Jeffrey Kauffman

Jeffrey Kauffman asked for an update on the remaining 2023 and 2024 cargo van cohorts, including the number of vehicles left, the differential in average acquisition costs, and the expected loss on sale.

Answer

CFO Jason Berg indicated approximately 6,000 model year 2024 cargo vans remain, which were more expensive than 2023 models, and about 19,000 model year 2025 vans were acquired for roughly $3,000 less than 2024s. He stated that U-Haul is increasing depreciation on 2024 models to minimize disposal losses, but a loss on sale for these units is still expected this year. Chairman Joe Shoen added that initial resale value estimates were incorrect due to declining new vehicle prices, impacting used vehicle values, and the company aims to adjust depreciation to be 'neutral at sale' to better reflect costs monthly.

Jeffrey Kauffman asked for an update on the remaining 2024 cargo van cohort, their average acquisition costs, and the differential in depreciation and resale value compared to the 2023 models. He also questioned if the 2024 model years are fairly mark-to-market or if deferred catch-up on loss on sale is still expected.

Answer

Jason Berg (CFO, U-Haul Holding Company) stated that approximately 6,000 model year 2024 cargo vans remain, which were more expensive than 2023 models. He also mentioned 19,000 model year 2025 vans, which were $3,000 cheaper than 2024s. U-Haul is increasing depreciation on 2024s to minimize disposal losses, expecting a loss on sale for these units this year. Joe Shoen (Chairman, U-Haul Holding Company) added that past resale estimates were inaccurate due to automakers lowering new vehicle prices, impacting resale values, and U-Haul aims to adjust depreciation to be neutral at sale, acknowledging that the company has overestimated resales for two years running.

Jeff Kauffman inquired about the low to mid-single-digit price increases in the expedited segment, asking if this was the current average or just an initial trend, and what expectations were for the bid cycle. He also asked if the increased bid activity indicated shippers were pulling forward bids due to concerns about future truckload supply-demand. Additionally, he questioned the warehousing segment's profitability, noting increased revenue but decreased profit due to startup costs, and sought clarification on whether profitability would improve. He also inquired about the broader warehouse space bookings and the company's balance sheet strategy for 2026, specifically regarding comfort with the leverage ratio after the Star Logistics Solutions acquisition. Kauffman further questioned the impact of moving equipment to 'held-for-sale' status and adjusting disposition price expectations, asking if it would result in an unusually large loss or gain on sale in Q1. He sought clarity on the projected fleet count for expedited and dedicated segments post-adjustments and whether the Star Logistics Solutions integration would necessitate an equipment increase or how its revenues would be distributed across divisions. Lastly, he asked if the drop in expedited revenue per mile (excluding fuel) in Q4, attributed to the government shutdown, was an anomaly, and inquired about the timeline for managed freight margins to return to target levels, given the new market reality and pricing adjustments.

Answer

CEO David R. Parker confirmed the 3.5% increase was the average for the first three weeks of January, expressing optimism for continued increases and potential for multiple rate adjustments throughout the year. President Paul Bunn added that new business was being won at higher rates, allowing for capital redistribution. David R. Parker also stated that January bids were up 33% over Q4, driven by shippers trying to get ahead of potential capacity shortages and concerns about cargo theft. David R. Parker confirmed that warehousing profitability would improve incrementally, with Q1 2026 better than Q4 2025, and Q2 2026 better than Q1. CFO Tripp Grant addressed the balance sheet, stating that the current leverage ratio was slightly above the long-term target but expected to improve sequentially starting in Q1 2026 due to equipment sales and the Star acquisition's accretion. Tripp Grant clarified that the equipment revaluation was a mark-to-market accounting requirement due to specialized equipment and a soft used equipment market, not expected to result in a large loss or gain on sale in Q1. David R. Parker stated that Star Logistics Solutions would not require an equipment increase, projecting a slight downward trend in expedited fleet count (around 25 trucks per quarter) and a flat dedicated fleet count. David R. Parker confirmed the Q4 expedited revenue per mile drop was entirely due to the government shutdown and should be treated as an anomaly, expecting Q1 2026 to be better. He indicated that returning managed freight margins to acceptable levels would primarily depend on securing rate increases, aiming for 5-12% increases across the industry.

Jeff Kauffman asked for clarification on the equipment change, specifically if moving assets to 'held-for-sale' status and adjusting sale price expectations would lead to an unusually large loss or gain on sale in Q1. He also inquired about the expected fleet count for expedited and dedicated segments post-adjustments and how the Star acquisition's revenues would base across divisions, including any potential equipment increases. Kauffman questioned if the Q4 drop in expedited revenue per mile ex-fuel was an anomaly due to the government shutdown and sought insight into the timeline for managed freight margins to return to desired levels through pricing adjustments. Finally, he asked about the percentage of the total enterprise book that renews in Q1, Q2, and Q3, and if the company would pursue additional rate increases in an improving market.

Answer

CFO Tripp Grant stated that the equipment adjustment was a mark-to-market accounting requirement and does not expect a large loss or gain on sale in Q1, anticipating flattish depreciation sequentially. CEO David R. Parker indicated that Star's revenue would not require equipment increases and would primarily flow through brokerage, with expedited fleet count trending down slightly and dedicated remaining flattish but with improved margin profile. David R. Parker confirmed the Q4 expedited revenue per mile drop was an anomaly related to the government shutdown. Regarding managed freight margins, David R. Parker emphasized that improvement would come through rate increases, with optimism for continued 3.5% increases and further climbing in March/April. EVP Joey Hogan clarified that approximately 40% of customers are stable, while 60% would be subject to multiple rate increases, especially those who did not meet volume commitments.

Jeff Kauffman from Vertical Research Partners asked about the key topics and sentiments expected from other carriers at the upcoming ATA conference, and the company's strategy regarding share repurchases given the current discounted valuation and healthy balance sheet.

Answer

CEO David Parker and President Paul Bunn anticipated that the ATA conference would focus on government regulation, the impact of inflation on rates, and uncertainties surrounding truck pricing from OEMs. CFO Tripp Grant acknowledged the shares are highly discounted and present potential value. He noted that the balance sheet is strong, with debt-to-EBITDA just over two times. While the company has availability under its share repurchase program, Tripp Grant did not commit to specific buyback volumes, stating that free cash flow is expected to improve in Q4, allowing for a full range of options including M&A, share repurchases, and dividends, consistent with their established playbook.

Jeff Kauffman asked about the key topics and sentiment management expected to hear from other carriers at the upcoming ATA conference, particularly if anything would differ from recent expectations. He also inquired about the company's strategy for share repurchases, given the current discounted share valuation and strong balance sheet, balancing the opportunity with the challenging market environment.

Answer

CEO David Parker anticipated that discussions at ATA would revolve around government actions concerning motor carriers and the challenges of OEM truck pricing. President Paul Bunn agreed, adding that inflation (uncovered by rates), regulation, and truck pricing would be the three major talking points. CFO Tripp Grant acknowledged that the company's shares are highly discounted and that the balance sheet is strong, with debt just over 2x EBITDA. He noted significant share repurchases in the first half of the year, an earnout payment, and front-loaded equipment purchases. Mr. Grant expects improved free cash flow in Q4, which will provide opportunities, but did not commit to specific buybacks, stating the company has a full range of options including M&A, repurchases, and dividends.

Jeffrey Kauffman of Vertical Research Partners asked for guidance on the Q3 average share count following recent buybacks. He also sought long-term operating ratio targets for the Expedited and Dedicated segments and questioned whether recent government stimulus could be the long-awaited volume catalyst for the freight industry.

Answer

CFO Tripp Grant projected a Q3 average share count around 26.2 million. CEO David Parker outlined long-term OR targets of 83-93% for Expedited and the low 90s for Dedicated, depending on market conditions. Parker expressed optimism that a combination of government focus on economic growth, falling interest rates boosting housing, and tightening truck capacity will serve as a significant catalyst for freight demand, potentially around October.

Jeffrey Kauffman requested a deeper explanation of the avian flu's impact on the protein business and its normalization timeline. He also asked about a recent tuck-in acquisition and the performance drivers for the Warehouse and Managed Freight segments.

Answer

President Paul Bunn explained that the recent avian flu season was one of the worst in 15 years, hurting both long-haul and feed-haul volumes. He projects the business will return to 100% capacity by June. Bunn described the recent acquisition as a small, 60-70 truck specialty dedicated fleet with a defensible niche and growth potential. He noted Warehouse margins were temporarily hit by weather but should improve, while Managed Freight is benefiting from new operational strategies under COO Dustin Koehl, with revenue and margin growth expected.

Jeff Kauffman from Vertical Research Partners asked whether the positive market shift is being driven more by business confidence or by tightening truck capacity. He also requested details on cost inflation trends, asking which areas were moderating versus remaining stubborn.

Answer

CEO David Parker stated that both factors are at play: rising business optimism is generating activity, while tightening capacity is evident in recent bid wins at higher rates. Executive James Grant noted that operations and maintenance costs are moderating as the fleet gets younger. He identified insurance as a prior headwind that is improving, while citing fuel and driver pay as potential inflation wildcards for 2025, which could be offset by higher freight rates.

Jeff Kauffman of Vertical Research Partners asked for a long-term perspective on structural versus cyclical market changes, the company's strategy beyond waiting for a market turn, and key economic drivers for 2025.

Answer

Executive M. Bunn identified the proliferation of brokers and well-capitalized small carriers as a structural headwind. CEO David Parker stated the strategy is twofold: manage costs while preparing for a turn, which he believes could be aided by Fed rate cuts impacting housing and auto freight. Both executives reiterated the focus on specialized businesses and niche acquisitions as a core long-term strategy, with M. Bunn adding that a pickup in industrial production would be a major catalyst.

Jeff Kauffman asked about the market share opportunity for PACCAR in 2026, given that competitors' customers are reportedly still facing uncertainty regarding pricing post-Section 232 tariffs. He also questioned whether the recent order pickup is driven more by increased confidence in the freight environment or by clarity on EPA regulations.

Answer

CEO Preston Feight confirmed that PACCAR's customers are seeking clarity on competitors' pricing, which PACCAR has been able to provide. He believes this positions PACCAR well for both market share and margin gains throughout the year. Preston Feight stated that the order pickup is driven by both regulatory/tariff clarity and increasing confidence in the freight markets, noting that carrier profitability is just beginning to return.

Jeff Kauffman inquired about PACCAR's potential for market share and margin opportunity in 2026, given competitors' pricing uncertainty post-Section 232 tariffs. He also asked how much of the recent order pickup is driven by increased confidence in the freight environment versus clarity on EPA regulations.

Answer

CEO Preston Feight acknowledged that competitors' pricing clarity is still developing, which PACCAR's customers are seeking. He believes PACCAR's ability to provide clarity should be beneficial for both market share and margins through the year. He stated that the order pickup is driven by both regulatory/tariff clarity and increasing confidence in freight markets, rate increases, and carrier profitability, which is just beginning to return.

Jeff Kauffman asked for clarification on how the Section 232 tariff rebate amount, once fully ramped up, would net against the incremental tariff costs PACCAR is facing, and whether the economics would flow as a rebate to customers or the company.

Answer

CEO R. Preston Feight explained that the Section 232 tariffs are complex, but the rebate mechanism will gradually reduce tariff costs as parts qualify, with full benefits expected by early next year. He indicated that the goal is for the benefits to positively impact dealers, customers, PACCAR, and suppliers, but specific quantification of the net effect remains to be seen.

Jeff Kauffman followed up on Section 232 tariffs, asking how the rebate amount, once fully ramped up, would compare to the incremental tariff costs on parts and steel/aluminum, and how those economics would flow.

Answer

Preston Feight, CEO, explained that the Section 232 fact sheets from Commerce and the White House are helpful. He stated that as parts qualify, rebates would gradually reduce tariff costs, with full benefit expected by early next year. Mr. Feight indicated that the tariffs would bring costs down, benefiting dealers, customers, PACCAR, and suppliers, but specific quantification of the net impact is still to be determined.

Jeff Kauffman asked if projected growth in South America would alter truck specifications and impact average selling prices (ASPs), and how a potential 2025 mix shift back towards truckload might affect ASPs.

Answer

CEO Preston Feight explained that trucks for South America are similar to European models but with some heavier-duty specs that could slightly increase selling price. However, both he and President and CFO Harrie Schippers advised against trying to parse fine ASP changes from a mix shift between vocational and on-highway trucks, noting the wide range of prices within the vocational segment itself.

Jeffrey Kauffman asked if the passage of the 'One Big Beautiful Bill Act,' with its R&D and CapEx depreciation acceleration, has led to customers re-engaging on orders for the 2026 season.

Answer

CEO & Director R. Preston Feight confirmed that customers are beginning to engage on this topic, as the legislation improves their cash flow for capital purchases, contributing to PACCAR's optimism for later in the year. CFO & SVP Brice Poplawski added that the bill is also positive for PACCAR, projecting cash tax benefits of $300 million to $400 million.

Jeffrey Kauffman from Vertical Research Partners asked if the passage of the 'One Big Beautiful Bill Act,' with its R&D and CapEx depreciation acceleration, has led customers to re-engage on orders for the 2026 season.

Answer

CEO & Director R. Preston Feight confirmed that customers are beginning to engage on 2026 orders, citing the bill's positive impact on their cash flow and ability to purchase capital assets. CFO & SVP Brice Poplawski added that the bill would also provide PACCAR with a cash tax benefit of $300-$400 million.

Jeffrey Kauffman asked for a long-term perspective on truck demand, looking past near-term uncertainties to see if management believes there will be any demand destruction over a 3-to-5-year period.

Answer

CEO Preston Feight agreed with the observation, stating that over 70% of U.S. freight moves by truck, a fact he doesn't see changing. He believes the number of trucks needed over that period will be constant, and PACCAR expects its share to grow because it builds the best trucks with the best dealers, which bodes well for the future.

Jeffrey Kauffman followed up on the decline in revenue per truck, seeking a clearer breakdown between mix and currency. He also asked about potential risks or opportunities from new administration rulings beyond the 2027 EPA regulations.

Answer

President and CFO Harrie Schippers reiterated that currency effects were about half the impact, with the remainder due to a heavier Q4 regional mix towards Europe, where trucks have lower average sales prices. On other regulations, CEO Preston Feight framed them as opportunities, while Schippers highlighted that PACCAR's 'local-for-local' production strategy provides strong protection against risks like tariffs.

Jeff Kauffman asked about the flow of the remaining $450 million in non-GAAP add-backs for the second half of the fiscal year, specifically inquiring if Network 2.0 integration was scaled back during peak season and if more activity is planned for Q3.

Answer

John Dietrich, EVP and CFO, FedEx, stated that the overwhelming majority of the non-GAAP add-backs are tied to freight separation. He noted smaller portions are related to the change in the calendar fiscal year and ongoing business optimization efforts that have been in play for the last couple of years.

Jeff Kauffman asked about the flow of non-GAAP add-back expenses, specifically the remaining $450 million in the second half, and if Network 2.0 integration slowed due to peak season, leading to more expenses in Q3.

Answer

EVP and CFO John Dietrich explained that the overwhelming majority of the non-GAAP add-backs are tied to freight separation. Smaller portions are related to the calendar fiscal year change and ongoing business optimization, with freight separation being the dominant factor.

Jeff Kauffman asked how long it would take RXO to adjust pricing to mitigate the impact of the current squeeze if market conditions remained static. He also inquired about the tender rejection levels typically required for RXO to effectively push prices and the historic breaking point for such rejections, concluding by asking if the long-term outlook is positive.

Answer

Drew Wilkerson, Chairman and CEO of RXO, explained that the key metric to watch is tender rejections, which have risen to over 6% despite depressed demand. He stated that tender rejections typically need to be at 10% or above to see spot loads and push prices, with mid-teens indicating excessive spot loads. He affirmed that in the long run, the current structural changes are a 'great thing' for RXO, as customers will seek large, financially stable companies with strong service, comprehensive solutions, and advanced technology, like RXO, which has always maintained strict carrier vetting processes.

Jeffrey Kauffman asked about the areas of greatest uncertainty or 'leaps of faith' in the company's forecast and questioned RXO's flexibility to respond if the market deteriorates further.

Answer

CEO Drew Wilkerson expressed confidence in the forecast, stating the company has a playbook for various scenarios, including a focus on purchase transportation if volume declines. He emphasized that the company is very agile, has realized synergies faster than expected, and is currently staffed to handle approximately 15% overnight growth, providing significant operational flexibility.

Jeff Kauffman from Vertical Research Partners requested more detailed insight into the performance of Old Dominion Freight Line's different customer segments, specifically asking which buckets are driving the tonnage decline and which are performing better, given that industrial production and ISM haven't incrementally worsened.

Answer

Adam Satterfield, CFO, explained that while retail revenue (25-30% of total) was down about 4% in Q3 2025, industrial revenue (55-60% of total) was slightly worse. He attributed overall tonnage weakness to weaker customer orders, a 2.3% decrease in October's weight per shipment, some truckload consolidation affecting the 3PL business (one-third of revenue), and indirect impacts from the housing market.

Jeff Kauffman requested more insight into the performance of different customer segments (industrial vs. retail, e-commerce) to understand where tonnage declines are most pronounced and which buckets are performing better.

Answer

Adam Satterfield, CFO, explained that industrial revenue (55%-60% of total) was slightly worse than retail (25%-30%), but not a major difference. He attributed tonnage declines to weaker orders and a 20 lbs decrease in average weight per shipment year-over-year, also noting some truckload consolidation pressure in the 3PL business (one-third of revenue).

Jeffrey Kauffman asked for a more granular breakdown of tonnage trends, seeking to understand which customer types or freight characteristics were showing relative strength or weakness.

Answer

CFO Adam Satterfield responded that the primary variance remains between weaker industrial accounts and stronger retail accounts, without significant deviation within those groups. He stressed that the most positive sign is the consistency of ODFL's market share and customer relationships, which positions the company to capture volume when their customers' order books recover.

Jeffrey Kauffman asked how the permanent reinstatement of tax bonus depreciation would impact Ryder's financial statements, specifically if it would be a cash flow benefit, affect operating margins, and how the estimated $200 million benefit would flow through.

Answer

Cristina Gallo-Aquino, EVP and CFO, clarified that the bonus depreciation is expected to be an annual cash tax benefit of approximately $200 million, with no direct impact on the tax rate or operating margins, as lease pricing is set at market rates. She confirmed this is a cash timing benefit.

Jeffrey Kauffman of Vertical Research Partners inquired about the strategic direction and growth prospects for Ryder's outsourced maintenance business. He also asked about activities within Ryder Ventures and the potential for strategic M&A given the company's excess free cash flow.

Answer

Chairman & CEO Robert Sanchez and President of FMS Tom Havens highlighted a focus on retail mobile maintenance through their TORQ product, which is growing rapidly, as a key opportunity. Regarding M&A, Sanchez stated that Ryder is patiently seeking well-run companies in its core businesses and that Ryder Ventures is primarily for exploring new technologies, not a major capital draw.

Jeffrey Kauffman of Vertical Research Partners asked what early demand indicators like rental utilization and miles driven are signaling about the market, and also inquired about Ryder's M&A strategy and potential acquisition targets in the current environment.

Answer

President and COO John Diez identified rental as the primary indicator, noting softer conditions but also early positive signs of stabilization in the over-the-road tractor class. This was supported by higher lease miles and sequential price improvement for used tractors. Chairman and CEO Robert Sanchez addressed M&A, stating that while it's a good time to buy, Ryder remains selective. The wish list includes companies with new supply chain capabilities, dedicated transportation opportunities similar to Cardinal, or lease business tuck-ins.

Jeffrey Kauffman asked for clarity on the mixed signals within the Fleet Management Solutions (FMS) segment, contrasting talk of a market turn with metrics like increased redeployments and early terminations. He also questioned the slowdown in the SelectCare maintenance product.

Answer

Chairman and CEO Robert Sanchez stated that the market is not yet showing an upturn, but rather moving sideways. Tom Havens, President of Fleet Management Solutions, added that customer sentiment remains cautious due to economic and tariff uncertainty, causing decision delays. Regarding SelectCare, Havens clarified that Q4 revenue was up 3% year-over-year and that the full-year slowdown was due to two large fleets downsizing with minimal financial impact, with growth expected to return to the mid-single-digit range in 2025.

Jeffrey Kauffman of Vertical Research Partners questioned the strategy behind the recent decline in SelectCare vehicles and the decision to maintain the current rental fleet size despite utilization being just above 70%, which is below historical norms.

Answer

CEO Robert Sanchez explained that maintaining the rental fleet size is a deliberate strategy to ensure Ryder is prepared for the next market upturn and can capitalize on it, avoiding past instances of being short on vehicles. Tom Havens, President of Fleet Management Solutions, added that the rental fleet is already down 7,000 units from its peak. Regarding SelectCare, Havens clarified that while vehicle counts have decreased, margins have improved as the units being removed were very low-revenue and low-margin.

Jeffrey Kauffman asked Sean Pelkey about CSX's cash priorities for 2026, considering reduced Blue Ridge expenditures and congestion costs, inquiring about new projects, debt reduction, or shareholder capital return.

Answer

Sean Pelkey, EVP and CFO, indicated no major construction projects planned for 2026, maintaining capital discipline for safety, reliability, and growth-driving projects. He reiterated a consistent approach to strategic share repurchases and modest annual dividend increases.

Jeffrey Kauffman of Vertical Research Partners sought clarification on the network disruption costs, asking if the $10 million per month figure was an all-inclusive number and requesting a timeline for when these costs would be eliminated.

Answer

EVP & CFO Sean Pelkey confirmed the $10 million per month is an 'all-in' cost for reroutes that will persist until the network projects are completed in Q4. He added that Q1 had an additional $20-25 million in weather-related costs. These combined headwinds of over $100 million for the year are expected to go away in 2026, creating a significant tailwind.

Jeffrey Kauffman asked for an estimate of how much business may have been pulled forward in anticipation of new tariffs.

Answer

EVP and CCO Kevin Boone described it as difficult to quantify precisely but suggested it was likely concentrated in international intermodal. He estimated the impact might be "a few points, a couple of points" of the current international volume growth, before pivoting to the broader strategic benefits of shifting trade flows for the East Coast.

Jeffrey Kauffman asked if management could quantify the financial benefits and savings in 2026 once the Howard Street and Blue Ridge projects are complete, similar to how they quantified the 2025 costs.

Answer

EVP and CFO Sean Pelkey stated that the projects will turn into a 'very nice positive.' He estimated that between cost savings and initial growth opportunities, the company would fully recover the roughly $100 million in 2025 operating expenses within a couple of years. He emphasized that this recovery is based on just the initial growth, with more capacity being added beyond that.

Jeffrey Kauffman of Vertical Research Partners asked about the expected foreign exchange impact on revenue, the accounting treatment for the Wincanton divestiture, and the company's ideal leverage target before pursuing further M&A.

Answer

CFO Baris Oran stated that GXO does not hedge revenue, so spot rates will apply, noting a 4% FX tailwind in Q2. He described the Wincanton divestiture as immaterial (~$100M revenue) and said integration can proceed. For leverage, he indicated the short-term focus is on organic growth and deleveraging, with an ideal long-term target of 1.5x to 2.0x net debt to EBITDA to maintain flexibility.

Jeffrey Kauffman asked about new opportunities emerging for the company amid market uncertainty that were not as visible six to nine months ago.

Answer

Chief Strategy and Innovation Officer Arun Rajan highlighted the significant opportunity in technology, specifically the evolution from GenAI to 'AgenTeq AI,' to drive evergreen productivity and margin optionality. CFO Damon Lee added that these tech improvements also enable market share outgrowth, a key part of the strategy that is sometimes overlooked.

Jeffrey Kauffman from Vertical Research Partners asked about scenario planning for the Global Forwarding division, particularly concerning potential tariffs, the air-to-ocean shift, and impacts on the Southeast Asia to U.S. trade lane, as well as potential effects on customs revenue.

Answer

Arun Rajan, Chief Strategy and Innovation Officer, explained that market uncertainty highlights Robinson's value. He noted a long-term supply chain diversification trend away from China, which C.H. Robinson has mirrored by reducing its Transpacific lane dependence from 35% to 25% of its Global Forwarding business. He confirmed that customs activity has seen an uptick, and the company provides expertise in this area.

Jeffrey Kauffman requested more detail on the Q3 revenue growth, asking for an estimate of how much was attributable to a "pull-forward" of freight and whether this could cause Q4 results to normalize to a level similar to Q2.

Answer

Executive Charles Ives clarified that any pull-forward was not material overall, noting there was some impact in Global Forwarding but not in the truckload business. CFO Damon Lee added that Q4 is typically a seasonally weaker quarter. Ives pushed back on the idea that Q4 would revert to Q2 levels, stating that Global Forwarding rates were expected to slow down.

Jeffrey Kauffman of Vertical Research Partners asked for clarification on the 2025 CapEx guidance, the investment in the Trailers as a Service (TOS) fleet, the cause of the sequential drop in average selling price (ASP), and whether the company believes it is at the bottom of the trailer cycle.

Answer

SVP and CFO Patrick Keslin clarified the $30-40 million CapEx guidance is for traditional investments and excludes the $21 million invested in TOS during the first half of 2025. He explained the sequential ASP decline was entirely mix-driven, due to a higher proportion of dry vans. President and CEO Brent Yeagy added that while the outlook is challenging, he is hopeful they are in the 'darkest days' of the cycle, as carriers are significantly below replacement demand and will soon need to reinvest.

Jeffrey Kauffman of Vertical Research Partners questioned if the CapEx guidance includes Trailers as a Service (TAS) investment, the reason for the sequential drop in Transportation Solutions' average selling price (ASP), and whether management believes the company is at the bottom of the trailer cycle.

Answer

CFO Patrick Keslin clarified the $30-40M CapEx guidance is traditional and excludes TAS, which saw $21M invested in H1. He attributed the ASP decline to a product mix shift toward more dry vans. CEO Brent Yeagy suggested they may be in the 'darkest days' of the cycle, as carriers are below replacement demand, and a small rate improvement could spur 2026 spending.

Jeffrey Kauffman of Vertical Research Partners asked for clarification on whether the $30-40 million CapEx guidance includes Trailers as a Service (TaaS) investment, the current size of the TaaS fleet, the cause of the sequential drop in average selling price (ASP) for Transportation Solutions, and whether the current market represents the trough of the cycle.

Answer

SVP & CFO Patrick Keslin clarified that the traditional CapEx guidance excludes TaaS, into which Wabash invested approximately $21 million in the first half of the year. He attributed the ASP decline entirely to a product mix shift towards more dry vans. SVP & Chief Growth Officer Mike Pettit noted the TaaS fleet is over 1,000 units. President and CEO Brent Yeagy added that while these may be the 'darkest days,' carriers are nearing a point where they must resume replacement-level spending, suggesting a potential for growth in 2026 if market conditions stabilize.

Jeffrey Kauffman of Vertical Research Partners asked for an update on Trailers as a Service (TaaS) unit counts and the underlying delivery volumes supporting the Q2 and full-year revenue forecasts. He also inquired about the company's liquidity position, the factors behind the Q1 operating loss, and the assumptions driving the expected return to profitability in the second half of the year.

Answer

Chief Growth Officer Mike Pettit reported that TaaS units now exceed 1,000, with CEO Brent Yeagy adding that customer engagement has grown to 20-25 companies. Brent Yeagy also confirmed a slight step-up in shipments for Q2 and that analyst estimates for full-year deliveries were in the right ballpark. CFO Pat Keslin detailed the $310 million in liquidity and emphasized flexibility in capital allocation. Regarding performance, executive Ryan Reed positioned the Q2 guidance as a proxy for what Q1 could have been with a better cost structure. Brent Yeagy explained the second-half profit forecast assumes uncertainty does not worsen but does not depend on a significant demand recovery.

Jeffrey Kauffman of Vertical Research Partners asked for a deeper dive into the causes of weak Q4 profit margins in both the core trailer and parts businesses. He also inquired about the current size and growth expectations for the Trailers as a Service (TaaS) fleet, recent customer acquisition trends, the company's competitive positioning regarding potential Mexico tariffs, and the current status of customer discussions around trailer pools.

Answer

CFO Pat Keslin explained that the Parts and Services margin weakness in Q4 was due to one-time events and that he expects a return to high-teens EBITDA margins in 2025. CEO Brent Yeagy added that low volumes impacted Transportation Solutions margins. On TaaS, Chief Growth Officer Mike Pettit noted the fleet is between 500-1,000 units and growing, with several new customers onboarded recently. Yeagy addressed tariffs by stating Wabash is well-positioned with a diversified supply chain and domestic production flexibility. He and Pettit confirmed that trailer pools remain a key concept that aligns well with the TaaS offering, which is being developed to provide a frictionless solution for customers.

Jeffrey Kauffman asked about customer capital spending intentions for 2025 versus 2024, inquiring which customer segments are facing the most pressure. He also asked how Wabash plans to manage production volatility and whether operating margins will react differently to volume changes under the new pricing model.

Answer

President and CEO Brent Yeagy explained that customer purchasing decisions are now highly individualized rather than segment-based, with varied behavior seen even within strong segments like LTL. He noted that 2025 pricing is expected to be similar to recent 2024 levels and that the company is adjusting capacity to optimize margins. An executive added that trough-level operating margins are expected to improve compared to past cycles due to better pricing. Brent Yeagy also highlighted the stabilizing effect of growth in the truck body and parts and services businesses.

Jeffrey Kauffman of Vertical Research Partners asked about the potential impact of the 'One Big Beautiful Bill,' a proposed tax plan, on Union Pacific's business opportunities and cash flow.

Answer

CFO Jennifer Hamann stated that restoring 100% bonus depreciation would be a benefit, estimating an incremental annual cash impact of $250 million to $300 million. CEO Jim Vena added that the administration's broader focus on deregulation is also important, as it helps U.S. businesses, including Union Pacific, compete more effectively domestically and internationally.

Jeff Kauffman of Vertical Research Partners asked what has been a 'legitimate surprise' in the forward outlook over the past three months, particularly within the Bulk or Industrial segments.

Answer

CEO Vincenzo Vena identified the escalating discussion around tariffs and the potential impact on the consumer as the biggest external surprise. He stated there were no major surprises in the Bulk or Industrial segments, instead emphasizing the strong and predictable execution by the operations and commercial teams in the areas within their control.

Jeffrey Kauffman of Vertical Research Partners asked for more detail on the specific elements of Union Pacific's traffic mix that could be at risk from potential tariffs on Mexico, beyond the more obvious categories.

Answer

EVP of Marketing and Sales Kenny Rocker emphasized the fluidity of supply chains and the strength of the UNP franchise. He explained that most commodities have multiple origin and destination points, and the commercial team is focused on preparedness to capture freight flows regardless of how they might shift, ensuring the product ultimately moves on the Union Pacific network.

Jeffrey Kauffman of Vertical Research Partners sought clarification on the commentary that 25-30% of gross margin was impacted by tariffs, asked what business might be 'unfrozen' by the U.S.-China trade thaw, and inquired about the effects of currency fluctuations and the outlook for the typically strong fourth fiscal quarter.

Answer

Executive Bohn Crain clarified that 25-30% of gross margin is associated with international trade, representing an opportunity for consultative engagement, not a direct negative impact of that magnitude. He stated that the trend of supply chain diversification away from China will continue regardless of short-term thaws and that the company is maintaining its long-term M&A strategy. Regarding the fourth quarter, Mr. Crain stated that traditional seasonality is 'out the window' and he expects softness in June, not anticipating it to be their second-strongest quarter. CFO Todd Macomber added that they expect any volume lost in the June quarter to be recaptured in fiscal 2026.

Jeffrey Kauffman of Vertical Research Partners asked about the impact of currency fluctuations on the company's results, particularly concerning its significant Canadian operations.

Answer

CFO Todd Macomber addressed the question, stating that while currency fluctuations did have an effect, the impact was not meaningful to the reported financial results for the quarter after retranslating to U.S. dollars.

Jeffrey Kauffman of Vertical Research Partners asked for clarification on a $1 million litigation gain, the drivers behind a significant decrease in commission expenses, and where the company is observing 'green shoots' of market recovery.

Answer

CFO Todd Macomber confirmed the litigation gain was recorded in 'other income' and was excluded from adjusted EBITDA. Macomber and Executive Bohn Crain attributed the lower commission expense to a shift in product mix and the acquisition of agent stations, which do not pay commissions. Crain also noted that the prior-year period included significant agent-led charter business, affecting the comparison. Regarding recovery signs, Crain pointed to tightening capacity on the West Coast due to ocean import activity but remained cautious about its durability.

Jeffrey Kauffman of Vertical Research Partners asked for the aggregate incremental EBITDA from the six recent acquisitions, the reason for the significant drop in operating partner commissions relative to revenue, and his perspective on what is holding back a broader economic recovery.

Answer

CEO Bohn Crain declined to provide aggregate EBITDA for the acquisitions, citing competitive advantage and the non-materiality of individual deals. He explained that commissions fell more steeply than revenue due to the conversion of agent stations to company-owned stores (which removes commission expense) and tough comparisons against significant non-recurring project business in the prior year. Crain believes the recovery is being held back by a lack of hard freight demand and business investment, as the service economy does not generate significant freight volumes.

Jeffrey Kauffman inquired about the net impact of currency translation and asked for more detail on the drivers behind the Average Selling Price (ASP) increase in the Power Systems segment.

Answer

CFO Mark Smith stated that the net P&L impact from currency is very modest (under $10 million) due to hedging strategies. Executive Christopher Clulow explained that the Power Systems ASP increase is primarily a function of product mix, with strong demand for large, high-priced data center generators skewing the average, making it a less reliable performance indicator.

Jeffrey Kauffman followed up on the Asset-Light segment, asking if there is a specific revenue breakeven level, what its target margin should be, and what the bigger-picture strategy is for its contribution to the company.

Answer

President Seth Runser responded that the focus is on providing a broad suite of solutions for customers, with Asset-Light being a key part. He highlighted how managed solutions feed business across all segments. He declined to provide a specific revenue breakeven, stating the focus is on margin, productivity, and technology to ensure the cost structure is scaled appropriately. The goal is to return the business to profitability in the current year.

Jeff Kauffman asked about the company's ability to pivot to growth, specifically concerning the time required to source quality drivers and how the company is managing its fleet plan and age amid upcoming CARB and EPA regulations.

Answer

Chairman & CEO Derek Leathers and EVP, Treasurer & CFO Chris Wikoff highlighted the company's vertically integrated driver school network, which has expanded 50% during the downturn, as a key asset for rapid growth. Mr. Leathers also stated that Werner is well-positioned with a young fleet, avoiding 'fleet age debt' and allowing CapEx to be focused on growth. He added that the EDGE TMS platform will help manage compliance with new emissions rules.

Jeffrey Kauffman asked which elements of the new labor agreements are most important for helping the company achieve its operational and financial targets.

Answer

An executive, likely COO John Orr, highlighted that the new agreements provide predictability for the workforce, are complementary to the PSR 2.0 strategy, and, most importantly, unlock discretionary effort from employees. This effort is seen as critical for optimizing the network and creating value.

Jeffrey Kauffman from Vertical Research Partners requested a high-level perspective on recent hearings and potential changes from the Surface Transportation Board (STB) and how they might impact the rail industry.

Answer

Alan Shaw, President and CEO, stated that Norfolk Southern's balanced strategy of improving service, reducing costs, and growing revenue is well-aligned with the STB's focus. An executive added that recent meetings with STB commissioners reinforced that the company's business plan and focus on resiliency are in lockstep with the regulator's vision.

Questioned the company's comfortable cash level, plans to raise capital to maintain it, and the expected financial contribution from regulatory credits and fueling operations in 2024 and 2025.

Answer

The company aims to have enough cash to operate for a full fiscal year without needing to go to the market and is actively talking to investors to achieve this. Regulatory credits (CARB) are a significant opportunity, potentially worth $45k-$50k per unit, and are expected to grow into a substantial, 100% gross profit revenue stream as volume increases and other states adopt similar programs.

Asked to distinguish one-time vs. recurring costs from Q1, questioned why increased fueling stations don't translate to higher 2024 volume guidance, and inquired about the importance of ASP for national accounts given available incentives.

Answer

Executives identified several Q1 costs (warranty, inventory write-downs, BEV returns) as non-recurring once scale is achieved. The increase in fueling stations is a proactive measure to remove a future bottleneck and support sales growth, which is currently constrained by other factors. For national accounts, the deal structure varies, with the immediate focus being on getting initial trucks into their fleets to prove the technology, rather than maximizing the initial ASP.

Inquired about the accounting for BEV recall costs, revenue streams from fuel cell trucks, and the company's cash position and potential need for a capital raise.

Answer

The BEV recall costs were mostly accrued in Q3, with cash impact in H1 2024; subsequent BEV sales will be for revenue. Fuel cell truck revenue is primarily from the vehicle sale, with minimal energy revenue expected in 2024. The company has a strong cash position, expects lower cash burn in H2, and does not see an immediate need to raise capital.