Scott Group

Scott Group sought clarity on the expected Q1 2026 margin or operating income starting point, comparing it to Q1 2025, and asked for color on anticipated headwinds.

Answer

Chris Wikoff, Executive Vice President, Treasurer, and CFO, detailed Q1 2026 headwinds, including the significant impact of Winter Storm Fern (worse than the prior year's storm, parking 50% of the fleet), ongoing one-way restructuring, and logistics margin compression. He noted these challenges are largely temporary and highlighted positive momentum from dedicated growth, intermodal, final mile, and FirstFleet's expected operating income accretion.

Scott Group sought clarity on Werner's Q1 2026 margin or operating income starting point, considering various moving parts and comparing it to Q1 2025.

Answer

EVP, Treasurer, and CFO Chris Wikoff acknowledged Q1 2025 was challenging and Q1 2026 faces headwinds like Winter Storm Fern, which was worse than the Q1 2025 storm, along with ongoing One-Way restructuring and Logistics margin squeeze. He noted these challenges are largely temporary. Positive momentum is expected from Dedicated growth, early rate increases, and Intermodal/Final Mile growth. FirstFleet is anticipated to contribute to revenue growth and be accretive from an operating income perspective for two-thirds of the quarter.

Scott Group of Wolfe Research asked if the two-point sequential improvement in Q2 trucking margins was repeatable for Q3 and sought management's perspective on the potential impact of the announced Union Pacific and Norfolk Southern merger on Werner's business.

Answer

Chairman & CEO Derek Leathers clarified that while they expect incremental gains, the large Q2 margin improvement was partly due to a very weak Q1 and is not indicative of a normal sequential run rate. Regarding the rail merger, Leathers views it positively, as UP and NS are Werner's primary intermodal partners. He sees minimal threat to the truckload business, given its focus on insulated Dedicated fleets and hard-to-convert One Way freight.

Scott Group asked about the company's volume exposure to the potential West Coast import slowdown, the likelihood of returning to profitability in Q2, and for a broader perspective on the Q1 operating loss, including M&A performance and the need for more drastic strategic changes.

Answer

CFO Chris Wikoff quantified West Coast import exposure at about 10% of One-Way volume and outlined potential paths to Q2 profitability through cost savings and growth in Dedicated and Logistics. CEO Derek Leathers acknowledged the Q1 loss was an outlier that necessitates more aggressive action, referencing an increased cost-cutting target. He noted that while M&A assets have been impacted by the freight recession, he remains confident in their long-term value.

Scott Group from Wolfe Research asked about potential fixes for rising insurance costs, the expected margin trajectory from Q4 to Q1, and the sustainability of concurrent improvements in pricing and utilization.

Answer

CEO Derek Leathers cited state-level tort reform and technology investments as key initiatives to manage insurance costs. CFO Chris Wikoff clarified the Q4 insurance expense was an outlier due to a $19M prior-period development and suggested a $33M-$35M quarterly run rate is a better proxy. Excluding the one-time impact, TTS adjusted OI margin would have been over 7%. For Q1, Leathers suggested Q1 2024 EPS is a 'good zip code' to consider.

Scott Group asked for the outlook on margins from Q3 to Q4, sought clarification on the diverging fleet trends between Dedicated and One-Way, and inquired about the potential industry capacity impact of the November 18 Drug & Alcohol Clearinghouse deadline.

Answer

Chairman & CEO Derek Leathers projected continued moderate margin improvement into Q4, noting Q3 was impacted by abnormal health costs. He clarified that the Dedicated fleet may see temporary declines from strategic exits, while the One-Way fleet may grow temporarily for peak season. Regarding the Clearinghouse deadline, he stated that while it could tighten capacity, there is a lack of confidence in its implementation and enforcement.

Scott Group asked for XPO's full-year 2026 LTL margin improvement outlook and an update on local customer penetration, including current status and future targets.

Answer

Mario Harik, Chairman and CEO of XPO, projected 100-150 basis points of OR improvement for full-year 2026, an acceleration from 2025, assuming no significant macro recovery. He cited above-market yield growth and AI-driven cost efficiencies as key drivers. Regarding local accounts, Harik noted XPO added 10,000 new customers in 2025, reaching 25% of the total book, halfway to their 30% target over five years.

Scott Group inquired about XPO's full-year LTL margin improvement expectations for 2026 and an update on the penetration and growth trajectory of local accounts.

Answer

Mario Harik, Chairman and CEO, XPO, projected another strong year for margin improvement and earnings growth in 2026, with LTL operating ratio (OR) improving by 100-150 basis points, an acceleration from last year, assuming no significant macro recovery. He highlighted above-market yield growth and strong AI-driven cost efficiencies as key drivers. Regarding local accounts, Harik noted that XPO added approximately 10,000 new local accounts in 2025, reaching 25% of the total business, halfway to their 30% target, which is expected to contribute about 0.5 point of yield outperformance annually.

Scott Group inquired about the expected magnitude of XPO's Q4 margin outperformance relative to seasonality and sought early insights into margin improvement expectations for 2026.

Answer

CEO Mario Harik stated that XPO expects a strong year of OR improvement and earnings growth in 2026, even without a macro recovery, driven by above-market yield growth, progress in premium services, and AI-driven cost efficiencies. CSO Ali Faghri added that Q4 would see a modest sequential OR increase, implying a meaningful acceleration in year-over-year OR expansion, in the ballpark of 250 basis points.

Scott Group inquired about the expected magnitude of XPO's Q4 seasonality outperformance and sought early insights into the company's margin improvement trajectory for 2026.

Answer

Mario Harik (CEO, XPO) projected strong OR improvement and earnings growth for 2026, even without a macro recovery, driven by above-market yield growth, increasing premium services to 15% of revenue, growing local accounts to 30%, and AI-driven cost efficiencies. Ali Faghri (CSO, XPO) added that Q4 adjusted operating ratio expansion is expected to be around 250 basis points year-over-year.

Scott Group of Wolfe Research asked for color on the operating ratio (OR) outlook for the third quarter, the status of the full-year 100 basis points improvement target, and the strategic opportunity in the new grocery consolidation service.

Answer

CEO Mario Harik stated that XPO expects the Q3 OR to be flat sequentially with Q2, outperforming normal seasonality and showing strong year-over-year improvement. He affirmed that the full-year outlook for 100 basis points of OR improvement remains achievable in a mid-single-digit tonnage decline scenario. Harik described the grocery consolidation service as a $1 billion market where XPO is underrepresented, noting it's an attractive, high-margin business that is expected to ramp up in the second half of the year.

Scott Group from Wolfe Research asked about the current percentage of local revenue relative to the 30% goal, the margin premium for local versus national accounts, and the volume assumption underlying the Q2 margin improvement forecast.

Answer

Executive Mario Harik stated that local revenue is now in the low-to-mid 20% range, up from a 20% baseline, and the margin spread has remained consistent. Chief Strategy Officer Ali Faghri noted that April's tonnage was in line with normal seasonality and that applying historical trends would imply full Q2 tonnage would be down in a similar year-over-year range as April.

Scott Group from Wolfe Research asked about the current percentage of local revenue, its margin premium over national accounts, the seasonality of April's tonnage, and the volume assumption for the Q2 margin outlook.

Answer

CEO Mario Harik stated that local revenue is now in the low-to-mid 20% range, with a goal of 30%, and that its margin premium has been consistent. Chief Strategy Officer Ali Faghri noted that April's 5.7% tonnage decline was in line with normal seasonality from March and that applying historical trends would imply a similar year-over-year decline for the full second quarter.

Scott Group of Wolfe Research asked if declining tonnage is limiting near-term pricing power and sought an early outlook on LTL margin improvement for 2025.

Answer

Executive Mario Harik affirmed a constructive pricing environment, while CFO Kyle Wismans noted that contract renewals were up high-single-digits for the fifth straight quarter. CSO Ali-Ahmad Faghri projected that the full-year 2024 OR improvement would be at or above the high end of the 150-250 basis point range, with Q4 OR expected to outperform typical seasonality.

Scott Group inquired about the drivers behind the exceptional January demand, whether these trends are continuing into the rest of the quarter, and if any moderation is observed. He also asked for clarification on the company's RASM/CASM spread outlook for the year, specifically regarding 2026 CASM in a flat capacity environment.

Answer

Drew Wells, Chief Commercial Officer, attributed strong demand to reduced seat availability and improved visitation, noting better bookings and pricing capabilities, especially for spring break and Easter. Greg Anderson, CEO, clarified that the 'best spread' comment referred to 2025, but confirmed expectations for TRASM to improve more than CASM ex-fuel in 2026. Robert Neal, President and Chief Financial Officer, added that full-year CASM ex-fuel is expected to be up, with Q2 being the high point year-over-year, but down compared to 2024.

Scott Group inquired about the drivers behind the "exceptional" January demand, asking if these strong trends are expected to continue throughout the first quarter or if any moderation is anticipated. He also sought clarification on the company's outlook for RASM and CASM spread for the current year, specifically regarding the expectation of exceeding CASM ex-fuel increases.

Answer

Chief Commercial Officer Drew Wells attributed strong demand to a favorable supply backdrop and improved website visitation, noting that while January's peak won't persist, spring break and Easter look strong. CEO Greg Anderson clarified that the "best spread" comment referred to 2025, but they expect TRASM to improve more than CASM ex in 2026, reinforcing margin expansion. President and CFO Robert Neal added that CASM ex is expected to be up in the first half of 2026, peaking in Q2, but down year-over-year compared to 2024.

Scott Group requested a recap of the Q3 RASM and CASM outlook and asked for more detail on why Allegiant might not benefit from improving demand as much as peers. He also questioned the Q4 outlook, noting that the implied earnings were a significant decline from the prior year.

Answer

SVP & CCO Drew Wells explained that with 42% of Q3 ASMs concentrated in July, the benefit of a late-quarter demand uptick is muted. For Q4, he noted that a significant year-over-year increase in industry capacity into key leisure markets like Orlando warrants a more cautious outlook. SVP & CFO Robert Neal reiterated the full-year CASM-ex guide of down mid-single digits.

Scott Group followed up on previous questions, seeking more specific directional guidance for Q2 TRASM. He also asked for clarification on the expected trend for CASM-ex fuel for the remainder of the year.

Answer

CCO Drew Wells and CEO Greg Anderson clarified that while they previously expected Q2 TRASM to perform better than Q1, it is now expected to be worse, with the swing in expectation representing a 5-6 point delta. On costs, CFO Robert Neal reiterated that Q1 saw the strongest year-over-year cost decline, but he still expects unit costs (CASM-ex) to be down in Q2 and Q3, with Q4 being more challenging due to a large gain on sale in the prior-year period.

Scott Group questioned the drivers behind the Q1 RASM guidance being significantly lower than Q4's performance and sought confirmation on the full-year relationship between RASM and CASM. He also asked about future asset sale gains.

Answer

CCO Drew Wells attributed the Q1 RASM decline to the Easter timing shift and less productive growth patterns compared to the concentrated holiday growth in December. CEO Gregory Anderson and CFO Robert Neal confirmed that for the full year, unit cost (CASM) is expected to decrease more than unit revenue (RASM). Neal added that only minor asset gains are assumed in the 2025 forecast.

Scott Group questioned why recent hurricanes had an outsized impact on RASM beyond just capacity cuts and asked for directional thoughts on 2025 capacity growth and its potential effect on both CASM and RASM.

Answer

Chief Commercial Officer Drew Wells attributed the large RASM impact to significant uncertainty around the pace of demand recovery in heavily affected markets like Asheville. For 2025, Wells projected low-double-digit ASM growth in early 2025, while CFO Robert Neal noted that with existing infrastructure, growth could exceed 15%, which would be a tailwind for CASM-ex. Management stressed the focus is on driving earnings, not just unit metrics.

Scott Group of Wolfe Research asked about the factors driving the improvement in average shipment weight, including potential truckload spillback or industrial recovery, and the implications for yield trends given recent deceleration.

Answer

CFO Adam Satterfield attributed the increased weight per shipment to both contract and smaller customers, suggesting early signs of truckload market normalization. He explained that while higher weight might pressure revenue per hundredweight, it positively impacts revenue per shipment, which is a key success metric.

Scott Group asked about the drivers behind the improving average shipment weight, such as truckload spillback or industrial improvement, and how to interpret yield trends decelerating into Q4 and Q1.

Answer

Adam Satterfield, CFO, attributed the increased weight to a combination of factors, including contract customers, smaller businesses, and early signs of truckload market normalization. He noted that increased weight could put pressure on revenue per hundredweight but emphasized that it's a positive for revenue per shipment and network density, ultimately aiding operating ratio improvement.

Scott Group from Wolfe Research asked if Old Dominion Freight Line observed a significant drop-off in government-related activity in October and how the company balances long-term pricing discipline with current network density challenges and competitive dynamics.

Answer

Adam Satterfield, CFO, confirmed no direct government business impact. He stated that Old Dominion Freight Line maintains pricing discipline, evidenced by a 5% yield increase (excluding fuel) in October, despite a competitive environment. He attributed the company's relatively stronger earnings per share performance compared to peers to this discipline and effective cost control.

Scott Group asked for clarification on any government-related activity impact on October volumes and, more broadly, how Old Dominion Freight Line balances long-term pricing discipline with network density challenges, and if there's any change in the competitive pricing environment.

Answer

Adam Satterfield, CFO, reiterated no direct government business impact and affirmed consistent pricing discipline, with a 5% yield increase (ex-fuel) expected in October. He emphasized the sales team's focus on demonstrating value amid a competitive environment, noting that Old Dominion Freight Line's cost control and service differentiate it.

Scott Group from Wolfe Research, LLC posed a big-picture question about whether the three-year duration of being a yield leader but a tonnage laggard has prompted any change in Old Dominion's strategy.

Answer

EVP & CFO Adam Satterfield affirmed the strategy is unchanged, emphasizing the refusal to chase unprofitable freight. He pointed to the high overhead costs (22% of revenue vs. 17% in 2022) as the primary drag on margins, which also represents significant operating leverage potential once revenue growth resumes. He highlighted the ~60% incremental margin on Q2's sequential revenue growth as proof of the model's power.

Scott Group from Wolfe Research asked if the extended three-year downturn, where ODFL has prioritized yield over volume, has prompted any change in their long-term strategy.

Answer

EVP & CFO Adam Satterfield affirmed their strategy is unchanged, emphasizing they will not chase unprofitable freight. He explained that the pressure on margins is from fixed overhead costs (now 22% of revenue vs. 17% in 2022) due to their strategy of investing through the cycle. This creates significant operating leverage that will be realized when volumes return.

Scott Group sought clarification on the revenue assumption underlying the Q2 operating ratio guidance and asked for an update on the pricing environment and competitive dynamics.

Answer

CFO Adam Satterfield clarified the guidance for a 100 basis point sequential OR improvement assumes daily revenue remains flat with April levels, resulting in total Q2 revenue around $1.4 billion. He reiterated that ODFL continues to secure price increases based on its cost-plus model and consistent customer relationships, which he believes positions them well for when the market recovers.

Scott Group sought clarification on the revenue assumption for the Q2 operating ratio guidance and asked for high-level thoughts on pricing and competitive dynamics.

Answer

CFO Adam Satterfield clarified the 100 bps OR improvement guidance assumes daily revenue remains flat with April levels, resulting in about $1.4B in quarterly revenue. He reiterated that ODFL continues to secure price increases based on its consistent, cost-plus model and strong value proposition.

Scott Group asked for a potential revenue range for Q1 and whether the apparent acceleration in yields excluding fuel was driven by pricing or by shipment mix.

Answer

CFO Adam Satterfield provided a Q1 revenue outlook between $1.34 billion and $1.38 billion, contingent on seasonal performance. He explained that the strong 4.5% ex-fuel yield increase in January was partly due to a favorable mix from a drop in weight per shipment, but affirmed that the company's underlying pricing discipline remains consistent.

Scott Group sought clarification on whether the negative total yield in October was entirely due to fuel price declines and asked directly if Old Dominion is observing increased pricing competition.

Answer

CFO Adam Satterfield confirmed the negative yield is largely fuel-related, with fuel prices down about 20% year-over-year in October. He stated that the overall pricing environment has been stable and rational, which has not negatively impacted ODFL's ability to secure increases or its flattish market share.

Scott Group asked David R. Parker to elaborate on his increased conviction regarding the freight market compared to three months prior, seeking more data points on driver exits and overall market trends. He also questioned the impact of Expedited's mix shift towards LTL over recent years, specifically how it affects the end market, potential upside leverage, and overall operating leverage.

Answer

EVP Joey Hogan (responding for David R. Parker) expressed significantly greater excitement about the market, citing plentiful 'green shoots' such as increased bids, new business at higher rates, and capacity exiting the market. He highlighted DOT actions against illegal CDL schools and anticipated stronger GDP growth in 2026. COO Dustin Koehl explained that the LTL exposure in Expedited was right-sized last year due to market changes, making it less significant today than in 2023. CEO David R. Parker added that regardless of the LTL or air freight portfolio, pricing is key, and returns will improve when pricing can be passed on.

Scott Group asked for an update on the company's market outlook, specifically if CEO David R. Parker felt more conviction about the improving market conditions (supply, regulations) compared to three months prior, and if there were more data points on driver exits. He also inquired about the impact of the expedited segment's shift towards LTL freight over recent years, asking what the company was observing in that end market and how the LTL mix shift might limit or leverage upside potential.

Answer

EVP Joey Hogan expressed significantly more excitement than three months prior, believing the trucking industry was at the beginning stages of recovery. He cited plentiful 'green shoots' including increased bids, new business at higher rates, and clear evidence of capacity exiting the market, highlighting DOT actions against illegal CDL schools and English proficiency requirements. COO Dustin Koehl stated that the LTL exposure had 'right-sized' and was 'a lot less today than it was in 2023' due to declining LTL volumes and tonnages. CEO David R. Parker added that in lieu of LTL, the company had increased business with airfreight and freight forwarder customers, emphasizing that profitability ultimately depended on pricing power.

Scott Group of Wolfe Research inquired about the current capacity backdrop, specifically the extent of capacity exits, and why this isn't yet reflected in national spot rates, contrasting it with tighter local markets. He also asked about the impact of enforcement on large fleets versus the brokerage model, the near-term Q4 outlook, LTL business performance, early thoughts on 2026 bid season pricing, and the company's fleet purchasing strategy given current market uncertainties.

Answer

CEO David Parker expressed strong optimism for the next 2-3 years due to government enforcement on drivers (non-domiciled CDLs, English speaking, ELD cheating, multiple MC numbers) leading to constrained supply. He noted localized spot rate increases in states like California and Texas due to driver reluctance. President Paul Bunn added that West Coast states are still defining policies for non-domiciled CDLs, which will accelerate capacity exits in the coming weeks. Both acknowledged potential short-term pain for brokerage margins but anticipated asset rates to rise. For Q4, David Parker noted LTL slowdown, government shutdown impact on DoD business, and brokerage margin compression, leading to an unseasonably soft quarter. CFO Tripp Grant concurred, stating it's too early for specific numbers but expects softness. Regarding pricing, Paul Bunn indicated low single-digit rate increases are being discussed with some customers, while David Parker highlighted a 17% increase in bid activity since August. On fleet strategy, Paul Bunn mentioned OEMs lack pricing due to tariff questions, leading to slack order boards. Tripp Grant stated net CapEx for next year is estimated between $70M-$80M, with flexibility to delay purchases, emphasizing a healthy fleet and balance sheet.

Scott Group asked about the current capacity backdrop in the freight market, specifically inquiring about the extent of capacity exits, why national spot rates aren't reflecting these exits despite local market tightening, and the potential impact of enforcement on large fleets versus smaller carriers and the brokerage model. He also sought clarity on the expected near-term performance for Q4, particularly for the LTL business, and management's outlook on pricing and fleet purchasing decisions for 2026.

Answer

CEO David Parker expressed strong optimism for the next 2-3 years, citing government enforcement on non-domiciled CDLs, English-speaking requirements, ELD cheating, and multiple MC numbers as drivers for capacity exits. He noted localized spot rate increases in specific states and cities due to third-party reluctance. President Paul Bunn added that national spot rates haven't fully reacted due to states like California still finalizing policies, but expects capacity to exit soon. Both executives acknowledged potential brokerage margin compression but anticipate rising asset rates to offset this. For Q4, Mr. Parker indicated a slowdown in LTL, impact from the government shutdown on DOD business, and 'sloppiness' in the TEL business, leading to an unseasonably soft quarter. CFO Tripp Grant concurred, while Mr. Parker noted some optimism for peak business. On pricing, Mr. Bunn mentioned low-single-digit rate increases from some customers, while Mr. Parker highlighted a 17% increase in bids since August. Regarding fleet, Mr. Bunn stated that OEMs lack pricing due to tariff uncertainties, leading to slack order boards. Mr. Parker estimated net CapEx between $70M-$80M for next year, emphasizing the company's healthy fleet and flexibility in equipment purchases.

Scott Group of Wolfe Research inquired about the freight market outlook, including any "green shoots," peak season discussions, and the impact of English proficiency rules. He also asked about the performance of the LTL-exposed expedited business and how recent government legislation might affect CapEx.

Answer

CEO David Parker confirmed seeing "green shoots" with stabilizing rates and new bid activity, though he remains cautious. He noted that while the LTL business is soft, the air freight side is seeing a pickup from AI-related demand. CFO Tripp Grant added that recent legislation helps cash flow but doesn't alter their disciplined CapEx strategy, which remains focused on growth opportunities in the dedicated segment.

Scott Group of Wolfe Research sought to reconcile the contrast between near-term headwinds like weather and poultry issues with the CEO's 'ecstatic' long-term outlook. He asked for the basis of this optimism and inquired about the potential for future niche acquisitions.

Answer

President Paul Bunn clarified that while Q1 may face headwinds, the full-year 2025 earnings are expected to grow over 2024 due to improving fundamentals. CEO David Parker supported his optimism by citing concrete evidence, such as winning a high volume of bids at better rates, which hadn't occurred in two years. Executive James Grant confirmed that disciplined acquisitions remain a part of their capital allocation 'playbook,' alongside dividends and share repurchases.

Scott Group of Wolfe Research inquired about the current demand environment through Q3 and into Q4, the specific pressures within the Expedited segment related to LTL line haul, and the outlook for contract pricing in the upcoming bid season.

Answer

Executive M. Bunn detailed that demand softened in September and October, particularly in the LTL-related portion of the Expedited segment, which constitutes 55-60% of that business. CEO David Parker added that while the freight market remains at a bottom, he is optimistic about securing rate increases of 2-3% in early 2025, with potential for more later in the year.

Scott Group asked Ghislain Houle to clarify if the depreciation change was a one-time event or a new run rate. He then asked Tracy Robinson about the broader message regarding rails' historical ability for earnings to decouple from volume, questioning if this algorithm is broken or if current headwinds are unique.

Answer

Ghislain Houle, Chief Financial Officer, clarified that the depreciation variance was a quarter from a favorable depreciation study and three-quarters from correcting over-depreciated purchase price allocation assets. Tracy Robinson, President and CEO, stated that the algorithm is not broken but impacted by unique headwinds like tariffs (especially on forest products and metals) and unusual FX movements. She emphasized CN's focus on structural cost reduction to build operating leverage for when volumes and the tariff situation normalize.

Scott Group first asked Ghislain Houle for clarification on whether the depreciation impact was a one-time event or a new run rate. He then posed a broader question to Tracy Robinson regarding the historical ability of railroads for earnings to decouple from volume growth, asking if this algorithm is broken or if current flat earnings despite flat volumes are due to unique headwinds.

Answer

Ghislain Houle, CFO, clarified that the depreciation variance was one-quarter from a favorable, regular depreciation study and three-quarters from a Q4 correction of over-depreciated purchase price allocations from past acquisitions. Tracy Robinson, CEO, stated that the earnings are not decoupling but are affected by unique headwinds, specifically the unusual impact of Canada-US tariffs on forest products and metals, and significant FX movements. She emphasized CN is using this period to become leaner, focus on structural cost reduction, and build operating leverage for future volume growth, highlighting CN's strong natural resource base and port access.

Scott Group asked for an explanation for CN's negative volume trend when other railroads are positive, and inquired about the level of margin improvement now embedded in the full-year guidance.

Answer

Interim CCO Janet Drysdale noted that direct comparisons are difficult due to different business mixes and comps, highlighting transient weakness in CN's petroleum and chemicals segment. CEO Tracy Robinson stated that while hitting 200 basis points of margin improvement is now more challenging, it is "not completely off the table," depending on volume, mix, and continued cost discipline.

Scott Group asked if the back-half weighted earnings growth is a function of easy comparisons or an assumed fundamental improvement after a Q2 "air pocket," and also inquired about changes to foreign exchange assumptions.

Answer

CEO Tracy Robinson confirmed it's a combination of both easier year-over-year volume comps and expected growth from CN-specific initiatives. CCO Remi Lalonde added that tariffs are creating a near-term air pocket. CFO Ghislain Houle clarified the FX assumption, noting that if the Canadian dollar stays at its current level ($0.72), it would be a tailwind of about $0.05 to full-year EPS compared to the prior year.

Scott Group sought to understand the building blocks of the 2025 earnings guidance, asking to quantify factors like FX and lapping 2024 headwinds, and to gauge the level of conservatism or 'cushion' in the forecast.

Answer

President and CEO Tracy Robinson explained the guidance range accounts for variability in volumes, fuel, and FX. She detailed the volume growth assumption: over 50% from CN-specific initiatives, about one-third from recovering 2024's lost volumes, and a very modest lift from the economy, identifying overall volume as the key variable.

Scott Group from Wolfe Research asked if year-over-year margin improvement is achievable in Q4 and requested an update on the pricing outlook for 2025.

Answer

President and CEO Tracy Robinson confirmed sequential margin improvement for Q4, with the final result dependent on international volume recovery. Regarding pricing, she stated it has been strong and that for 2025, CN expects to achieve 'pricing ahead of railroad deflation,' supported by high service levels.

Scott Group questioned the historical inverse correlation between ancillary revenue and base fares, asking what's different now and what percentage of bookings are basic versus prior. He also asked about the implied Q1 RASM exit rate, suggesting it might be in the teens.

Answer

CEO Bob Jordan stated that ancillaries and fares are disconnected, as ancillaries (like seat selection) are separate, choice-driven decisions. CFO Tom Doxey did not provide monthly RASM guidance but confirmed that extra legroom seats and seat assignments enhance unit revenues.

Scott Group questioned why the historical trend of ancillary revenue increasing while fares decrease might not apply here, asking what percentage of bookings are basic since the new changes. He also asked for modeling insights, specifically if RASM is expected to exit Q1 in the teens given January's tough comparison.

Answer

President and CEO Bob Jordan stated that ancillaries and fares are disconnected, especially with seat ancillaries being a separate decision, and the changes are about offering customer choice. CFO Tom Doxey declined to give monthly RASM guidance but confirmed that extra legroom and seat assignments enhance unit revenues.

Scott Group noted a significant gap between the $1 billion in initiatives for the current year and the $300 million of incremental EBIT guided, asking if a similar gap should be expected next year, or if it could widen or disappear.

Answer

CEO Bob Jordan explained that the gap primarily reflects the macroeconomic environment and its inflection, noting that the company has not fully recovered to pre-issue levels. CFO Tom Doxey added that initiatives are designed to offset typical cost increases, and future guidance will likely shift towards an EPS range, where all factors are netted. He emphasized that the company will continue to discuss initiatives and their contributions, but within a broader financial context.

Scott Group from Wolfe Research asked for clarification on the implied Q4 capacity growth rate and questioned the potential risk of the industry adding capacity in Q4 while simultaneously expecting a significant RASM recovery.

Answer

COO Andrew Watterson explained the higher Q4 capacity growth is largely a comp issue due to an abnormally low base in the prior year and reflects a strategic shift to modulate capacity for peak vs. off-peak periods. President & CEO Bob Jordan emphasized that full-year capacity growth remains at 1%, with trips down, creating a constructive backdrop. Watterson also noted that while ASMs are up due to Redeyes and longer haul, the actual number of seats to sell is a more modest lift.

Scott Group asked for clarification on whether the 3% to 5% margin guidance for next year includes sale-leaseback gains and questioned the significant increase in labor costs despite lower headcount.

Answer

CFO Tammy Romo clarified that the 3% operating margin guidance excludes the fleet monetization strategy, while the 5% guidance includes it. She explained that higher labor costs are driven by new contracts with annual inflationary pressures and work rule changes, which the company is now lapping.

Scott Group asked about the current spread between inland and coastal spot and contract prices, what a normal or desired spread would be, and whether the Q4 inland contract renewal trend (down low single digits) was an anomaly or a new trend.

Answer

CEO David Grzebinski stated that coastal is essentially fully termed up with no spot work. For inland, spot prices are a healthy 10% above term, though 40% higher pricing is needed to justify new builds. President and COO Christian O'Neil clarified that the Q4 renewals, which saw a low single-digit decline for 30% of the portfolio, were a reflection of market conditions at that specific time (lighter crude slate, excess barges) and not indicative of a new trend. He expressed optimism for Q1 renewals and the spot market momentum.

Scott Group asked about the current spread between spot and contract prices for both inland and coastal marine, what constitutes a normal or desired spread, and whether the Q4 term contract renewal trend was an anomaly or indicative of a new market direction.

Answer

David Grzebinski, CEO, stated that coastal marine is fully termed with no spot work. For inland, spot prices are a healthy 10% above term, though 40% higher pricing is needed to justify new builds. Christian O'Neil, President and COO, viewed the Q4 renewals (down low single digits) as a reflection of the market conditions at that specific time (lighter crude slate, excess barges), rather than a new trend. He expressed optimism for Q1 renewals and current spot market momentum.

Scott Group sought clarification on the lowest point of inland utilization in Q3, the seemingly mixed messaging regarding inland market conditions (stable, improving, or worsening), and requested more specific details on the size and trend of the power generation backlog.

Answer

Christian O’Neil, Kirby's President and Chief Operating Officer, clarified that inland market utilization troughed at 80% in Q3 and has since moved higher, with spot pricing also increasing. David Grzebinski, Kirby's Chief Executive Officer, stated that the power generation backlog is at a record level, up mid-teens sequentially and year-over-year, falling within the $0.5 billion to $1 billion range, with a book-to-bill ratio well over one.

Scott Group inquired about the trough utilization rate for inland marine in Q3 and the current utilization. He sought clarification on the seemingly mixed messaging regarding market conditions (stable, improving, or worsening) and the direction of spot pricing. Additionally, he asked for more specific details on the size and disclosure of the power generation backlog.

Answer

Christian O’Neil (President and COO) clarified that the inland market troughed at 80% utilization in Q3 and is currently at 87.6%, with spot pricing moving higher since its Q3 drop. David Grzebinski (President and CEO) stated the power generation backlog is at a record, up mid-teens sequentially and year-over-year, falling between $0.5 billion and $1 billion, with a book-to-bill ratio well over one. Raj Kumar (EVP and CFO) highlighted improved margins due to lean manufacturing.

Scott Group from Wolfe Research questioned why inland contract renewals were only in the low-to-mid single-digit range in a strong market and asked about the ultimate potential for inland margins. He also inquired about the strategy for balancing M&A and buybacks.

Answer

CEO David Grzebinski described Kirby's pricing strategy as a "slow and steady" partnership approach with customers, noting rates are up 50% since 2022. He reiterated his belief that inland margins can still reach the high 20s. Regarding capital allocation, he stated a preference for inland M&A but confirmed that absent a deal, free cash flow would likely be directed to share repurchases.

Scott Group from Wolfe Research questioned why Q1 inland contract rate increases were only in the 3-5% range given that spot rates are above term rates. He also asked for Kirby's perspective on the potential impacts of trade tariffs and the administration's efforts to incentivize U.S. shipbuilding.

Answer

CEO David W. Grzebinski explained the modest contract rate increase was due to a small sample size of renewals in Q1. On tariffs, he assessed the net impact as a 'modest positive,' with higher steel costs increasing the value of existing assets, offset by some uncertainty. He clarified that the administration's shipbuilding focus is on international vessels, not the Jones Act, which could indirectly benefit Kirby by increasing shipyard maintenance options. President and COO Christian O'Neil added that federal investment in mariner training is a positive.

Scott Group questioned if the 15% decline in inland tonnage over two years indicates a demand issue, asked for an update on industry newbuild activity, and inquired about the potential peak margin for the coastal segment this cycle.

Answer

COO Christian O'Neil and CEO David W. Grzebinski responded. O'Neil attributed the ton-mile decline to specific trade lane shifts, such as reduced crude from the Utica and a temporary lull in fertilizer, rather than a broad demand problem. He also noted that new barge construction is constrained by limited shipyard capacity and rising costs, with a new barge quoted at $4.5 million. Grzebinski concluded that he would be disappointed if coastal margins did not cross 20% during this cycle, a significant increase from the prior peak of around 15-16%.

Scott Group asked President and CEO Mark George about any concerns regarding the STB's rejection of the merger application and its impact on approval odds. He also questioned the implications of Mark George's "fight for business" rhetoric on Norfolk Southern's pricing strategy.

Answer

President and CEO Mark George stated the STB's rejection was procedural, not merit-based, and provided a clear path to completeness, alleviating concerns about approval odds. Regarding "fight for business," he clarified it's a rallying cry for quality revenue and new products, not a shift in pricing discipline, noting strong core pricing in merchandise despite external headwinds.

Scott Group questioned President and CEO Mark George about any concerns regarding the STB's rejection of the merger application and its impact on ultimate approval odds. He also asked for clarification on the 'fight for business' commentary, specifically what it implies for pricing strategy given the current market backdrop.

Answer

President and CEO Mark George stated that the STB turnback was typical and based on completeness, not merits, with a clear path to resubmission. Regarding 'fight for business,' he clarified it's a rallying cry for quality revenue, emphasizing disciplined pricing and strong yield performance in merchandise, which was offset by challenges in seaborne coal and fuel. He reiterated the commitment to offering new products and creating a compelling environment for customers without compromising quality revenue.

Scott Group inquired about the 2% drag in Q3 from merger-related business losses, asking if it was confined to intermodal, if it would worsen, and the total business at risk until the merger closes.

Answer

Chief Commercial Officer Ed Elkins confirmed the impact began in late Q3, primarily in the Southeast, and is expected to be a headwind for several bid cycles. CFO Jason Zampi clarified the Q4 cost guidance, noting historical seasonality and drivers like increased headcount, depreciation, and higher purchase services due to a shift to a managed IT services model.

Scott Group at Wolfe Research inquired about the specific impact of merger-related business losses in Q3, whether it's confined to intermodal, and the projected risk of further business erosion. He also sought more precise guidance on Q4 cost structure, particularly after normalizing for land sales, and whether the operating ratio is expected to worsen.

Answer

Chief Commercial Officer Ed Elkins clarified that merger-related impacts began manifesting in late Q3, primarily in the Southeast intermodal segment, and are expected to be a headwind for several quarters but represent a minority of the business. Chief Financial Officer Jason Zampi explained that Q4 expenses typically rise seasonally, driven by increased headcount, depreciation, and higher purchase services due to a shift to a managed IT services model, which historically leads to a 1.5% increase from Q3.

Scott Group asked for clarification on whether the 4% ex-fuel merchandise yield growth was driven by mix or core pricing, and questioned the company's ability and willingness to reduce costs, such as headcount, in a hypothetical 5% volume decline scenario.

Answer

CCO Ed Elkins confirmed the merchandise yield strength was a function of both favorable mix from share gains in chemicals and strong same-store pricing. CEO Mark George addressed the cost question, stating the company is not fully volume-variable and learned a harsh lesson in 2020 by cutting too deeply. While not committing to a specific action for a 5% decline, he emphasized the company has a long productivity runway and is managing headcount via attrition.

Scott Group of Wolfe Research, LLC asked if the 4% merchandise yield growth was driven by mix or core pricing, and questioned the company's willingness to cut costs significantly if volumes were to decline sharply.

Answer

Chief Commercial Officer Ed Elkins confirmed the yield growth was from both favorable mix and strong core pricing. President and CEO Mark George stated that while the company has a large productivity runway, it would avoid 'draconian' cuts in a downturn, recalling lessons from 2020, and is focused on long-term efficiency and scenario planning.

Scott Group inquired about the mix of volume versus yield within the 3% revenue growth guidance for the year and asked about the remaining opportunity for labor productivity improvements in 2025.

Answer

CMO Ed Elkins stated that the 3% revenue growth would be driven by volume growth and a solid price plan, which together would overcome headwinds from fuel and coal. CFO Jason Zampi and another executive confirmed there is continued runway for labor productivity across all operating ranks, building on the significant overtime reductions achieved in Q4.

Scott Group asked about the sustainability and future runway for labor productivity, noting the strong Q3 performance of increased volume with decreased headcount.

Answer

COO John Orr asserted that they are 'just getting started' on labor productivity. He credited the gains to a disciplined operational approach, designing out inefficiencies, and strong collaboration with labor unions. He emphasized that the potential for further gains is significant as the new leadership and culture take hold.

Scott Group from Wolfe Research, LLC asked for clarification on the Q3 cost outlook excluding fuel, considering the upcoming wage increase, and questioned whether the negative revenue mix is a cyclical or structural issue.

Answer

Ed Elkins, Chief Marketing Officer, attributed the adverse mix to strong volume growth in lower-rated commodities like aggregates and vehicles, a trend he expects to continue. Mark George, Chief Financial Officer, detailed cost pressures, noting productivity tailwinds will be offset by a $25 million wage increase and fuel price changes, creating a combined ~140 basis point sequential OR headwind.

Scott Group asked for clarification on what 'demonstrable market share growth' entails, specifically if the high single-digit spread versus the Cass Freight Shipment Index is the target or if a larger spread is expected. He also questioned how the 2026 personnel expense guidance aligns with the expectation of double-digit productivity savings.

Answer

CFO Damon Lee explained that personnel expenses include salaries, inflationary benefit costs, and rewards for employee performance, which are not directly tied to headcount. He also noted that the $6 EPS target assumes no market growth, but the plan includes outgrowth, with productivity encompassing traditional gains and cost avoidance. President and CEO Dave Bozeman stated that an 800-1,000 basis point difference versus the Cass index is considered demonstrable. Mr. Lee added that demonstrable market share is about taking share within the industry, not just a fixed outperformance of Cass, and that future optionality allows for investing margins into even more significant outgrowth.

Scott Group inquired whether the current high single-digit spread versus the Cass Freight Shipment Index represents the company's definition of 'demonstrable market share growth' or if a larger spread is expected over time. He also asked for clarification on why the 2026 personnel expense guidance, when annualized from Q4 2025, doesn't seem to reflect double-digit productivity savings.

Answer

CFO Damon Lee explained that personnel expense includes salaries, inflationary benefit costs, and rewards for employee performance, which are not directly tied to headcount. He also noted that the $6 EPS target assumes no market growth, but the plan includes outgrowth, and productivity includes cost avoidance not reflected in the 'shipments per person per day' metric. He reaffirmed commitment to double-digit productivity and the $6 EPS target. CEO Dave Bozeman stated that an 800-1000 basis point difference from the Cass index is considered demonstrable. Lee further clarified that 'demonstrable' means taking market share with no cap on future share, and the optionality to invest future margins into even more outgrowth is exciting, with a governor on outgrowth to ensure only 'good freight' is pursued.

Scott Group asked for clarification on the projected SG&A increase from Q3 to Q4, noting it appeared to be over $20 million, and inquired about the 9% year-over-year decline in September's net revenue, questioning if it was an unusual event or indicative of the Q4 run rate, especially given the sharp drop from Q3 levels.

Answer

CFO Damon Lee clarified that the SG&A increase from Q3 to Q4 is less than $20 million, attributed to project spend, and confirmed confidence in the forecast. He explained that September's 9% year-over-year net revenue decline was primarily due to the continued normalization of ocean rates, which significantly impacted Global Forwarding's adjusted gross profit per shipment in Q3 and is expected to persist into Q4, reflecting a very challenging global forwarding market.

Scott Group asked for clarification on the projected SG&A increase from Q3 to Q4, noting it appeared to be over $20 million, and inquired about the 9% year-over-year decline in September's net revenue, questioning if it was an unusual event or indicative of the Q4 run rate, especially given the sharp drop from Q3 levels.

Answer

CFO Damon Lee clarified that the SG&A increase from Q3 to Q4 is less than $20 million, attributed to project spend, and confirmed confidence in the forecast. He explained that September's 9% year-over-year net revenue decline was primarily due to the continued normalization of ocean rates, which significantly impacted Global Forwarding's adjusted gross profit per shipment in Q3 and is expected to persist into Q4, reflecting a very challenging global forwarding market.

Scott Group asked for color on Q3 trends for NAST and Global Forwarding, normal seasonality, and whether to expect further headcount reductions or if there is a natural limit to productivity gains.

Answer

Michael Castagnetto, President of NAST, stated Q3 is historically flat with Q2 and that he sees no 'hard floor' on productivity due to AI advancements. CFO Damon Lee added that productivity is an 'evergreen approach' and noted significant Q3 uncertainty for Global Forwarding due to pending trade negotiations and tariffs.

Scott Group noted that truckload pricing turned positive year-over-year while costs remained negative, a deviation from prior cycles. He asked why this cycle is different and if it implies the company can avoid a margin squeeze during the next market inflection.

Answer

CEO Dave Bozeman attributed the current dynamic to more intelligent and specific pricing processes. He conceded that the company will still feel a squeeze during an inflection but asserted that the goal is to navigate it "better and faster" than in the past by leveraging superior data and having more strategic conversations with customers.

Scott Group, Managing Director and Senior Analyst at Wolfe Research, inquired about CPKC's outlook on inflation, specifically how the company views price versus cost dynamics for the current year, and sought Nadeem Velani's thoughts on the expected operating ratio performance in Q1.

Answer

Nadeem Velani, EVP and Chief Financial Officer, stated that CPKC is not seeing the same inflation issues as other rails, benefiting from the stronger Canadian dollar. He noted that labor inflation is locked in at 2.5%-3% through unique and favorable deals, and CPKC is pricing above that, ensuring a positive spread and margin benefit. He expects year-over-year OR improvement in Q1 and annually.

Scott Group asked about CPKC's outlook on inflation, the balance between pricing and costs for the year, and expectations for the operating ratio in Q1.

Answer

EVP and CFO Nadeem Velani anticipates year-over-year improvement in the operating ratio for Q1 and annually. He noted that CPKC is not experiencing the same inflation issues as other rails, with labor inflation locked in at 2.5-3%, and pricing above that level is expected to create a positive spread benefiting margins.

Scott Group asked Nadeem Velani about underlying pricing trends and when cents per RTM would turn positive, and Keith Creel about the mid-teens earnings algorithm versus current 10% growth, and what's needed to unlock higher growth.

Answer

EVP and CFO Nadeem Velani explained that the removal of the federal carbon tax impacted cents per RTM, but expects it to turn positive in Q4, supported by strong pricing (above inflation, near 4%). For the mid-teens algorithm, he cited a challenging macro, a significant casualty headwind in Q3, and anticipated benefits from share repurchases starting in 2026. He believes a stronger economy and reduced tariff noise could unlock mid-teens EPS growth from 2026-2028.

Scott Group inquired about underlying pricing trends, when cents per RTM is expected to turn positive, and whether the mid-teens earnings growth algorithm remains valid given recent 10% growth.

Answer

EVP and CFO Nadeem Velani explained that the federal carbon tax removal impacted cents per RTM, but expects it to turn positive in Q4. He attributed the 10% EPS growth to macro challenges and a significant casualty expense in Q3, anticipating more normal casualty costs going forward. He reiterated confidence in achieving mid-teens EPS growth from 2026-2028, supported by share repurchases and an improving macro environment.

Scott Group from Wolfe Research asked for a quantification of the potential opportunity for CPKC from concessions in a UP-NS merger and for guidance on the operating ratio (OR) progression in the second half of the year.

Answer

CEO Keith Creel stated that quantifying the opportunity from concessions is hypothetical until the specifics are known, but noted CPKC will have to compete. EVP & CMO John Brooks added that a potential competitive threat to its Canadian port traffic is minimal, representing less than 1% of revenue. On the financial outlook, EVP & CFO Nadeem Velani guided for sequential OR improvement in Q3, with Q4 typically being the strongest, and reiterated confidence in achieving a sub-60% OR for the full year.

Scott Group of Wolfe Research, LLC inquired about the potential impact of an import cliff on Canadian and Mexican ports, the possibility of market share shifts due to tariffs, and the overall tariff exposure for CPKC's business.

Answer

EVP & CMO John Brooks explained that CPKC is uniquely positioned and has not seen a significant import pull-ahead, citing strong partner volumes with Gemini and a focus on Canadian-destined freight. Brooks noted that less than 1% of their business is China-to-U.S. freight via Canada and highlighted continued growth at the Lazaro Cardenas port, while acknowledging some tariff-related choppiness in the automotive and steel sectors.

Scott Group questioned the outlook for the spread between carloads and RTMs and asked about the long-term feasibility of achieving a low-50s operating ratio.

Answer

President and CEO Keith Creel stated that while a low-50s operating ratio is 'within the realm of possibility' long-term, the more immediate and 'real' goal is the path to a mid-50s OR. He and another executive emphasized that significant untapped productivity remains, highlighting recent double-digit improvements in network speed (up 22%) and GTMs per horsepower (up 24%) on the legacy KCS network, which will continue to drive efficiency and margin expansion.

Scott Group asked for confirmation of the company's multi-year outlook for high single-digit revenue and double-digit EPS growth, particularly as the share buyback program is expected to resume next year.

Answer

EVP and CFO Nadeem Velani affirmed that the multi-year outlook provided at the last Analyst Day remains unchanged. He stated that while 2024 did not benefit from a buyback, the company expects to start seeing that benefit in 2025 after reinstating the program. Velani indicated that with strong momentum from synergy wins and a robust crop, CPKC expects to hit its stride in 2025 and achieve the previously guided growth algorithm.

Scott Group explored the implications of a supply-driven cycle, characterized by fewer drivers, on future truck orders. He also asked whether the current order pickup is primarily for replacement or growth, and how the used truck market is expected to evolve, particularly in light of EPA 2027 regulations.

Answer

CEO Preston Feight suggested that fewer drivers, especially those not meeting legal requirements, could lead to better rate positioning and improved profitability for established carriers, driving more truck purchases. He noted a temporary downtick in used truck values due to CDL enforcement and fleet rationalization but expects values to become more valuable as the year progresses, partly due to EPA 2027. President Kevin Baney added that used truck values increased 4% year-over-year and are expected to continue rising.

Scott Group explored the implications of a supply-driven cycle, specifically how fewer drivers might affect truck orders and the cycle going forward. He also asked if the current order pickup is primarily replacement or growth-driven, and how the used truck market is expected to evolve, particularly in light of EPA 2027.

Answer

CEO Preston Feight suggested that fewer drivers, especially those not meeting legal requirements, could lead to better rate positioning and improved profitability for established carriers, driving more truck purchases. He noted a temporary downtick in used trucks due to CDL enforcement and fleet rationalization, but expects delinquencies to diminish and used truck pricing to rise as fleet profitability improves. He confirmed that EPA 2027 is a factor in expecting used trucks to become more valuable. President Kevin Baney added that used truck values increased 4% year-over-year.

Scott Group sought clarification on whether Q4 2024 is expected to be the gross margin trough before an improvement in 2025. He also asked how the company is balancing the pursuit of market share versus price discipline next year.

Answer

CEO Preston Feight responded to the margin question by saying the intuition that Q4 could be the bottom is 'not far off.' On the strategic balance for next year, he stated that PACCAR will be 'pursuing both' market share growth and strong financial performance for its shareholders.

Scott Group of Wolfe Research sought to quantify the tariff cost impact in Q2 compared to the $75 million estimated for Q3, asked about the status of the 2025 order book, and when the 2026 book might open.

Answer

CEO & Director R. Preston Feight confirmed the Q2 tariff impact was 'significantly less' than the Q3 estimate due to timing, with the Q4 outlook dependent on policy clarification. He noted the North American order book is roughly 50% full for Q3, while Europe's is mostly full. He reiterated that vocational and LTL markets remain good and that broader order confidence will come with policy clarity.

Scott Group sought to quantify the tariff cost impact in Q2 compared to the $75 million estimated for Q3, asked about the status of the 2025 order book, when the 2026 book might open, and which customer segments are showing recent activity.

Answer

CEO & Director R. Preston Feight confirmed the Q2 tariff impact was 'significantly less' than the Q3 estimate due to timing, with the Q4 picture depending heavily on tariff clarification. He noted the North American order book is roughly 50% full for Q3, with Europe mostly full. He reiterated that vocational and LTL markets remain good and that clarity on regulations will build confidence across customer segments.

Scott Group requested directional color on the Q2 delivery guidance by region and asked for the expected sequential price versus cost dynamic embedded in the Q2 margin guide.

Answer

CEO Preston Feight reiterated that U.S. and European markets are expected to be relatively flat, with most of the sequential change in deliveries coming from Mexico. He stated that PACCAR expects to see some price increases in Q2, but costs could be higher depending on tariff structures, framing the margin pressure as primarily a timing issue.

Scott Group questioned why PACCAR's parts sales growth guidance isn't accelerating in an improving market, given its strong performance in last year's down market. He also asked for context on backlog fill rates and whether pre-buy activity has begun.

Answer

CEO Preston Feight and President and CFO Harrie Schippers explained that the parts market cadence will likely mirror the broader truck market, which they see as a 'tale of two halves' with growth strengthening through the year. Feight confirmed the current backlog position is 'fairly normal' for this point in the cycle and that while discussions are happening, no significant pre-buy order intake has occurred yet.

Scott Group followed up on the distinction between Jet Forward and "core" earnings, asking what offsets would keep core earnings flat if base RASM was up 0.5 point and CASM was up 2%, and what the upside/downside risks to flat core earnings were.

Answer

President Marty St. George acknowledged the difficulty in precisely splitting "core" and Jet Forward contributions due to their interrelation and the fact that many Jet Forward initiatives would be considered "core" for other airlines. He redirected focus to the overall top-level guidance of 2-5% RASM growth on 2.5-4.5% ASM growth as a testament to the franchise's strength. CFO Ursula Hurley emphasized the projected over 4-point operating margin improvement, primarily driven by Jet Forward, returning to growth, improved AOG outlook, and cost efficiency, expressing confidence in achieving break-even or better profitability.

Scott Group followed up on the JetForward versus core earnings discussion, asking if the $310 million JetForward benefits imply flat core earnings, what offsets keep core earnings flat, and the associated upside/downside risks. He also sought confirmation on focusing on the overall guide rather than individual bridge components.

Answer

Marty St. George, President, acknowledged the difficulty in separating 'core' from JetForward initiatives due to their integrated nature and emphasized focusing on the top-level guide of 2-5% RASM growth on 2.5-4.5% ASM growth as a testament to the franchise's strength. Ursula Hurley, CFO, highlighted the projected 4+ point operating margin improvement driven by JetForward, growth, and cost efficiency, expressing confidence in achieving sustained profitability.

Scott Group from Wolfe Research, LLC asked about the puts and takes for free cash flow with lower CapEx, and whether positive free cash flow is a realistic target for 2027. He also inquired about initial observations and any unexpected outcomes from the recent launch of the Blue Sky collaboration.

Answer

Ursula Hurley, CFO of JetBlue Airways, confirmed that achieving positive free cash flow by 2027 is a key goal, following positive operating margin. She reiterated that the $3 billion aircraft deferral was designed to create a runway for free cash flow, with the ultimate priority being balance sheet improvement and deleveraging to pre-COVID levels. Marty St. George, President of JetBlue Airways, stated that Blue Sky is performing as expected, with redemptions occurring in both directions. He cited a surprising but positive first redemption (Denver-Las Vegas by a Mosaic member on United) as an example of the program successfully providing utility to TrueBlue customers in diverse markets, which aligns with its fundamental goal.

Scott Group asked if the strong RASM during the Easter peak implies a deterioration in May and June relative to the Q2 guidance. He also inquired about the cash flow implications of the weaker earnings outlook and asked for a potential cash burn range for the year.

Answer

President Martin St. George noted that Q2 is a 'troughy' quarter overall, and the guidance reflects the choppy month-to-month performance. Financial Officer Ursula Hurley addressed cash flow, stating that while they did not reaffirm the full-year guide, their #1 priority is to reduce cash burn. She expressed confidence that if the macro backdrop holds, year-end liquidity will remain healthy and above their 20% target, but declined to provide a specific cash burn range.

Scott Group sought clarification on the Pratt & Whitney GTF engine issue, asking if the number of grounded aircraft would increase into 2026 and 2027. He also asked about the timing for a potential replacement for the Northeast Alliance (NEA).

Answer

CFO Ursula Hurley explained that the peak for aircraft on the ground (AOG) is expected within the next 1-2 years (i.e., between now and 2027), but the situation remains fluid. CEO Joanna Geraghty stated that while conversations with other carriers are ongoing, there is nothing to announce regarding a new partnership, and any potential impact is not meaningfully factored into the JetForward plan.

Scott Group requested more detail on the 2025 capacity outlook, including the first-half trajectory and the progression of GTF-related AOGs. He also asked if the 2025 CASM forecast includes impacts from wage step-ups and potential pilot contract changes.

Answer

CFO Ursula Hurley clarified that the 'mid-to-high teens' AOG forecast for 2025 is an average for the year, not an ending figure. President Marty St. George added that ASMs would still be negative in Q1 2025. Ursula Hurley then confirmed that the mid-single-digit CASM ex-fuel outlook for 2025 is an 'all-in' number that includes all labor assumptions, with the JetForward cost pillar designed to offset these inflationary pressures.

Scott Group questioned whether Jim Vena's confidence in the merger approval has changed following the STB decision and other stakeholder comments, and what underpins his strong conviction in the approval.

Answer

Jim Vena, Chief Executive Officer, expressed strong confidence, asserting that the combination is 'compelling' and enhances competition, which he believes is the reason for other railroads' complaints. He stated that regulators understand they cannot 'wreck this industry' and must adopt a forward-looking perspective. He acknowledged the process is challenging but necessary and confirmed they would provide the requested 'red line' information, despite not seeing its material benefit to the merger's merits.

Scott Group asked if Jim Vena's confidence in the merger approval has changed following the STB's decision and comments from other railroads and stakeholders. He also sought to understand the basis for Jim's strong confidence in the approval.

Answer

Jim Vena, CEO, expressed unwavering confidence in the merger, asserting that the combination is compelling and will enhance competition. He dismissed complaints from other railroads as a sign of their concern about competing against a stronger entity. He acknowledged the regulatory process is thorough and challenging but believes the STB will ultimately recognize the positive impact for customers, employees, and the nation. He also addressed the STB's request for a 'red line' (walk-away clause), stating he doesn't like it but will provide it as part of the process.

Scott Group from Wolfe Research asked for the outlook on the second-half operating ratio and price/mix, and also questioned the sustainability of the recent strength in coal volumes, wondering if it represents a structural shift.

Answer

CFO Jennifer Hamann stated the team is confident in driving continuous OR improvement and expects the business mix to turn more positive in the second half as international intermodal's share decreases. EVP of Marketing & Sales Kenny Rocker attributed coal strength to favorable natural gas prices and strong service execution, noting the company is being opportunistic while monitoring long-term impacts from data centers.

Scott Group of Wolfe Research questioned why margins were flat despite strong volumes, record pricing, and lower headcount, asking if mix and fuel were the sole culprits and if margins would improve as those headwinds ease.

Answer

CEO Vincenzo Vena prioritized growing revenue over solely optimizing for margin percentage. CFO Jennifer Hamann confirmed that business mix and fuel had a significant negative impact on the operating ratio. She expects mix to moderate and potentially turn positive later in the year, with fuel headwinds also likely to ease.

Scott Group of Wolfe Research asked for clarification on the full-year earnings guidance, questioning if the phrase 'consistent with attaining the long-term CAGR' directly implies achieving high single-digit to low double-digit EPS growth in 2025. He also inquired when pricing would become accretive to margins.

Answer

CEO Vincenzo Vena confirmed the company's commitment to delivering high single-digit to low double-digit EPS growth annually, barring major external factors. CFO Jennifer Hamann added that pricing became accretive to the operating ratio in Q4 2024 and is expected to remain so throughout 2025.

Scott Group of Wolfe Research, LLC requested color on the 8% increase in compensation per employee and sought further clarification on what the 'flat Q4' guidance implied.

Answer

CFO Jennifer Hamann explained the 8% increase was driven roughly half by the July 1 wage increase and half by higher incentive compensation and guarantee payments related to work-rest agreements. Regarding guidance, she reiterated that 'results' is an all-encompassing word and that key metrics like EPS, operating ratio, and operating income in Q4 are expected to look very similar to Q3.

Scott Group asked about American Airlines' overall capacity growth expectations for 2026, confidence in sustaining strong unit revenue (RASM) with elevated capacity, and the anticipated impact of the new Citi co-branded credit card on RASM. He also followed up on the linearity of the multi-year earnings contribution from the new card.

Answer

CFO Devon May projected mid-single-digit capacity growth for 2026, with adjustments based on market conditions, and expressed confidence in positive unit revenue. Chief Commercial Officer Nat Pieper highlighted the AAdvantage program's rapid growth and its role in driving loyalty and higher unit revenue, noting that the credit card's earnings contribution would be fairly linear over five years, though not perfectly so.

Scott Group asked about American Airlines' overall capacity growth expectations for the year and the confidence in sustaining strong RASM with elevated capacity. He also inquired about the expected impact of the new credit card partnership on RASM this year and whether the multi-year earnings contribution from the card is expected to be linear in 2026.

Answer

CFO Devon May projected full-year capacity growth around mid-single digits, expressing confidence in a supportive environment for positive unit revenue. Chief Commercial Officer Nat Pieper highlighted the AAdvantage program's rapid growth and its positive impact on loyalty and unit revenue. Nat Pieper also clarified that while the credit card's earnings contribution won't be perfectly linear, it will be fairly linear over the next five years.

Scott Group inquired about the sequential improvement in unit revenue, specifically the shift from positive September unit revenue to a flat fourth-quarter guidance, and sought insights into domestic unit revenue performance and the premium versus domestic mix.

Answer

Steve Johnson, Vice Chair and Chief Strategy Officer, explained that July was difficult, with sequential improvements in August and September, leading to positive unit revenue in September. He noted October looked better, and the flat Q4 projection represented a sequential improvement driven largely by main cabin revenue, while premium remained strong. He also addressed next year's outlook, stating that while they are not yet guiding capacity or unit costs, the fleet plan supports mid-single-digit growth, and they anticipate margin expansion in 2026.

Scott Group asked about the discrepancy between September's positive unit revenue and the flat fourth-quarter guidance, seeking clarification on domestic unit revenue expectations and the premium versus domestic breakdown.

Answer

Steve Johnson, Vice Chair and Chief Strategy Officer, explained that July was a difficult month for the industry, with sequential improvements in August and September, leading to positive unit revenue in September. October also looked better. The flat year-over-year projection for Q4 represents a sequential improvement, driven largely by main cabin revenue recovery, as premium revenues remained strong throughout the year. He noted uneven performance in the South Pacific and short-haul Latin America due to capacity issues. Robert Isom, CEO, added that they are in the planning process for next year and are not yet guiding capacity or unit cost, but expect margin expansion in 2026.

Scott Group of Wolfe Research questioned the size of the weak domestic main cabin business, the extent of its RASM decline, and why the recapture of corporate share isn't boosting relative RASM performance.

Answer

Vice Chair Steve Johnson estimated a "mid- to high single-digit weakness" in the domestic main cabin segment. CEO Robert Isom explained that the benefits of corporate share recovery are being masked by significant macroeconomic uncertainty that intensified in March and April.

Scott Group of Wolfe Research asked for details on the expected progression of the price-cost spread throughout 2025 and for regional RASM performance, particularly in the transatlantic market, following a strong Q4.

Answer

CFO Devon May detailed that Q1 unit costs would be high due to lower capacity, increased regional flying, and new labor deals, but would improve sequentially through the year. He noted that margin improvement would be steady, without any single quarter showing outsized gains. CEO Robert Isom added that he sees continued domestic strength and robust transatlantic demand for the summer, driven by a strong dollar and premium traffic.

Scott Group questioned why the Q4 TRASM guidance of down 1% to 3% doesn't show sequential improvement from Q3's down 2% result. He also asked for an early outlook on 2025 CASM given low single-digit capacity growth and the potential revenue opportunity from restoring corporate share by the end of 2025.

Answer

CEO Robert Isom explained the Q4 outlook reflects strong demand in October and December but includes expected softness around the election and Halloween. For 2025, CFO Devon May noted that while CASM guidance isn't available, the primary headwind will be labor costs from new contracts, a pressure the whole industry faces. Robert Isom reiterated the goal to recapture the vast majority of a $1.5 billion annual revenue opportunity from corporate and agency channels during 2025.

Scott Group sought more color on the 'solidly positive' Q1 RASM guidance, comparing it to previous Q1 performance, and asked about the drivers behind the significant shift from flat Q1 earnings to a projected doubling for the full year.

Answer

Andrew Harrison, EVP and CCO, Alaska Air Group, noted Q1 2025 saw 5% unit revenue increases despite demand shocks, and current trends suggest potential for stronger performance. Ben Minicucci, CEO, Alaska Air Group, and Shane, CFO, Alaska Air Group, explained that Q1 is the toughest quarter due to seasonality and lapping labor/real estate costs. The full-year improvement is driven by expected macro recovery and the fact that Q2 and Q3 2025 were the weakest revenue quarters, offering significant expansion opportunities.

Scott Group sought clarification on the 'solidly positive RASM' guidance for Q1, asking for more color given past guidance discrepancies and easier comps, and questioned what changes from Q1 to the rest of the year to explain the projected shift from flat Q1 earnings to double full-year earnings.

Answer

Andrew Harrison, EVP and CCO, highlighted the 5% unit revenue increase in Q1 2025 as industry-leading despite demand shocks, suggesting potential upside if current conditions continue, especially in premium cabins. Shane Tackett, CFO, explained that Q1 is the toughest quarter due to seasonality, unlapped labor deals, and real estate step-ups. He noted that if the current demand environment had been present for the entire Q1 booking window, results would be materially better, and the biggest earnings expansion is expected in Q2 and Q3 due to easier comps from last year's missing revenue.

Scott Group questioned the new seasonality between Q3 and Q4, asking if Q3 is now an under-earning quarter. He also sought more detail on the bridge from the 2025 EPS forecast to the $10 EPS target for 2027, probing its dependency on macro factors.

Answer

CFO Shane Tackett suggested that recent Q3 performance was impacted by industry dynamics rather than a structural shift and that future Q3s should be stronger. He reiterated high confidence in the $10 EPS target, stating it doesn't require significant macro help and is supported by a billion dollars in profit initiatives, all tracking on or ahead of plan, plus accretive share buybacks.

Scott Group asked about the performance gap between premium and main cabin unit revenues in Q1 and how that spread might change in Q2. He also posed a scenario asking if Q3 and Q4 results could improve relative to Q2 if the current revenue headwind persists, due to the synergy ramp.

Answer

Executive Andrew Harrison confirmed the first-class cabin is performing strongly, while premium class is slightly softer but benefits from full planes. Executive Shane Tackett addressed the scenario by stating the synergy ramp is firm and early initiatives are performing slightly better than planned, which could provide upside. He reiterated that even with the headwind, they expect to be a top-three industry margin producer.

Scott Group from Wolfe Research requested a breakdown of the high single-digit Q1 RASM guidance, asking about the relative performance of legacy Alaska versus Hawaiian and the contribution from cargo. He also asked about the CASM trajectory for the year, given the lumpy capacity growth.

Answer

CCO Andrew Harrison stated that both Alaska and Hawaiian assets are performing well on a unit revenue basis, benefiting from network synergies and connectivity. CFO Shane Tackett addressed costs, confirming that Q2 would be the hardest cost comparison due to low growth, with improvement expected in the second half as synergies and A321 utilization ramp up. He reiterated the expectation for RASM to outperform CASM throughout the year.

Scott Group asked for a detailed bridge of the nearly $200 million absolute cost increase from Q2 to Q3, its primary drivers, and its persistence. He also questioned the apparent reacceleration of capacity in Q4 schedules and sought early thoughts on 2025 capacity.

Answer

CFO Shane Tackett attributed about one-third of the Q3 cost increase to labor, mainly the new flight attendant contract, with the rest from timing shifts in airport costs and maintenance. He asserted this high single-digit cost growth is not a new normal. CCO Andrew Harrison clarified that Q4 capacity growth is expected to be lower than Q3's, with full-year growth under 2.5%. Tackett added that 2025 will see fewer aircraft deliveries and more retirements, indicating judicious capacity management.

Scott Group asked for a breakdown of CSX's low single-digit revenue growth guidance for 2026 between volume and yield, and Steve Angel's longer-term view on achieving a sub-60 operating ratio.

Answer

Maryclare Kenney, SVP and Chief Commercial Officer, CSX Corporation, projected modest volume growth for 2026, driven by intermodal, minerals, and fertilizers, despite industrial economy headwinds. Steve Angel, President and CEO, CSX Corporation, expressed confidence in reaching best-in-class operating margins through price management and productivity, but preferred to demonstrate execution before setting a specific long-term OR target.

Scott Group inquired about the composition of the low single-digit revenue growth for 2026, specifically the split between volume and yield. He also asked President and CEO Steve Angel for his longer-term view on CSX's operating ratio, questioning if a sub-60 OR is achievable in the coming years.

Answer

SVP and Chief Commercial Officer Maryclare Kenney indicated modest volume growth for 2026, citing mixed macro conditions. President and CEO Steve Angel expressed confidence in expanding operating margin annually through price management and productivity, aiming for best-in-class performance, but deferred giving a specific long-term OR target until execution is proven over several quarters.

Scott Group asked Steve Angel about his vision for achieving 'best in class' performance, specifically whether it's driven by cost, pricing, volume growth, or operating leverage, and his thoughts on margin improvement.

Answer

Steve Angel, President and CEO, stated that achieving best-in-class involves price yield, volume growth to leverage the cost structure, and continuous improvement within the railroad system. He aims for year-over-year operating margin improvement by working all three levers to rival or achieve best-in-class status.

Scott Group of Wolfe Research asked if the improving cost run-rate through Q2 could offset some of the flagged Q3 cost headwinds. He also requested an expanded outlook on the coal business given strong power demand trends.

Answer

EVP & CFO Sean Pelkey acknowledged the cost improvement in May and June but advised against modeling significant further run-rate gains into Q3. EVP & CCO Kevin Boone confirmed positive trends for domestic utility coal, citing rising utilization and plant life extensions, which help offset pressures in the export market.

Scott Group asked for clarification on whether CSX expects to achieve growth in operating income dollars for the full year 2025, considering the anticipated sharp decline in Q1.

Answer

EVP and CFO Sean Pelkey explained that while specific guidance was not provided, the company would deliver 'pretty solid' operating income growth without the outlined $350 million in discrete headwinds. Factoring in these headwinds and other challenges like coal mine issues, he indicated that adjusted operating income growth would be toward the lower end of the company's Investor Day guidance.

Scott Group asked about future headcount trends as CSX balances service and efficiency, and for an outlook on compensation per employee.

Answer

COO Michael Cory stated the primary focus is on employee retention and hiring for attrition, with current headcount levels deemed sufficient in most areas. CFO Sean Pelkey projected a modest sequential headcount increase from Q3 to Q4 to prepare for next year's vacation peak and also anticipated a slight rise in compensation per employee due to capital program timing and storm-related overtime.

Scott Group asked for a comparison to prior cycles, specifically if the company could achieve price gains alongside utilization improvement (rather than decline), potentially with less driver pay increase, and if the relationship between price and margin could be significantly better this time due to technology and productivity.

Answer

CEO Adam Miller stated the goal is to achieve both utilization and price gains, which would significantly leverage price into margin. He distinguished this cycle from the COVID-era disruption, viewing it as potentially more typical, allowing for better equipment utilization. CFO Andrew Hess highlighted a new capability developed in 2025 to match demand across different brands (truckload and LTL) to find efficiencies and fill gaps, a toolkit not available at scale in prior cycles, which should help drive utilization.

Scott Group asked about the potential for the current cycle to differ from prior ones, specifically if the company could achieve both price increases and improved utilization simultaneously, if driver pay increases might be less significant, and if the relationship between price and margin could be much better than historical averages.

Answer

CEO Adam Miller stated the goal is to achieve both utilization and price increases, which would make price gains more impactful by covering fixed costs. He suggested this cycle might be more typical than the COVID-distorted one, and with strong academies and reduced competition, they are well-positioned to source drivers. CFO Andrew Hess highlighted a new capability developed in 2025 to match demand across different brands (truckload and LTL) to optimize capacity and drive utilization, a toolkit not available in prior cycles.

Scott Group inquired about the significant sequential drop in the 'all other' segment's operating income from Q3 to Q4, the expected impact and timeline of new regulatory enforcement on capacity, and the factors indicating a reversal in private fleet growth.

Answer

CEO Adam Miller confirmed the 'all other' segment's seasonal pattern and discussed the building momentum of regulatory enforcement, citing FMCSA projections, state CDL revocations, and English language proficiency checks, which are starting to create market tightness. CFO Andrew Hess added that changing economics are making private fleets less attractive for refresh cycles.

Scott H. Group (Wolfe Research) inquired about the significant sequential drop in the 'all other' segment's Q4 guidance, the expected impact and timeline of new regulatory enforcement on trucking capacity, and the factors indicating a reversal in private fleet growth.

Answer

CEO Adam Miller confirmed the Q4 'all other' segment guidance reflects normal seasonal patterns, particularly in warehousing. He detailed the potential impact of regulatory enforcement on non-domiciled CDLs and English language proficiency, noting early signs of tightness in certain markets and a potential meaningful shift in supply-demand dynamics by 2026. Miller also explained that anecdotal customer dialogue suggests private fleets are shrinking due to optimization challenges and higher replacement costs, a point CFO Andrew Hess reinforced by highlighting the changing economics of private versus for-hire fleets.

Scott Group of Wolfe Research, LLC asked about fourth-quarter earnings expectations, particularly in light of the seasonality in the 'All Other' segment, and also questioned if recent legislation on bonus depreciation would alter the company's CapEx plans.

Answer

CEO Adam Miller clarified that the company is not providing Q4 guidance due to market uncertainty. He explained that the 'All Other' segment will likely follow its historical pattern of a sequential earnings slowdown in Q4. Regarding capital expenditures, Miller stated that the recent reduction in the CapEx forecast is due to tightening in facilities and IT, not equipment, and that their consistent tractor replacement strategy remains unchanged by bonus depreciation rules.

Scott Group sought clarification on whether the high end of the Q2 guidance assumes normal seasonality and asked if the company would consider shrinking its power-only or brokerage offerings to help tighten the market.

Answer

Executive Adam Miller clarified that the top end of the guidance range assumes only limited seasonality in June, not a normal seasonal strength, reflecting a conservative stance. Regarding power-only, he stated that it is viewed as a complementary service that supports the core truckload business, helps with drop-and-hook freight, and provides network flexibility, and is not something they would look to shrink as it adds value for customers and improves asset returns.

Scott Group asked for an explanation of how Truckload earnings improved significantly from Q3 to Q4 despite a revenue decline and questioned the different strategic approaches for 2025: focusing on yields in Truckload versus market share in Intermodal.

Answer

Executive Adam Miller explained the Q3-to-Q4 margin improvement resulted from better yields and cost progress, which offset holiday-related productivity drops. Regarding strategy, he clarified that for Truckload, pricing is the primary profitability lever. Conversely, for Intermodal, growing volume and market share is the bigger lever needed to utilize latent capacity and improve margins.

Scott Group of Wolfe Research asked why the Swift brand specifically is seeing a spot market pickup and sought clarification on whether margin improvement is expected to match or exceed rate gains.

Answer

Executive Adam Miller explained that Swift, as the largest brand, is the first point of contact for customers with significant, immediate capacity needs, with overflow then directed to other company brands. He affirmed the 2025 objective is for rate improvements to flow directly to margins by maintaining or improving cost per mile through operational efficiencies.

Scott Group from Wolfe Research inquired about United's expectation of at least one point of margin improvement per year, noting that the 2026 guidance midpoint is less than a full point, and asked about factors like price/costs and labor.

Answer

CEO Scott Kirby acknowledged the math and reiterated United's commitment to delivering on longer-term targets, including margin improvement. He stated that the full-year guide was deliberate, but if current booking trends persist, there is upside to the forecast.

Scott Group noted Scott Kirby's previous expectation of at least a point of margin improvement per year and observed that the midpoint of the 2026 guidance implies less than that. He asked if this was due to conservatism or other factors, and if 2026 should still deliver a full point of margin improvement.

Answer

Scott Kirby, CEO, acknowledged the math and stated that the full-year guidance was deliberate. He reiterated that if current booking trends continue, there is upside to the forecast, and investors should consider this in their estimates. He emphasized United's clear long-term targets for margin improvement and commitment to delivering on financial commitments, even in imperfect times.

Scott Group of Wolfe Research asked for a rough starting point for the loyalty EBITDA, specifically its current percentage of total EBITDA, to contextualize the goal of doubling it. He also sought clarification on whether the 2-3 points of labor-related CASM pressure mentioned by Mike Leskinen are entirely incremental for next year or if some have already been realized from prior labor deals.

Answer

CFO Mike Leskinen declined to provide 2026 guidance or specific CASM/TRASM figures but expressed confidence in margin expansion and earnings growth for 2026, acknowledging the 'bill to pay' on the labor front. Managing Director of Investor Relations Kristina Edwards reiterated that a clear breakdown of loyalty contribution would be provided at a future investor day, noting it's a meaningful portion of earnings.

Scott Group of Wolfe Research asked to quantify how much of the recent six-point demand improvement was tied to the Newark recovery versus the broader network. He also inquired about the role of the JetBlue 'Blue Sky' partnership in United's long-term margin ambitions.

Answer

EVP & CCO Andrew Nocella clarified that the demand improvement was broad-based, with Newark's recovery being stronger than the six-point average and the rest of the network slightly below it. CEO Scott Kirby added that the JetBlue partnership is crucial for establishing a competitive presence at JFK, which is important for United's brand as the 'premier flag carrier,' and provides a built-in frequent flyer base on both sides of the Hudson.

Scott Group asked for the basis of confidence that the current favorable industry backdrop will persist for years and questioned whether the full-year guidance assumes a positive spread between RASM and CASM growth throughout the year.

Answer

CEO Scott Kirby attributed the durable backdrop to 'just math,' citing structurally high airport costs that make it unprofitable for LCCs to compete in major hubs. EVP and CFO Mike Leskinen confirmed the full-year guidance expects RASM to exceed CASM, driving margin expansion, and detailed the cost pressures from inflation, efficiency initiatives, and product investments.

Scott Group asked when to expect an inflection point where RASM growth surpasses CASM growth and requested directional color on RASM expectations for the fourth quarter.

Answer

EVP & CFO Mike Leskinen stated they 'absolutely expect that inflection in the calendar year 2025,' with Q3 2024 being the peak for CASM-ex. EVP & CCO Andrew Nocella did not provide specific Q4 guidance but highlighted strong forward indicators, noting that domestic yields for January 2025 bookings were already up 3% year-over-year.

Scott Group asked for a breakdown of the $600 million second-half headwind into its three components (LTL, MD-11, variable compensation) and the portion expected in Q3, along with an indication of Q3 earnings magnitude.

Answer

EVP and CFO John Dietrich detailed that of the $900 million total headwind, $300 million was in the first half. The remaining $600 million in the second half includes $160 million from LTL softness, $175 million from MD-11 groundings (majority in Q3), and $265 million for increased variable compensation. He indicated Q3 adjusted EPS would be sequentially lower than Q2, with revenue in line and operating expenses slightly up.

Scott Group requested a breakdown of the $600 million second-half headwind into its three components and their Q3 allocation, also asking for more color on Q3 earnings expectations relative to Q2 and year-over-year.

Answer

John Dietrich, EVP and CFO, FedEx, detailed the $600 million headwind: $160 million for LTL softness, $175 million for MD-11 groundings (mostly Q3), and $265 million for increased variable compensation. He projected Q3 adjusted EPS to be sequentially lower than Q2, with revenue in line and operating expenses slightly up due to peak demand and MD-11 costs, noting Q3 last year was unusually strong and Q4 is expected to be the strongest this fiscal year.

Scott Group questioned the expected magnitude of sequential earnings growth for Q2 and why operating leverage wasn't stronger, given 5% revenue growth, $1 billion in cost reductions, and share buybacks, despite the acknowledged global headwind.

Answer

EVP & CFO John Dietrich stated that FedEx expects sequential earnings improvement in Q2 compared to Q1's $3.83 EPS, but did not provide year-over-year guidance for Q2. He reiterated that the $1 billion headwind from the trade environment, including lost opportunity and direct expenses, significantly pressures flow-through and operating leverage.

Scott Group asked for a breakdown of the planned $1 billion in fiscal 2026 savings between the DRIVE program and Network 2.0. He also sought a directional view on the company's confidence in achieving full-year earnings growth.

Answer

EVP & CFO John Dietrich stated that FedEx is not breaking out the $1 billion in savings but is committed to achieving the total. Regarding earnings growth, he said it depends on the demand environment and tied the Q1 EPS range to different revenue scenarios. President & CEO Raj Subramaniam highlighted the company's significant operating leverage from past cost cuts.

Scott Group asked for a breakdown of the $1 billion in fiscal 2026 savings between the DRIVE and Network 2.0 programs, and sought management's confidence level in achieving full-year earnings growth.

Answer

EVP & CFO John Dietrich stated that the company is not breaking out the $1 billion in savings but is committed to achieving the total. He noted that full-year earnings growth depends on the demand environment, linking the Q1 EPS range to revenue scenarios. President & CEO Raj Subramaniam added that past cost reductions provide significant operating leverage for when the industrial economy recovers.

Scott Group of Wolfe Research asked for early insights into fiscal '26, an update on the LTL separation timeline, and clarification on previous comments about 'playing offense' in the LTL market.

Answer

EVP and CFO John Dietrich declined to give FY'26 outlook but noted the annualization of DRIVE benefits, ongoing transformation initiatives, and expected inflationary pressures. He confirmed the LTL separation is on track. He clarified that 'playing offense' refers to bolstering sales expertise to focus on quality revenue, not diminishing it.

Scott Group of Wolfe Research sought clarification on Q3 expectations, specifically the net impact of the USPS headwind versus the Cyber Week tailwind. He also asked about the Freight spin-off, questioning the 18-month timeline and how corporate costs would be allocated.

Answer

EVP and CFO John Dietrich reiterated that the USPS headwind in Q3 will be larger than the Cyber Week benefit. Regarding the spin-off, he stated that an 18-month timeline is reasonable for a transaction of this magnitude. He also confirmed that cost reductions related to the USPS contract expiration are on track, with a 60% reduction in U.S. domestic daytime flight hours already implemented.

Scott Group asked for the pros and cons being considered in the FedEx Freight strategic review and whether a sale or spin was more likely. He also questioned if strategic options for the Europe business would be considered if it fails to reach profitability.

Answer

CFO John Dietrich reiterated that the Freight assessment is on track for completion by calendar year-end. President and CEO Raj Subramaniam addressed Europe, calling it a 'top priority' with a 'long runway of profit improvement.' He expressed confidence in achieving the $600 million DRIVE savings target for Europe by applying learnings from the profitable U.S. surface network.

Scott Group observed a market tightening with rising buy rates but stagnant sell rates, asking Drew Wilkerson if he had seen this dynamic before and if the current supply-driven squeeze would be longer than typical. He also asked for the sensitivity of operating income or EBITDA to a one-cent change in buy rates.

Answer

Drew Wilkerson, Chairman and CEO of RXO, stated that the current dynamic of rising buy rates without corresponding sell rate movement is unprecedented, indicating a structural change in the industry. He compared it to ELD enforcement, noting that while ELD led to a temporary margin fall, the current situation involves drivers having no choice but to exit the market. He quantified that every penny increase in buy rates impacts EBITDA by $2.5 million per quarter.

Scott Group asked about the moderation in LTL gross profit per load despite high volume growth, the reason for outsized declines in auto volume, and for early thoughts on the 2026 bid season.

Answer

CEO Drew Wilkerson explained the slight LTL gross profit moderation was due to new business with a shorter length of haul, which remains accretive. He attributed the auto volume decline to RXO's position as the largest manager of ground expedite, making it highly sensitive to production disruptions, not market share loss. He stated it was too early to comment on 2026 contract pricing.

Scott Group asked for a timeline on when Managed Transportation revenue is expected to resume growth. He also inquired about the size of the UPS business within Coyote and any potential impact from Amazon's volume shifts.

Answer

An executive projected that Managed Transportation revenue would begin to grow in the latter half of the year as newly won business is fully onboarded. CEO Drew Wilkerson reiterated that the UPS business represented about 10% of Coyote's margin at the time of acquisition and attributed the recent revenue decline in Managed Transportation to lower automotive expedite volumes, not broader customer shifts.

Scott Group of Wolfe Research asked for the pro forma Q3 EBITDA of the combined company and whether Q1 would see a normal seasonal decline or if synergies could drive sequential growth. He also inquired about the company's normalized earnings power.

Answer

CFO Jamie Harris did not provide a specific pro forma number but pointed to the reported results. CSO Jared Weisfeld stated that while Q1 is seasonally the weakest quarter, the decline should be less than the historical 30-35% due to a muted Q4 peak and the ramp-up of synergy benefits. Both Weisfeld and CEO Drew Wilkerson emphasized that normalized earnings power is materially higher, citing the $40M+ in cost synergies, purchase transportation savings potential, and the fact that gross profit per load is over 30% below its 5-year average.

Scott Group from Wolfe Research questioned the October volume trends, specifically seeking to isolate the impact of government-related volumes and determine if subseasonal performance was due to the government shutdown or broader issues. He also asked about the impact of regulations on brokerage carriers and whether these regulations are a significant catalyst for the freight cycle.

Answer

Frank Lonegro, CEO and President, and Jim Applegate, VP, Chief Corporate Sales Strategy and Specialized Flight Officer, confirmed a combination of government shutdown impact (over 30% down in dispatch loads for government), automotive weakness, and housing issues. Matt Dannegger, Chief Field Sales Officer, discussed muted peak season expectations. Frank Lonegro and Matt Dannegger stated it's hard to get precise data on brokerage carrier exposure to regulations but emphasized Landstar's vetting. Frank Lonegro suggested that if DOT estimates of 194,000 impacted owner-operators are correct, it could be a 'pretty big deal' for capacity, but enforcement is state-level.

Scott Group asked about the October volume trends, seeking to understand the impact of the government shutdown on Landstar's business and whether the subseasonal volume was a broader issue. He also questioned the exposure of Landstar's brokerage carriers to new regulations and whether these regulatory changes could be a significant catalyst for the freight cycle.

Answer

CEO Frank Lonegro and VP Jim Applegate confirmed that October volumes were affected by a combination of factors, including a significant drop in government-related dispatch loads due to the shutdown, as well as automotive and housing market softness. CFSO Matt Dannegger noted muted peak season expectations. Frank Lonegro and Matt Dannegger stated that Landstar's BCOs have no exposure to non-domiciled CDL or English Language Proficiency regulations, and their vetting criteria for brokerage carriers are stringent, minimizing impact. Frank Lonegro acknowledged the potential long-term impact of regulatory changes on capacity but emphasized that enforcement at the state level makes the overall effect uncertain.

Scott Group of Wolfe Research sought confirmation that a Q2 cost reclassification had a zero net impact on earnings, asked about the reasons for a decline in brokerage carriers, and questioned if the negative revenue per load trend in July signaled a lack of sustained recovery.

Answer

CEO Frank Lonegro and CFO Jim Todd confirmed the cost reclassification had a zero net P&L impact. VP Matt Miller stated the reduction in brokerage carriers was a deliberate action to combat fraud, not a sign of widespread bankruptcies. Lonegro attributed the July rate weakness to tough comparisons and demand uncertainty rather than a definitive end to the recovery.

Scott Group asked if weaker import volumes are already impacting Landstar's business, inquired about trends in the ocean and air segment, and questioned if the BCO decline is structural or cyclical.

Answer

CEO Frank Lonegro believes the BCO decline is purely cyclical, driven by the freight recession's length, and expects a strong rebound in an upcycle. Executive James Todd reported that May truckloads were tracking slightly ahead of the prior year, and while Q1 ocean/air revenue was up YoY, ocean revenue per shipment has declined sequentially from Q4 2024. Lonegro added that the impact from blank sailings has likely not yet been felt.

Scott Group of Wolfe Research inquired about Landstar's position in the current freight cycle, the outlook for the year, and expectations for the BCO (Business Capacity Owner) truck count, including whether drivers will return when the market improves.

Answer

CEO Frank Lonegro stated that he believes the market is at a 'bottom-ish point' in the cycle with improving sentiment, though more capacity still needs to exit. Executive Matt Dannegger added that agents are 'cautiously optimistic' but van rates remain a challenge. Executive Robert Brasher noted that the 10% BCO count decline aligns with the revenue drop and that the rate of decline is moderating. He expressed confidence that the model's flexibility will allow the BCO fleet to grow quickly when rates improve, as seen in past cycles.

Scott Group of Wolfe Research pointed out a disconnect between Landstar's view of October trends and improving national spot data, and asked for clarification on hurricane-related benefits. He also asked about the decade-low BCO count and if compensation changes were being considered.

Answer

CEO Frank Lonegro clarified that Landstar's freight is higher-quality and doesn't always track the bottom of the spot market, noting significant intra-month volatility. Management explained that hurricane relief is now more spread out among carriers and the main benefit comes from later rebuilding efforts. Regarding the BCO count, Executive Vice President Joseph Beacom stated that while retention has improved, new BCO additions are challenged by the high cost of truck ownership in the current rate environment. He affirmed the current compensation model works well and expects BCOs to return when the market turns.

Scott Group inquired about the Amazon glide-down target, specifically if the goal of cutting volume in half by mid-next year is still on track, the characteristics and management difficulty of the remaining volume to be exited, and the expected cost reduction target for next year, following the $3.5 billion reduction planned for this year.

Answer

Brian Dykes, CFO, confirmed that the scheduled exit of outbound Amazon volume is on track and collaborative. He clarified that Amazon will remain a significant customer for other services like returns and inbound, which are growing, and the next wave of volume to be exited is similar in nature. Carol Tomé, CEO, added that cost reduction efforts across variable, semi-variable, and fixed costs will continue into next year, with specific targets to be provided at the end of Q4.

Scott Group inquired about the Amazon glide down target, specifically if the goal of cutting volume in half by mid-next year is changing, the nature of the next wave of Amazon volume, and the expected cost reduction target for next year following this year's $3.5 billion.

Answer

Brian Dykes, CFO, confirmed that the exit of outbound Amazon volume is scheduled, on track, and managed collaboratively. He noted that Amazon remains a significant customer for other services like returns and inbound, and the next wave of volume decrementals will be similar in type. Carol Tomé, CEO, added that the same cost buckets (variable, semi-variable, fixed) will continue to be targeted for reductions into next year, with specific figures to be provided at the end of Q4.

Scott Group asked how much of the $3.5 billion in cost savings was realized in Q1 and questioned why the U.S. Domestic margin improvement is guided to decelerate from 110 basis points in Q1 to only 30 basis points in Q2.

Answer

CFO Brian Dykes stated that approximately $500 million of the savings occurred in Q1. He attributed the Q2 margin deceleration to the anticipated impact of tariffs on SMB volume and mix, as well as temporary 'chaos costs' from closing 73 facilities during the quarter. CEO Carol Tomé elaborated on the significant uncertainty facing SMBs due to potential China tariffs.

Scott Group asked how much of the $3.5 billion in cost savings was realized in Q1 and questioned why the domestic margin improvement is expected to decelerate in Q2 despite ramping cost-saving efforts.

Answer

CFO Brian Dykes reported that approximately $500 million of the savings was realized in Q1. He attributed the expected Q2 margin deceleration to two factors: 1) anticipated volume pressure from SMBs affected by tariff uncertainty, and 2) 'chaos costs' associated with the significant operational change of closing 7% of U.S. buildings during the quarter. CEO Carol Tomé added that many SMBs are heavily exposed to China, creating significant uncertainty.

Scott Group of Wolfe Research asked for the margin profile of the Amazon business, whether the need to backfill volume would compromise pricing discipline, and if the remaining 50% of Amazon's business is likely to be lost in the future.

Answer

CEO Carol Tomé declined to specify the exact margin but reiterated the business is 'extraordinarily dilutive.' She stated the remaining business is unlikely to disappear due to the value of services like returns via the UPS Store network. CFO Brian Dykes asserted that pricing discipline will be maintained, as the network is being reconfigured to the new volume level, eliminating the need to 'chase volume' to fill empty capacity. He confirmed the strong revenue per piece growth seen in Q4 will extend into 2025.

Scott Group asked if the new USPS contract benefits the Q4 U.S. margin and, more broadly, when to expect more meaningful U.S. margin expansion now that key headwinds have passed.

Answer

An executive, likely CFO Brian Dykes, clarified that the USPS contract has no incremental impact on the Q4 U.S. domestic margin, as start-up costs were contained within the Supply Chain Solutions segment. CEO Carol Tomé deferred the question on the timing of significant margin expansion, stating that a full outlook for 2025 would be provided after the fourth quarter is complete.

Scott Group asked about the gains included in Ryder's Q4 guidance, the remaining cushion to stay within residual value ranges before risking losses or depreciation assumption changes, and if any such changes are planned for the next year.

Answer

Cristina Gallo-Aquino, EVP and CFO, stated that Q4 gains are expected to be similar to or better than Q3, with a modest improvement in pricing on the high end of the forecast. She indicated that pricing would need to decline 8% from current levels to hit the bottom end of residual values, which is not currently anticipated. She confirmed that Ryder is comfortable with current residuals and is not planning any residual assumption changes or accelerated depreciation changes for next year.

Scott Group from Wolfe Research asked for clarification on why used vehicle sales resulted in a loss in Q2 but are expected to return to gains in Q3, and questioned how the reinstatement of bonus depreciation might affect customer leasing versus buying behavior.

Answer

Chairman & CEO Robert Sanchez explained the Q2 loss was due to a deliberate, one-time increase in wholesaling of aged inventory, a level of activity not planned for Q3. He added that historically, bonus depreciation stimulates overall business spending, creating more opportunities for Ryder's leasing and service offerings rather than being a direct risk.

Scott Group of Wolfe Research questioned the potential impact of tariffs on Ryder's Supply Chain Solutions business, particularly its auto and omnichannel verticals. He also sought clarification on the residual value cushion for used vehicles and any opportunities for savings on new truck purchases.

Answer

President of SCS and DTS Steve Sensing and CEO Robert Sanchez explained that the auto and CPG verticals are largely insulated from tariffs due to their focus on U.S. manufacturing and consumption. EVP and CFO Cristy Gallo-Aquino stated that used vehicle prices would need to fall another 5% to hit the bottom of their residual estimates. Robert Sanchez added that Ryder's exposure to new vehicle tariffs is minimal as its purchases are USMCA compliant.

Scott Group from Wolfe Research asked about the earnings outlook for 2025, questioning if the projected mid-teens earnings growth in Q4 2024 is a reasonable framework for the upcoming year. He also requested clarification on the tractor residual value index slide and its implications for future gains on sale.

Answer

CEO Robert Sanchez responded that while it's early for 2025 guidance, he expects continued earnings growth from contractual businesses driven by key initiatives. The performance of transactional businesses will hinge on the timing and strength of a freight cycle recovery. Regarding residual values, Sanchez clarified that tractor prices would need to fall another 15% to eliminate gains, and the company still expects to realize gains through the middle of 2025.

Scott Group followed up on tariffs, asking which quarter might see the peak gross impact and if the timing for the biggest net impact would differ. He also asked if the largest impact has already been seen and if the net impact after mitigation is still considered immaterial. Additionally, he inquired about the potential for transit segment margins to expand further over the next couple of years, similar to the consolidated business's upside.

Answer

CFO John Olin stated that the highest gross and net impact from tariffs would likely be similar, but it's difficult to pinpoint an exact quarter. He confirmed that the largest gross or net impact is still ahead in the next couple of quarters. President and CEO Rafael Santana added that the company is actively working on cost-out plans, supplier mitigation, and pricing. Regarding transit margins, Santana sees continuous improvement, with the segment moving from mid-teens towards high-teens, driven by better business operations, portfolio optimization, and strategic acquisitions.

Scott Group followed up on tariffs, asking which quarter is expected to see the peak gross impact and if the quarter of the biggest net impact would be different. He also inquired about the long-term potential for transit segment margins, given the significant improvements already achieved, and whether a similar upside of a couple hundred basis points is expected.

Answer

CFO John Olin stated that Wabtec is not precise enough to identify a peak quarter for tariffs, but expects the highest gross and net impact to be over the next couple of quarters, indicating it's still ahead. President and CEO Rafael Santana added that pricing and cost-out plans are ongoing mitigation efforts. Regarding transit margins, Santana described it as a continuous improvement story, moving from mid-teens to high-teens, driven by better business operations, portfolio optimization (exiting low-margin businesses, acquiring better ones), and an evolution of the portfolio.

Scott Group asked about the expected net mix impact for the full year 2025, the duration of recent large contracts, and any updates on EPA regulations.

Answer

CFO John Olin noted it was early for 2025 specifics but that the significant production shifting of 2024 is not expected to repeat. CEO Rafael Santana stated the KTZ order would deliver over 2025-2026 and the parts deal is longer-term. He also viewed recent EPA classifications for hydrogen as a validation of Wabtec's fuel-agnostic engine strategy.

Scott Group inquired about the significant sequential margin improvement in intermodal from Q2 to Q3, asking how much was attributable to cost savings versus yield. He also questioned the sustainability of this improvement and whether further sequential gains could be expected from Q3 to Q4, considering the timing of peak surcharges.

Answer

President of Intermodal Darren Field clarified that Q3 was not a strong peak season surcharge quarter, as demand was disappointing and programs were adjusted. He attributed improvements to the bid strategy (growth, price, balance) and sustainable cost efficiencies from technology enhancements and drayage system optimization, emphasizing the need to sustain these cost improvements moving forward.

Scott Group asked about the significant sequential margin improvement in intermodal from Q2 to Q3, seeking to understand the split between cost reductions and yield improvements. He also questioned the sustainability of this improvement and whether further sequential gains could be expected from Q3 to Q4, considering the timing of peak season surcharges.

Answer

President of Intermodal Darren Field stated that peak season surcharges were not a primary driver of Q3's strong performance, as demand off the West Coast was disappointing. He attributed the improvement to a successful bid strategy focused on growth, price improvement, and network balance, along with sustainable cost efficiencies from technology enhancements and reduced empty miles in drayage.

Scott Group of Wolfe Research sought clarification on the comment that Intermodal margins could be 'stable to modestly improved,' asking if this was a sequential or year-over-year outlook and if improvement could occur before the next bid cycle.

Answer

Darren Field, President of Intermodal, affirmed that margin improvement is being pursued through operational efficiencies and cost control, not just price. Brad Delco, SVP of Finance, confirmed the statement was intentional, indicating that cost initiatives combined with a small pricing tailwind could stabilize margins from current levels and support modest improvement going forward.

Scott Group of Wolfe Research requested an estimate of the percentage of Intermodal volume originating overseas and from China, and asked about plans for managing excess container capacity, including potential cuts.

Answer

Darren Field, President of Intermodal, stated that reducing capacity would not alter their long-term pricing strategy and that they are exploring other uses for excess assets. He estimated that 20-30% of Intermodal volume originates on the West Coast but declined to provide a specific figure for China-originated freight.

Scott Group asked for an update on the current bid season, seeking confidence on whether J.B. Hunt is achieving price increases that could lead to an Intermodal margin inflection in the latter half of 2025.

Answer

Darren Field, President of Intermodal, stated it was too early for definitive results but expressed confidence that their strong service performance has earned them the right to have constructive pricing conversations. He noted that as truck rates climb, they expect to repair margins, and price improvements will be a necessary component of that recovery.

Scott Group asked about the significant improvement in the ICS brokerage gross margin, its sustainability, and whether a large Q4 insurance accrual catch-up was likely, as seen in past years.

Answer

Bradley Hicks, President of Highway Services, attributed the margin strength to company-specific initiatives around freight quality and technology. CEO Shelley Simpson cautioned that a 17%+ margin is not the new norm. CFO John Kuhlow indicated they are in a good position with insurance accruals and do not anticipate a significant charge like in prior years.

Scott Group asked about Delta's Q4 earnings guidance being similar to Q3, which is unusual, inquiring if this indicates new seasonality, if Q3 was an under-earning quarter, or a combination of both, and the implications for next year. He also asked if the strength in MRO and cargo revenue seen in Q3 is sustainable into Q4 and beyond.

Answer

President Glen Hauenstein attributed the strong Q4 outlook to robust premium demand and corporate travel, favorable calendar, and the impact of last year's election. He suggested Q3 transatlantic performance had room for improvement. CFO Dan Janki stated that MRO growth won't consistently be 60%+; for the full year, it's expected in the 20-30% range, with Q4 likely closer to flat year-over-year, but double-digit growth is expected long-term. Mr. Hauenstein noted that Q3 cargo was strong but expects choppiness and lower growth than 19% in Q4.

Scott Group noted that Delta's Q4 earnings guidance is similar to Q3, which is unusual, and asked if this indicates a new seasonality or if Q3 was under-earned, and the implications for next year. He also questioned the sustainability of MRO revenue growth (60% in Q3) and cargo strength (19% in Q3) into Q4 and beyond.

Answer

President Glen Hauenstein attributed the strong Q4 outlook to robust premium and corporate demand, favorable calendar, and potential for Q3 to have performed better, suggesting a mix of new seasonality and Q3 opportunities. CFO Dan Janki clarified that MRO growth is sustainable long-term at double-digit rates, but not at 60% every quarter, expecting Q4 MRO to be closer to flat year-over-year. Glen Hauenstein added that Q3 cargo was strong, but the 19% growth is likely not sustainable into Q4, though growth is still expected.

Scott Group asked about the risks and opportunities for Delta as competitors expand their premium offerings. He also questioned why international demand is holding up better than domestic, contrary to some historical downturn patterns, and if this was sustainable.

Answer

President Glen Hauenstein argued that competitors will be capital-constrained, making it difficult to replicate Delta's long-term investments in reliability, clubs, and loyalty, thus widening Delta's lead. Both Hauenstein and CEO Ed Bastian attributed international strength to strong cash sales, the wealth of the traveling baby boomer cohort, and a broader consumer preference for experiences over goods.

Scott Group of Wolfe Research, LLC asked for directional color on October and December unit revenue trends, excluding the November election impact, and inquired about the key factors influencing CASM for the upcoming year.

Answer

President Glen Hauenstein stated that October and December trends are 'significantly better than November' but did not provide specific figures. CFO Dan Janki outlined that next year's CASM will be shaped by continued investments in workforce and brand, offset by efficiency gains, maintenance improvements, and technology benefits.

Scott Group inquired about the expected timing for a conclusion to the strategic review process, volume trends at the end of Q2 and into Q3, and the company's plans for a General Rate Increase (GRI) in the second half of the year. He also asked about cash flow expectations for the back half of the year.

Answer

President, CEO & Director Shawn Stewart stated he could not provide a timeline for the strategic review. CFO Jamie Pierson noted that volume trends entering Q3 were not meaningfully different from the end of Q2. Mr. Stewart explained his preference for customer-specific Strategic Rate Increases (SRIs) over broad GRIs. Regarding cash flow, Mr. Pierson highlighted the company's consistent unlevered operating cash flow generation but declined to provide specific guidance for the second half, citing the impact of semi-annual interest payments.

Scott Group of Wolfe Research asked for monthly tonnage trends, the outlook for sequential improvement in Q2, and clarification on whether the $5 billion revenue target is organic. He also probed the size of the bonded warehousing business and the impact of import trends, including de minimis shipments, on the ground network.

Answer

CEO Shawn Stewart described Q2 trends as following historical patterns but declined to give specific guidance, emphasizing a long-term focus. He confirmed the $5 billion revenue goal is organic, driven by cross-selling and sales effectiveness. Stewart explained that the impact from a drop in de minimis e-commerce shipments is minimal, as Forward's network primarily handles denser cargo, and that supply chains have already adapted to tariff risks.

Scott Group of Wolfe Research asked about the drivers for the implied Q4 EBITDA guidance, the significant sequential drop in depreciation, the sustainability of the strong Q3 cash flow, and for an update on monthly tonnage trends.

Answer

CFO Jamie Pierson attributed the Q4 EBITDA outlook to normal seasonality. He explained the depreciation figure was volatile due to acquisition accounting, providing a normalized estimate of around $37 million. Pierson noted the strong cash flow resulted from active working capital management, a practice that will continue, though Q3's large benefit is unlikely to repeat. He declined to provide intra-quarter tonnage trends, citing company policy.

Scott Group asked if Frontier's model requires growth to be profitable, why strong forward bookings aren't translating to better Q3 guidance, and for thoughts on potential airline M&A.

Answer

CEO Barry Biffle stated that while the model works better with growth, the current issue is a domestic oversupply, which he expects to correct. He explained that Q3 guidance is weighed down by a weak July that was booked during a sales slump in June. On M&A, he suggested that consolidation is a mechanism that can facilitate necessary industry capacity reductions.

Ryan Capozzi, on for Scott Group, asked how the dynamic between load factor and yield is expected to play out in the coming year and inquired about the outlook for average fares versus ancillary revenue per passenger.

Answer

CEO Barry Biffle explained that reported load factors are impacted by high no-show rates and that reshaping capacity away from low-demand days like Tuesday and Wednesday should improve load factors. President James Dempsey noted that the decrease in ancillary revenue per passenger was driven by a significant reduction in average stage length, which is a deliberate network strategy focused on bottom-line profitability rather than a single unit metric.

Scott Group of Wolfe Research asked for color on first-half 2025 capacity and questioned the sustainability of the Q4 CASM ex-fuel run rate, which appeared high on an absolute basis.

Answer

President Jimmy Dempsey clarified that first-half 2025 capacity growth will be slower as the network laps the off-peak flying reductions made in the second half of 2024, with ASM growth accelerating in the back half of the year. Regarding Q4 costs, CFO Mark Mitchell and CEO Barry Biffle both emphasized the need to analyze CASM on a stage-adjusted basis. Mitchell noted the stage-adjusted figure is closer to $0.07 and that the full-year stage-adjusted CASM-ex is still projected to be down 1% year-over-year.

Scott Group of Wolfe Research asked about the duration of the Q3 margin drag into Q4 and 2026. He also questioned the specific Q2 2027 timing for the long-term earnings target and whether the path there would be linear. Finally, he asked for an update on competitive capacity trends.

Answer

CEO Jude Bricker stated the margin impact would likely ameliorate through Q4 and Q1 2026. He explained the Q2 2027 target is simple algebra based on a 10% growth rate reaching a 70-aircraft fleet. He expects a linear improvement but noted new initiatives could accelerate it. He also highlighted that competitive capacity across their network is flat to down through April.

Scott Group of Wolfe Research sought to reconcile the strong 5% unit revenue growth in January with the flat guidance for the full first quarter. He also asked if the recent news of UPS reducing volume with Amazon presents an opportunity, and inquired about free cash flow and share buyback plans.

Answer

CEO Jude Bricker clarified that while January was strong, a softer February and an in-line March result in a roughly flat outlook for the quarter. On the Amazon/UPS news, President and CFO David Davis stated there is no short-term opportunity as Sun Country is focused on integrating its committed 20-aircraft fleet. Regarding capital allocation, Davis noted that debt paydown is a priority and that share buybacks are always under consideration.

Scott Group asked for clarification on cargo revenue per block hour, questioning which growth metric is more representative of the new Amazon rate and the expected magnitude of future rate increases. He also asked if positive booking trends will translate to positive RASM in Q1 and for an outlook on 2025 CASM.

Answer

President and CFO David Davis indicated the quarter-over-quarter increase in cargo revenue per block hour is more representative of the new rates, with two more upcoming increases in 2025 that should be roughly equivalent in total. CEO Jude Bricker added that the rate structure creates some noise in the metric. Bricker also explained that while booking trends are positive, it will take time for this to fully reflect in flown TRASM. For 2025 CASM, Davis projected a mid-single-digit increase due to the business mix shift, pending finalization of the plan.

Scott Group of Wolfe Research asked about the significance of the proposed Union Pacific and Norfolk Southern merger for intermodal market share, the current percentage of Hub's transcontinental business, and whether the current demand strength is a pull-forward of peak season. He also inquired about the magnitude and timing of peak season surcharges compared to last year.

Answer

Phillip Yeager, President & CEO, stated that over 30% of Hub Group's business is transcontinental and the merger represents a significant opportunity to improve transit times and convert over-the-road freight. Regarding the current market, Mr. Yeager and CFO Kevin Beth acknowledged a potential pull-forward due to tariffs and seasonal sales, but noted customer forecasts vary. They confirmed that current peak surcharges are larger on a dollar basis and started earlier than in the previous year, though a significant amount has not been built into guidance.

Scott Group inquired about Hub Group's Intermodal exposure to West Coast ports, recent monthly volume trends through April, and the expected impact of a potential import slowdown. He also asked for an update on bid season dynamics and pricing.

Answer

Executive Phillip Yeager detailed that January volume was up 18%, February up 1%, March up 7%, and April up 6%, with no slowdown yet observed in May. He noted that about 25% of West Coast volume is port-related, with 30% of that from China. Regarding bid season, Yeager described it as competitive but rational, with pricing expected to be flattish for the year and 50 new logos added. CFO Kevin Beth added context on the bid season cadence, noting a pull-forward into Q1.

Scott Group of Wolfe Research inquired about the expected earnings cadence for 2025, specifically the sequential trend from Q4 to Q1. He also asked for projections on Intermodal margin ramp-up, the company's pricing strategy amid concerns of lagging truckload rates, and the outlook for rail purchase costs.

Answer

CFO Kevin Beth clarified that while Q1 Intermodal volume would be comparable to Q4, tailwinds would be offset by the loss of peak season surcharges, seasonal Final Mile decreases, and higher compensation and tax expenses, leading to a slight EPS step-down. Executive Phillip Yeager added that earnings are expected to ramp from Q1 to Q3, with a slight decline in Q4. Regarding pricing, Yeager noted that customers are pulling bids forward, a positive sign, and the company anticipates low single-digit price increases in Intermodal for the year. He also stated that rail purchase transportation (PT) costs are expected to be down low single digits.

Scott Group of Wolfe Research asked for context on the 5% sequential tonnage decline in July versus historical norms. He also questioned how the timing of the GRI, which is effective for two months in Q3, might impact the quarterly margin relative to normal seasonality.

Answer

CFO Matt Beasley stated the July sequential tonnage trend was 'generally in line with historical performance.' Regarding the GRI, Chief Commercial Officer Eddie Sorg noted it's part of their normal cycle and that its impact would be moderated by the fact that a smaller portion of business is subject to it compared to prior years. The company's Q3 OR guidance already accounts for these factors.

Scott Group questioned the dynamic between tonnage turning positive while yields turned negative, asking if ArcBest is sacrificing price for volume through its dynamic pricing tools.

Answer

Chairman and CEO Judy McReynolds emphasized a disciplined pricing approach and a strong sales pipeline. Executive Eduardo F. Conrado added that dynamic pricing's contribution is stable and that the mix shift is driven by capturing more 'Core LTL business,' which is profitable despite having different freight characteristics.

Scott Group asked for directional guidance on Q1 LTL revenue and, on a bigger-picture level, what the company is managing towards in 2025 beyond waiting for a macro recovery, given last year's volatility.

Answer

President Seth Runser noted that Q1 is historically a softer quarter, with sequential revenue typically down about 4%. However, he believes the company has the potential to outperform that historical trend, barring significant weather events. CFO Matt Beasley added that for 2025, they expect a pickup in the industrial economy and continued progress from customer-facing initiatives to drive growth in shipment counts, with the macro helping tonnage and pricing remaining strong, setting up well for the year.

Scott Group of Wolfe Research challenged the explanation for slowing ex-fuel yield trends, asked if 2025 margin improvement requires a macro turn, and inquired about the long-term impact of the Yellow Corp. pension withdrawal liability outcome.

Answer

CFO Matt Beasley cited minor freight profile shifts for the yield trend. President Seth Runser expressed confidence in improving margins regardless of the cycle through growth and efficiency initiatives. CEO Judy McReynolds stated she does not see the Yellow pension situation having a significant negative impact on ArcBest, citing the stability provided by the American Rescue Plan.

Scott Group of Wolfe Research asked for more details on the Q3 EPS guidance of $1.10 to $1.25, questioning the steeper-than-usual sequential decline, and sought specifics on the expected progression of U.S. LTL margins in Q3 and Q4.

Answer

CFO David Saperstein explained the Q3 guidance reflects normal historical seasonality, citing a similar EPS drop from Q2 to Q3 last year. Alain Bedard, President, CEO & Chairman, added that for the U.S. LTL segment, the team is targeting a 94% to 95% operating ratio for the second half of the year, consistent with Q2 performance, given the soft volume environment.

Scott Group inquired about the expected progression of the specialty truckload operating ratio, the balance between self-help and cyclical recovery for improvement, and the potential impact of UPS expanding its GFP service.

Answer

Executive David Saperstein stated the Q2 guidance embeds a 91-92% OR for the specialized truckload segment. Executive Alain Bedard added that improvement will come from self-help measures at Daseke, including better administrative and safety focus, and reducing excess assets acquired. He also noted there would be no impact from UPS's GFP expansion, as TFI is now focused on growing its own underperforming but superior product.

Scott Group asked for more color on the LTL length of haul change, TForce's Q1 profitability, and whether TFI expects to grow consolidated earnings in 2025. He also inquired about the timing of LTL M&A and the impact of re-domiciliation on a potential spin-off.

Answer

Executive Alain Bedard projected 2025 EPS would be difficult, likely in the $5.75-$6.00 range, with TForce Freight not expected to perform better than a 97% OR in a tough Q1. He suggested the length of haul figure might be a reporting error. On strategy, he noted that while the timing for a large LTL M&A deal is good, it requires being bold and getting board support given current leverage. A potential spin-off is still planned but requires TFI to achieve greater scale first, as investors feel the current market cap is too small to split.

Scott Group asked for an update on the LTL pricing environment and the potential impact of the recently announced GRI. He also inquired about the potential size of M&A deals in 2025 and the timeline for a potential spin-off of business segments.

Answer

CEO Alain Bedard acknowledged feeling pricing pressure in the LTL segment, partly due to competition from the soft truckload market. On M&A, he indicated TFI could consider a deal in the $4-5 billion range without issuing equity. Regarding a business split, Bedard explained that TFI's market cap is currently too small, and such a move would be more logical after another major acquisition, pushing the potential timeline to late 2026 or 2027.

Scott Group asked about the reasons for the pricing spread between Truckload (low to mid-single digit increases) and Intermodal (flattish), and inquired about the rationale for the reduction in CapEx guidance.

Answer

EVP & Group President Jim Filter explained the pricing deviation is because network truckload rates dropped faster than Intermodal rates during the downturn, and now they are coming back into alignment, making Intermodal more attractive. CFO Darrell Campbell stated the CapEx cut reflects moderated volume expectations and aligns capital with strategic growth areas like Dedicated and Intermodal tractors, while also factoring in higher equipment costs and improved proceeds from used equipment sales. CEO Mark Rourke added that trailing equipment is largely in a replacement cycle.

Scott Group asked if intermodal rate increases are expected to keep pace with truckload rates during bid season or if they will lag, and also inquired about network contract renewals in Q4.

Answer

EVP and Group President Jim Filter stated that intermodal pricing historically trails truckload, and he expects truckload to see larger rate increases this year. CEO Mark Rourke added that most 2024 renewals were completed by Q3, so there was very little activity in Q4 to report.

Scott Group of Wolfe Research requested the tonnage and shipment data for March and April and asked about the revenue assumption behind the Q2 OR target of around 89%. He also questioned the pricing of new business from existing customers and the wide gap between cost and revenue per shipment growth.

Answer

Executive Matthew Batteh provided the metrics: March shipments up 2.8%, tonnage up 12.3%; April month-to-date shipments down ~2%, tonnage up 5%. He stated the Q2 OR assumption is based on March/April trends continuing. On pricing, he clarified that while they provide rates for new markets, the actual freight characteristics can differ upon onboarding, creating opportunities for repricing. President and CEO Fritz Holzgrefe noted that the cost-per-shipment increase was driven by headcount for new terminals and depreciation, and expects the revenue/cost spread to improve over quarters, not years.

Scott Group of Wolfe Research asked for sequential guidance on yield and revenue per shipment, the number of planned terminal openings for 2025, and the company's cross-border exposure to Mexico and Canada.

Answer

While declining to give specific intra-quarter guidance, Executive Matthew Batteh reiterated a focus on pricing. CEO Fritz Holzgrefe announced plans to open 5 to 6 smaller facilities in the second half of 2025, which are not expected to have a meaningful financial impact. He quantified Saia's total cross-border business for both Mexico and Canada combined at approximately 2% of total revenue.

Scott Group asked about any remaining tasks before the April launch, the timeline for a significant ramp to hundreds of trucks, and when customers might begin taking delivery of their own Aurora-powered trucks.

Answer

CEO Christopher Urmson stated that only a 'small amount of work' remains for the launch, with the ARM at 99% and API performance near targets. CFO David Maday and Urmson projected 2026 as a 'step function' year for scaling metrics, with an objective to demonstrate positive gross profit. Maday noted customer-owned trucks would be available by 2027 with Continental hardware, but could potentially happen sooner on a customer-specific basis.

Asked about the future pace of M&A after two large deals, the sustainability of high ocean spot rates, and the impact of changes at the U.S. Postal Service.

Answer

The company stated they will not slow down M&A activity and have the bandwidth to pursue more deals in a favorable market. High ocean rates are seen as a positive market indicator but do not directly impact revenue, which is transaction-based. They see continued opportunity with the USPS and other carriers as e-commerce grows.

Scott Group asked if the two relatively large acquisitions would cause Descartes to pause its M&A activity. He also requested commentary on the sustainability of rising ocean spot rates and the impact of changes at the U.S. Postal Service.

Answer

CEO Ed Ryan stated that the company will not slow its M&A pace, citing a significant corporate development function and a favorable market with many reasonably priced opportunities. Regarding market dynamics, Ryan explained that rising ocean rates don't directly impact Descartes' transaction-based fees but are a positive indicator for the health of ocean, air, and eventually domestic trucking. On the U.S. Postal Service, he noted that Descartes has broad opportunities across the e-commerce delivery ecosystem, including with USPS, Amazon, UPS, and FedEx, and expects to benefit as their businesses grow.

Asked about the source of the recent organic growth pickup, the durability of trade route shifts, the trend of market share gains, and the outlook for achieving the high end of the annual EBITDA growth target.

Answer

The organic growth pickup was driven more by strong, steady subscription growth than by transactional volumes. The Red Sea and Panama Canal issues are expected to continue for some time. Market share gains are an ongoing trend, driven by superior product performance like higher load tracking success rates. The company is confident and motivated to exceed its 15% EBITDA growth target for FY25.

Asked about the change in guidance policy (from revenue to units), near-term pricing expectations for Q2, the immediate impact of national account orders, and the current composition of the order book.

Answer

The change to unit-only guidance is temporary, reflecting the new CFO's desire to provide reliable numbers once the new strategy solidifies. Q2 pricing is uncertain and will depend on customer mix. The timing and impact of large national orders are not yet known. The current order book is still small, with a historical bias towards smaller fleets via the California HVIP program, but the focus is shifting.

Inquired about Spirit's minimum liquidity targets, potential additional sources of liquidity, the options on the table for creditor resolution, whether the company is experiencing a 'book away' impact from recent negative press, and the rationale behind expecting off-peak demand to improve.

Answer

Executives stated they are well above minimum liquidity requirements and can generate more, but the focus is on generating operating cash. Discussions with bondholders are constructive with a resolution expected by summer. They are not seeing a 'book away' impact but recognize the need to evolve their product. Off-peak improvement is expected from new product and service offerings designed to attract a wider customer base.

Asked for clarification on how Pratt & Whitney compensation is reflected in guidance, the trajectory for CASM in 2024, the nature of the CapEx figure, and any minimum liquidity targets.

Answer

The P&W compensation is an estimate included in guidance and is recognized quarterly based on the number of grounded aircraft. Full-year CASM is expected to be up mid-single digits. The $235M CapEx is a cash figure. The company has contractual liquidity minimums around $400M but no specific operating target.