Richa Harnain

Richa Harnain asked about Werner's normalized earnings power and the expected cadence of improvement in 2026, considering the accretive FirstFleet acquisition, organic Dedicated growth, and One-Way trucking restructuring.

Answer

Chairman and CEO Derek Leathers acknowledged the numerous moving parts, expressing optimism for earnings growth in 2026. He highlighted the leaner, more agile One-Way business complemented by PowerLink carriers and the FirstFleet acquisition's role in driving durable, stable earnings. Leathers noted Q1 pressure from a significant storm and the lag in One-Way restructuring benefits, anticipating a material earnings inflection in Q2 and sustained momentum throughout the year.

Richa Harnain asked about Werner's normalized earnings power and the expected cadence of improvement from 2025 levels into 2026, considering the accretive FirstFleet acquisition, organic dedicated growth, and one-way trucking restructuring.

Answer

Derek Leathers, Chairman and CEO, outlined the positive outlook for 2026, emphasizing the strategic shift towards a leaner, more agile one-way business and the durable earnings growth from the FirstFleet acquisition. He noted Q1 2026 headwinds, particularly from a significant storm, and anticipated a material inflection in earnings by Q2 2026 as restructuring benefits materialize.

Richa Harnain from Deutsche Bank explored the supply-side impact of rising used truck values and asked for quantification of the margin impact from new dedicated fleet startup costs to understand the underlying profitability.

Answer

CFO Chris Wikoff agreed that higher used equipment values help remove industry capacity by giving lenders more options to repossess assets. He noted the trend's sustainability is uncertain but confirmed Werner raised its full-year guidance for gains. Wikoff quantified the Q2 startup impact as a 40 basis point headwind to the TTS adjusted operating margin, stemming from roughly $1 million in direct costs and another $1 million in revenue inefficiency.

Richa Harnain asked if the new Dedicated business would be margin-accretive and inquired about the potential industry impact from renewed enforcement of English proficiency requirements for truck drivers.

Answer

CEO Derek Leathers confirmed the new Dedicated business is margin-enhancing as it adds density and allows for better fixed-cost absorption. Regarding driver regulations, he noted that Werner has always maintained English proficiency standards. While estimating 10-15% of industry drivers may not be proficient, he believes enforcement challenges will prevent immediate capacity shocks but sees the issue as a potential long-term tailwind for compliant, well-capitalized carriers.

Richa Harnain sought clarification on Q1 2026 tonnage assumptions for sequential margin expansion and asked about XPO's strategy to prioritize pricing over volume growth in an upcycle, despite 30% excess door capacity, and how much incremental volume this capacity can absorb.

Answer

Ali Faghri, Chief Strategy Officer of XPO, clarified that Q1 tonnage is assumed to be flat year-over-year, rolling forward normal seasonality from January. Mario Harik, Chairman and CEO of XPO, explained that in a capacity-constrained LTL industry, profitability comes from yield. XPO aims for above-market pricing growth through premium services, SMBs, and a profitable mix, with a double-digit pricing opportunity. He estimated XPO's current door capacity could absorb mid-teens to low 20% range of incremental volume without further real estate investment, supported by a young fleet (average 3.7 years).

Richa Harnain asked about the Q1 tonnage assumptions underpinning XPO's sequential margin expansion outlook and questioned why XPO wouldn't prioritize volume growth to utilize its 30% excess door capacity in an upcycle, rather than solely focusing on pricing leadership.

Answer

Ali Faghri, Chief Strategy Officer, XPO, stated that Q1 tonnage assumptions, based on normal seasonality from January, imply a flat year-over-year full-quarter tonnage, supporting the OR outlook. Mario Harik, Chairman and CEO, XPO, explained that LTL profitability primarily comes from yield, and in an upcycle, industry pricing typically sees mid-to-high single-digit increases. XPO aims for a double-digit pricing opportunity to catch up to best-in-class levels through premium services, SMBs, and a profitable mix. Harik noted that XPO's 30% excess door capacity can absorb mid-teens to low 20% incremental volume without further real estate investment. He also highlighted a strong rolling stock position with a young fleet (3.7 years average age), including over 19,000 new trailers and 6,000 new trucks added in the last 3-4 years.

Richa Harnain sought insights into customer sentiment regarding macro trends, the expected timing of a recovery, and observations on competitive struggles or XPO's market share gains.

Answer

Mario Harik (CEO, XPO) reported Q4 demand consistent with a soft freight recession, with a neutral tone from customers. He noted increasing optimism for a 2026 recovery, citing the ISM Manufacturing Index's inverse correlation with Fed rates, stimulus from the 'big beautiful bill,' and tariff stability. Retail performed better than industrial, which constitutes two-thirds of XPO's customers. He added that competitive struggles vary by region and lane, making it difficult to pinpoint specific struggling carriers.

Richa Harnain sought further detail on the competitive environment, customer macro outlook for 2026, and whether XPO is gaining market share from struggling private carriers or those experiencing service disruptions.

Answer

CEO Mario Harik reported that Q4 demand remains soft and neutral, consistent with a freight recession. However, for 2026, more customers express optimism for an acceleration, citing potential ISM Manufacturing Index recovery with declining Fed Fund Rates, 'big beautiful bill' stimulus, and tariff stability. He noted retail performed better than industrial in Q3, with machinery, electrical equipment, and HVAC strong. While not aiming to be the biggest market share gainer, XPO benefits from its service quality and capacity, especially as private carriers may tap out faster in an upturn.

Richa Harnain from Deutsche Bank inquired about the dynamics behind the steep tonnage deceleration in June followed by a snapback in July, and how XPO plans to offset risks to its full-year guidance if the tonnage environment remains shaky.

Answer

Chief Strategy Officer Ali Faghri explained that the June softness was driven by macro/tariff uncertainty impacting weight per shipment for smaller customers and a tough year-over-year comp, which he views as transitory. He noted that XPO has multiple levers to mitigate volume weakness, as shown by the 9% decremental margin in Q2. These levers include above-market yield growth and a flexible cost structure, particularly in labor, enabled by technology.

Richa Harnain from Deutsche Bank asked about the impact of recent weather disruptions on Q4 costs and Q1's operating ratio target, any effects from a government shutdown, and the potential for incremental margins on growth to exceed 40% given excess capacity.

Answer

CFO Adam Satterfield confirmed that the snowstorm impact was factored into guidance and there was no material government shutdown effect. He stated that with direct variable costs at 53% of revenue, incremental margins could reach the mid-40s in the early stages of recovery, with a long-term goal of achieving a sub-70 operating ratio.

Richa Harnain sought clarification on the impact of recent weather disruptions and any potential government shutdown on Q4 or Q1 costs. Her main question focused on whether incremental margins on growth could exceed past highs, like the 40%+ seen post-COVID, given the current excess capacity.

Answer

Adam Satterfield, CFO, confirmed that the snowstorm disruption was baked into revenue and margin guidance, with no material impact from a government shutdown. Regarding incremental margins, he noted that with direct variable costs at 53% of revenue, a 47% incremental margin is possible by leveraging overhead in early recovery stages. He expressed confidence in achieving a sub-70 operating ratio, referencing past years with 300+ basis point improvements, and stated that new incremental margin goals would be set after reaching that target.

Richa Harnain asked about further room for cost optimization, the impact of tech-enabled features, the potential return of salaries, wages, and benefits as a percentage of revenue to 2022-2023 levels, and the timing of recent cost savings initiatives.

Answer

Adam Satterfield, CFO, stated that cost saving is a continuous focus, driven by a culture of continuous improvement and technology investments that enhance efficiency and service. He highlighted that direct variable costs are consistent with 2022 levels, and future operating ratio improvement will come from density and yield, with significant leverage expected from overhead costs when revenue grows.

Richa Harnain from Deutsche Bank asked about Old Dominion Freight Line's continued cost optimization efforts, particularly in variable costs and workforce, and where further improvements could be made. She also questioned the timing of these cost savings, given the prolonged freight recession, and if salaries, wages, and benefits as a percentage of revenue could return to 2022-2023 levels.

Answer

Adam Satterfield, CFO, explained that cost savings are a continuous focus, driven by ongoing improvement and technology investments in areas like workforce planning and route optimization, which have kept direct variable costs consistent with 2022 levels. He anticipates future operating ratio improvement from increased density and yield, with immediate leverage from overhead costs (especially depreciation) upon revenue recovery, and long-term gains from direct variable costs with double-digit volume growth.

Richa Harnain of Deutsche Bank asked about shippers' future business appetite given recent macro developments and which industries are showing more optimism.

Answer

EVP & CFO Adam Satterfield explained that macro uncertainty has suppressed volumes. He noted that while industrial optimism (key for ODFL) had previously improved, tariff talk created a headwind. He expressed cautious optimism that the finalized tax bill and potential interest rate relief could restore customer confidence and spur investment, leading to increased freight demand.

Richa Harnain of Deutsche Bank AG asked about customer conversations and their appetite for future business given potential catalysts like the new tax bill, trade deals, and interest rate cuts, and requested an industry breakdown.

Answer

EVP & CFO Adam Satterfield identified economic uncertainty as the primary freight headwind. He noted that while recent tariff talk dampened earlier optimism, the finalization of the tax bill (with bonus depreciation) and potential for trade deals and rate cuts provide 'cautious optimism.' He stated that clarity on these macro issues is needed to spur investment, highlighting that 55-60% of ODFL's revenue is industrial-related.

Richa Harnain asked for clarification on April's performance relative to normal seasonality and inquired about LTL industry capacity levels following the exit of Yellow.

Answer

CFO Adam Satterfield addressed the capacity question, stating that overall LTL industry service center count is down significantly over the last decade. He estimated only 60% of Yellow's former facilities have been repurposed, leading to a more capacity-constrained environment, which he believes will be an advantage for ODFL given its consistent network investment.

Richa Harnain asked how the April revenue forecast compares to normal seasonality and questioned the current capacity dynamic in the LTL market post-Yellow's exit.

Answer

CFO Adam Satterfield addressed the capacity question, stating that overall industry capacity has been reduced, citing a 23% decline in service centers among major public carriers since 2014. He believes the industry will be even more capacity-constrained in the next upcycle, which will be a key differentiator for ODFL.

Richa Harnain followed up on the 28% lower cost per piece in automated facilities, asking how this impacts CapEx plans (2026 outlook below 2025 despite fleet replacement) and the long-term CapEx outlook.

Answer

Carol Tomé (CEO, UPS) noted that closing old buildings reduces maintenance expense. Brian Dykes (EVP and CFO, UPS) explained aircraft financing through build-and-lease structures, reduced vehicle purchases due to network rightsizing, and lower maintenance/vehicle expense. He projected normalized CapEx around 3%-3.5% of revenue, creating a more capital-efficient network.

Richa Harnain asked how the 28% lower cost per piece in automated facilities plays into UPS's ability to do more with less, specifically regarding the lower 2026 CapEx outlook despite fleet replacement plans, and the long-term CapEx outlook for a smaller, more efficient footprint.

Answer

Carol B. Tomé (CEO, UPS) noted that closing old buildings reduces maintenance expenses. Brian Dykes (EVP and CFO, UPS) added that aircraft are financed through a build-and-lease structure. He explained that CapEx is lower due to reduced vehicle purchases as the U.S. network rightsizes, bringing down maintenance and vehicle expenses. He expects a normalized CapEx of 3%-3.5% of revenue going forward, with a more capital-efficient network.

Richa Harnain asked about the cost of service, specifically regarding the service component in management's annual cash incentive and Network 2.0 transformation costs, including current additional costs, outlook impact, and efficiency timelines.

Answer

EVP and CFO John Dietrich explained that higher variable incentive compensation accruals, including the service component, are a financial headwind but reflect strong team performance. President and CEO Raj Subramaniam added that FedEx will not compromise on service, noting that Network 2.0 efficiencies typically return within three to six months and are factored into forecasts.

Richa Harnain questioned the costs associated with service quality, particularly in light of the new service component in management's annual cash incentive and the Network 2.0 transformation, asking about current additional costs, future cost reduction, and efficiency timelines.

Answer

Raj Subramaniam, President and CEO, FedEx, and John Dietrich, EVP and CFO, FedEx, addressed the question. Raj emphasized that service quality is paramount and leads to less waste, noting that Network 2.0 efficiencies typically return within three to six months, which is factored into forecasts. John added that higher variable incentive compensation accruals, while a financial headwind, reflect strong team performance.

Richa Harnain asked about the drivers behind FedEx's sustainable domestic share gains, noting the best conditions since COVID in terms of pricing, volume growth, and SMB momentum, and inquired about the profitability profile of the newly onboarded business.

Answer

EVP & Chief Customer Officer Brie Carere attributed the share gains to focused execution in strategic segments like SMB, healthcare, and e-commerce, driven by direct selling, effective loyalty programs, and superior service offerings (e.g., 7-day coverage, rural reach). She confirmed that healthcare revenue is sticky and profitable, and pricing levers are being effectively utilized, leading to high capture.

Richa Harnain asked about the fiscal year's cadence, suggesting that with the USPS contract headwind being front-loaded and cost savings ramping up, Q1 might represent a lower-than-usual percentage of full-year EPS.

Answer

EVP & CFO John Dietrich confirmed this was a fair assumption. He noted that the USPS headwind will be lapped in subsequent quarters and the progressive ramp-up of the $1 billion in transformation benefits throughout fiscal 2026 would also influence the typical seasonality, contingent on the revenue environment.

Richa Harnain asked about the earnings cadence for fiscal 2026, suggesting that Q1 might represent a smaller portion of the full-year EPS than the typical 20% due to front-loaded headwinds like the USPS contract expiration and back-loaded cost savings.

Answer

EVP & CFO John Dietrich agreed it was a fair assumption that Q1's weighting could be lower than historical norms. He confirmed the USPS headwind will be lapped after the first four months and that the $1 billion in transformation benefits will build throughout the year, potentially altering the typical seasonality.

Richa Harnain inquired about the impact of low-end trucking capacity exiting the market on C.H. Robinson's strong gross margin expansion, specifically asking if the company's ability to offset rising purchase transportation rates, as discussed at a prior conference, was demonstrated in the current quarter's results.

Answer

CEO Dave Bozeman, President of North American Surface Transportation Michael Castagnetto, and CFO Damon Lee explained that while policy changes and regulatory shifts are creating localized uncertainty and volatile cost spikes, C.H. Robinson's AI-driven pricing and carrier matching, combined with structural changes, enable them to manage these 'micro squeezes' with better severity and duration than historically.

Richa Harnain inquired about the impact of low-end trucking capacity exiting the market on C.H. Robinson's strong gross margin expansion, specifically asking if the company's ability to offset rising purchase transportation rates, as discussed at a prior conference, was demonstrated in the current quarter's results.

Answer

CEO Dave Bozeman, President of North American Surface Transportation Michael Castagnetto, and CFO Damon Lee explained that while policy changes and regulatory shifts are creating localized uncertainty and volatile cost spikes, C.H. Robinson's AI-driven pricing and carrier matching, combined with structural changes, enable them to manage these 'micro squeezes' with better severity and duration than historically.

Richa Harnain inquired about the company's ability to sustain its strong performance during a potential market up-cycle, addressing market skepticism and noting that margins expanded even with volume growth.

Answer

President and CEO Dave Bozeman stated that the company is structurally different from its past, with a disciplined operating model that positions it for a market rebound. CFO Damon Lee emphasized that technology has fundamentally changed processes, eliminating the need to add back headcount proportionally with volume and ensuring continuous improvement and operating leverage.

Richa Harnain sought confirmation that revenue erosion from competitor reactions was confined to intermodal, asking what hinders Norfolk Southern's ability to compete (price vs. other factors) and why challenges persist despite significant intermodal investments.

Answer

Chief Commercial Officer Ed Elkins confirmed the erosion is confined to domestic non-premium intermodal. He stated Norfolk Southern is competing vigorously on price in a down market and on service, leveraging its superior route and terminal network. President and CEO Mark George added that challenges primarily arise in interline arrangements where Norfolk Southern doesn't entirely control the customer relationship.

Richa Harnain from Deutsche Bank sought confirmation that revenue erosion from competitor reactions is limited to intermodal and questioned why Norfolk Southern is challenged to compete despite significant investments and partnerships, asking if competitors are winning on price or other factors.

Answer

Chief Commercial Officer Ed Elkins confirmed that the revenue erosion is confined to domestic non-premium intermodal and is not due to the Howard Street tunnel project. He stated that Norfolk Southern is competing vigorously on both price and service, emphasizing their strong team and terminal network in the Southeast. President and CEO Mark George added that challenges primarily arise in interline arrangements where contracts are not directly through Norfolk Southern, while direct customer relationships in their region remain strong.

Richa Harnain asked for clarification on the Q4 LTL demand and margin guidance, noting softer demand but encouraging bid discussions, and the strong Q3 sequential margin improvement. She also asked for an update on the long-term synergy potential between the truckload and LTL operations.

Answer

CEO Adam Miller acknowledged early Q4 LTL demand softness and explained that Q4 margin guidance reflects typical seasonal degradation, despite encouraging bid season prospects for late Q1/Q2 2026. He detailed LTL and truckload synergies, including leveraging empty lanes and internalizing purchase transportation. CFO Andrew Hess attributed Q3 LTL margin improvement to labor efficiencies, reduced purchase transportation, and technology implementation in pickup and delivery.

Richa Harnain of Deutsche Bank AG asked for tangible examples of future cost-saving opportunities in the Truckload segment, given the impressive progress already made, and inquired about the incremental margin potential from these efforts.

Answer

CFO Andrew Hess detailed a multi-faceted approach to continuous cost reduction. Key initiatives include proactive safety and claims management, optimizing the trailer-to-tractor ratio, implementing technology like AI and automation to improve back-office processes, sharing assets between divisions, exiting underutilized facilities, and ongoing improvements in fuel and maintenance. Hess stated the goal is to create significant operating leverage as the market recovers.

Richa Harnain asked about re-evaluating CSX's growth projections, particularly in intermodal, given improved service metrics, and customer feedback on the Howard Street Tunnel product.

Answer

Kevin Boone, EVP and Chief Commercial Officer, stated CSX is on track with Howard Street Tunnel benefits, emphasizing that strong service enables dynamic pursuit of opportunities. He noted customer interest in conversion opportunities within the East and the industry's improved position to grow modal share.

Richa Harnain of Deutsche Bank inquired about the prospects for improved net pricing in the second half of the year, given the significant momentum in service improvement.

Answer

EVP & CCO Kevin Boone responded that superior service strengthens their position in pricing discussions by delivering clear value to customers. He expressed hope that the truck market has bottomed, noting that some customers recognize that multi-year declines in truck rates are unsustainable, which should create a more favorable pricing environment.

Richa Harnain of Deutsche Bank inquired about the recent labor reductions, asking for details on the types of cuts made and whether a wage increase occurred this year. She also asked about the future runway for cost management while maintaining a customer-centric focus.

Answer

President & CEO Frederick Holzgrefe clarified that the annual wage increase typically occurs in the second half of the year and hasn't happened yet. He explained that headcount adjustments were about matching hours to volume levels, particularly by reducing overtime. He emphasized that significant cost savings are coming from line haul network optimization, such as using triples in Ohio, which is a sustainable advantage independent of the volume environment.

Richa Harnain of Deutsche Bank asked about the role of intermodal marketing companies (IMCs) in driving domestic growth, the growth potential of UNP's own transloading services, and if new tax plans are accelerating industrial development projects.

Answer

EVP of Marketing & Sales Kenny Rocker stated that the company's portfolio of private asset customers and its own rail box provides choice and competes favorably. On industrial development, he noted the team is actively bringing on new traffic with a slight uptick in the project run rate, but it's hard to pinpoint the cause to a specific policy change, though they are encouraged about the future.

Richa Harnain of Deutsche Bank asked for specific sizing of exposures to allay market fears, such as the grain export mix between Mexico and China, and the portion of international intermodal tied to the West Coast or China.

Answer

EVP Kenny Rocker declined to provide specific breakouts but emphasized the company's strategy to diversify and grow the overall business. He highlighted expanding grain into new markets like the Gulf and building out the intermodal network with new products in the Twin Cities and Phoenix to reduce dependence on any single geography.