Adam Roszkowski

Adam Roszkowski, representing Ken Hoexter from Bank of America, requested insights into the expected revenue and margin cadence for the second half of the year for both Freight and Transit segments, and also asked about the dynamics of the order backlog.

Answer

CFO John Olin detailed that second-half organic revenue growth will accelerate, with total revenue growing approximately 10% due to the Q2 shipment shift and the Inspection Technologies acquisition. He noted margins will see strong year-over-year growth, though slightly less than H1 due to mix headwinds from more new locomotive deliveries and fewer modernizations. CEO Rafael Santana added that the backlog provides solid coverage for 2025 and growing visibility into 2026.

Adam Roszkowski, on for Ken Hoexter at Bank of America, requested insights into the financial shape of the second half of the year, specifically regarding revenue and margin cadence for the Freight and Transit segments, and followed up on the backlog pipeline.

Answer

CFO John Olin detailed a strong second-half outlook, with organic revenue growth accelerating and robust margin expansion. He noted H2 margins would be tempered slightly compared to H1 due to a mix shift towards more new locomotive deliveries and fewer modernizations. CEO Rafael Santana added that the strong 12-month backlog provides solid coverage for 2025 and growing visibility into 2026.

Adam Roszkowski, on behalf of Ken Hoexter, asked for clarification on the tariff assumptions within the 2025 guidance and inquired about the expected margin progression and cadence for the remainder of the year.

Answer

CFO John Olin clarified that the guidance includes the first round of tariffs but excludes potential reciprocal tariffs due to their volatility. Regarding cadence, Olin stated that while Q2 will be strong, it won't see the same level of margin favorability as Q1. This is because Q1 benefited from a strong services mix, whereas Q2 will see a shift back towards new locomotive production, creating a mix headwind.

Adam Roszkowski asked for the timeline to improve the U.S. LTL claims ratio and for an update on the pace of contractual pricing renewals.

Answer

Executive Alain Bedard called the current 0.9% claims ratio "terrible" and expects improvement throughout 2025, aiming for the best-in-class level of 0.2%. Executive David Saperstein clarified that while contract renewals are occurring in the mid-single digits, the overall revenue per shipment has been negatively impacted by a mix shift away from SMB towards larger customers, a trend the company is now actively reversing.

Adam Roszkowski, on for Ken Hoexter, asked for confirmation that U.S. LTL contract renewals are in the low single digits and inquired about Q4 tonnage expectations. He also asked for a baseline on potential OR improvement in U.S. LTL for the next year.

Answer

CEO Alain Bedard confirmed renewals are in the low single digits. He expects the Q4 OR to improve from Q3, driven by cost controls rather than market improvement. For 2025, he stated he would be 'really disappointed' if the U.S. LTL segment does not achieve a sub-90% OR, citing planned improvements in fleet costs, labor efficiency, and a renewed focus on increasing freight per stop.

Adam Rusckowski, on behalf of Ken Hexter at Bank of America, asked about the sustainability of LR2 tankers shifting to the clean product trade and its tightening effect on the Aframax market. He also questioned if the initial voyages from the Trans Mountain pipeline have altered the company's long-term ton-mile outlook.

Answer

CEO Kevin Mackay described LR2s as fungible assets that move between crude and clean trades based on earnings, suggesting the current shift is not a short-term phenomenon due to expected strength in the product tanker market. Director of Research Christian Waldegrave added that while the TMX pipeline is not yet at full capacity, it has already boosted Aframax demand, and he expects a greater ton-mile impact as volumes increase and more long-haul voyages to Asia are established.