Brian Colley -- Stephens -- Analyst
Hey. Good morning, guys.
Robert Sanchez -- Chairman and Chief Executive Officer
Good morning.
Art Garcia -- Executive Vice President and Chief Financial Officer
Good morning.
Brian Colley -- Stephens -- Analyst
So thinking about the ROC spread target three years from now, how much do you think the used truck pricing environment needs to improve compared to current levels in order to hit that objective?
Robert Sanchez -- Chairman and Chief Executive Officer
Well, I can give you -- a number that we discussed, I think, on the last call was how much pricing needs to go up for accelerated to go away? We said it's about 30%, 25%, 30%. So, I think that's probably the kind of move we would need to be able to really see the headwinds that we're getting from used vehicle sales to go away. So, I just -- since we're getting toward the end of the year, I wanted to kind of put something in perspective for everybody as it relates to that. If you look at the range that we're expecting to come in this year, what we just talked about, our earnings for this year should be up 11% to 13% when you exclude the benefit of tax reform. So, we're gonna be up a lot more than that, but tax reform is helping us. So, 11% to 13% if you exclude tax reform. In order to get that, we overcame 11% headwinds from used vehicle sales and depreciation. So, you think about the used vehicle market impact is 11% headwind, and 9% headwinds from maintenance costs on the older model used vehicle.
So, you can look at it and say we started the year 20% in the whole from prior year earnings, and we're gonna be up 11% to 13%. So, I think you've got to keep that in mind as we look at the -- our abilities. We continue to grow the contractual parts of the business. We are replacing earnings from depreciation and used vehicle sales driven, I should say, with contractual earnings of new business. So, I think we're -- it puts us in a better place from an earning standpoint, but I want to make sure we don't lose sight of the fact that we're really -- there's a big headwind that we have been overcoming and we expect to continue to overcome as we move into 2019.
Brian Colley -- Stephens -- Analyst
Got it. That's helpful. And then also, just wondering if you could talk about how demand and the rental business trended month to month, and maybe any update for October on where demand is?
Art Garcia -- Executive Vice President and Chief Financial Officer
Yeah. Brian, we'll give you month by month what the year-over-year demand changes were. So, in July, 17% up. August, 18% up. September, 17% up. And in October, we're seeing about a 17% increase year-over-year also.
Brian Colley -- Stephens -- Analyst
Great. That's helpful. And then lastly, just wanted to ask about the sales pipeline across different businesses, how those trended throughout the quarter. And then also, the level of visibility you have around growth into 2019 for the contractual businesses? I know you talked about FMS, ChoiceLease, but maybe Dedicated and SCS color would be helpful as well.
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. I think, as I mentioned on the call, Dedicated had a record sales quarter. I'd say it was more of a record sales year this year. So, we're very excited about that. And the nature of Dedicated and Supply Chain is a long lead time from when you sign to actually start. You got ramp-ups and you got start-ups. So, we've got good visibility, as we normally do, into next year. We feel very good about the growth that we're seeing, especially in Dedicated. Supply Chain, again, has had a bang-up year this year. I mean, earnings in Supply Chain this year, as you saw in the quarter, were up 68%. I think we're gonna be up over 30% for the full year. So, greater earnings growth this year. We expect earnings growth next year will probably come down some to a more normalized level. But again, good sales activity across all three of the contractual businesses, and we expect that going into 2019.
Brian Colley -- Stephens -- Analyst
Great. Well, I'll leave it there, and appreciate the time.
Operator
And as a reminder, ladies and gentlemen, we do ask that you can keep your questions to one question, and if you have any follow-ups, please reenter into the queue. We will now go to Kristine Kubacki of Mizuho Securities.
Kristine Kubacki -- Mizuho Securities -- Analyst
Good morning. My question is on Dedicated and a little on the issue that you talked about in the quarter. Was that in your original guidance? Was it worse than you expected on that start-up? And then, I guess my follow-up question would be to that, as you've learned through that, and you talked about the pipeline is robust in Dedicated, should we expect kind of as you're starting up more and more new customers, is it -- we'll expect underperformance from a margin perspective in that segment?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. Well, Kristine, I'll tell you that, was it in the guidance? No, it wasn't in the guidance. So, clearly, had it not been for that challenge, we would have been considerably higher in terms of our results. The question is, because we're growing, do we plan on this going forward. No, we've learned from each of these. This was an anomaly, as I mentioned in the prepared remarks. It happened to be a location that was a green field location for the customer. It was kind of a perfect storm, a very difficult driver recruiting market in a very short start-up period. So, the combination of those things really led to this challenge. We've got it -- we feel that we got it under control as we ended the quarter and learned from that, and do not expect that sort of we'll be dealing with that.
Just to put it in perspective across Supply Chain and Dedicated, we have over a hundred start-ups in any given year. You don't hear from 99% of them, but every once in a while, we run into a challenge, and we deal with it. So, I think John and his team have done a great job of getting their arms around it quickly and really making it so it's not an issue going into the next quarter.
Kristine Kubacki -- Mizuho Securities -- Analyst
Okay, very good. I appreciate it. Thank you.
Robert Sanchez -- Chairman and Chief Executive Officer
Thank you, Kris.
Operator
We will now take a question from Brian Ossenbeck of JPMorgan.
Brian Ossenbeck -- JPMorgan -- Analyst
Hey, good morning. Thanks for taking my question.
Robert Sanchez -- Chairman and Chief Executive Officer
Good morning, Brian.
Brian Ossenbeck -- JPMorgan -- Analyst
So, just wanted to see if you could just talk about pricing residual risk, if there's any sort of updated thoughts on how you look at that with newer contracts? The stronger part of the cycle we're outsourcing is pretty robust, and you're able to make some changes that they might be a little more favorable, either in managing the stub as it relates to the truck at the end; is that -- going back to the whole accounting discussion, is that something that you'd want to try to maybe separate and smooth out a bit if you were to put a fairly low residual in there? Just curious how the thought process works? And I know a lot of it is mechanical on accounting, but I think some of it's strategic. And will this process start to change as we get perhaps closer to EVs that become more widespread potentially in adoption?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah, I think the first part of your question, from a pricing standpoint, I think we mentioned this on the last call. We have lowered the residuals from a pricing standpoint. We've moved away from the five-year rolling average and really brought it down to the current levels that we were seeing at the beginning of the year. And really using that as -- we kind of view this as --obviously, it's a lower number, and we think we de-risk the leases quite a bit from a cash flow standpoint. So, that's the way we've handled that. I think in terms of the accounting forward, we are continuing with the process that we've always had of doing the six-year average, is just to try to keep the residuals in the middle of the fairway as best we can. So, as you know, as a result of that, we're dealing with accelerated depreciation at this point and depreciation policy changes.
Brian Ossenbeck -- JPMorgan -- Analyst
Got it. But it doesn't sound like there's anything further you would make on those adjustments with the used truck market sort of flattening out here?
Robert Sanchez -- Chairman and Chief Executive Officer
No. I think -- and your question is about electric vehicles and all, and I think the more we dig into that, especially around the heavier duty equipment, which is what we're talking about here, we're probably a decade away at least from really having any impact from that, I think if you talk to the folks that are working on this, before it becomes more mainstream and starts really impacting the pricing of this. But we're keeping an eye on it. Obviously, if we start to see some progress in that area, we would start to bring them down. And remember, those vehicles would have to take a meaningful presence in the new market first and then start impacting the used market. So, we do have some visibility to it before we need to react to it.
Brian Ossenbeck -- JPMorgan -- Analyst
Okay, understood. And just a quick follow-up, you haven't mentioned it, and I'd be curious to get your thoughts on Last Mile and MXD, the recent expansion, it looks like some of them are expanding your own fulfillment facilities, but you've got some partnerships in other cities. So, if you could just put it into some context, the growth that you're expecting there, and what areas you're targeting next, and is that sort of the structure, as I read it, being sort of owned expansion with partnerships? Is that how you would look to grow that business in the future as well?
Steven Sensing -- President of Global Supply Chain Solutions
Yeah. Brian, this is Steve. We added, specifically in three geographies, new locations. So, we now have 40 hub locations in our network that we operate. We also expanded eight partnerships in other cities across the U.S. Really, our strategy is to build up density in those markets. And when we get to density, we convert those into hub locations. So, I think it's a really good model to sell into, and are our customers are buying it.
Brian Ossenbeck -- JPMorgan -- Analyst
All right. Thanks for your time this morning.
Operator
We will now take a question from David Ross of Stifel.
David Ross -- Stifel -- Analyst
Yes. Good morning, gentlemen.
Robert Sanchez -- Chairman and Chief Executive Officer
Good morning, David.
David Ross -- Stifel -- Analyst
On the equipment side of things, we've talked about the 2012 engines and their problems, and the maintenance costs. How did your approach to pricing change after you realized that the maintenance costs were much more expensive? Because obviously it's kind of fool me once, shame on you. What's been, I guess, the approach to pricing new technology engines and equipment with uncertain maintenance costs ahead?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah. David, we started making those adjustments back in 2013. So, when we saw the 2012s coming in, because they were -- even from the beginning, we started having some challenges. So, we started making those adjustments as we saw -- as we began to see them. And I can tell you that we have to put them in. I mean, we've talked about the 2012s, because that was really the one that probably caught us without making the adjustments that we needed to make. So, we started making those adjustments early on.
David Ross -- Stifel -- Analyst
And then, just a follow-up on last-mile, Steve. When you think about the network, you said it's 40 hub locations. I guess, what's the timetable, or when do you think you might have national coverage? Are you doing that with all company drivers or owner/operators?
Steven Sensing -- President of Global Supply Chain Solutions
Yeah, we have national coverage today. We can hit 95% of U.S. and Canada within about a two-day service level. So, again, a combination of our hub locations and agent partners out in the network. So, it's, I think, a really good coverage. Same-day service right now in big and bulky has not really been in demand in the market, but we're always thinking about new services and capabilities to add.
David Ross -- Stifel -- Analyst
And how would you say that the Ryder Last Mile strategy is different from some of your competitors like J.B. Hunt and Schneider that are also looking at building out national big and bulky networks?
Steven Sensing -- President of Global Supply Chain Solutions
Yes, I think our carrier model is a bit different. We use a network of carriers across -- again, across the U.S. and Canada, so we've got a lot of great companies out there that are delivering on behalf of us. Again, we are focused on deluxe and white-glove services, which is a higher-end demand service that our customers are asking for. And I think that really, those two things differentiate us against the competition.
David Ross -- Stifel -- Analyst
Thank you.
Robert Sanchez -- Chairman and Chief Executive Officer
Thanks, David.
Operator
And we will now go to Kevin Sterling of Seaport Global Securities.
Kevin Sterling -- Seaport Global Securities -- Analyst
Thank you. Good morning, gentlemen.,
Robert Sanchez -- Chairman and Chief Executive Officer
Good morning, Kevin.
Kevin Sterling -- Seaport Global Securities -- Analyst
Art congratulations on your pending retirement. I've enjoyed working with you over the years.
Art Garcia -- Executive Vice President and Chief Financial Officer
Yeah, absolutely. Thank you.
Kevin Sterling -- Seaport Global Securities -- Analyst
Yeah, best of luck to you. Robert, maybe directionally, as we think about 2019 and capex as it relates to 2018, could you kind of maybe not pinpoint here exactly, but directionally help us think about capex for 2019? Is that possible?
Robert Sanchez -- Chairman and Chief Executive Officer
Sure. I mean, let me give you -- I'll give you some color, I think, without giving you the full guidance for 2019. As it relates to capex, I would expect another rental capex year similar to what we saw this year. We've got a -- even though we may not be always growing the fleet the same, as we're gonna be making some adjustments, because we do have some refresh that we need to do. So, we should be in the same ballpark. I think lease would probably be a little bit higher, because even though this was a strong lease sales year, some of those vehicles aren't coming in until next year; plus, we expect that to continue. So, I would tell you, capex is probably up some next year.
I think as it relates to the earnings and some of the puts and takes, I'll give you a little bit of color. And all of this, by the way, is prior to any of the impact from lease accounting, which, as I mentioned, we're still working on. So, based on all the deals that we've signed this year and the pipeline that we're seeing going into 2019, I would expect to have more earnings from the growth in contractual and ChoiceLease and Dedicated than we had this year. So, more of the growth will be from contractual businesses than what we saw this year. I would again expect to see some of the benefits from our zero-based budgeting process; maybe not as much as we saw this year, but still some positive there. So, contractual earnings growth will accelerate; zero-based budgeting will see some benefits.
Now, assuming I don't see a pickup in the used truck pricing, I would expect the same headwind, and it's generally the same headwind as we saw this year. So, we start off with about an 11% to 12% headwind from depreciation and used vehicle sales. And you're either gonna get an improvement in the used truck market, or we're going to have a couple more years of this headwind that we're gonna be facing.
On the maintenance cost standpoint, when we talked about the 2012s leaving the market, we do expect them to start leaving the market next year, so we'll get some -- we'll get less headwind. I would say because of that, maybe cut that headwind into half. So, this year was a 20% headwind between used vehicle sales, and maintenance might be 15% going into next year, so that should be some benefit in terms of what we have to work our way through. However, I'm probably not going to count on the same rental growth that we saw -- that we're seeing this year. We're seeing 18% year-to-date. Yeah, we're not gonna chase every rental transaction that we can. So, I wouldn't expect going into the year to see that type of growth again. And I also, with Supply Chain's year-to-date growth, the 68% earnings growth we saw in the quarter, it's 30% year-to-date, over 30% -- I wouldn't expect that to repeat. I'd expect a more normalized growth rate from Steve and his team. So, some headwind there in terms of the growth rate.
Also, insurance and interest, overall, the market on those will probably create somewhat additional headwind next year, too. So, the positive of that might be on some of the maintenance and the positive from contractual and CBD may have -- may be offset by some of these other things. So, when you put all the puts and takes together, as we sit here today, I would expect to again be able to offset the headwinds and show earnings growth into next year. Now, that earnings growth is likely not gonna be double-digit again, again, because of some of these. But nonetheless, it'll be growth. And I think the more important part of the story is more of the growth will be coming from the contractual parts of the business. So, as we're building up this contractual revenue and earning stream, and it's much more dependable and much more steady, I think you're gonna start to see more of the earnings each year that are gonna be coming from that, which is a very good thing.
So, again, that's sort of how -- at this point, we're not done with our plan, so none of it is locked in and written in stone. But I would tell you, that's kind of how we're seeing the business, which -- we're excited. We're excited that -- we are considering all the headwinds we still have, but we're still going to be showing growth on the earnings line. And depending on what happens with rental and UVS, obviously, our growth could be a little bit higher. But right now, not assuming benefits in used truck sales, not assuming rental really repeating itself, you're still gonna have a year where Ryder can grow earnings and give you ongoing value that way.
Kevin Sterling -- Seaport Global Securities -- Analyst
Robert that was very helpful. Thank you. It just sounds like the move toward more contractual will take out, I guess, some of the lumpiness of your business that we've seen in the past. Is that fair?
Robert Sanchez -- Chairman and Chief Executive Officer
That's been the goal all along, is really getting this model to really act like a more contractual business and less dependent on some of the other items that we've historically been dependent on.
Kevin Sterling -- Seaport Global Securities -- Analyst
Okay, gotcha. And then, can I ask one big picture question here? And obviously, there's been talk of a housing slowdown. And historically when I look at you guys, you have been tied to the housing market in one way or another. And is that still the case, and are you seeing any impact from a possible housing fall in your business? I'm just curious as we think about if housing does slow, what's the potential impact, if any at all?
Robert Sanchez -- Chairman and Chief Executive Officer
Yeah, I think one of the benefits is that we're very diversified in terms of our customer base. So ,we're not married to any one single industry vertical. Now, as the economy moves around, you do have periods of time where housing might be a bigger portion of the overall GDP growth. And as such, we might have the time exposure. We have not seen a big impact from any changes in the housing market. But I'll let -- probably Dennis would have the most color, because of the makeup of his customer base, on that.
Dennis Cooke -- President of Global Fleet Management Solutions
Yeah. Kevin, let's say -- I'd just refer to rental, which a lot of times is a leading indicator, and just kind of give you a sense for the various industry segments and the growth we've seen. Transportation and warehousing is up 41% in Q3 year-over-year; food/beverage up 5%. Housing actually was up 8% from what we saw from a rental point of view. The industrials were up 23%, the industrial segment. Retail was actually up about 13%. So, to Robert's point, if you go -- but automotive was only 3%. But so, when you look at it, it's kind of -- we're seeing growth throughout all the segments. And when it comes to housing, I wouldn't say we're as dependent on that because of our broad diversification of our customer base.
Kevin Sterling -- Seaport Global Securities -- Analyst
That's great. Thank you, Dennis. Thank you, Robert. That's all I had. Appreciate your time today.
Robert Sanchez -- Chairman and Chief Executive Officer
All right, Kevin. Thank you.
Operator
We will now go to John Cummings of Copeland Capital.
John Cummings -- Copeland Capital -- Analyst
Hi. Thanks for taking the question. Just one question on, just given where your stock is trading, and where you are in terms of leverage, being a bit below your target, just love to hear your thoughts on the potential for a more significant buyback going forward.
Art Garcia -- Executive Vice President and Chief Financial Officer
Yeah. John, we've been kind of out there. Our position has been historically, we would look at discretionary share buyback when we fell below our target leverage range. Right now, we're kind of at the lower end of it, but we're still within the range. As Robert said, we're looking at -- the prospects for 2019 around capital spending are gonna to be continuing strong; high rental spend and replacement. Hopefully, a lot of lease growth in there, too. So, I think all that has to get factored in. Once we see where we are, that will kind of drive any decision about share buyback.
John Cummings -- Copeland Capital -- Analyst
Okay, thanks.
Operator
We will now go back to Scott Group with Wolfe Research.
Scott Group -- Wolfe Research -- Analyst
Hey, guys. Thanks for the follow-up. Just really quickly, to clarify, does that $45 million of expected depreciation headwind next year already assume additional accelerated depreciation, or if you guys decide to do more accelerated depreciation, that number could go higher?
Art Garcia -- Executive Vice President and Chief Financial Officer
It assumes some additional accelerated. Obviously, it's always subject to final review and conclusions, but it did include some incremental relative to this year.
Scott Group -- Wolfe Research -- Analyst
Perfect. Thank you so much, guys.
Art Garcia -- Executive Vice President and Chief Financial Officer
You got it.
Operator
And now we'll go back to Brian Ossenbeck of JPMorgan.
Brian Ossenbeck -- JPMorgan -- Analyst
Hey, thanks for the quick follow-up. You already talked about some of the -- excuse me -- the vintages, 2013 -- 2012 to 2013, rather, and how that was affecting pricing and your reactions to it. Is there -- as you look at the pipeline and things, especially the newer trucks with collision avoidance, AMT, and things of that nature, is there anything that you would think has a similar impact? Probably not as much as the engine issues you're working through now, but are there any other, I guess, step changes in terms of the types of trucks that are coming on and how you would expect that to impact your realization of the residual value in your pipeline?
Dennis Cooke -- President of Global Fleet Management Solutions
Yeah. Brian, this is Dennis. What I would say is, what we have seen, literally from model year 2006 up through model year 2012, we saw an increase in maintenance costs every year. Since 2012, we have continued to see a decrease in the maintenance costs on a monthly or annual basis, when you go apples to apples for a one-year-old to one-year-old, two-year-old to two-year-old, and so forth. So, the answer is, we're not seeing it. We've actually seen improvement since the 2012. Now the 2013s and 2014s still have high maintenance costs, but they're less than what we saw with the 2012s, and we've continued to see that decline.
Brian Ossenbeck
All right. Great. Thanks, Dennis.
Operator
And at this time, there are no additional questions. I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks.
Robert Sanchez -- Chairman and Chief Executive Officer
All right. Thank you. We're a little past the top of the hour. So, I think we got everybody's call who had them. So, thanks, everyone, for your interest in the company, and we look forward to seeing you as we hit the road here in the fourth quarter. So, thank you.
Operator
And that concludes today's conference. We thank you all for your participation.
Duration: 71 minutes
Call participants:
Bob Brunn -- Vice President of Investor Relations; Corporate Strategy and Project Strategy
Robert Sanchez -- Chairman and Chief Executive Officer
Art Garcia -- Executive Vice President and Chief Financial Officer
Dennis Cooke -- President of Global Fleet Management Solutions
Steven Sensing -- President of Global Supply Chain Solutions
Todd Fowler -- KeyBanc Capital Markets -- Analyst
Jeffrey Kauffman -- Loop Capital Markets -- Analyst
Amit Mehrotra -- Deutsche Bank -- Analyst
Matthew Reustle -- Goldman Sachs -- Analyst
Christian Theodoropoulos -- Wolfe Research -- Analyst
Ben Hartford -- Baird -- Analyst
Brian Colley -- Stephens -- Analyst
Kristine Kubacki -- Mizuho Securities -- Analyst
Brian Ossenbeck -- JPMorgan -- Analyst
David Ross -- Stifel -- Analyst
Kevin Sterling -- Seaport Global Securities -- Analyst
John Cummings -- Copeland Capital -- Analyst
Scott Group -- Wolfe Research -- Analyst
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
