XPO, Inc. (XPO) Earnings Call Transcript & Summary

Welcome to the XPO Q2 2026 Earnings Conference Call and Webcast. My name is Sachi, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements and the use of non-GAAP financial measures. During this call, the company will be making certain forward-looking statements within the meaning of the applicable security laws which, by their nature, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. A discussion of the factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release. The forward-looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements, except to the extent required by law. During this call, the company may also refer to certain non-GAAP financial measures as defined under applicable SEC rules. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables are on its website. You can find a copy of the company's earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures in the Investors section on the company's website. I will now turn the call over to XPO's Chairman and Chief Executive Officer, Mario Harik. Mr. Harik, you may begin.

Good morning, everyone, and thank you for joining us. I'm here with Kyle Wismans, our Chief Financial Officer; and Ali Faghri, our Chief Strategy Officer. This morning, we reported record second quarter results that demonstrate the increasing strength of our earnings power. Company-wide, we reported revenue, adjusted EBITDA and adjusted diluted EPS at the highest levels in our history. Excluding real estate gains, our adjusted EBITDA was up 25% year-over-year to $425 million. And adjusted diluted EPS was $1.64, up 56%. In North American LTL, we grew adjusted operating income by 36% on a 15% increase in revenue, highlighting the scalability of our network and the operating leverage in the business. We also brought down our adjusted operating ratio below 80%, which is a new record for us. That's a 300 basis point improvement from the second quarter last year and a significantly outperformed model seasonality. The foundation of our outperformance continues to be the superior customer experience we deliver through disciplined execution amplified by our technology. Notably, we achieved a new service milestone with our damage claims ratio, bringing it below 0.2% for the second quarter in a row and to the best level in our history. This is a product of operational excellence, investments in capacity and proprietary technology working together to build customer satisfaction and trust. Another example is our reputation as one of the fastest and most reliable LTL networks in the industry with broad geographic coverage and consistently high service levels, decide directly to our gains in market share. In short, world-class service is the gateway to expanding our business and translating customer value into shareholder value. To accomplish this, we've engineered our network to support long-term growth while running efficiently across different demand environments. Since 2021, we've increased our trailer fleet by more than 30% and tractor count by more than 20% and expanded our network capacity with 15% additional doors. We've also invested in our workforce, improving retention while maintaining the ability to scale labor hours with demand. This gives us the capacity to take on substantially more volume in the recovery while maintaining service quality. Each of these investments strengthens our operating leverage, enabling us to grow efficiently now and over time. They also reinforce our commercial performance by creating more opportunities to increase wallet share, earned price and win new business. In the second quarter, our service quality helped us accelerate contract renewal pricing. And we're continuing to expand revenue streams with high-margin local customers and premium services where we have a meaningful competitive edge. These are all structural advantages inherent to our business. We're building our network for years of above-market pricing growth and profitable market share gains. Before I close, I'll spend a few minutes on our proprietary technology and its broad impact across the business. In the second quarter, we used our workforce planning technology to improve productivity by nearly 2.5 points versus last year, which outperformed our quarterly target of 1.5%. Another example is out optimization, which we discussed on our prior calls. Currently, more than 2/3 of our operations are using this technology for pickup and delivery, and we're seeing measurable results with fewer miles and more stops per hour. We're also seeing encouraging results from the pilot of our trailer loading technology. This application uses AI to assess images of freight place inside the trailers and provide our dock workers with actual feedback in breadtime. In the second quarter, at the pilot sites, load quality improved by more than 40%, while damages were reduced by 50%, contributing to both service quality and operating efficiency. As we grow the business and expand the use of our technologies, the financial, operational and competitive advantages will increase as well. In closing, the levers we executed on in the second quarter are firmly established as a foundation for outside value creation. We'll continue to enhance our service, investment capacity drive above-market pricing growth and scale our proprietary technology to operate more efficiently. Our results reinforce our confidence in the strategy and the significant value it can create. And that value creation is underpinned by 2 key objectives: achieving an annual LTL operating ratio in the low 70s or better; and generating billions of dollars of cumulative free cash flow in the coming years. With that, I'll turn it over to Kyle to walk through the financials. Kyle, over to you.

Thank you, Mario, and good morning, everyone. I'll walk through our financial results followed by our balance sheet, liquidity and capital allocation. For the second quarter, we grew total company revenue 13% year-over-year to $2.4 billion. In our LTL segment, revenue increased 15% to $1.4 billion. reflecting an acceleration in both yield and volume growth. Turning to cost in LTL. Our expense for salary wages and benefits increased 7% year-over-year or $46 million. Our productivity initiatives continue to help mitigate the impact of higher inflation and freight volumes. Our cost for fuel operating expense and supplies increased 24% or $53 million primarily due to higher fuel prices. While ins truckload rates trended up significantly throughout the quarter, our purchase transportation cost increased by just $8 million. This is because our in-sourcing strategy is performing as planned, reducing our exposure to truckload rate volatility. Our depreciation expense increased 5% or $4 million, consistent with our continued investments in the network to support long-term growth. Moving to profitability company-wide. We delivered $434 million of adjusted EBITDA. Excluding $9 million of real estate gains in the quarter, adjusted EBITDA increased 25%. Our LTL segment generated $390 million of adjusted EBITDA and improved margin by 310 basis points to 27.4%. Excluding real estate gains, adjusted EBITDA increased 27%. Lastly, in LTL, we grew adjusted operating income 36% to $287 million. In our European transportation segment, adjusted EBITDA was $48 million. And in our Corporate segment, adjusted EBITDA was a $4 million loss. Returning to the company as a whole, operating income increased 37% year-over-year to $271 million. Net income was $162 million, representing diluted earnings per share of $1.36. On an adjusted basis, diluted EPS was $1.70. Excluding $0.06 per share of real estate gains in the quarter, adjusted diluted EPS increased 56%. Turning to our second quarter cash performance, we generated $207 million of free cash flow, and we had $298 million of cash on hand at quarter end after completing $101 million of net capital expenditures, $70 million of common stock repurchases and $70 million of term loan repayments. Combined with available capacity under our committed borrowing facility, total liquidity at quarter end was approximately $898 million. Our net leverage ratio improved to 2.1x trailing 12 months adjusted EBITDA compared to 2.3x at the end of the first quarter. We're driving meaningful increases in free cash flow generation through a combination of strong earnings growth and moderating capital expenditures. We now expect to more than double our free cash flow for the full year compared with 2025. This gives us greater flexibility in accelerating share repurchase while continuing to strengthen the balance sheet through debt paydown. In July, we paid down another $100 million on our term loan to start the third quarter, bringing our year-to-date debt paydown to $200 million. And with that, I'll hand it over to Ali to talk through our operating results.

Thank you, Kyle. I'll begin with our LTL performance where we delivered another quarter of profitable growth and record margins. For the full quarter, shipments per day increased 2.8% year-over-year, while weight per shipment declined 1.8%, resulting in 1% growth in clinic per day. Importantly, volumes strengthened as the quarter progressed. Shipments per day increased 0.2% year-over-year in April, 3.3% in May and 5.1% in June. Tonnage per day followed a similar trajectory, improving from down 1.5% in April to up 0.5% in May, followed by a 4% increase in June. We saw the improvements continue in July with an estimated increase above 6% in both shipments per day and tonnage per day on a year-over-year basis and with weight per shipment roughly flat. . All 3 metrics outperformed normal seasonal patterns. These trends reflect our ability to consistently earn profitable market share through world-class service and any economic backdrop. In the second quarter, this was amplified by a steady improvement in freight demand. Pricing remained a source of strength throughout the quarter. Yield, excluding fuel increased 4.4% year-over-year and improved sequentially, supported by an acceleration in our contract renewal pricing. Revenue per shipment, excluding fuel, also improved both year-over-year and sequentially. We expect both metrics to continue improving sequentially in the third and fourth quarters as we align more of our pricing with the value we deliver and expand the mix of accretive business. Notably, given the improving trend we've seen in weight per shipment, we now anticipate revenue per shipment growth, excluding fuel, to accelerate more than we previously expected in the third and fourth quarters. This is a benefit to both revenue growth and profitability. Turning to our adjusted operating ratio in LTL, we improved OR in the second quarter by 300 basis points year-over-year to a new company record of 79.9%, outperforming normal seasonality by more than 100 basis points. Over the past 3 years, through a historic freight recession, we've improved OR by nearly 800 basis points with plenty of runway ahead. Our European business also delivered another strong quarter of growth on both the top and bottom lines. We reported record revenue in Europe, marking our 10th consecutive quarter of growth on a constant currency basis. Adjusted EBITDA increased 9% year-over-year, and we expect that growth to accelerate in the second half of the year. Before we move to Q&A, I leave you with 3 key takeaways from the quarter. First, we're consistently earning profitable market share with an expansive network differentiated by superior service and a commitment to continuous improvement. This is the basis of our value proposition. We're also driving above-market pricing growth while unlocking structural productivity gains through AI and other initiatives for network optimization. And finally, we expect our second quarter outperformance to accelerate as freight demand recovers. This is the latest validation of our ability to significantly expand margins over time. With that, we'll take your questions. Operator, please open the line for Q&A.

[Operator Instructions] The first question is from Ken Hoexter from Bank of America.

Great. really great job and congrats on breaking sub-80 and outperforming seasonality again, great to see. I guess maybe just talking about the outlook going forward, Ali, you're talking about accelerating earnings. I don't know if you want to put some parameters on that, if you're talking about levels of operating ratio performance or revenues? And then Mario, just at the end, you kind of ran through some of the AI stuff you're running -- rolling out and reduced damages 50%, load quality increased 40%. These are massive numbers. Maybe put some numbers or frame the opportunity here for expenses going forward?

You got it, Ken. First, starting on output performance, I'll start with the third quarter OR. We do expect another strong quarter for margin performance here in the third quarter. as you know, a normal seasonality for us is for OR to increase 200 to 250 basis points from Q2 to Q3, which normal seasonality but so hard for the quarter north of 82% but we do expect to significantly outperform that, and for abroad to be below 81% here in the third quarter. And that's a strong outcome overall, and it applies another very strong quarter of year-on-year margin improvement and is driven by a combination of price, accelerating volumes and cost efficiency and posture on track to outperform our full year target for margin improvement. . In terms of technology, I mean, as you know, we've always been very tech forward in our thinking. And the solution you referred to, the solution we're launching for all of our dock workers. It was here in pilot in the second quarter when every time a dock worker is loading a trailer, they actually take photos every turn of the trailer. AI analyzes that photo in real time and tells them what they're falling short unloading, whether a certain pallet needs to be strapped to the wall of the trade road where they got to use an airbag or if they're not using safe stack bars. So all of that happens in real time so the dock workers can actually correct what is happening as they are loading the trailer. And we have seen tremendous success in the pilot so far, and we expect to roll this out across the entire network through the back half of the year. But similarly, all the other solutions around P&D, around occuficiency, about labor planning, all of these have a massive runway ahead of us here. In the quarter, we improved productivity by nearly 2.5 points versus an expectation of 1.5%. And again, the runway is massive ahead of us for all of these solutions.

The next question is from Scott Group from Wolfe Research.

So seems like you're clearly going to exceed the margin target for the year. I don't know if you have an updated view on that. And then maybe just more importantly, longer term, Matt, I thought I heard you say in the prepared comments, like a low 70s OR. I don't know that I've heard you say that specifically before. So what's your -- what do you -- how do you think about the time line to get there? That's give or take, another 1,000 basis points of margin improvement, whether the -- I don't know, incremental margins assumed with that or pace of margin improvement you think you can do the next bunch of years?

You got it, Scott. So first, I'll start for the full year margin outlook. Based on what we delivered so far in the first half of the year and our expectation for the third quarter, we do expect to outperform our initial outlook, which was to improve or for the full year by 100 to 150 basis points. And we now expect full year margin improvement to be at least 200 basis points. And obviously, we'll see what the back half has in store for us. But first, Scott, if you look at the volume side, it has tracked well above seasonality here more recently. And we're seeing both our initiative and gaining market share as well as the positivity we're getting from customers that have taken to more freight on our trucks. As Ali mentioned in the opening remarks, we expect July to be above 6% of tonnage growth here. And that means that for the full year, we now expect tonnage to be up a few points relative to when we started the year where it was more of a flattish expectation. On the pricing side, the trends have been favorable, and we expect our pricing strength to continue through the rest of the year. And on the cost side, also our execution has been very strong through productivity, what I mentioned earlier on about the AI initiatives as well. So if you break it down, a lot of great momentum across all of these pieces, and that's going to enable us to outperform our initial full year expectation on margin improvement. In terms of getting to a low 70s and beyond OR, this is what really gets us excited about the years ahead. If you look at it today, we have a low teens pricing gap and opportunity that we have -- we're going to go get above market pricing growth. And if you look at it over the last 3 years, we have been outperforming the market on yield like call it 2 to 3 points, sometimes a bit more per year. And that's driven through the combination of -- from 1 perspective, our service product continues to improve, and we expect we can get the point of extra yield associated with that over a long runway, 5, 5-plus years. And then the other 2 components are around premium services and continuing to grow with our small- to medium-sized customers. On premium services that you recall -- when we started our plan, we had 9% to 10% as a percent of revenue being revenue, and our goal was to get to 15% plus. And we've thought of be halfway through that, and we see a massive amount of opportunities as we onboard new customers on these services. And similarly, on local accounts, we are actually accelerating the growth with small- to medium-sized customers. here in the -- both as the quarter progressed in Q2 and July, we've seen any further inflection and improvement there. But we're being able to onboard more of these customers who had you service that your relationship and our goal is to get them the delightful experience every time they ship with us, and we're seeing growth there as well. So that's the big opportunity. Scott, if you look at it, that double-digit pricing opportunity is what would get us there and beyond over the next 5 years.

The next question is from Jonathan Chappell from Evercore ISI.

Ali, you said you expect the 2Q outperformance to accelerate and then Mario insinuated something for 3Q without putting a pin on it. I wouldn't think you expect tonnage and shipments to continue to increase by 6% as per July. But if you play out the string on seasonality for August and September from where you're exiting July. What are we looking for from a volume perspective? And I get the revenue per hundredweight the revenue per shipment increasing sequentially and where would that put you relative to kind of the normal seasonal trends on 3Q OR progression? .

Sure, Jon. So from a volume perspective, as Mario noted, July for us was up over 6% tonnage on a year-over-year basis. And that was about call it, 4 points better than normal seasonality relative to the month of June. Typically, what we see is tonnage is usually down in that low to mid-single-digit range sequentially as you move from June into July. This year, it was flattish. And so much better than normal seasonality. Now if you just roll forward that above seasonal trend, we've been seeing through the rest of the quarter, that would put full quarter tonnage for us up somewhere closer to that mid-single-digit range on a year-over-year basis. And keep in mind, Jon, this does account for a comp dynamic we have in Q3, where August and September are tougher comps on a relative basis. However, if you zoom out, that mid-single-digit tonnage growth we expect in the third quarter does imply a meaningful acceleration on a 2-year stack basis. relative to the second quarter. And ultimately, that speaks to the momentum we're seeing from a demand perspective Similarly, from a pricing standpoint, as kind of noted, we do expect both yield and revenue per shipment ex fuel to increase sequentially here, both in Q3 and Q4 on a year-over-year basis, we would expect our yield to be up in a similar range as Q2. That's even with the improving weight per shipment trend we're seeing here more recently, as we noted July, weight per shipment was flat on a year-over-year basis. that's a great outcome as it points to an improvement in underlying core pricing. And ultimately, that improvement in weight per shipment, the benefit to revenue per shipment, which is why we do now expect our revenue per shipment ex fuel to accelerate year-over-year here in the third quarter to a greater degree than we initially expected. And ultimately, that's going to be accretive to both revenue and profit growth. And all of that, Jon, is what underpins the OR outlook that Mario referenced earlier, where we would expect our OR to meaningfully outperform seasonality in the third quarter to be below 81% here. ultimately how much below 81% is going to depend on how demand trends through the rest of the quarter. But we do expect another very strong quarter of margin outperformance here in the near term.

The next question is from Richa Harnain from Deutsche Bank.

I was hoping you could talk about the competitive dynamic a bit more, the strong July performance definitely stands out. And I'm wondering if that's -- there's some validation in your outlook that as things start to heat up, maybe the smaller regional players you compete with struggle a bit more because they've already been operating at really high utilization and you're getting that spillover freight? Or is this truckload coming back into LTL. Is that becoming a more prominent trend that you're seeing your weight per shipment kind of improving? Or kind of just like what's going on in the competitive backdrop that's allowing the strong outperformance.

Yes. Richa, if you look at -- there are a few dynamics there. The first one, as we've always discussed, industry capacity has been down over the last few years. since the last peak in 2021, when we have service center count to be down, call it about 10% as an industry and door count to be down mid-single digits over that same period of time. Now when that industry capacity was shrinking, it was at a time when industry demand was meaningfully down. It was down in the mid-teens through the industrial recession that we have seen over the last 3 years. So what we're seeing this year is a few dynamics. The first one is add-on having seen end up effectively demand for the industrial sector. Folks have not deployed enough capital in that industrial and purchasing industrial goods across the country. And that's starting to come back. Now we're still not yet in form recovery territory because when you look at ISM has been over in that low to mid-50s so far year-to-date, all expansionary, which is really good, but we haven't seen yet the over 60 type numbers, which is when the market is fully an upswing scenario. That said, on the demand side, we are giving a lot of positivity from customers. We -- as you know, we do a survey every year before every earnings call. and our customers, we have now doubled the number of customers relative to the beginning of the year that do expect an acceleration in the back half of the year, which is very, very exciting. And we're starting to see that in existing customer demand starting to see a pickup in an overall volume. Now when you break it down between retail and industrial, retail continues to be a positive territory. On the industrial side, what changed from last quarter is that we are seeing manufacturing starting to build momentum, and we haven't seen that in more than 3 years, which is fantastic to see. Now on the truckload, truckload to SCL conversion. We are in the early innings of seeing some of that where, as you know, truckload rates here today are up more than 40% so far. And we are seeing some -- we estimate to be somewhere in the low to mid-single digit total tonnage that has moved from SEL to truckload and we expect that to come back to the back half of the year or going into next year as those -- if those truckload rates stay consistently high, like they have been here so far with the increase year-to-date. And the last component, I would say we're taking market share. I mean we're taking market share for 2 reasons. One is that we, historically, a lot of the premium services that we are offering, we were not participants and so we had very low market share and we're growing those whether it's close to reconsolidation, whether it's us arrived by date, whether it's trade show shipping, whether it's new store rollouts, all of these are for us ramping over time, which is helping us gain market share as I mentioned earlier on, our local small- to medium-sized customers, we continue to grow that book of business as well. So all of these, I think, what is kind of -- is what is causing the inflection in volume that we are seeing here and a meaningful step-up versus seasonal trends as well.

The next question is from Stephanie Moore from Jefferies..

Maybe touching on just the overall pricing environment. One, maybe I just misheard it, but I believe you said contract renewals have accelerated. So if you could just touch on that, again, apologies if I missed that. But in general, I mean, I think help us maybe bifurcate pricing actions that are more so driven by actions that are within your control? And then pricing that might be -- or improved pricing that's driven by the underlying environment and what it seems to be just an overall stronger freight environment?

Sure, Stephanie, this is Kyle. So you're right. So when you think about contract renewals, they did accelerate. We're up in the mid- to high single-digit range. And I think what's important when you look at renewals and you look at the results, is a strong flow-through we're seeing. So if you look at the second quarter as an example. I mean, obviously, that strong pricing that was above market really translated to a strong outperformance. And we said in the quarter, we're 100 basis points better than normal seasonality and improved year-over-year probably over 300 basis points. I think what we're seeing right now is really a productive pricing environment. And we think that's going to continue as the market continues to improve. And as Mario said, we have a lot of different strategies that we're deploying to really continue to drive strong pricing here in the remainder of the year.

The next question is from Jason Seidl from TD Cowen.

Operator and team, nice job in the quarter and sort of impressive outlook here. A couple of questions. Given the better trends that you're seeing in terms of the demand side, and if we extrapolate them for 3Q and 4Q, where are you guys going to exit the year in terms of available capacity? And also, how should we look at head count given these better trends?

Great question, Jason. So if you look -- if we first look at it on the capacity side or doors, and equipment. I thought with the rolling start, we're feeling great for rolling stock. I mean if you think about it, that is more than 30% more trailers more than 20% more tractors and that's going to give us a runway through the next few years as we continue to invest in our fleet to be able to handle any demand in that. A similar dynamic for the door side and usually in a down cycle as an LTL carrier, having in excess of 30% door capacity is very helpful because that enables you to be able to take on more volume when the up cycle comes and you can support both your existing customers as well as gain profitable market share gains. And we're feeling great about where we are on that portion of it as well. And not all capacity adjacent created equal because you can imagine as a network business, you can have certain markets where you are short on capacity and this is what we have done our investments, a lot of the investments we've done, whether it's in the South or the Southeast or the Southwest were all driven in areas where historically we had capacity constraints, and now we are actually feeling great about where we are. If you look at a market like Nashville or Atlanta, in Texas or in the Midwest, I mean we've done a really good job in complementing our network and adding those mega facilities in those very large markets to be able to support our customers in the context of an up cycle. On the labor side, on the head count side, we feel very good about where we are right now. From one perspective, we continue to improve productivity, as I mentioned earlier, and that gives us an incremental amount of labor capacity, what you can do more with the existing head count that you have. Now if you look at over the last few years, we are only down slightly on headcount. So relative to where we were in the month of July, we can handle another low to mid-single-digit more shipments with the existing workforce and by letting of ours back up. But we've also been proactive in hiring as well based on what we're hearing from customers, and we're seeing the demand environment in some markets, we've already ramped up our hiring efforts, and we're seeing very, very good traction so far. Now if the industry thematic company accelerates further from here and we see a hockey stick type demand recovery, we're also confident in our ability to further expand the workforce. As you know, our employee turnover is the best it's ever been and we can spin up more than 130 driver training schools to help support our growth there as well. So on all aspects of capacity, we're feeling great, we're in ideate to support our customers and grow with them in the context of a demand recovery.

The next question is from Jordan Alliger from Goldman Sachs.

So it's been a while since wait per shipment, I think, back to flat or positive. I'm just curious if you could give some thoughts from here. Is your expectation that, that will move into the positive at this point in time? And then just real quickly on just a price follow-up. -- if we do have that broadening industrial recovery that we're hoping for, given you're already seeing very strong pricing, can price be pushed up even further from here?

Sure, Jordan. I'll start on weight per shipment and then pass it to Mario to talk about the pricing outlook from a weight per shipment standpoint, we are seeing encouraging trends. Here in the second quarter, our weight per shipment improved by about 1 point on a year-over-year basis relative to the first quarter, also outperformed seasonality as we move from Q1 into Q2. Now here more recently, we've seen weight per shipment improve even further in the month of July, weight per shipment was flat on a year-over-year basis. That was also better than typical seasonality relative to July, and it's ultimately being driven by that improvement in the underlying industrial demand backdrop that Mario referenced earlier. . If you just roll forward what we've been seeing here more recently, it would put weight per shipment down year-over-year in the third quarter. That does factor in a tougher comp that we had the month of August, which subsequently gets easier in September. However, we do expect weight per shipment to be down less year-over-year in Q3 versus Q2 that order as you cycle into the fourth quarter, we do see a scenario where weight per shipment starts to inflect positive on a year-over-year basis entering 2027. Ultimately, that's going to be driven by the demand environment and how much further it improves from here, but we do expect weight per shipment to start to inflect positive on a sustainable basis over the next few months as we enter the ending of the year.

Jordan, when you look at the industry pricing overall, we are starting to see a more constructive industry pricing environment. As I mentioned earlier, you have a dynamic where you have demand and the early innings of picking up and then you have capacity that has gone out of the market. So we do believe that you're going to see an industry overall pricing recover over the quarters and years to come. Now the way we think about it, I mentioned earlier on the runway that we have above market to grow our yield performance, which is called it a 2 to 3 points of outperformance between the premium on service, premium services and growing to small- and medium-sized customers. Now in a soft macro environment and as you know, we've been in a rate recession for 3-plus years, you see typically LTL pricing to be up in that low-single digit. And our expectation is that we would outperform that by 2 to 3 points on a consistent basis. As the environment starts picking up, you will see industry pricing go up to mid-single digit, and then we expect to outperform that. And then eventually, when the industry pricing gets up to high-single digits in a full blown recovery, we'd expect to outperform that by a few points there as well. So that's how we think about this trend, and we believe we are currently in the early innings of what would be a multiyear company with industry pricing going up, demand going up, being constrained by capacity for the sales have not invested in growing capacity.

The next question is from Chris Wetherbee from Wells Fargo.

I wanted to ask about productivity, so you outperformed productivity target again in the second quarter. I think you've done that a number of the last several quarters. I guess as we think forward, Well, I guess, seems to be different is the fact that tonnage is inflecting more positively here. So you're able to get the productivity without the help of volume. I'd imagine productivity is probably a bit easier as we go the volume growth, but maybe you could help sort of lay out what you think maybe is the right way to think about productivity? Is it still sort of 1.5 points on a year-over-year basis? Do you think it can be better kind of in a more favorable demand backdrop?

Well, overall, you're spot on that, Chris, whenever you see higher volumes, you tend to be more productive because you have more density in your network. As I said, these things are not linear. -- in terms of how you improve that over time. And for us, our target is 1.5 points, call it, over the next x number of years based on all the solutions that we are deploying our AI capabilities and what we're doing, but we have been outperforming that number. When you look at the post Yano bankruptcy and you saw an uptick in overall freight volumes, above seasonal trends. We also were able to improve productivity meaningfully higher over that period of time. But again, a stop-line year, our expectation is 1.5 quarter and if you zoom out and you look on a multiyear trajectory, we do expect to outperform that as well, given our proprietary technology firing on all cylinders, but also, obviously, field execution being very disciplined in how we're executing in the field. .

The next question is from Tom Wadewitz from UBS.

I wanted to see if you could offer a little bit of thought on how inflation may affect the business. Obviously, you're seeing good price, good tonnage, great operating leverage. But how do you think about where maybe there is some inflationary pressures? And I guess I'm thinking comp and benefits, in particular, that's your big expense line. And maybe how that affected in 2Q and how you look forward with that also, I guess, related to that is just in the driver market. I think we've heard some feedback that some of the tightening aside from -- is maybe not terminal driven, but more so drivers getting a little tight. I don't know if you see that or if that's a factor in terms of how you look at inflation. .