Schneider National (SNDR) Q2 2026 Earnings Call Transcript

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DATE

Thursday, July 30, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Vice President of Investor Relations - Christyne McGarvey
• President and Chief Executive Officer - Jim Filter
• Executive Vice President and Chief Financial Officer - Darrell Campbell

TAKEAWAYS

• Adjusted Diluted EPS -- $0.29 for the second quarter, compared to $0.21 in the prior year, reflecting improved operating leverage across all business segments.
• Enterprise Revenue -- $1.3 billion excluding fuel surcharge, increasing 4% year over year as growth in Logistics and Network offset modest pressure in Intermodal.
• Adjusted Income from Operations -- $73 million, representing a 29% increase year over year driven by price, productivity, and the execution of a $40 million cost savings program.
• 2026 EPS Guidance -- Raised to a range of $0.90 to $1.10 from the previous range of $0.70 to $1.00, based on sequential earnings growth and anticipated supply attrition.
• Net Capital Expenditures Guidance -- Reduced to a range of $350 million to $400 million, down from $400 million to $450 million, due to a lower requirement for trailing equipment.
• Truckload Segment Revenue -- $628 million excluding fuel surcharge, up 1% year over year as higher revenue per truck per week offset a decline in tractor count.
• Network Revenue per Truck per Week -- Grew 16% year over year, driven by high-single-digit price increases and improved asset productivity.
• Truckload Operating Income -- $51 million, a 28% increase year over year, resulting in an operating ratio of 91.8% and the highest profitability for the segment since the second quarter of 2023.
• Logistics Segment Revenue -- $376 million excluding fuel surcharge, increasing 11% year over year due to price improvements and opportunistic premium project business.
• Logistics Operating Income -- $12 million, an increase of $4 million over the prior year, supported by a 17% year-over-year improvement in frontline productivity.
• Intermodal Operating Income -- $18 million, up 14% year over year despite a 1% decline in revenue, reflecting nine consecutive quarters of volume growth and improved asset efficiency.
• Intermodal Revenue per Order -- Declined 2% year over year, reflecting a shift in the business mix toward a shorter average length of haul.
• Cost Savings Target -- Management confirmed the company remains on track to achieve $40 million in savings, primarily through headcount reductions and automated workflows.
• Net Debt Leverage -- Ended the quarter at 0.2x with $293 million in cash and cash equivalents against $397 million in total debt and lease obligations.
• Dedicated Truck Sales -- Recorded more than 500 new trucks sold year to date in 2026, though management noted near-term churn as the company addresses lower-performing agreements.
• Logistics Business Mix -- Shifted to 60% spot and 40% contract exposure, compared to a historical 50/50 split, to capitalize on tightening market conditions.
• Drayage Capacity -- Expanded company dray capacity late in the quarter to reduce reliance on third-party capacity as Intermodal pricing renewals accelerated.

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RISKS

• Campbell stated, "It's important to note that we're anticipating the loss of a large dedicated customer, which will be more evident in the second half of the year," noting this as a headwind to near-term segment volume.
• Filter noted that while supply attrition supports pricing, it is "creating challenges in driver recruiting and retention, which is putting upward pressure on the cost of capacity."
• Filter identified macro risks to demand, stating, "There's inflationary pressure, primarily due to higher energy costs," while noting interest rates continue to weigh on end markets like housing.

SUMMARY

Management at **Schneider National, Inc.** (NYSE:SNDR) reported sequential earnings growth that more than doubled compared to the first quarter, driven by tightening freight supply and internal cost-control measures. The company indicated that the market is transitioning to a driver-constrained environment as regulatory enforcement removes noncompliant capacity, leading to spot rates that currently exceed contract rates. Schneider is prioritizing margin restoration in its network and dedicated segments over aggressive fleet expansion while leveraging its multimodal capabilities to shift capacity toward higher-return opportunities. Capital allocation remains focused on fleet age improvement and shareholder returns, supported by a significant increase in full-year earnings guidance and a reduction in planned capital expenditures.

• CEO Filter characterized the current market as "driver-constrained," with long-haul driver populations near decade lows while noting that "roughly half of the non-compliant capacity is left" to exit the market.
• Filter attributed the surge in network productivity to "historically high spot exposure" and June spot contributions that mirrored levels seen in March 2021.
• Management expects a "trifecta" of rising fuel costs, higher truckload pricing, and strong rail service to drive increased over-the-road conversion for the Intermodal segment.
• CFO Campbell noted that the business mix has shifted toward food, beverage, and home improvement markets, causing seasonal demand to be "typically stronger in the second quarter than in the third."
• The company is utilizing agentic AI solutions in its Logistics segment to automate workflows, contributing to a 17% improvement in frontline productivity.
• CEO Filter highlighted that approximately 30,000 drivers had visas revoked, impacting cabotage capacity and accelerating the market's supply-led recovery.

INDUSTRY GLOSSARY

• Cabotage: The transport of goods or passengers between two places in the same country by a transport operator from another country.
• Drayage: The transport of goods over a short distance, often as part of a longer intermodal journey, such as from a rail yard to a warehouse.
• OR (Operating Ratio): A measure of efficiency calculated by dividing operating expenses by operating revenues; a lower ratio indicates higher profitability.
• ELD (Electronic Logging Device): Hardware used to automatically record a driver's driving time and hours of service.
• Agentic AI: Artificial intelligence systems designed to perform tasks, make decisions, and achieve goals autonomously on behalf of a user.
• CDL (Commercial Driver's License): A specialized license required to operate large, heavy, or placarded hazardous material vehicles in the United States.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for joining us and welcome to Schneider National's Second Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Christyne McGarvey, Vice President of Investor Relations. Please go ahead.

Christyne McGarvey: Thank you operator. 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 lines 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. 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.

Jim Filter: Thank you, Christyne. Hello, everyone. Thank you for joining the Schneider National call 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 the 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. 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 non-compliant supply, including in areas such as non-domicile 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 would 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 non-compliant capacity is left, with the remaining impacted 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, recoup 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.

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. We have responded rapidly.

In the second quarter, these segments captured premium opportunities as we supported customers through a quickly tightening marketplace. We expect dedicated and intermodal to see increasing benefit as we move further into the up cycle through contract renewals and freight allocation events. This flexibility is the benefit of operating 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 of 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 upcycle 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 nine 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 added 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 of 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 extend 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 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. 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?

Darrell Campbell: 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. Summaries 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 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 headcounts, 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 headcounts 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 have 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 three. As of June 30th, 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-$400 million, down from $400 million-$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-$1.10 from our previous range of $0.70-$1.00. 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 upcycle 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 the 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 three dedicated acquisitions and a 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. I'll turn the call over to Jim for closing remarks. Jim?

Jim Filter: 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 upcycle, with a more resilient, dedicated solution, differentiated internal 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: Go ahead.

Jordan Alliger: Yeah. Hi. Yeah, I was wondering, obviously the supply side has been the big factor here. I was wondering if you have 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. Can you maybe talk about your thoughts for fleet growth as we look ahead over the next year or so? Thanks.

Jim Filter: Yeah. Thanks, Jordan. I think you've got a few questions in there for us to start. 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. First of all, as it relates to 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. Our customers that are in areas like food and beverage definitely saw a little bit of a lift up.

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. The reality of the market that we're in here, though, is that this is really being driven by supply. Even with just a little bit of a ripple in demand, it was enough to make a market move here.

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'll 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 at 500 year to date, offset by a little bit of churn in the near term. At the same time, this is a great opportunity for us to be able to continue and restore profitability in that area.

As it relates to the network. We haven't been satisfied with our performance on 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.

Jordan Alliger: Thank you.

Jim Filter: Okay. You bet.

Bascome Majors: 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. Since then, at least in the data we can follow, it's been kind of sideways and maybe even walked back a bit. I just want you guys' perspective from looking at your own internal metrics, whether it's turndown rates or what you're hearing from customers. Is the market leveling out and even cooling off a bit, or is this just the sign of seasonality that's kind of consolidating after a pretty challenging period? Thank you.

Jim Filter: 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. I would say this really mirrors what we saw a year ago, so very similar seasonality here. It hasn't changed what we're seeing out there in the marketplace. 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. That enables us to have a number of ways to go out there and extract price.

The number one area, obviously, is through normal allocation events. Outside those events, we're seeing post-allocation opportunities that are growing. We're also improving price through freight selection. Even though spot is moving a little bit sideways, still positive opportunities there. Our customers are increasingly realizing that this is not a temporary situation when you see a little bit of a sideways movement here. We've been really comfortable staying with elevated spot exposure because there's that 15% delta between spot and contract. We continue to think we're still in the early innings of a rate recovery with overall its elevated spot exposure, and we'll keep that elevated spot exposure until the book closes between the gap between spot and contract.

Bascome Majors: Thank you for that. Just to follow up on one point.

Jim Filter: Bascome, I think we're missing you here.

Ravi Shanker: Great. Thanks. Good afternoon, everyone. 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 the 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, TL pricing is high, and share might shift back to TL? Do you think this is the new normal for IM?

Jim Filter: Yeah. Thanks, Ravi. Appreciate the question here. Definitely, you're absolutely right. We're seeing that trifecta of opportunities here between fuel. We're seeing the impact with underlying truckload rates. 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. 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, also the service is really good, and customers are understanding that. They also, when they make that change to use Schneider and local east, believe part of the reason why they're doing that is because of our multimodal strategy. 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. Yes, I do believe that we have opportunities to continue to grow. This has been two years, nine quarters of growth. We've been able to grow through some relatively weak times.

Ravi Shanker: 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.

Jim Filter: Yeah. Overall, Ravi, a way to think about that's contemplated and what we're expecting going forward and Dedicated, like we said earlier, it's designed to be more consistent and resilient. Over the four-year down cycle, Dedicated has remained remarkably resilient. At the same time, performance isn't where it needs to be. 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 the last couple of quarters. Our focus here is the revenue per truck per week improvement.

It's our priority, at this point in the cycle, 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. After we've worked through these, there's an opportunity to begin growing with deals that are durable. 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.

Darrell Campbell: Ravi, this is Darrell. The only thing I'll add is our pipeline is robust, right? One of the reasons that we have a pipeline is it can absorb shocks. The reason why we kind of highlight that on the call or 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.

Ravi Shanker: Understood. Thanks very much.

Jim Filter: Welcome.

Jonathan Chappell: Thank you. Good afternoon. Jim, a little surprising.

Jim Filter: Hi, Jonathan.

Jonathan Chappell: 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 parabolic move in spot pricing. Is this Schneider's 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?

Jim Filter: Yeah. Thanks for the question. We talked a little bit about this last quarter because we were already seeing some of the benefits in logistics come through last quarter. Once again, it's shining through. 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 rate of business, including power-only, which you mentioned. 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. It wasn't just the project business.

We continued focusing on our revenue management efforts to address net revenue pressures, including leading into our spot opportunities. We had to address some out-of-market contract rates. At this point, right now we're about 60/40 contract versus I'm sorry, 60/40 spot versus contract a year ago. Historically, we run at about 50/50. 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. 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. It's really all the way through, from commercial activity, how we're managing revenue management, and then how we're executing the loads.

Jonathan Chappell: Got it. 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 outside the normal. Is there any way to quantify that, especially as it helps us kind of consider the 2Q to 3Q bridge?

Darrell Campbell: Yep. This is Darrell. 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, 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.

Jonathan Chappell: Got it. Thank you.

Jim Filter: Welcome.

Bruce Chan: Yeah, thanks. Good afternoon, everyone. 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. Wanted to maybe get a sense for what core yields look like there. I know you generally don't comment on what the number looks like by region, just maybe directionally, how should we think about that yield trajectory on the shorter haul versus the longer haul lanes? Thank you.

Jim Filter: Yeah. Thanks, Bruce. 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. You're right. In the 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 four quarters. We had expected that intermodal would lag truckload, but we are seeing tightness now in the drayage market. Really, we've been talking about this for quite a while, that the catalyst in intermodal to move price is that drayage market.

Our contract renewals were low single digits in the second quarter, 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. What we are focused on here is getting to a price point where we could start to accept more loads. 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.

Bruce Chan: Great. Super helpful. Thanks, Jim.

Jim Filter: Yeah. Great.

Ken Hoexter: Great. Good afternoon, Jim and team, and Darrell. Jim, congrats, first of all, on your first call leading here. We've also gotten the driver ads in Westchester. It's clearly working. Looking at your guide and your outlook.

Jim Filter: Thanks, Ken.

Ken Hoexter: Yeah. My wife looks at me every time they come on the radio. Looking at your guide and your outlook, thoughts on progress, Darrell? I don't know if you can walk through. I know you don't do quarterly forecasting. Is 2Q the strongest? Is fuel going to aid more into 3Q? I don't know if there's delay real-time, if you want to talk about that. You threw out thoughts on driver pay. Is there anything we should think about cost coming into play? Just maybe give us some parameters as you raise the range. Thanks.

Darrell Campbell: Yeah, sure. Thank you. You hit on a lot of the things that we're considering. I think, let's just start with framing the guide. We've said that the guide will assume that we have more supply attrition, right? We said that in January, we said that three months ago. We're continuing to expect supply to exit the market. We've also talked about all the things that are within our control, including our cost savings initiatives, our productivity actions, our revenue management actions. With two quarters behind us, we're seeing the signs of all of those efforts come to fruition. We've also seen driver capacity exiting faster than we initially thought. Year-over-year, all of our segments grew, which is remarkable.

We're taking up the bottom end and the top end of our guidance based on all those facts. It's not only the year-over-year growth that we've seen. We've seen very strong sequential growth. Quarter-over-quarter, from the first quarter to the second quarter, we saw a doubling of our earnings, and that does not happen by accident, right? Those are all the things that are within our control with a little bit of help from the market. As we go into the second half of the year, we're bringing all that momentum that we've seen, not only as it relates to price.

Logistics, for example, and network, those are the areas where most of the irrational capacity came in, and that's where we're seeing it come out the fastest. We're seeing the more ready impact in terms of pricing there. In areas such as dedicated and intermodal, which are more contract based, we expect there to be a benefit in the second half as a result of all that. We have two quarters left in the year. We're thinking about things that are balancing that optimism, and I think you hit on some of them. As capacity has exited the market, which is good for price, there are certainly constraints on driver capacity, right?

In terms of our scenarios, we're putting in scenarios as it relates to driver cost and availability, and we've talked about demand, right? Demand being a swing factor. We think that's particularly important as it relates to peak and what happens in the fourth quarter. Obviously, we have a lot of confidence that based on our preparedness, we're ready to execute if and when that freight becomes available. You asked the question as it relates to momentum and progress throughout the year. In my opening remarks, I talked about seasonality. Our business has evolved over time. We've made three very significant acquisitions over the last five years. With that, comes a shift in the portfolio.

We talked about exposure to food and beverage end markets, home improvement end markets, and that's driving more seasonality into the second quarter as opposed to the third. We've seen that over the past several years, and that's something that we kind of expect to continue going forward. There's some other things that are unique in our guide going forward. There was a question on logistics and the performance of our logistics business relative to the market. We've been very focused on developing our areas of strength in terms of specialty project business. That came through in the first half of the year, very evident in the second quarter.

We think that in the third quarter, even though we're going to have some project business, it's not going to be as pronounced as it was in the second quarter for logistics. We did talk about the loss of the large dedicated customer, which will also impact what the third quarter looks like. All those things are in the mix in terms of how we develop a guide for the rest of the year.

Ken Hoexter: Great. Very helpful. Thanks, Darrell. If I just follow up, you mentioned in the prepared remarks, moving trucks back and forth. I think it was from dedicated to network, if I've got that right. Maybe can you talk scale, capacity, time frame? I don't know, any kind of parameters you can put on that to see if we can scale that in our models. Thanks.

Jim Filter: Yeah. The way that we're thinking about that, Ken, is where we have the best market opportunities. That's the value of having this multimodal approach, is that we're able to move drivers from one opportunity to another. It's not that I'm being evasive, there's just, we're going to take that opportunity as it plays out. Right now, what we're seeing with price in the market would suggest that there's just going to be more opportunities there in network that we might want to move some trucks over.

Ken Hoexter: Understood. Thanks, Jim. Thanks, Darrell.

Jim Filter: You bet.

Brian Ossenbeck: All right. Thanks for taking the question. Hey, Jim, start with you. Can you just clarify the comment on the dray drivers? It sounded like you're getting to the point where maybe pricing is support enough to be able to expand capacity or maybe fill in some of the gaps you might have in the network or want to add to the network. Maybe you can clarify those comments for me. It also sounded like you're getting more out of cycle bids, rather allocations in intermodal, if I heard you correctly.

If you can put some context around that, it'd be helpful, like give absolute terms, how to compare it, or maybe it's better compared to a prior cycle in terms of what strength or activity you're seeing there.

Jim Filter: Yeah. Thanks, Brian. Just to start on our dray capacity and what we're seeing is, we had opportunities to grow much faster if we had wanted to in the quarter, but we remain disciplined and specifically because we want to look at some of the opportunities that were coming in, were non-committed freight that would have driven our network out of balance or required third-party capacity. Even though we would have moved more freight, it would not have been accretive. At the same time, we want to be able to take advantage of these opportunities. We're leaning in to grow our dray capacity. We've already had some success here.

Most of that growth in our dray capacity occurred at the end of the quarter, and we're continuing to grow that capacity now that we're seeing some improvement in market rates. That's the second part, is going back to customers, because they understand they need to be able to fund our ability to grow capacity or to be able to use third-party capacity, we're seeing both of those take place right now. It gives us some confidence that we can continue to grow from there. You're right. Customers, when they're seeing some turndown activities, they're willing to sit down and have some discussions, and that's where we're seeing some out-of-cycle activity.

Brian Ossenbeck: Understood. Here's a quick follow-up to

Jim Filter: Sure

Brian Ossenbeck: comments on the B-1 and the cabotage. It seems like there's some pretty significant activity. Have you seen that translate to any sort of opportunity in your network? Thanks.

Jim Filter: Yeah, absolutely. Brian, as we think about what's going on with capacity, let me just take a step back before I jump in to specifically cabotage, that this has been a matter of public safety. If you go back to, since 2016, the number of trucks involved in injury crashes has increased 18%. At the same time, companies like Schneider have been investing in safety and reducing accident frequency, yet crashes are growing because not all companies are following these existing regulations. You mentioned cabotage, and we're starting to see some impact there.

You can see it on specific lanes because we've all seen the data that there's approximately 30,000 drivers whose visas were revoked, not enabling them to even cross the border and commit cabotage. That has an impact. Same thing with a number of other activities. Non-domiciled drivers, the entry level driver training is starting to be impacted. While cabotage was much faster than we expected, non-CDL drivers was much faster than we expected. There's still about half of the capacity we're expecting to leave hasn't been impacted yet. We know that capacity is exited because even that real modest increase in seasonal demand triggered a market correction here in the quarter.

When we look forward, we know that there's still about a third of the non-domiciled drivers remaining that we would expect to be removed. The first two-thirds came off faster than we anticipated. If Dalilah's Law is enacted, we could see that capacity exit abruptly. Now we have the end of the broker preemption. That may remove some carriers with unsatisfactory conditional ratings. That's a few percent of capacity. ELD enforcement is another action that I'd say is largely in front of us. It's also the one that I believe would have the biggest impact on public safety because there's a lot of ELDs out there that were improperly certified.

With those, tampering is a feature, not a bug, and they're using offshore back office staffs that enable and coerce drivers to exceed the 11-hour rules. The current highway bills is seeking to address that as well. When you take not just what's behind us, but what's in front of us, it's going to be a dramatic change, and this also changed the top of the funnel. It's structurally different than what it was in the past. Capacity won't grow as fast as it did after the pandemic, and that's why this recovery could last longer than other recoveries.

Brian Ossenbeck: All right. Thanks, Jim. Appreciate the perspectives.

Jim Filter: You bet. Thanks, Brian.

Tom Wadewitz: Yeah, good afternoon. You had pretty strong growth in revenue per truck per week in network. I'm just wondering, do you think how big a move can you see in 3Q, or did you already saw a good move, I would assume you didn't get everything repriced, so there's more to go. Just maybe a high-level thought how much further gain we could see revenue per truck per week in 3Q and network. In Dedicated, I know obviously it's a different business with multi-year contract, how might we think about the relationship across the cycle? If network rates were to go up 15%-20% across two years, pretty strong cycle, would that translate to half of that gain in Dedicated?

How would you think maybe about that relationship, just so we can contemplate what to put in the model as you look out in Dedicated? Thank you.

Jim Filter: Thanks, Tom, for those questions. Let me just start with the Network revenue per truck per week. The 16% growth year-over-year, really strong performance, and that's why Network has just always been a part of our multimodal approach, even though we weren't pleased of the performance during the down cycle. We didn't sit around during the downturn and wait for the market to improvement. Our improvements were primarily on productivity and cost, and those were all being masked by price. Now that price is starting to move, I think it's just more apparent of what we've been working on.

Now that we're getting price, we're just ready more than ever to take advantage of a cycle shift, and you're starting to see that in the second quarter. Let me just talk about some of those factors here. We don't get price just through allocation events. We're seeing that through elevated spot exposure, many bids, freight acceptance, that's why we're already seeing high single-digit price improvement hit this business. Also productivity is also a high single-digit improvement, and that's being driven by a combination of asset efficiency, removing unseated tractors, and then higher driver utilization from both freight selection and then optimization.

The cost reductions that we've been talking about across this entire enterprise for multiple years, this is the first time that you're able to look at a business and say, "Oh, I can see that coming through the business." We're always optimizing for earnings and, in tougher markets, you just have more leverage with productivity and cost. Now as the market turns, we have opportunities across not just productivity and cost, but also price, and that's where that leverage is starting to come through. In terms of price between Network and Dedicated, it's a little bit difficult.

There isn't necessarily a number you can map to be able to say, "Well, this is going to change during this cycle," because I think it would have been different. We're going to be focused on having margins in Dedicated that are going to be resilient. You sign a contract for multiple years, and we're looking to look for a price that's going to be fair for both sides and be durable. That is the plan now. I'd say over the last couple of years, especially you got later into the cycle, there was a little bit of pressure on Dedicated, and some of those contracts are the ones that needed to be renewed. Thanks, Tom.

Tom Wadewitz: Maybe just on timing, when do you think we'll start to see the strength in revenue per truck, effectively in price show up? Is that start to show up in 3Q, or there's a little longer lag on it?

Jim Filter: Yeah, I think, in Dedicated, we're expecting that we should start seeing improvement in revenue per truck per week in Dedicated immediately, here already in third quarter.

Tom Wadewitz: Yeah. Okay. Thank you.

Jim Filter: All right. Thanks, Tom.

Chris Wetherbee: Yeah, hey. Thanks. Good afternoon, guys. Darrell, I guess just maybe to be a little bit more direct, you said a lot about the third quarter and the difference between 3Q and 2Q seasonality. I guess I'm just a little confused. I want to make sure I understand. Can 3Q earnings or however you want to sort of measure the profitability of the business be higher than 2Q, or should we assume that 2Q is higher than 3Q?

Darrell Campbell: Yeah. Good question, and I guess, unsurprising. We tried to give a little bit more color, to clarify, we don't guide by quarter, but just trying to be helpful. I think the seasonality point was just to underpin some of the thoughts that we've seen. If you just look at history over the last five years and how our seasonality has shifted. Just wanted to make the point that, given the transformation of our business, typically in the recent past, more seasonality has shifted into the second quarter. We also talked about just the dynamic of the logistics specialty project business and the loss of the dedicated customer.

With all that said, where I did lead off is that we're seeing a lot of momentum going into the second half of the year. All the things that I mentioned as it relates to capacity exiting the market and the impact on price, you've seen what price and productivity together can do, just even in network as an example. We do expect that momentum carries forward. Jim mentioned the gap between contract and spot. We do believe that not only in network and logistics, but also in dedicated and in modal, we are going to get the benefit of price, and that's also going to come through in the second half. Right?

It's not as if we don't think that there's improvement. Actually, at every point in our guide, if you look on a year-over-year basis, we do expect to see improvement in our segments.

Chris Wetherbee: Okay. Appreciate the clarification there. Maybe just the bigger picture one here, as we're thinking about some of the dynamics going on with drivers and in particular, what's happening here in a post Montgomery world around the brokerage businesses. I guess, can you maybe sort of refresh us on how you guys think about carrier vetting? Have you made any changes post Montgomery? The way you think about it probably going to be maybe on the higher tier of carrier vetting discipline in the industry. Just want to get a sense of some thoughts around that and how it might impact available capacity and how you see sort of the potential opportunity for you in logistics going forward.

Jim Filter: Yeah. Thanks, Chris. I'll start by talking about the capacity impacts, then I'll dive in a little bit into our brokerage business. You're right, I think it's likely to further constrain capacity from a couple aspects. First, there's many brokers that are likely to avoid carriers that have conditional or unsatisfactory ratings from the FMCSA. That's probably a few percent of the market, and while the drivers might go to work for another carrier, it's likely that they're going to be held to a higher safety standard. Even transfers to a new company potentially reduces capacity. You have brokers like Schneider that have some standards that go beyond a carrier safety rating.

Within Schneider, we only qualify approximately 60% of the carriers that apply. Now, don't interpret that as 40% of the carriers on the road are unsafe. Some of these carriers are chameleon carriers, so we might disqualify them many times, and there are also carriers that are safe but lack enough time in the industry to meet our standards. I also believe this creates an opportunity for our logistics segment. We're already seeing some shippers that are pivoting away from the small or medium-sized brokers, and there are some shippers that are requiring minimum insurance levels that are well out of reach for most pure-play brokers, and even for some small asset-based companies.

Our position, the standards that we put in, we implemented these several years ago, and we've moved our carrier count from 60,000 to less than 14,000 carriers. We did that primarily under the vein of improving cargo security, but many of the filters that we apply to cargo security also apply to safety. Overall, I think this is an opportunity for Schneider, but I also believe that litigation is a risk to supply chains. We're investing heavily in safety training, technology, compliance, and it's resulting in reducing accident frequency, but accidents still happen.

We believe that companies that do the right thing should be held accountable based on the facts and not exposed to disproportionate outcomes driven by the current litigation environment. That's why we believe tort reform is really important, not to avoid responsibility, but to ensure that the outcomes are fair, they're predictable, and aligned with actual conduct. Believe that this is a big impact to the overall industry.

Chris Wetherbee: Helpful perspective. Appreciate it. Thank you.

Jim Filter: Yeah. Thank you.

Scott Group: Hey, thanks. Two questions. We're at the hour, I'll just lump them into one. You talked about, Jim, the trifecta for intermodal conversion. Volumes were flat in the quarter. Where you think the growth goes? Darrell, there's been a lot of talk about the seasonality of the mix of the business, like 2Q, 3Q. Maybe more importantly, does the changing mix of the business change ultimately where the annual margins can go? Meaning if this was an 85, 86 OR last cycle, does that change because you have more dedicated or more food and beverage, or does that not change it? Is this just a seasonal shift within quarters?

Jim Filter: Yeah, Scott, I'll start and then Darrell will jump in on the long-term margin questions here. First of all, on Intermodal volumes, I think I talked a little bit about this earlier. We could have grown double-digits if we wanted to, but we wouldn't have made any more money. That's why we're a little bit more discerning about which orders we're accepting. You're able to do that when you've grown nine consecutive quarters, and we've had some really big growth in certain areas. That we said we don't have to go out there and take every single opportunity.

Now that we are starting to grow that dray capacity, we're getting price that will enable us to use some third-party in certain area. We set up our peak season programs with shippers very early on because we're seeing those opportunities as well. That enables us to use third-party a little bit more today. We expect that there's opportunities to start growing really in high single-digits. Darrell?

Darrell Campbell: Yeah. This is Darrell. The seasonality commentary was really just the frame, the guide, right? It doesn't change anything that we think about our business in the long-term. Actually, the actions that we've taken have been purposeful. We purposely targeted the three targets that we acquired over the last few years, and we knew what came with that, and we welcomed what came with that. We've been taking actions to structurally improve the business during the downturn, right? We've not been wasting time. The dedicated portfolio. Our Truckload is more dedicated, skewed. Jim talked about our differentiation in Intermodal. In Network and Logistics, we've invested in being scalable and flexible. We've been investing in technology.

All of those things make us stronger today as we're coming out of the downturn, and we're already seeing that, right? If you just look at our year-over-year improvement, you look at our sequential improvement in earnings, it's all a result of all the things that we've done. When we think about our long-term margin targets, Truckload 12%-16%, Intermodal 10%-14%, Logistics 3%-5%, those are meant to be in normal market conditions, right? We think everybody would acknowledge, Scott, that we have not been in a normal situation. As capacity has exited, we're seeing the benefit, and we're seeing it initially in those segments of our business that were most impacted.

We expect to see improvement across the board, including in our contract rated businesses. The pricing improvement that we saw in Logistics and Network, I think that's just the beginning. Jim talked about where we are in terms of all the capacity actions that are being taken. When we sit here today at the end of the second quarter, truckload margin is already 8%. Intermodal is at 7%. Logistics is already within our long-term ranges. We have line of sight to get to our longer term margin ranges. The evidence of all the actions that we've taken prove that.

Scott Group: All right. Thank you.

Jim Filter: Thank you, Scott. All right. We appreciate everybody joining the call today. Have a great day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect

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