Schneider National 2026 Q2 Earnings Call

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.

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. 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.