Earnings Call Transcript
Schneider National, Inc. (SNDR)
Earnings Call Transcript - SNDR Q1 2025
Operator, Operator
Thank you for standing by, and welcome to the Schneider first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I'd now like to turn the call over to Steve Bindas, Director of Investor Relations. You may begin.
Steve Bindas, Director of Investor Relations
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 & 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, forecasts, 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, 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.
Mark Rourke, CEO
Thank you, Steve and hello, everyone. Thank you for joining the Schneider call today. For our prepared remarks, I will start by providing an update on our commitment to drive ongoing structural changes in our business to restore margins, improve freight cycle resiliency, enable growth and enhance financial returns for our shareholders. Within that context, I will share my perspective on the freight market and positioning and performance across our multi-modal platform of Truckload, Intermodal and Logistics. Darrell will then provide a financial overview of the first quarter results and share our updated 2025 earnings per share and net capital expenditures guidance. Then we'll take your questions. Let me start by outlining our actions to structurally improve the business. We are following a framework based on four equally important tenets. The first tenet is to optimize capital allocation across our strategic growth drivers of dedicated Truck, Intermodal and brokerage and Logistics. In December last year, we acquired Cowan Systems, a dedicated services carrier. The first quarter of 2025 was our first full quarter with Cowan included in our results. Their contributions were immediately accretive and we expect to achieve between $20 million and $30 million of synergies at maturity. Dedicated averaged over 8,500 trucks in service in the quarter, up 27% from over a year ago. Dedicated represents 70% of Truckload segment trucks and 71% of revenue. Truckload earnings improved nearly 70% year-over-year and 27% sequentially from the fourth quarter of 2024. Looking forward, we have line of sight in the second and third quarters to elevated churn because of select dedicated operations moving to network-based solutions in the current environment and a more competitive landscape. Overall, our dedicated retention rate remains in the low-90s. We will also be taking out trucks as a result of our asset efficiency actions to lower our truck to driver ratio even further. Our dedicated new business pipeline is trending to more than replace the churn but net truck growth is projected to be lower than originally expected. The second tenet is to manage the customer freight allocation process with purpose and discipline. By carefully selecting and managing our freight pool, we can ensure we are serving our customers effectively and profitably. As the quarter concluded, we are about one-third through the contractual renewal period in both truck network and intermodal. The market remains highly competitive with truck network achieving low to mid-single-digit percentage increases. And to maintain price discipline we are foregoing volume with some shippers. We are seeing an increase in the number of shipper mini-allocation events to address carrier turnbacks or performance issues arising from the initial event outcomes, which gives us confidence in our strategy. The improvement in revenue per truck per week in both truck network and dedicated was 2%, which is more than 100% price driven as asset productivity was impacted by first quarter weather events. Turning to intermodal contract renewals. We are pleased with the current trend of increased volume allocations, primarily in geographies where we have positive differentiation that fits well within our network. Overall, intermodal rates remained largely flat year-over-year. The third tenet is delivering an effortless experience by making it easy for customers to work with us by providing optionality and value across our multimodal platform. We have gained market share with new customer awards by combining elements of our portfolio to sole-source facilities and/or geographies. This is particularly effective for industry-leading value retail customers as well as those in the food and beverage industry. These sole source awards dramatically lower operational complexity for shippers, while bolstering our network operations through increased freight density. Looking forward, there is a bull case based upon generally resilient macroeconomic numbers to date with stable demand and capacity continuing to exit the market. We do note that forward sentiment for customer freight demand and consumer health is less clear, particularly as tariff-driven uncertainty builds. As a result, the continued rising momentum on price recovery is also less certain. The last tenet is containing costs across all expense categories. Cost containment is critical to our overall business strategy, as it enables us to reinvest in growth initiatives and enhance our competitive position and margins. We have established targets of more than $40 million of additional cost reductions across the enterprise. The cost savings mandate encompasses ongoing investments in AI-based digital assistant technologies and the more transformative digital employee models. These advancements enable us to automate routine tasks, freeing up associates to focus on more meaningful work higher in the value chain. Beyond identified cost savings opportunities, we are evaluating the potentially meaningful impacts of tariffs on the original equipment costing, repair parts availability and cost as well as overall equipment maintenance expense. Switching now to perspectives on the freight market and on positioning and performance of our multimodal platform. Our first quarter results were in line with our expectations, despite weather impacts and growing economic uncertainty. Each of our primary segments grew revenue, earnings and margins year-over-year. In Truckload, both network and dedicated delivered improved earnings year-over-year and sequentially, driven by cost containment actions and improved freight pricing from second half of 2024 through first quarter of 2025 contractual renewals. We aim to transition to a more variable cost model and network by expanding owner-operator relationships to supplement our company driver fleet. This shift is taking longer than expected as operating and financial conditions are prompting more owner operators to exit the industry. Turning to intermodal. We nearly doubled earnings compared to a year ago on 4% order growth, driven by increasing shipping activity in the west of Mexico. We have visibility to a portion of our customers taking freight pull-ahead actions in the face of tariff uncertainty. Our year-to-date success in new business awards is expected to reduce the overall future volume variability due to trade policy. Logistics improved earnings 50% year-over-year, as our freight power for shipper and carrier digital technology allows us to remain nimble to changing market dynamics across both less than truckload and truckload modes. Overall, brokerage freight volumes are challenged, as shippers continue to favor asset-based solutions. Power Only grew volumes mid-single digits compared to a year ago as shippers and carriers value the simplicity and access of matching qualified small carriers to large trailer pool shippers. In summary, we are focused on the areas we control while maximizing our strategic differentiators. Within our locus of control is containing costs, maintaining price discipline and outperforming our competition commercially. Our strategic differentiators are unique across our four dedicated brands of Schneider, Midwest Logistics Systems, M&M Transport and now the lightweight equipment solution powerhouse, Cowan Systems. Our asset-based company dray chassis and container intermodal offering combined with our strong rail relationships with the CSX, Union Pacific and CPKC creates reliable and valued solutions for intermodal shippers. Plus, our consistently profitable logistics offering enabled by our freight power platform and market-leading power only capability remains a meaningful asset-light strategic contributor to the enterprise. So let me now turn over to Darrell for his insights on the first quarter and our 2025 guidance.
Darrell Campbell, CFO
Thank you, Mark and good morning everyone. I'll review our enterprise and segment financial results for the first 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 the Investor Relations section of our website. Starting with the first quarter results. Enterprise revenues excluding fuel surcharge were $1.26 billion, up 8% compared to a year ago. Adjusted income from operations was $44 million, a 47% increase year over year. Enterprise adjusted operating ratio improved 90 basis points compared to the first quarter of 2024. Adjusted diluted earnings per share for the first quarter was $0.16 compared to $0.11 last year. Through a combination of our disciplined actions that we've taken on revenue management cost containment and productivity, we delivered year over year improvement in our enterprise results and across all our reportable segments. From a segment perspective, Truckload revenues excluding fuel surcharge were $614 million in the first quarter, 14% above the same period last year. This increase was primarily due to the acquisition of Cowan and higher dedicated and network revenue per truck per week, partially offset by lower network volumes. Truckload operating income was $25 million, up nearly 70% year over year due to the same factors that shape revenues. Operating ratio was 95.9%, an improvement of 130 basis points compared to first quarter of 2024. Truckload network margins improved year by year for the first time since the first quarter of 2022, due to continued improvements in price and ongoing actions to reduce variable input costs. Intermodal revenues excluding fuel surcharge were $260 million for the first quarter, 5% above the first quarter of 2024 due to volume growth and increased revenue per order. Intermodal has grown volumes year over year for four consecutive quarters. Intermodal operating income was $14 million, an increase of 97% compared to the same period last year, due to the same factors driving revenues in addition to enhanced operating leverage from network optimization, great productivity and internal cost reduction actions. Operating ratio was 94.7%, an improvement of 250 basis points compared to first quarter of 2024. Logistics revenues, excluding fuel surcharge were $332 million in the first quarter, 2% above the same period a year ago, due to our acquisition of Cowan, partially offset by lower revenue per order. Logistics' trend of profitability continued with operating income of $8 million or 50% compared to first quarter 2024. This was primarily due to effective net revenue management and the continued strength of our Power Only offering. Operating ratio was 97.6%, an improvement of 70 basis points compared to first quarter 2024. As of March 31, 2025, we had $577 million in total debt and finance lease obligations outstanding and cash and cash equivalents of $106 million. During the quarter, we used the remaining availability under a delayed draw term loan facility executed in November 2024 to repay current debt maturities. Our net debt leverage was 0.8 times at the end of the quarter. Turning to capital allocation. In the first quarter, we paid $17 million in dividends and opportunistically repurchased $8.3 million of shares. We have $46 million remaining on our $150 million share repurchase program that was established in February 2023. Net CapEx was $97 million compared to $112 million last year, due to reduced purchases of transportation equipment and other property and equipment. Free cash flow increased approximately $9 million compared to the same period in 2024. We continue to manage our fleet age within our targeted ranges and invest in technology to drive business insights and associate productivity. Moving to our updated full year 2025 guidance, our adjusted earnings per share guidance for the full year 2025 is $0.75 to $1, which assumes an effective tax rate of 23% to 24%. We also updated our net CapEx to be in the range of $325 million to $375 million for the full year from $400 million to $450 million previously. In constructing our revised outlook for the full year, we considered the current trade policy and increased economic uncertainty and the resulting moderating impact on both price and volume. In addition, we considered our continuous efforts across all our segments to restore margins through contract renewal improvements, asset efficiency efforts, and ongoing cost containment measures offset by volume and price trends by segment as the quarter progressed. The combination of these factors has tempered our expectations regarding the level of earnings improvement for the remainder of the year. Although lower, we expect continued year-on-year improvement in results throughout 2025. For our Truckload network business, we continue to deliver year-on-year pricing improvements as spot price declined through the first quarter. Due to the current environment, we now expect more moderate pricing improvements for the remainder of the year, and lower volumes and capacity growth compared to our expectations in our previous guidance. We anticipate continued resilience of our dedicated business, price is in line with our previous guidance and while we expect positive net capacity additions in 2025, we have lowered our expectations for fleet growth due to the churn that Mark mentioned. Also as a reminder, our focus on asset efficiency will remove tractors and be reflected in our 2025 net tractor growth. For Intermodal segments, we expect continued volume growth and moderate pricing improvement for the remainder of the year. Our guidance also factors in recent new business wins, which are expected to offset the near-term impact of trade policy on freight volume. Our Logistics segment outlook incorporates continued year-on-year improvements in net revenue per order. And similar to our Truckload network business, we expect the improvements to be less pronounced for the remainder of the year as spot pricing continues to moderate. We also expect lower volumes and more muted seasonality. Turning to net CapEx, our guidance assumes continued allocation of capital to organic growth in dedicated and Intermodal tractors and also reflects alignment of growth CapEx with current business and economic expectations. In addition to the volume effect on our CapEx expectations, the cost of equipment is also impacted by the current trade policy. Currently known cost increases are included within our CapEx guidance with a partial offset resulting from improved equipment sale proceeds. While not contemplated in our guidance, the strength of our balance sheet also positions us to act opportunistically as we continue to explore inorganic growth opportunities. In closing, we will continue to execute against our plan to structurally position our business to demonstrate resiliency and growth in all cycles through commercial, cost, asset efficiency and capital allocation actions. These efforts have allowed us to deliver through uncertainty and to be in a position to capitalize and enhance operating leverage. With that, we'll open the call for your questions.
Operator, Operator
Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Brian Ossenbeck from JPMorgan. Your line is open.
Brian Ossenbeck, Analyst
Good morning. Thanks for taking the question. So I guess, maybe if you guys could give us a little bit of context considering your unique position in the market, what are you seeing when it comes to the expected deceleration of imports? Obviously you don't move international boxes but that stuff is all connected. So maybe what are you seeing and hearing from customers and what is contemplated in the updated guides? Thanks.
Jim Filter, Executive Vice President and Group President of Transportation & Logistics
Yeah, Brian this is Jim. Thanks for the question this morning. So it's really important that we're staying close to our customers as we go through this and that we're remaining nimble and offering broad solutions. As we look at across our business segments we look at Truckload and Logistics sectors, it's primarily North America oriented so difficult to quantify the impact there. When we look at Intermodal, approximately 15% to 25% of our businesses are tied to imports. And that's from a variety of different origins, so it's not all related to China. And we do expect that there is going to be some drop-off in volume in the Intermodal business, but we expect that our new business wins in Intermodal that Mark spoke of will largely offset what we're anticipating from imports declining. But we'd also say that we do believe that the conditions are ripe for a bull market. It appears that imports may be dropping faster than consumer demand, and a slowing in shipping could be the catalyst that removes additional capacity from the market. If there were new trade agreements, there could be an abrupt restart to imports with less capacity than there is today. And so that's not our forecast, but that could be the bullish case that Mark spoke of. And so we're going to stay focused on two priorities: staying close to our customers, being nimble, and offering those broad solutions. But the second is focusing on what we control within each one of our sectors, the four tenets that Mark spoke of.
Darrell Campbell, CFO
Yeah. This is Darrell. I guess I'll just add some perspective on the outlook, specifically as it relates to intermodal. So we did look at various scenarios similar to what Jim was referring to regarding the duration of the trade policy impacts and also the magnitude of what happens during that uncertainty and also when the uncertainty clears. From an intermodal perspective, specifically, there was some impact of the tariff policy on the volumes that we saw, but we have continued to see strength and improvement in volume year-over-year for the past four quarters now. So even though there is some impact of tariffs, and we've contemplated that within our guidance, the new business wins that we've had are expected to offset any potential impact in the near term. So that's built into our guidance. As a matter of pricing, we think pricing is going to moderate some, at least in the near term, and that's factored into our guidance, even though we expect year-over-year improvement across the board.
Brian Ossenbeck, Analyst
All right. Thanks. Thanks for that. Maybe just as a follow-up on the new business wins within Intermodal. Jim or Mark, can you kind of characterize where those are, what type of volume when they ramp up? Is this something with the cross-border with CPKC that seems to be taking off pretty well? And then I guess a similar question on the dedicated where maybe it's a little bit more competitive, where is some of that pressure coming from? And sort of what are you doing to offset that to the extent you can?
Mark Rourke, CEO
Brian, I think that's four questions maybe, and I would get my mind. First, we think we had a very good first quarter from our view on our commercial success in the market relative to what we call our differentiation in intermodal where our strengths really are and fit our network really well. Now of course, awards do not mean freight just yet. The customer has to have the freight and the market has to deliver the volume from those awards. And so that's still yet in front of us. So we don't have many of those implemented yet, but we would expect to start implementing here in the second quarter in a more meaningful way. And it's really across the board, Brian. Certainly, Mexico has been a strength for us. And Jim will give maybe some just additional color relative to what's covered with the tariffs and what's not. So how durable could that volume be? But we're pleased across the board. Again, that gives us some confidence that we can withstand perhaps some of the trade lines, but it will all come down to magnitude, duration and timing, which is uncertain for us going forward, but we've tried to give our best assessment and best insight into the market based upon what we see today. And that would be the intermodal. And so Jim, maybe just some comment relative to tariff in Mexico and some of the strength we're seeing there.
Jim Filter, Executive Vice President and Group President of Transportation & Logistics
We have observed significant growth in intermodal, particularly in Mexico, where we are very pleased with our success. Almost all of our cross-border shipments comply with USMCA, which currently exempts them from tariffs, giving us a strong advantage in our offerings. We are uniquely positioned as the only railroad that connects both the Midwest and Southeast US, supported by our strong operations in Mexico, which has differentiated us in the market. Additionally, we are focused on providing comprehensive solutions to our customers. Mark mentioned this at the beginning, as we integrate our intermodal services with our truckload, dedicated, and logistics offerings to meet the diverse needs of our customers. As for the more competitive landscape in dedicated services, we have seen it mostly in standard equipment, which prompts customers to adopt a more short-term approach. Therefore, we are concentrating on areas where we can stand out, such as private fleet conversions, specialty equipment, and refrigeration, all of which have strong demand pipelines.
Mark Rourke, CEO
Yeah, 53 standard trailer. Most competitive.
Brian Ossenbeck, Analyst
Great. Thanks Mark and Jim. I appreciate it.
Operator, Operator
Your next question comes from the line of Chris Wetherbee from Wells Fargo. Your line is open.
Chris Wetherbee, Analyst
Good morning. Darrell, I heard you mention growth in your guidance discussion throughout the year. Do you believe you can achieve year-over-year EPS growth for each quarter?
Darrell Campbell, CFO
So, we typically don't give guidance by quarter, so the comments that I made were in the context of the remainder of the year. So, as it relates to the remainder of the year we expect to have year-over-year growth in price and in margin, but we don't get to that level in terms of giving quarterly guidance.
Chris Wetherbee, Analyst
Okay, that's helpful. I just want to clarify what you mentioned. When considering the dedicated churn, it's clear that some areas of the market are more competitive, which may impact fleet growth. Can you share your expectations for net fleet growth over the next several quarters, factoring in both churn and the new business opportunities you are pursuing?
Mark Rourke, CEO
Yes, Chris, we have made some adjustments from our initial full year guidance. Firstly, we have insights into some of the churn. Our pipeline remains strong, and we anticipate fully offsetting the churn. With Cowan now having completed its first full quarter and the actions we've implemented within our dedicated portfolio, we expect to enhance efficiency in our account structures. This will involve more slip seating, increased tractor sharing, and other measures aimed at improving efficiency. The net tractor outcome will reflect these efficiencies rather than any negative commercial impact. We believe that these factors will contribute to growth, although it may not be as significant as our original projections regarding total tractor count in dedicated service.
Chris Wetherbee, Analyst
Okay. Thanks very much. Appreciate it.
Operator, Operator
Your next question comes from the line of Jason Seidl from TD Cowen. Your line is open.
Jason Seidl, Analyst
Thanks operator. Morning gentlemen. Can you talk a little bit on the dedicated side about how we should look at margins? I mean obviously there's some churn going on. You're bringing on some new business. Is this new business that you're bringing on at better margins than the churn?
Mark Rourke, CEO
Yes, we have a profile for returns in dedicated and so we're not necessarily compromising on our expected margin returns there. As we've talked in Truckload more than 100% of our earnings are coming out of dedicated in the Truckload segment in the short-term as we're working to restore profitability in the network side, Jason. So, very comparable. We have very consistent methodology that we use relative to the solutions that we bring on behalf of our customers in dedicated. So, we wouldn't consider them necessarily margin eroding or materially margin enhancing it's consistent with our profile.
Jason Seidl, Analyst
Okay, that makes sense. And as a follow-up on the pricing side, I mean obviously, the expectation is to see pricing moderate. You said before you're getting sort of low to mid-single on the Truckload side. If that moderates, I'm assuming we're looking at sort of flat to low single-digits somewhere? And I guess my next question is to get to a more normalized state in Truckload pricing how many bid cycles will it take now? That we're seeing sort of pricing erode and your costs still aren't sort of falling off a cliff, you're still seeing some increased costs whether you look at drivers or whether you look at insurance or anything like that.
Mark Rourke, CEO
Sure, Jason. This is Mark. I'll share some initial thoughts. Regarding costs, we've been very diligent, and every one of our expense areas is seeking opportunities. We have made solid progress and have the teams completely aligned to continue improving our cost position, which enhances both our margin profile and our competitive position. We've also noticed that we have likely reached the bottom of the pricing market, demonstrating consistent improvement over several quarters, even in our network business. Looking ahead, tariffs present not only volume uncertainty but also potential short-term impacts on pricing. It seems that it may initially affect spot pricing, and we will see how that develops. However, I still believe there are pricing opportunities available. We will maintain our discipline, as we demonstrated in the first quarter, and I expect to see continued progress throughout the year. Our focus remains commercially oriented.
Jim Filter, Executive Vice President and Group President of Transportation & Logistics
And this is Jim, just one to add on. We are seeing additional mini-allocation events occur shortly after we close out other allocations. So it just reinforces the strategy that we're taking, as well as we found that bottom of the market. It's just not sustainable at rates that are below where we are today.
Jason Seidl, Analyst
And are you guys seeing more carriers come out of the marketplace in any increased capacity?
Mark Rourke, CEO
I think it's been a steady drumbeat, and we see it both in the small owner operator, but we also see it through our brokerage business and our channel checks relative to the stress of those who are granting credit in this arena. So Jason, if there could be one positive, I don't know if there can be a positive with all the uncertainty, does that drive a heighten the exit, but we haven't seen any signs of stabilization. It's been a slow trend downwards.
Jason Seidl, Analyst
Appreciate it. And sorry for taking the next one there on you.
Mark Rourke, CEO
We're off our game this morning on that…
Operator, Operator
Your next question comes from the line of Ravi Shanker from Morgan Stanley. Your line is open.
Ravi Shanker, Analyst
Thanks. Good morning. I hope the question enforcement doesn't start now. But maybe just to follow up on the pricing commentary there. How do you even have pricing conversations in an environment like this where we're looking at polar opposite outcomes of a cliff versus a bullwhip in the next few quarters? I mean do you need to pull out a pandemic playbook here and maybe even push out bid season or talk about short-term contracts? And if yes, how does the both sides of the table come together?
Jim Filter, Executive Vice President and Group President of Transportation & Logistics
Hey, Ravi, this is Jim. Thanks for the question. It's really important times like this that we're stating our assumptions with our customers as we're going through an allocation event that we're sharing. This is the way that we're looking at the market. This is our assumptions. So if we happen to be wrong, we're positioned well to come back and have a further discussion in terms of how we're positioning our organization as well as the customer is able to turn back to their organization and explain the actions that they're taking.
Ravi Shanker, Analyst
Got it. Understood. The lack of near-term clarity might encourage you to consider longer-term perspectives. This morning, Aurora announced that they have started generating commercial revenue with autonomous trucks on public roads in Texas. Is this something you will reevaluate? Do you see it as an important catalyst, and how do you plan to take advantage of this potential opportunity during this brief pause to consider long-term possibilities?
Mark Rourke, CEO
Sure, Ravi. This is Mark. Yes, we have a great deal of respect for the leadership and the capability that Aurora has built, and we've been engaged with them for a number of years now and are currently hauling a series of lanes in Texas presently with a safety driver. But yes, that's something that we've continued to stay close to be clear what we believe our use cases can be there as that technology continues to develop. But congratulations to them, fine organization, and we'll continue to look for those opportunities that make sense for us and our customers.
Ravi Shanker, Analyst
Wonderful. Thanks, guys.
Operator, Operator
Your next question comes from the line of Tom Wadewitz from UBS. Your line is open.
Tom Wadewitz, Analyst
Yes. Good morning. Mark, I wanted to get your thoughts on the increasing use of owner-operators to create a more asset-light model. It makes sense, and I understand you have a strong system for building and attracting owner-operators. However, I am curious if this is a stable enough source of capacity. It seems to me that during downturns, owner-operator capacity is less stable than that of company trucks or drivers. Can you share your thoughts on this? Is shifting significantly towards owner-operator capacity something you're considering in the future? I believe this is worth discussing further.
Mark Rourke, CEO
Sure, sure. And Tom, the question really, the response there was more on the network side of our business is where we deploy a series of capacity types. First, we have a very core company driver capacity that sits at the core of our network offering. But as we look at the current returns and the ability to where we want to put our strategic investments, we are looking to use more asset-light supplement to our core drivers, our core company drivers, which is not only owner-operators but it's also where our Power Only offering adds great value to the customer as well, which is small companies coming in support of the network business. So we have the levers to pull across all three of those. And as mentioned in my opening comments, the owner-operator difficulty today, I think it just represents where the market is and the difficulty they have presently based upon the demand, the pricing environment, et cetera. So one of the advantages of coming to a company that has quality customers, has quality demand, has the trailer fleet and the ability to help with cost mitigation around fuel, cost mitigation around insurance and other, bobtail insurance and some other items. And so we think we do have a value proposition, although that part of the market is under a good deal of stress. But it's not all-in-one category or another, it's the complementary nature of company, owner-operator and Power Only to serve our network needs.
Tom Wadewitz, Analyst
Okay. Yeah. That makes more sense in Dedicated, okay. Thank you. When we think about capacity attrition and I look at some of the results of the big carriers, big really well-run carriers like yourself that are not running profitably in network and there's some other big players in the same situation and maybe you may be tougher it's surprising some of the resilience of small carriers to broader industry capacity. So do you think that like the big carrier versus small carrier dynamic has changed, that maybe small carriers have reasons they can hang in better than you would think? Because you normally think big carriers have advantages, technology, obviously, recruit, driver recruiting, various things. But it just seems like, given all the pressure on the big carriers, wouldn't you see a lot more capacity attrition with the small guys? So, any thoughts on that question? Thank you.
Mark Rourke, CEO
Yeah. I think certainly, the correction in capacity has been a bit more stubborn this time, but it's occurring, and it’s occurring just at a slower rate than we have typically seen, Tom. So I do believe still that the big carrier has the advantages that you mentioned there, particularly with the trailer pool networks and the things that we do on behalf of our customer community. But also, there's more technology available, more price discovery. There's just more information available to all participants across the supply chain. And I think that might be one of the changing dynamics but the fundamentals of having enough revenue to cover your cost base is still paramount. I think that's why we continue to see the downward trend in capacity.
Tom Wadewitz, Analyst
Great. Okay. Thank you.
Operator, Operator
Your next question comes from the line of Scott Group from Wolfe Research. Your line is open.
Scott Group, Analyst
Hey, thanks. Good morning.
Mark Rourke, CEO
Good morning, Scott.
Scott Group, Analyst
Just one more on price, I think what you're saying is low to mid-single digit on Truckload and flattish on Intermodal. So I guess, why do you think we're seeing that kind of spread? What has to change to get the two more aligned? And then maybe it's too early because bids aren't really in effect yet, but given a better outcome at least for shippers with Intermodal are you seeing or do you expect to see better compliance with Intermodal bids than Truckload bids?
Jim Filter, Executive Vice President and Group President of Transportation & Logistics
Yeah, Scott. This is Jim. I think the reason why you're seeing a little bit of a deviation there is probably what we've seen over the last few years that the network bids had dropped faster than Intermodal. Intermodal was more resilient through the downturn than what we had seen in one way network rates and now they're coming back into a little bit more of alignment there making Intermodal a little bit more attractive going forward.
Scott Group, Analyst
Okay. And then on the can you just talk about the CapEx cut and is this just what you're planning to do with the fleet and tractors and if there's any consideration of redoing anything with the trailer fleet as well? And the Intermodal fleet as well.
Darrell Campbell, CFO
Yeah, this is Darrell. So I'll start Mark will add some color. So the strategy that we're implementing for the first quarter and the rest of the year is really consistent with what we've been doing for the past several quarters I would say. So we're dedicated we're dedicating our capital to the areas of strategic growth right? So Intermodal tractors and dedicated tractors that's not going to change throughout the cycle. Some of the commentary Mark made around network and the fact that it's not investable given current returns we're just affirming that our capital allocation reflects that. As volumes have moderated or expected to moderate, our CapEx plan reflects that. It also reflects the fact that the cost per equipment or units of equipment has gone up and in some cases is related to tractors because of the tariffs. But there's a flip side to that which is that used equipment values are expected to improve and we've seen some of that. So our CapEx guidance does contemplate increased proceeds which we also see coming through in our gains on sale assumptions. But as it relates to our strategy, our strategy is still clear. Our strategic areas of growth will continue to get capital. We're going to continue to invest in technology but to the extent that there's not a commensurate return we will not invest in growth.
Mark Rourke, CEO
Scott, regarding the trailer equipment, we are primarily in a replacement cycle, so besides some special equipment and dedicated items tied to new business awards, it will mainly involve replenishment on the trailing side, and we believe we are well positioned in mobile. While we are expanding in Mexico, there may eventually be a need to increase investments in Intermodal container growth. However, we expect 2025 to remain stable with a focus on replacement.
Scott Group, Analyst
Yeah, can you quickly tell me how much you've adjusted your gains on sale assumption?
Darrell Campbell, CFO
Not material. I'd say yeah couple of pennies a few pennies. Not a couple few pennies.
Scott Group, Analyst
Thank you guys. Appreciate it.
Operator, Operator
Your next question comes from the line of David Hicks from Raymond James. Your line is open.
David Hicks, Analyst
Great. Good morning. Thanks for the question. Just wanted to ask about the dedicated growth kind of runway. It's now 70% of the Truckload fleet post the Cowan deal. I know one of your peers is targeting that 70% range. Is that mix approaching kind of a natural feeling given kind of the competitiveness in that market current customer demand and kind of network constraints or is there still meaningful kind of room for expansion on the mix side of things for dedicated?
Mark Rourke, CEO
Yes. Thank you for the question. As it relates to mix we've said we don't really have any magic number relative to mix of dedicated verses network. We really look at this from a return hurdle standpoint and what adds value to the customer and the durability that we see long term and the attractiveness of deeper relations with the customer and dedicated. What I would note is that there is value of network helping support dedicated with ebbs and flows of demand across various account structures and verticals that occur within your dedicated portfolio. So there is some synergies that we gain back and forth through that alignment. I would also say that our focus in our Schneider Dedicated our legacy dedicated increasingly is in that specialty equipment space private fleet replacement. As you look at the recent Cowan very much a lightweight model that attracts shippers that are looking to have additional payload based upon their approach to their equipment spec. We have a multi-stop with M&M and very demanding service requirements. And then MLS has this terrific relay network that fits so well within the automotive sector. So we have some specialty capability within each of these that have broadened our reach in the various markets that we serve and we would consider all of those growth potentials and don't feel like we're sitting here because of the competitive situation that we can't continue to take advantage of those various platforms.
Jim Filter, Executive Vice President and Group President of Transportation & Logistics
And David, just a couple other comments this is Jim, is that there's a long runway still in Dedicated. This is a $400 billion market. We are a very small percentage of that. If you went back just a handful of years ago, about 50% of this market was private fleets. That has grown to 57%. And as we're talking to all of our customers that have private fleets, really none of them have any intention of growing their private fleets at this point and we've seen a number of them really start to change course and pivot to common carriers here and outsourcing. So you see a lot of opportunities continue to grow Dedicated over the coming years.
David Hicks, Analyst
Great. Thanks Mark and Jim. And then just as a follow-up, you outlined $40 million targeted cost reductions from digital tools, automation et cetera, how much of that has been realized at this point and should that be a linear production throughout the year or is it more back half weighted?
Darrell Campbell, CFO
We are examining all aspects of our costs. As you've mentioned, we've managed our variable costs consistently over the last four quarters. This reflects the various measures we've implemented. While it’s challenging to provide specific guidance, we anticipate that the $40 million represents our annualized impact for the year. Due to the seasonality of our business, costs will not be evenly distributed throughout the year, and we do not provide quarterly guidance. We believe that achieving the $40 million is possible, which includes our productivity efforts and the integration of Cowan into our portfolio. All these factors contribute to our target, but we will not provide a breakdown by quarter.
David Hicks, Analyst
Great. Thanks very much. Appreciate the time.
Operator, Operator
Your next question comes from the line of Ken Hoexter from Bank of America. Your line is open.
Ken Hoexter, Analyst
Good morning, Mark, Jim, and Darrell. I'd like to follow up on Chris's timing question. I understand you're not providing quarterly guidance, but could you discuss near-term seasonality in the second quarter? It seems like there are some lost contracts, but also some startups to offset that. Do those balance out? Please also address the plan to remove trucks to enhance utilization, along with the usual seasonality compared to the significant impact of tariff volumes. While I recognize you may not provide detailed guidance for the second quarter, could you outline the bull and bear case for the outlook of $0.75 to $1? Thank you.
Mark Rourke, CEO
I understand your request for guidance on the quarterly outlook. However, we acknowledge that there is some uncertainty involved. Given the size of our business and the variety of services we offer across different segments, there are many factors at play. We have made efforts to consider various scenarios regarding their impact in terms of magnitude and timing. As we assess our allocation for the year, which is now almost four months in, you may notice that our guidance range has widened to reflect this uncertainty. We have taken several measures regarding our costs, renewals, and asset efficiency that we previously discussed. Our goal is to provide you with our best insights based on current knowledge, while recognizing that circumstances may change, particularly due to macroeconomic factors. We are most confident in the aspects under our control, but issues such as trade policies and consumer health are less predictable and could influence demand, supply, and pricing dynamics. These factors contribute to the timing, magnitude, and duration of challenges we might face, which could place us at the lower end of our range. Rapid changes can occur, leading to disruptions in supply chains that may create chaos but could also present favorable scenarios. As we evaluate our position today, we've considered all these elements in developing our guidance range. We recognize there may be a potential short-term gap, particularly in the Intermodal import segment, depending on current sailing schedules. The consideration is how new business ventures and their timing might help mitigate some of this volatility. This has informed our thinking and the guidance range we've provided.
Ken Hoexter, Analyst
Thanks for the insight. How do you think about the supply and demand balance over the long term? JB Hunt mentioned having 30% excess capacity in Intermodal. How do you view your fleet and the decision to maintain or reduce its size? What are your thoughts on Intermodal to enhance performance, profitability, and utilization?
Jim Filter, Executive Vice President and Group President of Transportation & Logistics
Yeah, Ken, this is Jim. When we examine our trailing fleet, we can make adjustments by stacking the equipment, and currently, we have just under 10% stacked. We believe we could easily increase our capacity by 25% without needing to add any trailing equipment. If I reflect on our previous peak container turns, we could potentially grow by as much as 35%. There are still many opportunities ahead, but as we pursue growth, we are being disciplined and focusing on areas where we have a competitive edge, reducing costs in our network, and continuing to enhance our business.
Ken Hoexter, Analyst
So to summarize the analysis, considering a 25% excess capacity growth and 35% in container turns, and with 50% excess capacity, would that lead to eliminating boxes? Doesn't that prolong the downturn and limit our ability to...
Mark Rourke, CEO
We have a long lifespan and, of course, there are mixed implications regarding the length of haul. We believe that the work we've done to enhance our execution capabilities and the partners we've chosen, including UP, CSX, and CPKC, provide us with a unique advantage in a challenging environment. We intend to leverage these strengths, and I believe we don't need to reduce our volume to improve margins. Instead, we should focus on our differentiators, and I think we are well-positioned to succeed in this market over time. Although we're currently facing some challenges, our confidence remains intact for the future.
Ken Hoexter, Analyst
Great. Thanks Mark. Thanks, Jim. Darrell, appreciate it.
Operator, Operator
Your next question comes from the line of Jon Chappell from Evercore ISI. Your line is open.
Jon Chappell, Analyst
Thank you. Good afternoon. I am sorry, good morning. Mark, correct me if I'm wrong, but did you insinuate that maybe there's some business you're walking away from now during this mini bid process and some of the price pressure? And if that's the case are you doing more maybe partial Truckload which plays a role in the efficiency of the network fleet?
Mark Rourke, CEO
Great. Jonathan, thank you for the question. In my prepared remarks, I mentioned that being disciplined with pricing sometimes means accepting lower volumes from specific shippers. This strategy is reinforced by the frequent mini-allocation events we see arise after issues with the customer's operations or new business developments. By not tying up our capacity at rates we feel undervalue our services, we can pursue newer, more appealing opportunities. This discipline primarily applies to our Network business, especially in the truck network sector compared to Intermodal.
Jon Chappell, Analyst
Okay. Got it. And then as a follow-up, to try to simplify Hoexter's question partially because I just want this Hoexter's question. You're at the tail end of earnings season. And I think we've seen a bunch of guidance revisions for obvious reasons. And I think some have implemented tempered seasonality, which is May is better than April, June is better than May, but not at a typical magnitude. And I think some have incorporated kind of flat bridges from a weak March to the second half and the uncertainty that's incorporated in the second half. Would you consider yours more of the former, the tempered seasonality, or just kind of almost writing off the second quarter at this flat line of March, April and then the second half is kind of up for our interpretation?
Mark Rourke, CEO
I believe I understand your question, Jonathan. What Darrell explained is that we are acknowledging our position coming out of the first quarter, where we experienced some seasonality changes at the end of the quarter and adjusted our expectations for price and volume moving forward compared to our previous guidance. The way you phrased those two conditions reflects what we aimed to convey.
Operator, Operator
And we have reached the end of our question-and-answer period. This does conclude today's conference call. Thank you for your participation. You may now disconnect.