Brady Lierz

Brady Lierz asked about the company's outlook on expense control, specifically G&A, for 2026, balancing cost discipline with expected market improvements.

Answer

Rusty Rush (CEO, President and Chairman, Rush Enterprises) stated the plan is to keep G&A expenses close to flat in Q1 2026 compared to Q1 2025, noting that Q1 typically sees a jump from Q4 due to payroll taxes and equity costs. He explained that if parts and service gross profit grows, about half of that growth would be reinvested, primarily in personnel.

Brady Lierz from Stephens followed up on the EVO modernization commentary, asking about the size of the EVO mod opportunity compared to the over 2,500 mods already completed, and whether recently announced Class 1 mod orders include the new EVO modernization product or are still FDL. He also inquired about the drivers behind the significant sequential and year-over-year increase in SG&A expenses.

Answer

Wabtec President and CEO Rafael Santana stated that the EVO mod program, expected to start this year, opens a significant opportunity for a global fleet of nearly 10,000 units. He reiterated the enormous opportunity from the aging DC traction fleet in North America. CFO John Olin explained that SG&A increases were driven by acquisitions (Eviden and Frauscher) and a much higher compensation accrual in Q4 due to the team's exceptional cash conversion performance, which significantly exceeded expectations for the year.

Brady Lierz inquired about the potential size of the EVO modernization opportunity compared to the 2,500+ modernizations already completed, and whether recent Class 1 Rail mod orders include this new EVO product. He also asked for clarification on the drivers of the sequential and year-over-year increase in SG&A expenses, particularly the impact of higher incentive compensation.

Answer

President and CEO Rafael Santana stated that the EVO mod program, targeting a global fleet of nearly 10,000 units, is expected to start in 2026, representing a significant opportunity. He reiterated the enormous potential of modernizing the aging North American DC traction fleet. CFO John Olin attributed the SG&A increase to acquisitions (Evident and Frauscher) and a significantly higher compensation accrual in Q4 2025, driven by the company's exceptional cash conversion performance for the year.

Brady Lierz, on for Daniel Imbro at Stephens Inc., asked about the potential for other regulatory shifts, such as automation, in light of rail merger discussions. He also inquired about the drivers behind the Transit segment's strong performance and its future margin potential.

Answer

CEO Rafael Santana stated that Wabtec anticipates the FRA will continue to focus on advancing rail safety and innovation, such as Trip Optimizer zero-to-zero. Regarding the Transit segment, he credited the team's significant steps to simplify its footprint and drive sustainable margin improvement, noting the business is committed to expanding margins beyond the mid-teens long-term.

Brady Lierz, sitting in for Daniel Imbro of Stephens Inc., asked about the potential for other regulatory shifts, such as automation or zero-to-zero initiatives, in light of potential rail mergers. He also inquired about the drivers behind the Transit segment's strong performance and its future margin potential.

Answer

CEO Rafael Santana highlighted progress with the FRA on technologies like Trip Optimizer zero-to-zero and expects a continued regulatory focus on safety and innovation. Regarding the Transit segment, he attributed its success to footprint simplification, portfolio optimization, and a selective approach to growth, stating the team is committed to expanding margins beyond the mid-teens.

Brady Lierz inquired about the sustained strong sales in Dedicated Contract Services despite a challenging freight environment, asking what factors were driving these wins. He also sought clarification on how much of the segment's meaningful margin improvement was attributable to the 'cost to serve' initiative versus the maturation of previously secured sales.

Answer

President of Dedicated Contract Services Brad Hicks attributed the strong results to the team's execution, safety performance, and the company's Customer Value Delivery (CVD) program, which leverages density and shared resources for creative solutions. He also highlighted efforts by maintenance teams to lower costs and improve equipment uptime, along with effective risk management, as key drivers of margin improvement.

Brady Lierz asked about the continued strong sales in Dedicated Contract Services despite a challenging freight backdrop, seeking to understand the drivers behind these wins. He also questioned how much of the meaningful improvement in margins was due to cost-to-serve initiatives versus the maturation of earlier sales.

Answer

President of Dedicated Contract Services Brad Hicks attributed strong sales to J.B. Hunt's Customer Value Delivery (CVD) program, creative solutions, density, and leveraging resources. He stated that margin improvement stemmed from various initiatives, including maintenance teams lowering costs (uptime, program cost) and strong risk management due to rising insurance costs, emphasizing it was a combination of factors.

Brady Lierz, on behalf of Daniel Imbro at Stephens Inc., asked how Hub Group is balancing its increased $50 million cost savings target with the need to maintain flexibility for a market upturn. He also inquired about the Dedicated segment's performance and strategy, and requested monthly intermodal volumes for the quarter.

Answer

President & CEO Phillip Yeager explained that the cost savings target was raised due to identified efficiencies, such as warehouse consolidation, that do not hinder growth flexibility. He noted the Dedicated segment faced headwinds but has a strong service-based pipeline. CFO Kevin Beth added that investments in IT were maintained to drive efficiency. Mr. Yeager provided monthly intermodal volumes: April up 6%, May up 1%, June flat, and July month-to-date up 1%.

Brady Lierz of Stephens Inc. asked for the primary drivers behind the strong Q1 EBIT outlook, clarification on sequential freight rate trends from Q4 to Q1, and an update on long-term capital allocation opportunities beyond share repurchases.

Answer

EVP and CFO Joel M. Wine explained that the 'meaningfully higher' Q1 outlook is driven primarily by elevated China freight rates compared to the prior year, with domestic and logistics performance remaining steady. Chairman and CEO Matthew Cox added that while rates stepped down from Q4 after the seasonal peak surcharge was removed, they remain strong. Regarding capital allocation, Joel M. Wine noted that while ocean transport M&A is unlikely, the company continues to evaluate niche, defensible M&A opportunities in the logistics space.