Schneider National, Inc. (SNDR) Earnings Call Transcript
November 11, 2026
Earnings Call Speaker Segments
It's good to have everybody here. My name is Dan Moore. I'm the senior transportation analyst here at Baird. Very pleased to be joined by senior management of Schneider National, Jim Filter; we've also got Darrell Campbell, so CEO and CFO. Stein in the audience we've known for many years, both personally and professionally. Thank you for being here.
Well, thank you for having us.
Thanks for having us.
Yes. Yes. It's been good. A lot of good information here, I think, today and yesterday and a unique cycle, right? I mean, it seems like I open up all of these, to some extent, saying the same thing. But it's been a very unique cycle. It's been a supply-led cycle. I remember when we were either in this room or another one a year ago, and wow, how much things have changed in a year. It's been pretty extraordinary.
Curious, maybe just kind of opening remarks, how are you guys thinking about the cycle? How do you feel about the market today relative to 3 and 6 months ago? Obviously, again, supply-driven. Rate seems to be a tremendous focus on the part of everyone, margin repair, that sort of thing, stop right there.
Yes. Well, let me just start with, you're right, it's primarily supply led. That's what we've experienced up to this point. Demand has been stable, but nothing terribly exciting, although what we are experiencing right now is what I would call a typical peak season, which probably last time I could say that was probably 2016 because either we're in a situation where the incremental cost for some of the project type work that happens during this time of the year, customers just weren't willing to pay that price. And then we had a couple of years where they were willing to pay in excess of that rate to be able to extract capacity. Right now, we're at a spot where you're getting the price that would reflect that type of demand that isn't stable year-round, the incremental cost to reposition equipment, reposition drivers. And that's why I would say this one feels more like what you would normally experience in a fall season. So overall, I believe that with demand, there's still opportunities with those big markets like housing and autos that are driven largely by interest rates. That would cause us to change a little bit. But in terms of capacity, most of the capacity I think that was going to exit has exited, but what's really different here is the top of the pipeline. If you think about during '22 and -- or '21 and '22, there was about 50,000 long-haul truck drivers that came into this industry. And most of them were coming through really quick ways to get their CDL, 2 days, very low price, you can get a CDL. Schneider wasn't able to really tap into the market because you don't know how to drive a truck after just 2 days of training, especially if you're just sitting in a classroom. We just had a meeting with a number of our different schools and what -- they were feeling really optimistic because they said we're actually seeing more demand now knowing that it's 6 weeks of training, and it might be something more like $7,000 that they're getting more demand going through those channels. So those are the channels that Schneider can tap into to start to grow capacity, but it's not going to grow at the same rate. And so I mean, one other way to think about the cycle, if I throw one more on there is, typically up cycles, we believe, follow the down cycles that just preceded it. And in the past, you'd see these 18 months.
What did this one?
About the same duration. This one took almost 4 years, very deep. We're 1 year into it. So another way to think about it.
Yes. Yes. No, that's great context. It really kind of sets us up to talk a little bit about pricing. And so given the uniqueness of the market, given how difficult the driver market has been in general and the substandard returns that have been candidly industry-wide for a variety of reasons, it's been bad actors, it's been a bad freight demand environment, we're coming out of COVID, which was a period of rapid and meaningful capacity growth. The need to repair margins is very real, which is something I kind of opened with. And my sense is what rate has been realized has, in large part, gone to offset as much as possible inflation, address driver-related issues. And that being said, as we look into '27, when I talk to CEOs, when I talk to CFOs, when -- I mean, everybody is going through capital budgeting right now so you know where I'm going next, but the backdrop seems to be one of unique focus on margin repair and rate as we go into '27. Can we talk a little bit about that?
Yes. I'm going just start with the scale of it and then you can talk about the repair. So we've been talking about industry costs have gone up about 30% since the pandemic, like most industries, but most industries were able to recover that through prices, through yields. And initially, this industry, we were able to do that and then gave it all back. So we just came back to a level of parity. And then you do -- let's just get back to the performance where we were at before. I also expect that, yes, drivers to be able to come through this industry in a proper manner, it's going to be at a higher price point. Trucks are going to start becoming even more expensive. We're not going to get all of that back necessarily in an allocation cycle in '27. There's got to be a lot of different ways that we're going to be able to extract price. And the other factor for shippers right now, it's not just recovering that price, but understanding post Montgomery, there's a difference here. It's not just price and service, but what's the insurance risk that they're putting on their company as well. So it's all some kind of...
Yes. So I think pricing is a big part of the margin repair, as you said. But we spent most, if not all, of the down cycle, making sure that we're structurally more efficient as it relates to cost. So last year, we had a $40 million cost savings target. We doubled down on that target for 2026, and we're on track to meet that. So you don't get to the results that we've seen over the last several quarters if your cost base is not more efficient. So if you think about even intermodal, in intermodal volumes were slightly down in the third quarter. We're just beginning to get some of the contract price, but you've seen the impact on our earnings growing 35%, right? So it's both price and cost in addition to productivity, which we're very focused on.
I'm going to jump all over the place here. But we're into capital budgeting right now, probably starting to wind it down in some instances. I think given all the inflation, some people started a little bit earlier this year. You're in a unique position, just talk just very generally about priorities for '27, not looking for guidance per se, but I'm just very interested in learning what the priorities are for Schneider given the current operating environment.
I guess I'll start, and you can jump in. So we've talked about disciplined growth and growing where we have differentiation, and that's been the process that we've been going through throughout all cycles, right? So when you think about Truckload, we've said we're not focused on truck count specifically, we're focused on growing earnings. So there's a constrained driver capacity dynamic, but we're making sure that all investments that we're making in driver capacity are at the right time, and that we're getting paid for it. So that's both a network and a dedicated story.
So the cart is not coming before the horse.
Cart is not coming before the horse. In intermodal, we've talked about our differentiation with our rail partners. And I'm sure one of your questions coming up will be about some of that dynamic and what we're doing with our rail alignments. And then even in brokerage, we're very specific in terms of using technology, going after premium freight. So those are the same playbook that we're going to use in 2027 in terms of being disciplined in terms of growth. We're not satisfied. We're never satisfied as it relates to just cost containment, so we're going to continue to focus on cost containment because the things that we're looking at, they are structural in nature. So we're not just slashing costs for the sake of slashing costs, we're making sure that as pricing inflects and as the market recovers, we're not losing the discipline that kind of got us here. And then obviously, as it relates to capital allocation, we're also looking at M&A to the extent that those opportunities arise, but we're positioning our balance sheet to be ready for those opportunities.
As well as share repurchase?
Yes, and share repurchases.
Yes. That's perfect opportunity to maybe pivot and talk a little bit about intermodal. Intermodal franchise at Schneider is a very important one. You're a market leader among a handful of them. Obviously, the M&A environment and the rail complex, it's going to present a lot of opportunities to some folks. You had a recent announcement. I had an opportunity to visit with Kevin Boone earlier today and ask him this question. But it strikes me that your pivot in terms of the network and your alignment with NS and UP really realigns the business, I would argue, to what that merger may offer long term. I see a lot of benefits, potential benefits from it. There certainly seems to be a desire to convert a lot of loads. The spread between trucking rates and rail rates is quite significant. That will come, that will go. But the reality is, at least we've said we really struggle to imagine in an environment where truck rates don't continue to go up. The margin repair is very much needed. The reinvestment is very much needed, and you won't get there without improved returns, which should be a tailwind to intermodal. All that is to kind of set the foundation for why did you make the change? What do you think the opportunity is for Schneider amidst that change? And how are you thinking about intermodal in '27 in general?
Well, first, the change stands on its own, even if a merger doesn't advance. And we have a lot of data that we compare the different alternatives to and it just put us in position that this is the right move for Schneider absent a merger. The merger is the icing on the cake and there's a lot of icing on this cake. It's really deep. Because we made the move to the CPKC. We spent a lot of time with them as they were making their transition, understanding how they're going to operate their trains, knowing that there's actually more miles, it's a little bit of a circuitous route, but they were able to do it faster and more reliably...
It's been a greater partnership.
And at lower cost and have been a great partnership, 19 straight quarters of growth. When we look at this one and we lay out the map, we see the same thing at a much larger scale when you talk about transcontinental shipment. We have shippers today that don't use intermodal transcontinentally because of the reliability and the speed. So that's number 1. Number 2 is, you have the center of the country that really isn't viable -- doesn't have viable intermodal options because you're going to use 2 different railroads. And imagine taking a short haul places like Minneapolis, into Chicago, north side of Chicago. And now you got to drive -- take it off the rail, drive to Bedford Park or some place on the south side, then we put on different rail to go to Atlanta or some place else, it's not economical.
And Jim, there's a lot of debate around this, as you might imagine. And so as a practitioner and somebody who lives this to hear this, not from a rail, but from somebody that's in the market every day and can speak to it is really -- I don't want to stymie your role here. So I'm anxious to learn a little bit more about the opportunities. So please.
Yes. Yes. So we don't know precisely all of the lanes that they'll be able to create and a number of these won't be specific to only intermodal. We've done this with CSX in the past where we've had mixed trains that you would say that's not a typical intermodal lane, but we've been able to look at the service levels and build really good intermodal routes that are nontraditional length of haul. We see more opportunities as we look at the center of the country. The third part that gets me excited, so those first 2 is just about creating a bigger pie. We like our differentiation here, knowing that, on that network, we are the only one with 100% owned containers, chassis, high percent company drivers...
Service.
Service levels that we can deliver that the others operating on that new network are not able to provide. And then you have one other large intermodal company that's going to be using multiple railroads to get to the same level. We really like how this would position us -- position our organization if it goes through.
Yes. No, that makes a lot of sense. So you're a believer in the transcon opportunity, clearly, see real value in it. Let's maybe talk a minute about Dedicated. I've framed it this way. I don't know if it's accurate. But post Montgomery, it seems like maybe between the spot rate inflation, the cost inflation broadly in budgets, coupled with the counterparty risk, there seems to be an increased focus on the part of retailers and others to place more freight with high-quality service Dedicated providers. And you guys have been in the market for a long time. I'd love to hear your perspective around Dedicated, the potential for -- the cost of capital is going up, and I know the Dedicated market has been a very challenged one in '24 and '25, but a rising tide tends to lift all ships. And so how do you -- how would you frame the Dedicated market today for Schneider and going forward?
Long term, what we've seen is the reason for more Dedicated fleets as customers have tighter and tighter supply chains that you just -- you can't hit those expectations with one-way type shipments. And that's been our focus on as we're growing Dedicated fleets that we want to tap into those places where they either have high service requirements, high reliability or specialty equipment. The ones that it's a shipper just looking for a capacity solution, those tend not to be durable. And so as we're looking at what's ahead of us here, there are shippers that are coming out of the woodwork saying, looking for a capacity type solution. That's not something we would necessarily want to get involved in because this isn't just about having more trucks in Dedicated. But you do mention something else that there are more shippers that are looking at what they called as dedicated, and it was more of a I lease the trucks and then I have agents that are operating those trucks. That's a really risky model in a post Montgomery world and there...
Highly cyclical.
Yes. You're just -- you're really opening yourself up to lawsuits that they've never had to defend themselves against in the past. But clearly, they are the employer. And so now they're looking for a solution where they change some of that indemnity.
Insurance has been an area that's getting a lot of attention. And so love to hear your perspective. Brokers, I think, have seen more focus than asset providers. The duality that so many of you offer in the market being not only an asset-based provider, but also offering a non-asset base service option to customers to fill out, and you guys have a very broad portfolio of services. How do you think about brokerage today? How is Montgomery influencing the brokerage market more generally? And I ask C.H. Robinson this question. It seems to me there needs to be a coalition of the willing to steal a phrase that will sponsor legislation in D.C. so that we know what it means to engage in negligent hiring practices because I think you need a more specific check-the-box for brokers on what is negligent hiring and what isn't. We also don't really have a rating system. FMCSA has one, but it's not what people think it is. It doesn't -- and it doesn't hold up in court at all. And so the point here is I think Congress has to act before these issues in brokerage are ultimately resolved. And since Democrats and Republicans agree on everything, I'm sure this is going to happen next week. So...
Yes. Let me start broadly and then Darrell come in on the insurance part of it, but there's been a diseconomy of scale for large trucking companies for a long time. And we do believe that if you're the cause of a large accident that there should be some responsibility to the motoring public, but it's become disproportionate with the actual outcomes. That's what we have an issue with. And what happened after Montgomery because before it was this diseconomy of scale, well, now that some of that has changed because even if you're a small trucking company, you might not have the ability to pay the types of lawsuits that are going on right now, but there are brokers and there are shippers that are going to be held accountable. And so some of this...
Plaintiffs' attorneys are creative.
They're creative and when I look at some of the carriers that have been used in these situations, some of those should have been addressed. And so we went from 65,000 carriers to 14,000 carriers. And we did that in 2023, well before this as a result of cargo security. And what we start doing is working with a couple of third parties to go beyond the carrier and know who owns that carrier because we understood the chameleon carrier was a real problem, and you had to get to the ownership to be able to move -- understand who's actually hauling this freight, not just the name on the side of the truck because that can change quite frequently. That's what caused us to go down so quickly. And we share -- it's not just are they -- do they have any rating, are they satisfactory? We had to go much further than that. And there are others doing the same thing...
Highway and others.
Highway is -- they're a great partner for us. There's actually a couple of others. And then we implement some of our own information that we feed into it to be able to screen out. And we don't share that information because as soon as we do, the bad actors are going to figure that out and figure out how to counter us. So -- and we're constantly trying to work on that. But that is -- it doesn't mean that we've removed all risk from our brokerage operations, but it does create an opportunity in our truckload side, but I think the insurance is a key part. We are seeing shippers starting to understand, I not only need to make decisions based on cost and service, but what are the potential safety risk of hiring this carrier? And it's not easy where you can just always say, "Oh, just go and get insurance, and it's going to be available."
Yes. I think there's a benefit to being a large asset-based, safe, compliant organization. So whereas the dynamic is changing where the cost of a claim is going to be borne in different parts of the supply chain, right, whether that's through brokers that didn't have to deal with that before, or potential shippers. We believe that, ultimately, the way that insurance carriers behave and underwriters in terms of how they evaluate risk will also change. So if you're an asset-based provider that's used to carrier qualifications, monitoring, investing in safety, training, you're more advantaged than a small carrier who would never had to deal with that or a broker who either is going to pay more, significantly more for insurance or may not have insurance available. So we think that our risk profile puts us in a relatively better position. And I think the practices that will be implemented over several years and have experience doing, resonates more with certain shippers.
Yes. Makes a lot of sense. You mentioned acquisitions as in your DNA. Now you've certainly done several in the past. When you think about acquisitions today, what are you trying to -- what sort of need are you trying to satisfy? Are you looking for increased service offerings? Are you looking for bolt-on to an existing service offering? Maybe just talk about that for a minute.
All of the above. So we start with just the ability to transact, right, and the fact that we have spent a lot of time being disciplined on our balance sheet, right? So our leverage is at 0.1x, right? And that's because there are efforts that have been made over several years to put ourselves in that position. In fact, in the third quarter, with our new Head of Corporate Finance here, we expanded our existing capacity for debt agreement. So we have $300 million of additional liquidity. So there's one thing to have a desire to do things, we also have the ability to do things. So I think that's the initial framing. So over the past several years, 5 years, we've done 3 very successful acquisitions that have been in the Dedicated space. It doesn't mean that Dedicated is the only opportunity that we look at, but in this environment, based on the needs that you just mentioned, whether it's service offering, end market, geography, there are opportunities that came that were able to broaden our portfolio. We think that playbook still works. If you look at the 3 acquisitions that we've done, they're bigger today than when we acquired them, and that's not always the case. So we have a proven playbook and a team that's proven to be able to execute. Now as disruptive factors happen in the industry, there are certain targets that may have been attractive before, may not have been attractive before where that dynamic may change, right? So we talked about Montgomery, we're talking about AI and AV and all these disruptive forces. So we're not closed off to only Dedicated because we think that a lot of the capabilities that we have, and if we lean into disruption, will enable us to look at other targets that maybe before were not either available or attractive.
We've got new EPA emission standards. Everybody, I think, though, is uniquely focused on seating trucks and improving utilization. I know we touched on capital earlier. Just curious, as we think about the path ahead, any need to refresh the fleet either at a tractor level or at a trailer level? Please remind us just general average ages kind of whether or not there's any work that needs to be done there in '27? And maybe we can pivot to 1 or 2 more questions and we'll close out.
I'll start. So we -- even during the down cycle, we've been very focused on investing in our replacement CapEx. So the decline that you saw since the COVID highs were not on the replacement side. So we've been very disciplined in terms of maintaining and improving our age of fleet. What we've seen is where there's no growth or there's no growth at a commensurate return, the growth CapEx is where we have scale back, right? We've also become very -- a lot more productive during the downturn. So the need to buy as many tractors has not been there. So as we look forward to 2027, we'd anticipate that we're continuing to improve our age of fleet. And as Jim said, when the right investment opportunities come, we're going to grow accordingly, whether that's intermodal or in Dedicated. From an EPA standpoint, you want to touch on that?
Yes. So go back to 2010, last time there was an engine standard change did a pull-ahead that was probably about 30% higher than the prior year. But we've seen some value going through the pandemic and other times of maintaining that consistent buying pattern. We made some very minor adjustments, but not really noticeable. I think the other part to just consider here is that container and chassis fleet. Getting back to the productivity levels we had in 2022, 2021, that's about 20% more volume on that equipment. If we get back to 2017, 2018 level type equipment turns, that's about 30% higher volume. So there's still places that we think we can eke out some more utilization out of all of our equipment.
And we've been growing our investment in replacement CapEx, especially year-over-year, but you don't see it as much because proceeds have also improved. So our net CapEx is impacted by more favorable proceeds.
Right. Well, maybe just to wind things down. We only have a couple of minutes left. As you think about '27 specifically, where are the biggest opportunities for margin improvement? And if there are any milestones, 1 or 2 milestones that you think are especially important evaluative measures for investors to consider to measure Schneider by, maybe just to hit on those and...
Yes, the key priorities. So we've -- Darrell mentioned removing costs over the last 2 years. That doesn't end just because the market is improving. We see great opportunities to continue to take out structural costs, including the use of AI, and I would expect autonomous vehicles at some point create opportunity for us to continue to take cost out. Second one is providing a high level of service to be able to get reward from customers with higher price points. We're going to take price through allocation seasons, how we accept freight, different types of opportunities that come up and then using portions of that strategically to grow our driver fleet. Not just throwing money everywhere because you don't fix your capacity issue just throwing money at it, it's a lot about how do you work with your drivers, create better jobs for them. We think we have a lot of opportunities that will be exciting for drivers. You do those 3 things, and we are improving and moving towards long-term ranges and...
Yes. And just in terms of specific question on measurement, right? So we have targets out there in terms of long-term margin targets, so Truckload 12% to 16%, intermodal 10% to 14%, broker -- or Logistics 3% to 5%. Even in an environment where we don't have full price recovery, we're on the path to contract recovery, and we don't have a demand inflection, you can see the trajectory that we're on, right? So as of the end of the third quarter, we're at 8% margin in Truckload, 7% in intermodal and we're already within range for Logistics absent claims considerations. So we believe that as capacity continues to exit really from the top of the funnel, and the fact that we have structurally lower cost, the path to those long-term targets is accelerating.
Well, it seems like '27 is very much going to be a margin focus year for Schneider and most of the rest of the industry. We really appreciate you guys being here today. Thank you for your attendance. Thank you for entertaining...
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