Schneider National, Inc. (SNDR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for joining us, and welcome to Schneider National's Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Christyne McGarvey, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Joining me on the call today are Jim Filter, President and Chief Executive Officer; and Darrell Campbell, Executive Vice President and Chief Financial Officer. Earlier today, the company issued an earnings press release. This release and investor presentation are available on the Investor Relations section of our website at schneider.com. Our call will include remarks about future expectations, forecast plans and prospects for Schneider, These constitute forward-looking statements for the purposes of the safe harbor provisions under applicable federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties discussed in our SEC filings, including, but not limited to, our most recent annual report on Form 10-K and those risks identified in today's earnings release. All forward-looking statements are made as of the date of this call, and Schneider disclaims any duty to update such statements, except as required by law. In addition, pursuant to Regulation G, reconciliation of non-GAAP financial measures referenced during today's call can be found directly in our earnings release and investor presentation, which includes reconciliations to the most directly comparable GAAP measures. Now I'd like to turn the call over to our CEO, Jim Filter.

Thank you, Christyne. Hello, everyone. Thank you for joining the Schneider National today. I will start by offering my perspective on the freight cycle and how we are positioning the enterprise for success in this dynamic market. I will then turn it over to Darrell for his commentary on second quarter results, capital deployment and our full year earnings per share guidance. After that, we'll open up the call for questions. Looking at our performance in the quarter, we believe we are seeing the initial benefits of the actions we took to structurally improve enterprise and position us to quickly and effectively capitalize on better market fundamentals. This includes effective revenue management, enhancements to asset efficiency and productivity, execution on our $40 million cost savings program and our differentiated multimodal model. We continue to see meaningful opportunity ahead but we want to thank our associates, especially our professional drivers for their hard work, which helped drive earnings to more than double sequentially, representing the strongest quarter-over-quarter improvement in the last decade. Many cycle indicators that showed signs of life in the first quarter gained momentum through the second quarter. Spot rates are already testing prior cycle highs, turndowns remain elevated, and utilization has increased meaningfully. Underlying demand trends were largely stable with some modest seasonal activity. As a result, we believe the market improvement to date has been supply led. Regulatory action and enforcement on noncompliant supply, including in areas such as nondomiciled CDL usage, English language proficiency, illegal cabotage, entry-level driver training and ELD tampering, all gained traction through the second quarter. Supply attrition has been faster than we initially expected and is removing the most irrational capacity from the marketplace. We will now categorize the market as driver constrained. The long-haul driver population in the U.S. sits well below long-term averages and near the lowest levels seen over the last decade. However, we believe roughly half of the noncompliant capacity is left with the remaining impact of supply expected to exit through next year. Against that backdrop, we believe we are only in the early stages of rate recovery and are maintaining a discerning approach to customer allocation events. We are balancing customer commitments with the need for rates that will support our strong service recouped multiple years of significant cost inflation and drive returns back to a level that is supportive of growth. Importantly, spot rates now exceed contract rates at a level that has historically preceded more meaningful contract rate improvement. While the pace of supply attrition is supporting price increases, it is also creating challenges in driver recruiting and retention, which is putting upward pressure on the cost of capacity. We remain an employer of choice, and we will be disciplined in investments to add capacity, focusing on where we see clear demand, strong productivity and returns that meet our expectations. We have aligned our pay structure to reward our hardest working drivers to support retention, while surgically reinforcing recruiting efforts, including growing the number of recruiters, expanding our AI capabilities and enhancing starting driver pay in the most constrained geographies. Altogether, our second quarter results underscore the importance of price and productivity. Changing supply conditions are most acute in the over-the-road segment of the market where irrational capacity has persisted. This, in turn, is creating the strongest initial opportunities in our network and Logistics solutions and we have responded rapidly. In the second quarter, these segments captured premium opportunities as we support customers through a quickly tightening marketplace. We expect Dedicated and Intermodal to see increasing benefits as we move further into the up cycle through contract renewals and freight allocation events. This flexibility is the benefit of offering a scaled, sophisticated multimodal portfolio. Digging into our business segments in more detail. In Truckload, we more than doubled earnings sequentially on 2% revenue growth, only possible through the organization's hard work on executing price, productivity and cost reductions. Network price grew high-single digits year-over-year in the quarter. We are quickly leveraging all our tools to extract price, including historically high spot exposure, advanced freight selection and acceptance technology and a growing number of mini bids, among others. Spot rates became increasingly accretive through the quarter and June saw levels of contribution that were on par with March of 2021. Network price renewals also accelerated with average price increases in the quarter, up double digits, which we achieved while also improving incumbent retention. Tractor count was impacted by driver availability, but we were able to more than offset the reduction with improved productivity, which grew high-single digits year-over-year. The asset efficiency gains we have made are now being compounded by better freight selection, and we actively managed truck count in the quarter to reduce unseated tractors. Turning to our Dedicated business. We saw modest year-over-year price improvement in the quarter, supported by our self-help actions on portfolio quality. We remain disciplined in adding durable Dedicated solutions with returns in our targeted ranges as that discipline is what drives earnings resiliency through the entire cycle. Proactively addressing pricing now is allowing us to get ahead of the increased cost of capacity and position the portfolio for higher quality growth. As we highlighted on our last call, these actions are creating some near-term churn. While productivity gains also contributed to the year-over-year tractor count decline, they helped drive margins higher in the quarter. Dedicated remains a key pillar of our long-term growth strategy and the consistency and resiliency of earnings is a feature, not a defect. We continue to advance our sales initiatives with more than 500 new trucks sold year-to-date in 2026. We believe constrained driver supply, inflationary pressure in areas such as insurance and emerging liability concerns all support long-term Dedicated growth. We are also increasingly confident in our focus on specialty equipment where our retention remains highest. At the same time, the benefit of our diverse portfolio of solutions is that it gives us flexibility to meet customer needs as they evolve. As cycle conditions shift, network will be most responsive to market improvement, especially in an up cycle that remains primarily driven by supply attrition in the over-the-road segment of the market. As a result, in the near term, we may shift some capacity into our network configuration. However, we do expect Dedicated to benefit as those conditions translate through contract renewals and customer allocation decisions. As improvement accelerates, we will have the line of sight and capability to quickly return that capacity to capture these opportunities. This is the multimodal strategy working as intended. In Intermodal, second quarter results underscore the efforts we have made and continue to make to prioritize profitable growth. Over-the-road conversion opportunities expanded in the quarter, but as expected, drayage has become the primary constraint. Realizing 9 consecutive quarters of volume growth, we remain disciplined in the second quarter. We elected not to chase growth that would have required expensive third-party dray when pricing was not yet supportive of the incremental cost. We are growing in areas where returns are commensurate with our service and cost as evidenced by the strong growth in Mexico and in the East, where there are the most significant over-the-road conversion opportunities, and we have clear differentiation. Altogether, the segment delivered earnings growth despite some revenue pressure, reflecting our differentiators in lanes and service, containers and chassis asset control, effective network and revenue management and the optimization of third-party costs. Looking forward, we have seen success with select targeted investments in company dray capacity, which net up through the quarter. At the same time, pricing renewals accelerated in Intermodal. Importantly, we are seeing even stronger out-of-cycle increases, a signal that the market is beginning to turn faster. We expect these efforts to gain traction through the third quarter, positioning us to profitably capitalize on the trifecta over-the-road conversion tailwinds as we move forward, including elevated fuel costs, rising Truckload prices and strong rail service. We are pleased with our performance in this allocation season, which we expect to translate into volume growth in the second half. In Logistics, we extended the momentum from the first quarter, delivering double-digit year-over-year growth in both revenue and earnings. Brokerage net revenue per order improved both year-over-year and sequentially, supported by revenue management and premium project business. While we are addressing out-of-market contractual pricing, we are also leaning into expanded spot opportunities. Our spot exposure increased year-over-year and sequentially. Revenue management actions were amplified by productivity initiatives, especially those supported by our ongoing technology investment and leadership in Agentic AI solutions. The projects that began in the first quarter extended through much of the second quarter, though have now largely concluded. We expect the expertise we have built into these new verticals to remain a meaningful growth driver for Logistics even as the project-based nature of the work may create some quarter-to-quarter variability. Altogether, we are encouraged by how the business has responded to the early innings of supply normalization and market improvement. Darrell will provide more detail on our earnings expectations shortly, and we are confident that 2026 will be a year of meaningful earnings growth supported by an improving rate backdrop and our enhanced ability to drive operating leverage. With that, I'll hand the call over to Darrell to discuss our results and guidance in more detail. Darrell?

Thank you, Jim, and good afternoon, everyone. I'll review our enterprise and segment financial results for the second quarter and provide insights into our full year 2026 earnings per share and net CapEx guidance. Summary of our financial results and guidance can be found in our investor presentation available on the Investor Relations section of our website. Starting with the second quarter results. Enterprise revenues, excluding fuel surcharge, were $1.3 billion, up 4% compared to a year ago. Adjusted income from operations was $73 million, a 29% increase year-over-year. Enterprise adjusted operating ratio improved 110 basis points compared to second quarter 2025. Adjusted diluted earnings per share for the second quarter was $0.29 compared to $0.21 for the second quarter of 2025. Earnings grew year-over-year across each of our business segments, supported by continued progress on the strategic initiatives Jim outlined earlier and execution against our $40 million cost savings target, where we remain on track. We're seeing meaningful progress from our ongoing technology initiatives, which are helping automate and streamline workflows, reduce headcount, improve driver productivity and lower third-party spend. From a segment perspective, Truckload revenues, excluding fuel surcharge, were $628 million in the second quarter, up 1% year-over-year. This growth was driven by improvements in revenue per truck per week, which grew 5% year-over-year and more than offset lower truck count, which have been impacted by a more constrained driver environment. Network revenues, excluding fuel surcharge, grew 8% year-over-year, driven by productivity and price with revenue per truck per week up 16% year-over-year. Dedicated revenue per truck per week was up modestly year-over-year, reflecting ongoing portfolio upgrade actions. Truckload operating income was $51 million, a 28% increase year-over-year. Operating ratio was 91.8%, an improvement of 180 basis points compared to last year. This marks the strongest profitability for our Truckload segment since the second quarter of 2023. Earnings were positively impacted by our revenue management efforts that were supported by an improved Truckload backdrop. We're also seeing the benefits from our cost savings program, where we're gaining traction in areas such as headcount and trailing asset efficiency. Intermodal revenues, excluding fuel surcharge, were $262 million for the second quarter, down 1% year-over-year. Revenue per order declined 2%, reflecting mix changes that drove a lower length of haul. Volumes grew modestly year-over-year, marking the ninth consecutive quarter of order growth. Intermodal operating income was $18 million, a 14% increase compared to the same period last year and a strong sequential improvement supported by headcount actions and gains in tractor asset efficiency. Operating ratio was 93%, 90 basis points improved compared to last year. Logistics revenue, excluding fuel surcharge, totaled $376 million in the second quarter, up 11% from the same period a year ago. We saw improvement in price, supported in part by opportunistic premium project business. Logistics income from operations was $12 million, up $4 million year-over-year. Operating ratio was 96.8%, an improvement of 90 basis points from last year due to top line growth noted earlier and effective management of net revenue per order, including capitalizing on spot opportunities. Productivity gains, including those from reduced headcount and power-only trailer efficiency improvements also contributed to strong performance. Turning to our balance sheet and capital allocation. Net CapEx in the quarter was $84 million compared to $53 million last year, primarily reflecting our efforts to improve the age of tractor fleet. As a result, free cash flow declined $35 million year-over-year in the quarter. Year-to-date, we've delivered nearly $35 million back to our shareholders in the form of dividends. Looking forward, our strategic priorities for capital are unchanged, and we remain focused on disciplined deployment, including supporting organic growth that's aligned with our areas of differentiation, accretive M&A and robust shareholder returns. The strength of our balance sheet allows us to be nimble and execute on all 3. As of June 30, we had $397 million in debt and lease obligations and $293 million in cash and cash equivalents. As a result, our net debt leverage was 0.2x at the end of the quarter. For 2026, we're revising our net CapEx guidance to the range of $350 million to $400 million, down from $400 million to $450 million. As noted earlier, our plan continues to reflect the use of CapEx to improve our age of fleet. The reduction from our previous outlook is driven by a lower need for trailing equipment and consistent with our ongoing focus on asset efficiency. Our areas of investment will continue to support growth across Intermodal, especially dray capacity and in Dedicated, particularly in specialty equipment. We're raising our 2026 earnings per share guidance to $0.90 to $1.10 from our previous range of $0.70 to $1. Our guidance assumes an effective tax rate of approximately 24%. Second quarter results reinforce our confidence that the actions we've taken to lower cost to serve, enhance productivity and prepare for this up cycle are delivering meaningful operating leverage. Based on our year-to-date performance, we're raising the top and bottom end of the full year earnings per share guidance to reflect the progress we're seeing across the business. Our outlook continues to assume that supply attrition remains supportive of freight conditions for the balance of the year and that we continue to make progress against our $40 million cost savings target. At the same time, our guidance incorporates a range of outcomes for demand and the availability of driver capacity in the second half of the year. Demand has tracked largely in line with our base case to date. Looking forward, stronger demand could drive additional upside while softer demand may moderate some of the benefits from supply rationalization. As we think about the remainder of 2026, we're bringing momentum from contract implementations and successful allocation events. It's important to note that we're anticipating a loss of a large Dedicated customer, which will be more evident in the second half of the year. Additionally, our business mix has evolved over the past several years, including the addition of 3 Dedicated acquisitions and greater exposure to food and beverage and home improvement end markets. As a result, seasonal demand is typically stronger in the second quarter than in the third. Altogether, we expect earnings to grow meaningfully year-over-year at every point in our updated guidance range. Now I'll turn the call over to Jim for closing remarks. Jim?

Thanks, Darrell. Before we open the call for questions, I want to reinforce why we're encouraged by the direction of the business. We are a stronger, more efficient company than we were in the last up cycle with a more resilient Dedicated solution, differentiated Intermodal service and scalable capacity across network and Logistics. These improvements are being further supported by technology innovation, our cost savings program and a proven acquisition playbook. Second quarter results show that the actions we have taken to structurally improve the enterprise are working. The freight backdrop is improving, capacity rationalization is progressing and pricing momentum is building. Across the portfolio, we are seeing benefits from revenue management actions, productivity gains, a lower cost to serve and a multimodal platform that helps us methodically capture opportunities. While uncertainty remains, particularly around demand and driver capacity, our confidence in the earnings trajectory has strengthened. We are maintaining a strong balance sheet, investing where we see clear returns and continuing to execute against an unchanged strategy, earn customer loyalty through consistent execution, grow profitably where we create differentiation, improve on our low-cost operating model and maintain disciplined capital allocation. With that, we will open the call for questions.

[Operator Instructions] Your first question comes from the line of Jordan Alliger with Goldman Sachs.

Yes, I was wondering, obviously, the supply side has been the big factor. I was wondering if you give a little more color on what you're hearing, seeing from your customer base, their thoughts on perhaps demand looking ahead. And maybe a little bit on the fleet. Interesting on perhaps moving some more trucks into network. But can you maybe talk about your thoughts for fleet growth as we look ahead over the next year or so?

Yes. Thanks, Jordan. I think you've got a few questions in there for us to start. So let me just start with what we're hearing from customers related to demand and what we're seeing really macro there, and then I'll touch a little bit on what we're thinking about here for fleet growth as well. And so first of all, as it relates to demand, demand is playing out largely as expected. Underlying demand is largely stable. We saw a little bit of seasonal activity in the quarter related to both summer holidays and the World Cup. And so our customers that are in areas like food and beverage definitely saw a little bit of a lift up. And looking forward, what we're hearing is the consumer has been resilient through all the macro noise that's been going out there, but there are some risks that are not completely behind us. There's inflationary pressure primarily due to higher energy costs. Interest rates are continuing to weigh on some of the key end markets in places like housing and that's why we're really focused on a broad portfolio of customers that provides us a bit of a cushion here. And the reality of the market that we're in here, though, is that this is really being driven by supply. And even with just a little bit of a ripple in demand, it was enough to make a market move here. And there's just no excess supply and our customers recognize that the market has changed, that there isn't excess supply out there. And if there's any disruption, it will result in a really rapid change in the market because there's no way to absorb the shocks. That being said, as we're looking at our fleet, the way we're looking at it, we're excited about the supply exiting the driver market tightening. In Dedicated, we already highlighted that we're continuing to see strong sales, the 500 year-to-date, offset by a little bit of churn in the near term. But at the same time, this is a great opportunity for us to be able to continue and restore profitability in that area. And then as it relates to the network, we haven't been satisfied with our performance in the network. And we know we need to restore some margins there. That's our first priority before we start to look at growing that driver fleet again.

Your next question comes from the line of Bascome Majors with Stephens.

If we look at the public data that we can follow, 2Q was a sea of frenetic activity and spot rates and tender rejection rates escalating at pretty much unprecedented levels despite the stable demand drop you talked about. But since then, at least in the data that we can follow, it's been kind of sideways and maybe even walked back a bit. And I just want you guys' perspective from looking at your own internal metrics, whether it's turn down rates or what you're hearing from customers, is the market leveling out and even cooling off a bit? Or is this just a sign of seasonality that's kind of consolidating after a pretty challenging period?

Yes. Thanks, Bascome. We looked at this very similar last year. I think we had the same discussion that when you get late into July, you see spot rates change a little bit. And I would say this really mirrors what we saw a year ago. So very similar seasonality here, and it hasn't changed what we're seeing out there in the marketplace. And it's not just spot rates aren't the only way that we're able to extract price. It's one of those areas. And even though it's moving sideways, we would still say spot rates are still about 15% higher than contract price. And so that enables us to have a number of ways to go out there and extract price. And the #1 area, obviously, is through normal allocation events. But outside those events, we're seeing post-allocation opportunities that are growing. We're also improving price through freight selection. And even though spot is moving a little bit sideways, still positive opportunities there. And our customers are increasingly realizing that this is not a temporary situation when you see a little bit of a sideways movement here. And so we've been really comfortable staying with elevated spot exposure because there's that 15% delta between spot and contract. And we continue to think we're still in the early innings of a rate recovery with -- overall, it's elevated spot exposure, and we'll keep that elevated spot exposure until the book closes between -- the gap between spot and contract.

And just to follow-up on one...

I think we miss you here.

We'll move on to the next analyst. [Operator Instructions] Our next question comes from the line of Ravi Shanker with Morgan Stanley.

Jim, just on IM, obviously, you're a significant player in both asset-based trucking as well as IM, and we're seeing significant rotation from TL to IM at the moment. Do you get a sense that this is sort of a permanent structural move? Or do you think this is kind of opportunistic for the moment given that volumes aren't there yet and TL pricing is high and share might shift back to TL? Or do you think this is like the new normal for IM?

Yes. Thanks, Ravi. Appreciate the question here because definitely, you're absolutely right. We're seeing that trifecta of opportunities here between fuel, seeing the impact with underlying Truckload rates. But also, I think what's structurally different right now is the rail service. It's giving us an opportunity to get into more opportunities and customers are seeing those benefits. I think the other part is as you look at where our growth is coming, we now have 17 consecutive quarters of growth in Mexico. Our customers have wanted to make a change there for a long time. And it really took that change of us operating with the CPKC to unlock that. We're also growing the local East with over-the-road conversion. Partly that's being driven by what you're seeing with Truckload rates with fuel, but also the service is really good and customers are understanding that. But they also -- when they make that change to use Schneider and local East, I believe part of the reason why they're doing that is because of our multimodal strategy because they know that we have other capacity options, whether it's with one of our trucks or it's using one of our Logistics solutions to make sure that we have them covered through it. So yes, I do believe that we're going to -- we have opportunities to continue to grow. And this has been 2 years, 9 quarters of growth. So we've been able to grow through some relatively weak times.

That's helpful. Maybe as a follow-up here, I'm sorry if I missed the detail here, but I think you mentioned a large upcoming Dedicated loss. Can you shed some more light on that? Just maybe quantify how much an impact could be, so we know what the net guide increase looked like and also maybe some color around that loss?

Yes. And overall, Ravi, the way to think about that, that's contemplated in what we're expecting going forward. And Dedicated, like we said earlier, it's designed to be more consistent and resilient. And over the 4-year down cycle, Dedicated has remained remarkably resilient. But at the same time, performance isn't where it needs to be. And as the conditions are improving, that is giving us the opportunity to proactively address the bottom performing agreements in the portfolio and reallocate those resources towards higher-performing opportunities. Obviously, as a byproduct of those actions, it can create some near-term churn, which is what we've been experiencing in the last couple of quarters. And so our focus here is the revenue per truck per week improvement. It's our priority at this point in the cycle and expect you're going to start seeing more pronounced improvement in that metric going forward because of the momentum we're seeing in contract renewals and productivity actions. And then after we've worked through these, then there's an opportunity to begin growing with deals that are durable. I feel really good about our ability to go out there and sell trucks in this area that's giving us the confidence to restore margins.

And Ravi, this is Darrell. The only thing I would add is our pipeline is robust, right? So one of the reasons that we have a pipeline is can absorb shocks. The reason why we kind of highlighted that on the call in our prepared remarks is really that in the third quarter, it's going to be more evident as we implement some of those wins.

Your next question from the line of Jonathan Chappell with Evercore ISI.

Jim, a little surprising to see Logistics EBIT almost doubling sequentially, up over 50% year-over-year in a quarter where it feels like most Logistics companies were squeezed by a par block move in spot pricing. So is this Schneider-specific cost? Is this your power-only model? Is there something special that went into this in a quarter where it seemed to be one of the worst laggards for most peers?

Yes. Thanks for the question. And we talked a little bit about this last quarter because we were already seeing some of the benefits in Logistics come through last quarter. And once again, it's shining through. And we're no different than the rest of the industry. In the second quarter, we still had some impact from rising third-party carrier costs that weighed on our contract-rated business, including power only, which you mentioned, but there's just been really strong execution on the premium project business. We had that in the first quarter. We developed trust with our customer, and that created additional wins in the second quarter. But it wasn't just the project business. We continued focusing our revenue management efforts to address net revenue pressures, including leading into our spot opportunities. And so we had to address some out-of-market contract rates. And at this point, right now, we're about 60-40 contract versus -- I'm sorry, 60-40 spot versus contract a year ago and historically, we run at about 50-50. And it's not just all of those commercial actions, there's some cost actions here. We've been working on developing AI, especially in this area. And those tech investments have resulted in our frontline productivity improving 17% year-over-year in the second quarter, which is also enabling great results here. So it's really all the way through from commercial activity, how we're managing revenue management and then how we're executing the loads.

Got it. And then just quickly, you specifically called out gains on equipment sales in both the Truckload and the Intermodal EBIT in the press release. It feels like those might have been a bit more outsized than normal. Is there any way to quantify that, especially as it helps us kind of consider the 2Q, 3Q bridge?

Yes. So this is Darrell. So in the second quarter, we did see a bit more in terms of gain on sale. We did see pricing improvements in terms of those sales, and we did also sell more units. Nothing that's that material, but there's definitely a step-up from the first quarter to the second quarter. For the remainder of the year, we do expect some robustness in the market to remain as it relates to the price.

Your next question from the line of Bruce Chan with Stifel.

Maybe just a question here on the Intermodal revenue per order pressure. Jim, I think you talked about the mix impact there, which makes a lot of sense with the local conversion. But wanted to maybe get a sense for what core yields look like there. And I know you generally don't comment on what the number looks like by region, but just maybe directionally, how should we think about that yield trajectory on the shorter haul versus the longer haul lanes?

Yes. Thanks, Bruce. And you're right. We don't comment on pricing by region here, but I can give you some color that I think will be helpful to help you think about this going forward. So you're right. In second quarter, the rate per order impacts were really just a matter of length of haul and mix, because our contract renewals have been increasing each of the last 4 quarters. And we had expected that Intermodal would lag Truckload, but we are seeing tightness now in the drayage market. And really, we've been talking about this for quite a while that the catalyst in Intermodal to move price is that drayage market. And so our contract renewals were low single digits in the second quarter, and now we're trending towards mid-single digits, which is what we really need to be able to invest in growing dray or utilizing third-party capacity, which is at a higher price point than company drivers. And so what we are focused on here is getting to a price point where we could start to accept more loads. And as we're getting to that pricing that we're beginning to see, that's going to enable us to start growing not just in the East and Mexico, but really throughout all of our markets.