Schneider National, Inc. (SNDR) Earnings

Management highlights

- Market Dynamics & Cycle Positioning • Freight market improvement has been supply-led, with faster-than-expected supply attrition of non-compliant capacity driven by increased regulatory enforcement on issues including illegal cabotage, ELD tampering, non-domicile CDL usage, and entry-level driver training. Roughly half of the non-compliant capacity expected to exit remains in the market as of Q2 2026, with full exit expected by the end of 2027. • The U.S. long-haul driver population is near 10-year lows, and the market is now categorized as driver-constrained. Spot rates currently exceed contract rates by ~15%, a level that historically precedes material contract rate improvement, and management believes the industry is still in the early stages of rate recovery. - Strategic Multimodal Portfolio Flexibility • The scaled multimodal business model allows the company to dynamically reallocate capacity across segments to capture highest-return opportunities: near-term capacity is shifted to the network segment to capitalize on early rate recovery in the over-the-road market, with dedicated and intermodal expected to see increasing benefits as contract renewals progress through the upcycle. • Dedicated remains a core long-term growth pillar: 500+ new dedicated trucks have been sold year-to-date 2026, with ongoing portfolio optimization to replace low-margin contracts with higher-return opportunities that is driving near-term churn. - Operational & Cost Initiatives • The company is on track to hit its $40 million annual cost savings target, with gains from headcount reductions, improved asset efficiency, and technology-enabled productivity. Technology investments, particularly in agentic AI, have driven meaningful frontline productivity improvements across segments. • Driver recruitment and retention initiatives include aligned pay structures to reward top performers, expanded recruiter headcount, enhanced AI recruiting tools, and increased starting pay in the most constrained geographies to offset industry-wide driver supply tightness. - Intermodal Strategic Progress • Intermodal growth is constrained by tight drayage capacity; management has declined non-accretive growth that would require expensive third-party drayage, and is prioritizing profitable growth in high-opportunity lanes including Mexico and the Eastern U.S., where over-the-road conversion opportunities are strongest. • Intermodal contract pricing is accelerating, with renewals moving from low single-digit increases in the first half of Q2 to mid-single-digits, enabling profitable capacity expansion going forward.

Guidance

- Full-year 2026 adjusted diluted earnings per share guidance was raised at both the top and bottom end of the range, reflecting stronger-than-expected year-to-date performance, faster supply attrition, and progress on cost savings and revenue management initiatives. The updated guidance assumes ongoing supply attrition will support favorable freight conditions for the remainder of 2026. - 2026 net capex guidance was revised downward to $350 million to $400 million, from the prior range of $400 million to $450 million, driven by lower than expected need for trailing equipment consistent with the company's ongoing focus on asset efficiency. Capital allocation priorities remain unchanged: supporting organic growth in differentiated areas, accretive M&A, and robust shareholder returns. - The guidance incorporates a range of potential outcomes for second-half demand and driver capacity: stronger than expected demand could drive additional upside, while softer demand would moderate some benefits from supply rationalization. All outcomes within the updated guidance range project meaningful year-over-year earnings growth. - The guidance explicitly accounts for the planned exit of a large low-margin dedicated customer, whose impact will be most visible in the third quarter of 2026, as part of ongoing dedicated portfolio optimization.

Segment performance

1. Truckload Segment: Revenue (excluding fuel surcharge) was $628 million, up 1% year-over-year, representing 48.3% of total enterprise revenue (excluding fuel surcharge). Operating income was $51 million, a 28% year-over-year increase. Operating ratio improved 180 basis points to 91.8%. Revenue per truck per week grew 5% year-over-year, with network revenue per truck per week up 16% year-over-year. 2. Intermodal Segment: Revenue (excluding fuel surcharge) was $262 million, down 1% year-over-year, representing 20.2% of total enterprise revenue. Operating income was $18 million, a 14% year-over-year increase. Operating ratio improved 90 basis points to 93%. The segment marked its ninth consecutive quarter of modest volume growth. 3. Logistics Segment: Revenue (excluding fuel surcharge) was $376 million, up 11% year-over-year, representing 28.9% of total enterprise revenue. Operating income was $12 million, up from $4 million year-over-year. Operating ratio improved 90 basis points to 96.8%. Brokerage net revenue per order improved both year-over-year and sequentially, driven by revenue management and premium project business.

Risks & headwinds

- Industry-wide driver capacity constraints are putting upward pressure on driver pay and capacity costs, which could pressure margins if rate improvements do not keep pace with rising costs. - Macroeconomic risks remain: persistent inflation driven by high energy costs and elevated interest rates continue to weigh on interest-sensitive end markets such as housing, which could lead to softer than expected freight demand. - Ongoing regulatory enforcement and potential new regulatory actions (such as passage of Delilah's Law or strengthened ELD certification rules) could lead to abrupt further capacity exits, creating near-term operational disruptions even as they support long-term pricing improvements. - The current litigation environment for transportation safety creates exposure to disproportionate, unaligned legal outcomes even for compliant, safety-focused companies, which represents a material industry risk. - While the company is positioned to benefit from ongoing market recovery, any faster than expected re-entry of capacity after the current wave of attrition could shorten the current pricing recovery cycle.

Analyst Q&A

• Q: With supply tightness driving market changes, what are you seeing from customers on demand, and what is your outlook for fleet growth over the next year? /

  A: Management notes consumer demand has been resilient but risks from inflation and high interest rates remain in interest-sensitive end markets like housing. The current market recovery is almost entirely supply-driven: there is no excess capacity, so even small demand shifts produce rapid price changes, which customers recognize. For fleet growth, the first priority is restoring network segment margins before expanding the driver fleet; strong dedicated sales growth continues near-term, offset by churn from low-margin contract exits.

• Q: After the sharp Q2 rise in spot rates and tender rejections, recent public data shows prices moving sideways. Is the market cooling, or is this just normal seasonality? /

  A: The sideways movement mirrors typical seasonality seen last year at this time and does not change the underlying market trajectory. Spot rates remain ~15% above contract rates, creating ongoing opportunities to extract price through allocation events, freight selection, and elevated spot exposure. Management will maintain elevated spot exposure until the gap between spot and contract rates closes, and remains convinced the industry is still in the early innings of rate recovery.

• Q: Logistics outperformed most peers in Q2 even as rising spot rates typically squeeze brokerage results. What drove this outperformance? /

  A: While the company did face pressure from rising third-party carrier costs on legacy contract business, strong execution on premium project business (carried over from Q1 and expanded via customer trust) drove strong results. Revenue management initiatives shifted the segment mix from 50/50 contract/spot a year ago to 60/40 spot/contract today, capturing the spot price premium. AI-driven technology investments also improved frontline productivity by 17% year-over-year, further supporting margins.

• Q: What opportunity has increased regulatory enforcement against illegal cabotage and non-compliant drivers created for Schneider? /

  A: Regulatory action has already removed ~30,000 ineligible cross-border drivers and two-thirds of expected non-compliant non-domiciled capacity, with a third still remaining to exit. Potential future actions (including Delilah's Law, strengthened FMCSA carrier rating enforcement, and ELD tampering rules) could remove additional capacity, leading to a structurally slower capacity recovery than after prior downturns, extending the current pricing recovery cycle. As a compliant, safety-focused operator, this trend is a material long-term benefit for Schneider.

• Q: Is the seasonality commentary signaling Q2 will be the peak quarter of 2026, or can Q3 earnings be higher than Q2? /

  A: Management does not guide quarterly earnings, but notes the seasonality commentary only reflects a long-term shift in the business mix after three dedicated acquisitions that increased second quarter seasonal strength, plus the impact of the exiting large dedicated customer and lower Q3 specialty project volume in logistics. Strong pricing momentum from supply attrition is expected to carry into the second half, with price improvements coming through across all segments, and all points of the full-year guidance range reflect year-over-year earnings improvement.