Schneider National, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you operator, and good afternoon, everyone.

Joining me on the call today are Jim Filter, President and Chief Executive Officer, and Darrell Campbell, Executive Vice President and Chief Financial Officer. Earlier today, the company issued an earnings press release. The press release and investor presentation are available on the investor relations section of our website at schneider.com. Our call will include remarks about future expectations, forecast plans and prospects for Schneider. These constitute forward-looking statements for the purposes of the safe harbor provisions under applicable federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties discussed in our SEC filings, including, but not limited to, our most recent annual report on Form 10-K and those risks identified in today's earnings release.

All forward-looking statements are made as of the date of this call, and Schneider disclaims any duty to update such statements except as required by law. In addition, pursuant to Regulation G, reconciliation of non-GAAP financial measures referenced during today's call can be found directly in our earnings release and investor presentation, which includes reconciliations to the most directly comparable GAAP measures. Now, I'd like to turn the call over to our CEO, Jim Filter.

Thank you, Christyne, and good afternoon, everyone. Thank you for joining the Schneider National earnings call today. I will begin by sharing my perspective on the freight market, our new partnership with the Norfolk Southern, and our performance in the third quarter. I will then turn it over to Darrell to review our financial results and outlook for the remainder of 2026. After that, we will open the call for questions. As we look at our third quarter performance, we remain confident in Schneider's strategy. We are focused on profitable organic growth through differentiation across our multimodal platform, building an efficient low-cost operating model, and maintaining a returns-focused approach to investment. Those strategic priorities have not changed, but how we execute against them continues to evolve with changes in the marketplace. This is how we win. That agility is increasingly translating into earnings and margin improvement as the market recovers.

Across the enterprise, our revenue management strategy is combining a disciplined approach to pricing with data-driven, profit-focused freight selection to extract the most out of improving market conditions. Traction on our $40 million cost savings target is driving productivity gains and cost reduction, which is enhancing our operating leverage as revenue improves. As customer needs, capacity conditions, and opportunities develop, our diversified multimodal platform is positioning us to respond rapidly. Finally, strong returns guide our investment decisions. The combination of productivity and price is funding targeted investments to meet customer demand. At the same time, we continue to strengthen Schneider's long-term competitive positioning. To that end, this afternoon, we announced that Schneider has entered into an agreement with Norfolk Southern to serve as the primary rail provider for our eastern Intermodal network beginning January 1, 2027.

Norfolk Southern's broader eastern network expands Schneider's reach and creates additional opportunities to grow with existing customers, pursue new freight, and convert Truckload shipments to Intermodal. By leveraging Schneider's 100% company-owned containers and chassis, which are complemented by our company-operated dray fleet, we expect this agreement to strengthen service, enhance network reach, and support our long-term growth strategy. A potential combination of Norfolk Southern and Union Pacific could provide additional upside through new single-line services and improved connectivity, but those benefits are not assumed in our current expectations. Still, the growth we have seen in Mexico following the combination that created the CPKC only reinforces our view of the long-term opportunities that an effective single-line rail network can provide. A combination of Norfolk Southern and Union Pacific stands to see similar benefits to speed and reliability on a broader scale while also introducing new Intermodal lanes.

We see compelling value from positioning Schneider to be the only fully asset-based provider on the first single-line transcontinental railroad in the United States. Turning to the third quarter, the enterprise delivered strong year-over-year earnings growth, and results were largely consistent with what we anticipated as we brought momentum from successful price recovery across the portfolio and our $40 million cost savings program. While operating earnings declined sequentially, this reflects the typical seasonal patterns of our business as well as the loss of a large Dedicated customer and the moderation of certain project business as anticipated. The quarter also saw impacts from higher claims costs and Logistics that was a result of a confidential claim settlement. Though this was largely offset within net income by a positive impact from the favorable development of a separate settlement. Darryl will discuss this in more detail shortly.

Importantly, our constructive view of the broader cycle has not changed. Looking at the freight environment, the supply thesis remains intact. Though capacity attrition occurred at a more measured pace than what we experienced in the first half of the year, we are continuing to see an overall constrained supply picture, despite spot rates now having moved higher for nearly a year. Capacity has remained hampered by driver availability, elevated operating costs, and increased barriers to entry. Further, we continue to see several factors that should support additional rationalization going forward. Regulatory enforcement efforts are ongoing in areas such as entry-level driver training and electronic logging devices. These actions should improve driver qualification and hours of service compliance and make it more difficult for irrational capacity to enter or remain in the market. At the same time, fuel costs have increased meaningfully.

Driver wages are on the rise, and smaller carriers are facing increasing economic pressure. Together, these dynamics are limiting the ability of supply to respond to improving pricing conditions, and with non-compliant capacity exiting the market, we continue to expect supply to behave rationally as we move further through this upcycle. While supply dynamics remain constructive, freight activity saw a modest step back versus second quarter, a reflection of anticipated seasonal patterns coming out of the Fourth of July holiday. Consumer spending remained resilient overall, though this varied by category. Higher interest rates and affordability constraints continue to weigh on certain key end markets, such as housing and automotive. Altogether, we believe third quarter freight volume activity reflected typical seasonality and some normalization of inventory patterns rather than the deterioration of underlying demand trends, which remain stable. As a result, spot rates also moderated during the quarter.

While the decline was greater than traditional seasonal patterns, particularly in August, it came following the significant strength in late spring and early summer. Year-over-year growth remained strong through the quarter, and spot rates began to improve again in September. At the same time, contract pricing continued to advance. In fact, we are seeing growing recognition from customers of the need for safe, compliant, and reliable capacity across our multimodal platform, which is further reinforcing our view that pricing recovery remains intact. As such, we expect additional rate recovery as customers continue to adjust to the higher underlying cost of dependable capacity. Industry operating costs have increased by over 30% over the last five years, while contract pricing is only approaching parity. Continued pricing progress is needed, not only to recover this cost inflation, but to support the service levels, capacity investments, and returns required for durable growth.

Against that backdrop, our commercial execution was strong in the third quarter, though there remains additional runway for rates to move higher. Proof points are evident across the enterprise as pricing actions accelerate while customer retention remained healthy. In Network, average renewals reached nearly 20% in the quarter, with retention and win rates improving sequentially. Dedicated customers are increasingly receptive to the pricing adjustments required to secure capacity in a rapidly evolving driver market. Intermodal renewal pricing reached its strongest level since the pandemic, and mini-bid activity is also increasing. In Logistics, we are capitalizing on spot opportunities while repricing contract business, driving double-digit year-over-year growth in net revenue per order. These results reflect a combination of tightening market conditions, the value of Schneider's service offerings, and the execution of our revenue management strategy.

Turning to our businesses in more detail, Truckload revenue was relatively stable year over year, while earnings more than doubled. Results benefit from the work we have done over the last several years to improve productivity, enhance asset efficiency, and execute disciplined pricing actions. Revenue per truck per week grew meaningfully across both Dedicated and Network and more than offset lower tractor counts. The latter continues to be constrained by driver availability, though this was compounded by the previously announced loss of a large customer in Dedicated. In Dedicated, growth opportunities remain attractive over the long term, but we also remain focused on profitability and returns, not simply truck count. Proactive pricing actions continued throughout the quarter, and we made progress on ensuring returns appropriately reflect increasing driver and operating costs.

At the same time, we continue to see encouraging activity in our pipeline, including opportunities within specialty Dedicated solutions where differentiation remains strongest. Year to date, we have sold nearly 850 trucks across all our brands, which reinforces our confidence in continuing to address underperforming accounts. Network benefited from strong pricing gains, improved freight selection, and enhanced productivity, which drove double-digit improvement in revenue per truck per week year over year. While industry spot activity moderated from the elevated levels seen in the second quarter, our performance was supported by premium freight opportunities. We are encouraged by the progress we have made but also believe there remains meaningful opportunity ahead as pricing continues to recover. Execution on our commercial strategy is funding additional targeted investments in driver capacity. To strengthen retention while protecting returns, our compensation approach recognizes driver productivity and performance.