Richa Harnain • Deutsche Bank

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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