Schneider National, Inc. Q2 FY2025 Earnings Call

Thank you for joining us for the Schneider's Second Quarter 2025 Earnings Conference Call. I will now hand the call over to Christyne McGarvey, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer; Darrell Campbell, Executive Vice President and Chief Financial Officer; and Jim Filter, Executive Vice President and Group President of Transportation and Logistics. Earlier today, the company issued an earnings press release. This release and an 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 our 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, a reconciliation of any non-GAAP financial measures referenced during today's call can be found 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, Mark Rourke.

Thank you, Christyne, and hello, everyone. Thank you for joining the Schneider call today. I want to welcome Christyne to the Schneider team and look forward to her contributions as we move forward. For our prepared remarks, I will start by providing an update on our commitment to drive ongoing structural improvements in our business. First, we are restoring margins while positioning the business to maximize through-cycle returns. Second, we are leaning into our areas of differentiation to create our own growth opportunities. And third, we are compounding organic growth with accretive M&A. Within that context, I will share my perspective on the freight market as well as the positioning and performance across our multimodal platform. Darrell will then provide a financial overview of the second quarter results and share our updated 2025 earnings per share and net capital expenditure guidance. Then we'll take your questions. I will begin our efforts to restore margins and maximize through-cycle returns. The second quarter benefited from the cumulative effects of the actions we have taken to lift our business through a challenging backdrop and importantly, demonstrate our ability to capitalize on the modest seasonality that did materialize through strong operating leverage. We are approaching this in several ways, through a disciplined and purposeful customer freight allocation process, by containing costs across the enterprise and by executing on initiatives to improve the resiliency of our Truckload earnings. Regarding customer allocations, we remain disciplined throughout the second quarter, focused on serving our customers effectively and doing so profitably. We are now roughly three-quarters through the contractual renewal period, both in the Truckload network and Intermodal. We remain on track to deliver low to mid-single-digit percentage increases in our Truckload Network pricing renewals, while Intermodal pricing has remained stable as expected. Within the network, we continue to believe maintaining rate discipline is the right course of action, given that rates do not adequately reflect our costs and service levels. As a result, our spot exposure remains elevated to historical norms. That said, we believe second quarter results underpin the importance of extracting contract rate increases. Our team has successfully capitalized on pockets of market strength as they have emerged leading to sequential and year-over-year low single-digit improvement in revenue per truck per week. While elevated spot exposure was a pricing mix headwind in the quarter, it positions us for greater operating leverage when the market turns, whether through rising spot rates or increased capacity to secure accretive contract rates. In Dedicated, pricing improved for the third consecutive quarter as we remain disciplined on both renewals and new business wins. In Intermodal, pricing has been in line with our expectations. We are further encouraged by the positive trends we are seeing in customer allocations and win rates, the latter of which are at a level not seen since 2022, and I will elaborate on that shortly. These gains are driven by our focus on areas where we have real differentiation, enabling us to deliver meaningful value to our customers while remaining steadfast in our focus on sustainable operating earnings growth. Next, we remain focused on containing costs across the enterprise, continuing to execute on our established cost reduction target of over $40 million. This includes synergies from recently acquired Cowan Systems with full run-rate benefits anticipated in 2026. The remainder of targeted savings is largely driven by efficiency actions. We believe these efforts will not only help sustain performance to the extent this challenging environment persists, but they also position us to accelerate earnings as conditions improve. Finally, we're improving the earnings resilience of the Truckload segment. Dedicated now represents 70% of our Truckload fleet, a materially higher percentage than several years ago, driven by organic growth and supported by our three acquisitions to date. As noted on our first quarter call, we anticipated some churn in the second and third quarters. While a portion of this churn materialized earlier than expected, it was largely in line with our projections. Importantly, the team has offset the vast majority of this churn with new business wins, keeping fleet count consistent with the first quarter. Looking forward, we will continue to see the impact of this churn in the short term, but we expect gross wins to pick up, supported by the strength of our pipeline. Some of this growth will be offset by continued improvements in tractor productivity, resulting in highly efficient revenue growth. Overall, though, we anticipate sequential growth in our net fleet count for the remainder of the year. Meanwhile, we saw an increase of 70 owner-operators compared to the first quarter, marking the first instance of net growth since the second quarter of 2023. We were also able to net over 200 company drivers in the network without increasing truck count, demonstrating our ability to act opportunistically near the bottom of the cycle and reflecting the impact of our productivity initiatives around drivers for tractor. Truckload earnings improved nearly 60% sequentially and over 30% year-over-year, underscoring the strong operating leverage inherent in the business and the progress we've made in restoring margins. The long-term strategy of shifting the business toward Dedicated and variable cost capacity in the network will help to improve the resilience of our earnings stream through cycles. In the near term, we see ample opportunity to grow network operating earnings without acting to grow truck count or deploy significant capital. Our second area of structural improvements is to lean into our areas of differentiation to drive growth ahead of what the market sends our way. In fact, many of our forward indicators such as Dedicated pipeline, Intermodal win rates, and new customer growth are all matching or exceeding levels that we have seen when the market was significantly stronger. That is due in large part to our multimodal portfolio, which allows us to meet shipper demand and utilize our areas of strength to capture available volume even in a tepid environment. For example, shippers' continued preference for asset-based offerings is supporting network and power-only demand, offsetting the impact of our traditional brokerage volumes. In fact, Power Only set an all-time high for second quarter volumes, growing year-over-year for the sixth consecutive second quarter. In Dedicated, our pipeline is at a point that has historically translated into fleet growth in subsequent quarters. We continue to leverage the strategic differentiators unique across our four Dedicated brands with a focus on specialty equipment offerings, where we see ample runway for growth and retention rates that are 400 basis points higher than standard equipment. In Intermodal, we understand that the changing rail landscape will be of interest to all participants. We have strong rail relationships, and we look forward to the continued engagement and creating additional value for our customers. Historically, we have demonstrated our ability to adapt to changing dynamics in the underlying Intermodal landscape by leaning into the unique elements of our service, namely our asset-based dray, chassis, and container offering. For example, through our relationship with the CPKC, Schneider is the intermodal provider of choice in Mexico, offering service that is one to three days faster than the competitors, a clear advantage that is resonating with shippers. Mexico was a key driver of our second quarter volume growth, which rose 30% year-over-year. Looking forward, we see strong momentum. In Mexico specifically, we are benefiting from being in our second allocation season with the CPKC, with a full year of service performance behind us to sell into. The momentum is broad-based and year-to-date win rates on our most accretive lanes are trending at nearly double last year's levels. Pricing recovery remains a key lever to returning to our long-term targets. However, our ability to create these enterprise growth opportunities is helping our results today, and the benefits of this approach will become more evident in a strong market environment. We will be able to convert in many instances, on a historically large pipeline, and be increasingly selective with the freight that we take on. Third and finally, in addition to our organic growth, our recent acquisitions, including our largest Cowan Systems, contributed to income from operations growth this quarter. We are pleased with their performance, and we continue to evaluate how we best unlock additional value from these strong brands. Starting in October, Cowan Logistics will be integrated into Schneider Logistics to leverage our enterprise tools and eliminate redundancies, an effort we expect will drive improved margins in this segment. Switching now to perspectives on the market, we expect the economic uncertainty that characterized the second quarter to persist into the back half of the year with trade policy continuing to evolve. In addition, the timing and impact of regulatory enforcement such as requirements around English language proficiency and the use of B1 drivers, along with recent legislative developments remain unclear. Even so, we believe the most likely path forward is for the freight environment to continue its movement towards recovery, with capacity continuing to exit the market at a slow but steady drumbeat. As we noted earlier, we are seeing the effects of this progress in driver recruiting, which saw pockets of strength during the quarter, likely reflecting a flight to quality among drivers. Declining capacity in conjunction with some seasonal demand patterns continue to drive the market closer to equilibrium. While customer reactions and strategies have varied, we have seen a growing number express some concern about capacity and, as a result, are funneling more freight our way. Altogether, we believe strong execution on our efforts to drive strong improvement in our financial returns, deliver above-market organic growth, and accretive M&A will drive earnings higher in 2025. Let me now turn it over to Darrell for his insight on the second quarter and our guidance.

Thank you, Mark, and good morning, everyone. I'll review our enterprise and segment financial results for the second quarter and provide insights on our updated full-year 2025 EPS and net CapEx guidance. Summaries of our financial results and guidance can be found on Pages 24 to 30 of our investor presentation available on our Investor Relations section of the website. Starting with the second quarter results. Enterprise revenues, excluding fuel surcharge, were $1.3 billion, up 10% compared to one year ago. Adjusted income from operations was $57 million, a 9% increase year-over-year. Enterprise adjusted operating ratio was roughly in line with the second quarter of 2024. Adjusted diluted earnings per share for the second quarter was $0.21. The disciplined actions we've taken on revenue management, cost containment, and productivity enabled over-year improvement in our enterprise income from operations for the third consecutive quarter, including double-digit improvement in our asset-intensive businesses despite what remains a challenging market. We're gaining traction on our previously announced structural cost savings targets with execution contributing directly to our second quarter performance. However, the industry continued to see inflation in key areas such as accident claims and equipment-related costs, and we remain focused on identifying additional savings opportunities to offset these pressures. From a segment perspective, Truckload revenue, excluding fuel surcharge, was $622 million in the second quarter, up 15% year-over-year. This growth was primarily due to the Cowan acquisition and modestly higher revenue per truck per week, partially offset by lower network volumes and Dedicated churn. Truckload operating income reached $40 million, a 31% increase year-over-year, reflecting the same revenue drivers as well as cost and productivity efforts. Operating ratio was 93.6%, an improvement of 70 basis points compared to last year and approximately 230 basis points better than the first quarter. Network margins improved sequentially by 150 basis points, supported by improved revenue per truck week and ongoing actions to reduce variable input costs. These efforts include reducing unbilled miles, improving tractor-to-driver ratios, and implementing targeted headcount actions. Collectively, these initiatives drove double-digit sequential earnings growth in Truckload despite revenue increasing just 1% quarter-over-quarter. Intermodal revenues, excluding fuel surcharge, were $265 million for the second quarter, up 5% year-over-year, driven entirely by volume growth as yields remained roughly flat. This marks the fifth consecutive quarter of year-over-year volume growth in the segment. Intermodal operating income was $16 million, a 10% increase compared to the same period last year, reflecting solid operating leverage on volume growth, as we continue to see the benefits from our network optimization and dray productivity, including ongoing efforts to fill empty lanes, reduce friction costs at the ramp, and improve freight mix. Operating ratio was 93.9%, an improvement of 30 basis points compared to second quarter 2024. Logistics revenue, excluding fuel surcharge, totaled $340 million in the second quarter, up 7% from the same period one year ago, driven by the Cowan acquisition and continued growth in Power Only volumes. This was partially offset by lower volumes in traditional brokerage as shippers continue to favor asset-based solutions. Logistics income from operations was $8 million, near first quarter levels, but down 29% from last year's high watermark. Operating ratio was 97.7%, an increase of 120 basis points compared to the prior year, primarily due to softness in brokerage volumes, partially offset by productivity initiatives. The second quarter operating ratio was essentially flat sequentially. Turning to capital allocation. We paid $17 million in dividends in the second quarter and $34 million year-to-date. Net CapEx was $150 million compared to $182 million last year due to reduced purchases of transportation equipment. Free cash flow increased approximately $10 million compared to the same period in 2024. We continue to expect net CapEx to be in the range of $325 million to $375 million for the full year. We're monitoring economic and volume expectations as well as the effects of our asset productivity initiatives, and we have the ability to move to the low end of the range in a more subdued environment. We also continue to monitor the impact of tariffs on the cost of equipment, and a range of scenarios is included in our guidance. Our priorities remain organic growth in Dedicated and Intermodal tractors and investing in technology to drive business insights and associate productivity. In the second quarter, we began deploying free cash flow to reduce leverage, including a $50 million repayment of our revolving credit facility. As of June 30, 2025, we had $526 million in total debt and lease obligations and $161 million of cash and cash equivalents. Our net debt leverage was 0.6x at the end of the quarter, an improvement from 0.8x at the end of the first quarter. Moving to our updated full-year 2025 earnings guidance. Our adjusted earnings per share guidance for the full year 2025 is $0.75 to $0.95, which assumes an effective tax rate of 23% to 24%. As we review our revised full-year outlook, we continue to consider a range of outcomes tied to trade policy and broader economic uncertainty, while also incorporating the potential impacts of fiscal and regulatory policy changes since our last update. We continue to believe that a steady march toward a more balanced market, supported by elements of seasonality and capacity attrition, is the most likely path forward and serves as the foundation of our guidance. And trimming the high end of our previous guidance, we're incorporating a lack of resolution of trade policy uncertainty and the retreat in spot rates through July following the positive seasonal movement in May, neither of which are consistent with the highest end of our previous range. Should a stronger market materialize from consumer resilience, early benefits of fiscal stimulus, and greater impacts from regulatory enforcement and capacity, we are well positioned to capitalize on the improvement. We will do this through our network-based offerings, particularly in light of our elevated spot exposure, productivity enhancements, and latent capacity in Intermodal. That said, we continue to operate in an uncertain environment, especially regarding the consumer outlook. At the same time, the industry continues to grapple with select areas of inflation, such as equipment-related costs and accidents in claims, the former of which stands to face inflationary impact from tariffs and the latter remains challenging to predict, but stubborn on net, given the difficult litigation environment. A flatter second half weighed down by elevated inflation would align with the lower end of our guidance. In terms of what this means for the most likely scenario of segments, our Truckload network business, we expect to remain on a trajectory of low to mid-single-digit price renewals through the remainder of the bid season. The degree to which spot rates remain a modest headwind or become a tailwind will depend on how market conditions evolve from here. We expect volume trends to be supported by elements of positive seasonality, though likely below typical seasonal magnitude. Dedicated earnings are expected to remain resilient, with prices in line with prior guidance and a pickup in organic growth. That said, the churn realized this quarter will continue to be evident in the second half of the year. Given our focus on asset efficiency and opportunities we see to add volume without increasing tractor count, net tractor growth may be tempered, but this will be constructive to operating earnings growth. For our Intermodal segment, we continue to expect flat to slightly higher pricing for the remainder of the year. Additionally, we expect the momentum in our allocations and wins to drive above-market growth, though the degree of absolute volume improvement will be market dependent. Our disciplined focus on operating earnings dollar growth through customer allocation is expected to drive solid operating leverage, even without much benefit from price. Our Logistics segment outlook reflects lower volumes in traditional brokerage, given the ongoing shift toward more asset-based solutions, such as Power Only. We see strong potential for our productivity initiatives to help support operating earnings, though we acknowledge they will be more evident as volume levels strengthen. In closing, our confidence in unlocking the benefits of the actions within our control is bolstered by the momentum we've seen in our results in recent quarters. The extended down cycle has been challenging, but the actions we're taking are enhancing our earnings power and positioning the business to benefit from our operating leverage as market conditions improve. With that, we'll open the call for your questions.

Your first question comes from the line of Daniel Imbro from Stephens.

This is Joe Enderlin on behalf of Daniel. Regarding your long-term Truckload target of 12% to 16%, could you break down the current Dedicated versus network run rates? Additionally, how close do you think you can get to that long-term target if we continue experiencing subseasonal movements in spot rates through year-end?

Thanks, Joe. As we've stated, we believe our Dedicated business has shown strong resilience, which is integral to our strategy. We've also noted that it is performing at the lower end of our long-term guidance, where we still have improvement to make, particularly in our network business, which is sensitive to pricing and price recovery. While we don’t provide specific margin details, we have been clear that we are actively looking for opportunities to enhance our operating leverage, which can lead to quicker improvements in our results once market conditions favor pricing. We have been focused on this for several quarters and are committed to maintaining discipline in our approach. However, we will require some recovery in rates within our network business to reach our long-term objectives. This has been our focus for several quarters, and it aligns with our overall execution strategy.

And this is Darrell. So the only thing I would add is that we're encouraged by what we've been seeing over the past several quarters. So Mark did mention that from a network perspective, price is the most important in terms of getting back to our longer-term targets. So for several quarters in a row, we've seen year-over-year pricing improvement. We've also seen pricing improvement in our Dedicated space, which we know is more resilient. From an Intermodal standpoint, volumes continue to increase year-over-year. We've seen five consecutive quarters where trending is in the direction of getting to the lower end of our longer-term targets. And then from a Logistics standpoint, obviously, we're squarely within striking distance of that.

Just as a follow-up, on the Truckload side, there's been debate about what peak will look like this year. I think some of the rails mentioned a pull forward into June, July. Others think as peak is ahead of us. Just how do you think peak is developing, and what's making your guidance from a demand standpoint?

Thanks. This is Jim. So there's really a wide range of behaviors as we look at our customer base, and there's some form factors taking some capacity out of the market as well. So depending on how customers played their hands as they went through allocations, they're in a little different spot. But regarding our Intermodal business, we already have Intermodal peak surcharges in place with most of our large customers, which is about six to eight weeks ahead of where we normally are. In Truckload, we're starting to have those conversations. And we do have a higher percentage of our business, as Mark talked about, in the spot market that will enable us to pivot quickly. But that part of the peak season happens a little bit later here in the year, more in the fourth quarter.

Yes, Joe, this is Mark. It's difficult to qualify what the pull forward is, what happened in the second quarter, what happened in the third quarter. We know there is certainly evidence of certain customers doing that, but we also experienced that in the second quarter, and we still had elements of seasonality play out at certain junctures of the quarter. And we anticipate and expect that despite certain strategies that may have pulled some freight forward that we'll have those same opportunities, if not a little bit more elevated, in the second half of the year.

Your next question comes from the line of Dan Moore from RW Baird.

Christyne, welcome onboard. Excited to work with you guys. A couple of questions. Just to kind of follow up. When I'm looking at the P&L here, there are a couple of line items that really stick out: insurance, obviously, other general expense, salaries and wages. I know you guys are very focused on reducing costs. You have a number of internal initiatives targeting cost reductions. If we were to break down the opportunity set to get returns back to where you want them, back to where investors expect you to be long term, I think of kind of a three-legged stool: rates, costs, and volume; could you contextualize a little bit more around those three opportunity sets as you see them both in the near term and then the long term? And kind of what you feel like you need to get from each one of those, again, rates, costs, and volume, to secure a level of return that's more in line with historical levels?

So this is Darrell. So I'll start. As it relates to our segments, there's varying degrees of each one of those legs of the stool that's required. So from a network perspective, most of the recovery towards the long-term margins will be driven by price. And as I said earlier, we are encouraged by the direction of the pricing improvements in terms of contractual rate renewals that we can control for the fourth quarter in a row now. From a Dedicated standpoint, that business is more resilient, less dependent on price, though price is important. And there is upside as it relates to price, especially on the backhaul. From an Intermodal standpoint, volume clearly is the most important. We've seen even in the past several quarters, our ability to drive earnings growth with minimal growth in terms of price. And then from a Logistics standpoint, again, volume and market conditions, similar to network, are where most of that benefit resides. Now we've been very thoughtful in terms of the actions that we've taken. The actions that we've taken to restore margin have been multipronged, controlling what we can in the freight allocation season as it relates to price. But as you mentioned, there are a lot of cost initiatives we've taken on. From our perspective, those cost initiatives are structural and sustainable, but very thoughtful. So we're making sure that things that we're doing are positioning us for increased leverage on the upside. So from a Truckload perspective, we're very focused on productivity and asset efficiency goals. We talked about reducing unbilled miles; we talked about a lot of the headcount actions that were taken. These actions have come through in our results, as you can see year-over-year and sequentially significant earnings growth despite a softer spot market backdrop. From an Intermodal standpoint, we're also very focused on productivity actions around dray productivity, filling empty lanes. Again, we're seeing those come through in the results. So the actions that we're taking are structural in nature, and that's kind of all the legs of the stool. Mark, I'm not sure if there's anything that you want to add there?

Yes. Just, Dan, as you look at that income statement, just a reminder, we have Cowan in our results this year, which we didn't have last year. So just at the absolute category level, you'll see that flowing through. But we've really been focused and we've done a reasonable job of keeping our variable contribution and our direct contribution dollars consistent and improving, despite a market that isn't yet giving us the lift that we believe is in front of us on both volume and price. And so we're managing that. It's a variable contribution line, which I think is fairly effective. And that's why I think we can get some operating leverage once we start to see some improvement in both price and volume. Our incremental margins, based upon the work we've done here, position us favorably to do that. Now proof is in the pudding, and we're focused on it, and we have to demonstrate that to you and others. But that's our complete focus.

Yes, this is Jim. I want to emphasize that we don't view cost and volume as entirely separate aspects. Many actions we've implemented have prepared us for, and are contributing to, improvements in variable contribution. This sets us up well for when we experience an increase in volume, as we expect to see further cost improvements at that time.

Your next question comes from the line of Ravi Shanker from Morgan Stanley.

A couple of questions here. How would you characterize the competitive environment in each of your segments: Truckload, Intermodal, Dedicated, Logistics? Is there even an unthinkable scenario where the rate of change on deal capacity is actually better than some of the other segments?

I just wanted to ensure we captured what you're saying about the rate of change.

Yes, Ravi, thanks for the question. This is Jim. I think you might be right. We are observing some midsized competitors leaving the market. Additionally, with the enforcement of English language proficiency regulations, we appreciate that the existing rules are now being applied. While we are witnessing a gradual decrease, there is potential for a significant amount of capacity to exit the market. Another important point is that as we engage with our underlying carriers in our Logistics business, we are noticing carriers self-regulating by removing drivers who don’t speak English and by implementing language proficiency tests for new driver candidates, similar to practices at Schneider. When you consider these factors together, we are discussing a substantial amount of capacity. Moreover, we still see an opportunity regarding B1 drivers. Any changes in that area could lead to a more significant shift rather than a slow decline.

So, Ravi, regarding the competitive aspect, we've observed some customer turnover in our Dedicated segment. After analyzing the situation, we realize that our standard equipment business is where the impact is felt. In markets experiencing significant downturns, those areas are more susceptible to alternative solutions that customers might explore to reduce costs, possibly at the expense of service quality. The competitive environment isn't exclusively focused on dedicated services; rather, it indicates that some customers are seeking different options. This shift is where we've seen our customer turnover. We believe this trend is mostly behind us, and while our new business acquisitions and implementations may show some short-term impact, we also face challenges in transitioning equipment from old to new, which affects our revenue per truck per week metric. I anticipate that as we move past the second quarter and deal with some residual effects in the third quarter, we will gain momentum in our Dedicated performance as the year progresses.

Your next question comes from the line of Brian Ossenbeck from JPMorgan.

I want to ask, I guess Mark and Jimmy, having been around for a few freight cycles. Just your view on your role on transcon. I'm catching that pretty quick. I think the big question with the transcon on the board now, what are your initial take in terms of what that means from a growth and a partnership perspective? Long-term intermodal growth, I would assume, has to be a selling point here, so that would be on the plus side. But maybe for the long term, are there any things you're a little more cautious or taking a harder look at? Obviously, the service disruption recently that affected your network, is that on your mind? So some perspective as we all start to digest what might be the endgame here.

Yes, Brian. I think I'm tracking with your question there. And obviously, with all the news and the UP being one of our key underlying partners, we feel really good about where we stand with them. But as you know, there's a process to everything. This has a very detailed process that we believe is likely to evolve as it moves through all the assessments to take place. As we think about our strategy and the Intermodal network, details really matter, right? It's detail-dependent as to how we think about these things. So as we think about our Intermodal strategy, we're very cognizant that everything we do has to be in the best interest of Schneider, has to be in the best interest of our shareholders and our customers. From our view, to achieve that, we're always assessing new opportunities, new ways of doing business that bring value to the customer. We've demonstrated over the long haul that we can adapt and we can bring new services. So we're so new at just a week into this. We don't have much to share, but this is a place we're comfortable. We have a very solid team. Jim's background and experience here, throughout his career is going to be paramount as we look at the playing field and the opportunities and position this Intermodal product to thrive in the future.

Understood. Experience will definitely be valuable. Maybe, Jim, just a quick follow-up. When you talk about peak season surcharges a little bit earlier than normal, I guess, was the comment. I don't know what normal is anymore, but if you could provide a little more context to that. Is that just earlier than normal to cover uncertainty? Or is there something more demand-driven that we should read into there?

Yes. Thanks, Brian. Yes, it's driven by demand when customers are starting to surge up. We're seeing some of that surge now, and our intent there is really to manage our operations, so that we're putting costs where incremental costs are being incurred and to make sure that one or a small number of customers don't completely disrupt our network. So it's really a matter to ensure that we're maintaining efficiency in our business. We are starting to see that right now. That's why we want to make sure we have those surcharges in place.

Your next question comes from the line of Tom Wadewitz from UBS.

I have two quick questions about numbers and then a more strategic one. Darrell, what was the impact of the gain on sale in Truckload in the second quarter? Also, it seems like the loss on the other operating line was a bit higher. How can we forecast that for the third and fourth quarters? After that, I have more strategic questions for Mark and Jim.

Yes. This is Darrell. As a reminder, in the first quarter, we did mention that we saw some improvement from proceeds on the sale of equipment. So in the first half of the year, there's probably $3 million or so year-over-year improvement. For the second half of the year, we also expect some level of improvement, consistent with what we previously forecasted. No change in that guidance, but year-over-year...

Some modest impact on results.

As it relates to Other, this segment can be uneven in certain quarters, and we certainly saw that. As a reminder, what's in Other segment? Small carrier leasing business, which we've mentioned before. Our captive insurance company results are also in there, as well as select unallocated corporate expenses. As it relates to looking forward, we'd expect that for the third and fourth quarters, the results will be consistent with the second quarter. So for your modeling, you can assume pretty much the same as 2Q.

Jim and Mark, I have a question about the Intermodal business, particularly in relation to the potential rail consolidation. It seems that you have been very strategic in developing your services and partnerships in Intermodal to avoid simply competing on price, instead focusing on differentiation. For instance, the situation in Mexico illustrates this well. How much of your business do you think is oriented towards East-West traffic and would operate on both railroads? If rail consolidation occurs, do you think this could put you at a disadvantage since you aren't currently using both sides? Additionally, how much of your volume consists of local traffic or differentiated services? It would be helpful if you could frame the discussion around the volume that involves two railroads.

Yes, this is Jim. I'll take a shot at that because the details truly matter as we navigate this. You've noticed some of the significant changes we've implemented, particularly with Mexico and the benefits we've gained from that. Additionally, there are many minor adjustments happening within the network. It's important to acknowledge the decisions we choose not to pursue as well. Our approach to evaluating new rail services is very thoughtful and has yielded positive results for Schneider and our customers, both commercially and operationally. As we move forward, we plan to apply that same strategy to our considerations.

Which is also the way we don't really break down East versus West and some of those different components. But thanks for the questions, Tom.

Your next question comes from the line of Chris Wetherbee from Wells Fargo.

I wanted to discuss the guidance and clarify a few points. During the second quarter, there was an impression that the downside of the guidance was based on a notably negative scenario that did not materialize, although we still need to consider that as we look at the latter half of the year. Could you provide some insight into what has changed or evolved? Where do the risks lie? Additionally, regarding the earnings shape for the second half, is the fourth quarter still expected to be stronger than the third quarter? Or is there a possibility that the peak has been pulled forward, making the third quarter stronger and potentially placing more risk on the fourth quarter? Your thoughts on this would be appreciated.

Yes, sure. This is Darrell. I'll start. As you mentioned, the worst-case that was kind of being floated around did not materialize. Just to clarify that the low end of our guidance was not tied to the worst-case. There is still some risk regarding cost in select areas that I mentioned before and also just the overhang of trade policy uncertainty; we're certainly not immune to that. From a high-end perspective, in my prepared remarks, I did mention that we trimmed the high end of the guidance by $0.05. That is tied to some of the trade policy overhang that continues to impact the general economy. Also, from a spot rate market perspective, we did see some seasonality throughout the quarter. But in order to have gotten to the higher end of our previous range of $1, that inflection would have had to be higher and more sustained. Varying degrees of conditions could happen, and that’s built into the scenarios in coming up with the high and the low end. Many things factor into the level of seasonality and the persistence, the degree of spot price movement, the implementation of new business wins, both in Dedicated and Intermodal, the timing of those new wins, as well as inflationary impacts on cost. Depending on how some of those market forces evolve, you’ll get to varying degrees of the outcomes within the range. Those are some of the things we thought about. We also thought about regulatory and fiscal policy. Those things are obviously evolving; the Big Beautiful Bill. Some things Jim talked about in terms of regulatory enforcement could have a direct impact that’s on a net positive, but the timing of that is also uncertain and yet to be played out.

Yes, Chris. I think as it relates to the second quarter, I think it played out fairly close to what our expectations were. Just to reiterate, at the time of this last call, we were right in the heart of this anxiety around tariffs and all the negative things. Our guidance never took the worst-case scenario there. To Darrell's point, it was reasonably positioned in terms of the downside and the upside, though wider than is typical for us just because of that uncertainty. As it relates to the third versus the fourth quarter, there could be different impacts by our segments. The question is, what is the import volume that will materialize in the fourth quarter? Intermodal might be a little bit more uncertain at this point, and the truck could be a bit stronger based upon our being in the last mile versus the first mile that our intermodal positions are in. We try to be thoughtful in our best assessments of that, not only by quarter but also by segment. That’s how we would position the range.

Yes. This is Darrell again. Despite the ongoing uncertainty, we have shown our capability to increase earnings during these challenging times. We have achieved this consistently over several quarters due to the strategic measures we’ve implemented regarding the aspects we can control.

Okay. I appreciate the color around that. And maybe just as a quick follow-up. The Dedicated pipeline, so can you just expand a little bit on what you're seeing there and maybe how we think about that and what hits in 3Q, maybe what hits in 4Q?

Sure, I will provide some additional insights here. As mentioned in our first quarter call, we have been adding resources to capitalize on what we believe is a growing pipeline, and we feel very confident about it. As I stated earlier, our pipeline is currently positioned in a way that, based on historical assessments, suggests we are set for future growth. The additional resources are primarily focused on specialty areas. The targets we have established, in addition to our legacy operations and the three brands we've acquired, position us well for the future. We often describe our pipeline as robust, and in any historical context, we feel very optimistic about it. While we still need to close deals and implement necessary actions, we are encouraged by our pipeline's current status and the several large opportunities in the late stages that we expect to hear about soon.

Yes, we're late-stage and at the same time, very well prepared to implement efficiently. Some of those will be able to add in without actually adding trucks as well. We feel really good about our position.

Your next question comes from the line of Jonathan Chappell from Evercore.

Mark, on the Logistics front, it sounds like Power Only is doing pretty well, while traditional brokerage is struggling as to be expected. I felt that the long-term Logistics guidance margin range increase some years back was driven by the thought that Power Only can retain stronger margins. Can you just help us understand the margin continues to be around this low 2%, it seems like Power Only is moving up the chain, lower margin business is moving down? What kind of drives that closer to the range? Is it just truly a cycle, or is Power Only maybe not as through-cycle resilient as we may have thought?

Yes, Jonathan, thank you for the question. Yes, we do have a bit of a mix going on there. Our most under-stressed part of our traditional brokerage centers around the Truckload mode, and LTL and some of the other modes are taking a greater percentage of our overall mix, which also comes with a different contribution per order play and configuration. Really, our focus is getting as efficient as we can with the new tools, some AI work, and we feel really good at how the brokerage team is adopting and getting in front of some emerging technologies that I think can drive real value not only there but in other elements and starting to play in other elements of our business across the portfolio. Clearly, we're really positive about our performance on Power Only, and that not only counts top line but bottom line performance as well. We do expect and do require higher returns in that because we're putting a trailing asset and capital against that Power Only. It's achieving not only the volume expectations and the customer value through cycles, whether it's up or down, it's also performing financially. Where we're leaning into is our productivity initiatives and growth in our traditional brokerage. While we’re still profitable, and some others aren't, we’re not satisfied where we are there, and we think we have improvement opportunities.

This is Jim. I'll just add on that I do feel like we've done a good job in terms of the capability that we're building into the business. That's why we're integrating the Cowan resources onto this platform. The other thing I'd share is that we see customers prefer asset-based solutions right now. When that returns as there's market tightness, we're really going to be able to leverage our investments.

I have a follow-up regarding Tom's question about the other loss of $9.1 million in the second quarter. I believe you were initially expecting about $4 million, which means it came in $5 million higher. You mentioned that for the third and fourth quarters, you anticipate similar levels. If we consider that, it suggests we might be looking at approximately $15 million higher overall, yet you have maintained your guidance range, with the top end coming down. Were you anticipating that level of other loss, or is it possible that the core business is performing a bit better at this moment, affecting your original expectations?

Yes. So the $3 million to $4 million that you said officially or unofficially, that was not embedded within our guidance. What we've seen was within the range of what we expected. So going forward, we expect a similar run rate, just given the position of what's in there.

Yes, we don’t provide long-term guidance, but for this year, that's what we are communicating. We are focusing on those businesses, and our aim is to return to a sustainable level. It's unlikely to significantly impact the remaining two quarters of the year.

Your next question comes from the line of Ari Rosa from Citigroup.

I hear you on the points about capacity tightening, and I think that's encouraging. But I'm curious how you interpret some of the weakness that we've seen in July related to spot rates and kind of that post-July period. I understand, obviously, some of that is seasonality. But talk to me about how you see that capacity tightening playing out? Because it seems like the overall tone from some of your peers has been maybe a little bit more incrementally cautious, I would say, on the demand outlook and the pace of tightening. So I'm just curious to see how you see back half playing out into 2026.

Yes. Thank you, Ari. I think what we were laying out is the case for tightening of capacity. We've been careful not to predict because I don't think any of us have done a good job of predicting when there’s an inflection there. But there are elements that are different and new that we surveyed from a broad set of carriers. We’re not just focusing on border carriers; we’re doing that across certain pockets in the upper Midwest, the Southeast, where there are other opportunities for English language proficiency to have an impact. As we’ve done our survey work there, there’s a cohort that’s doing nothing, and there’s a cohort that’s taking more aggressive action. We believe, particularly, we’ve seen a little bit of the B1 and others; the threat of enforcement has a deterrent effect or changes to how people operate. As Jim mentioned, we're seeing small to midsized carriers implement testing on the front end, and we’re seeing people take action to mitigate their risk because this remedy of an out of service means that you're out recovering cargo; you're out recovering equipment. You’re not just fixing a tire or fixing a brake. There are more implications to having an out-of-service call here. We’re not trying to predict, we're just setting the case of what could occur. From a demand standpoint, I don’t know if we’re being overly optimistic; we’re talking about, in the individual segments, what we believe is the most likely scenario and the evidence we have in front of us. I wouldn’t characterize us as being overly optimistic there.

Well, I would say we're cautiously optimistic. I would like to see conditions improve in the second half. Changing topics a bit, I wanted to revisit the transcon rail merger proposal. It seems you're generally optimistic about the potential to increase intermodal volume if it happens. I understand there are many complex relationships involved, given your ties with CP and Union Pacific. I'm interested in how you see the net opportunity for intermodal volume growth if it goes ahead. Specifically, how would you approach seeking any concessions or commitments, and what role do you envision for yourself in this moving forward?

Great. Thank you, Ari. Let me again take an opportunity to clarify. We have not taken a position of optimism, nor have we taken a position; we value relationships across all three partners. What we've said is details matter and details are dependent for us to have any position on anything. At this juncture, a week in, we’re not in a position to make comments; we're not in a position to take a pro or negative side. We like ultimately solutions that improve transit and improve the customer experience; those allow us to compete. We’re pro-competition, and we’re pro-customer. To the degree that any of this helps us achieve those, then that’s where we’ll come down, but we don’t have enough information at this time to take an official position.

Your final question comes from the line of Ken Hoexter from Bank of America.

Christyne, hopefully, one day, we can get past Robbie. We will need to collaborate with you on that. Can you discuss the expectations for margins from the second to the third quarter at Truckload? Should we anticipate the usual 100 basis points decline? Is there anything that could influence this, considering the fluctuations in volumes due to tariffs and similar factors? Additionally, Dedicated revenue per truck has slowed; it remained unchanged year-over-year. I would appreciate your insights on why we're seeing this in pricing. Also, I'd like to hear your thoughts on the fleet size of the network. So, I have three numerical questions.

Stacking them up on overtime. Yes, we don't generally give guidance, obviously, directly on a quarterly basis. I think you aptly assessed between the second and third quarter, there are years that it's better, and there are years that it's slightly worse. In our experience, that’s about half and half depending on the circumstances of the year. As we came into the July 4 holiday, we've seen some of the seasonality that we would typically see, and to your comment, particularly in the spot pricing arena that did not sustain itself. But we would also say that July hasn't necessarily been disappointing from how it's played out in the back half of the month, both with some of our wins and some of the things we're seeing across both Truck and Intermodal. However, it's obviously way too early to discuss what the full quarter will look like.

Yes. And this is Jim. I'll take your question on network capacity. We did see some growth of owner-operators, which is a little bit counter to what we’re seeing in the overall market, and that’s really driven by we have some traction with our freight power for owner-operator applications, which we implemented in Q1. That’s giving our owner-operators just more visibility, including to our owned brokerage freight that they now have the opportunity to weave into our network business. We’re being a little bit opportunistic here. We’re kind of in the part of the cycle where we’re able to do that very economically, and it gives us leverage against all those other cost initiatives we talked about. I believe as you have company drivers, when the market does inflect upward, it's an opportunity then to also grow our owner-operators as well, and they’ll have more opportunities there.

We’re looking to drive efficiency first, which centers around what's the ratio of drivers to trucks, and that should manifest itself in the revenue per truck per week, as much as it does in actual truck count.

And that concludes our question-and-answer period and also concludes today's conference call. We thank you for your participation, and you may now disconnect.