Executive Summary / Key Takeaways

• Schneider National is strategically transforming its business mix, emphasizing resilient Dedicated Truckload and asset-based Intermodal segments while optimizing its Network Truckload and Logistics operations, aiming for enhanced through-cycle profitability and returns.
• The recent acquisition of Cowan Systems significantly bolsters the Dedicated segment, immediately contributing to earnings and offering substantial synergy potential, positioning Schneider for growth in key vertical markets despite broader market uncertainty.
• First Quarter 2025 results demonstrated tangible progress with year-over-year improvements in revenue, operating income, and margins across all core segments, reflecting the impact of strategic cost containment, asset efficiency, and disciplined commercial actions amidst a challenging freight environment.
• Schneider's proprietary technology, including the Freight Power platform and AI-based initiatives, provides a competitive edge by enhancing operational efficiency, improving asset utilization, and enabling differentiated service offerings like Power Only, contributing to margin resilience and future growth potential.
• While updated 2025 guidance reflects caution due to economic uncertainty and trade policy impacts, management anticipates continued year-on-year improvement, underscoring the expected benefits of structural business changes and positioning the company for leverage in a potential market recovery.

A Multimodal Powerhouse Adapts to the Cycle

Schneider National, Inc. stands as a premier multimodal provider in the North American transportation and logistics landscape. Its business spans Truckload, Intermodal, and Logistics services, serving a diverse customer base across the U.S., Canada, and Mexico. The company's strategic journey, particularly since its 2017 IPO, has been marked by a deliberate evolution, shifting its fleet mix and operational focus to build a more resilient business model capable of navigating the inherent volatility of the freight cycle. A key pillar of this strategy has been the aggressive expansion of its Dedicated Truckload segment, which has grown its average annual truck count by 9% since 2017 through organic initiatives and targeted acquisitions. This focus aims to provide stable, long-term contract revenue and a more predictable earnings profile compared to the more cyclical Network Truckload business.

In a competitive arena populated by giants like J.B. Hunt Transport Services (JBHT), Knight-Swift Transportation (KNX), Old Dominion Freight Line (ODFL), and XPO, Inc. (XPO), Schneider differentiates itself through its multimodal portfolio, asset-based Intermodal strength, and a growing emphasis on technology-driven solutions. While competitors like ODFL demonstrate superior profitability and efficiency in their core LTL markets (ODFL TTM Net Margin: 20.33% vs. SNDR TTM Net Margin: 2.32%), and JBHT leads in intermodal scale and technology integration, Schneider is actively working to close these gaps through strategic investments and operational improvements. The company's approach is not just about moving freight but about providing an "effortless experience" for customers, leveraging its diverse capabilities to offer tailored solutions, including gaining market share by combining portfolio elements for sole-source awards.

Central to Schneider's operational strategy and competitive positioning is its investment in technology. The Schneider Freight Power platform serves as a digital backbone, enhancing efficiency for both shippers and carriers. This platform enables capabilities like the Power Only offering within Logistics, which has seen double-digit volume growth and offers a higher margin profile than traditional brokerage. Furthermore, the company is investing in AI-based digital assistant technologies and digital employee models with the stated goal of automating routine tasks and achieving over $40 million in additional cost reductions across the enterprise. While specific quantifiable benefits of Freight Power over competitor platforms are not detailed, management highlights its role in enabling nimbleness in changing markets and lowering the cost to serve. The strategic intent behind these technology investments is clear: to improve asset utilization, enhance productivity, reduce operating costs, and provide differentiated services that strengthen the company's competitive moat against rivals who may excel in specific niches but lack Schneider's integrated multimodal and technological approach.

Strategic Execution and Segment Performance

Schneider's strategic framework is built on four equally important tenets: optimizing capital allocation, disciplined freight allocation, delivering an effortless customer experience, and containing costs. The company's recent performance reflects the impact of executing against these pillars, particularly in navigating a freight market characterized by persistent overcapacity, intense price competition, and rising operational costs, including insurance and equipment-related expenses.

The Truckload segment, the largest contributor to revenue, saw its operating revenues increase to $714.5 million in Q1 2025, up from $645.0 million in Q1 2024. Income from operations rose significantly by 68% to $25.1 million, improving the operating ratio by 130 basis points to 95.9%. This improvement was largely driven by the Dedicated business, which now represents 70% of the Truckload fleet and 71% of segment revenue. The acquisition of Cowan Systems, completed in December 2024, was a major catalyst, immediately contributing to Dedicated volume growth and revenue. Dedicated averaged over 8,500 trucks in Q1 2025, a 27% increase year-over-year, with revenue per truck per week up 2% to $4,034. While the Dedicated new business pipeline remains strong and is expected to more than replace anticipated churn in Q2 and Q3 2025, net truck growth is projected to be lower than initially expected due to churn and ongoing asset efficiency actions aimed at reducing the truck-to-driver ratio. The Network Truckload business, while still challenged, showed signs of improvement, with network margins improving year-over-year in Q1 2025 for the first time since Q1 2022, driven by low to mid-single-digit price increases in contract renewals and efforts to reduce variable input costs. However, the company is foregoing some volume to maintain price discipline, a strategic choice reinforced by an increase in shipper mini allocation events.

The Intermodal segment also demonstrated robust performance, with operating revenues reaching $302.8 million in Q1 2025, up from $296.6 million in Q1 2024. Income from operations nearly doubled to $13.8 million, resulting in a 250 basis point improvement in the operating ratio to 94.7%. This strength was fueled by a 4% increase in orders year-over-year and a 1% rise in revenue per order to $2,467. Management highlighted increasing shipping activity in the west of Mexico and successful new business wins as key drivers. The asset-based nature of Schneider's Intermodal offering, combined with strong rail partnerships (UP (UP), CSX (CSX), CPKC (CP)), provides a differentiated service, particularly in the growing Mexico cross-border market, where freight is largely USMCA compliant and exempt from tariffs. The company believes it has significant capacity to absorb volume growth (20-25%, potentially up to 35% based on historical container turns) without substantial additional investment in containers and chassis, positioning it for enhanced operating leverage.

The asset-light Logistics segment, leveraging its Freight Power platform and Power Only offering, continued its trend of profitability. Operating revenues were $333.5 million in Q1 2025, up from $326.4 million in Q1 2024. Income from operations increased by 50% to $8.1 million, improving the operating ratio by 70 basis points to 97.6%. This performance was driven by effective net revenue management and the continued strength of the Power Only service, which grew volumes mid-single digits year-over-year. While traditional brokerage volumes remain challenged as shippers favor asset-based solutions, Schneider's nimbleness and technology enable it to compete effectively. The company recently refined its long-term margin target for Logistics to 3-5% (from 5-7%), reflecting a mix shift towards traditional brokerage, including the impact of the Cowan acquisition.

Overall enterprise financial performance in Q1 2025 showed net income increasing by 41% year-over-year to $26.1 million, driven by the 47% increase in income from operations. Total operating expenses rose to $1,359.7 million, up from $1,290.3 million, primarily due to increases in salaries, wages, and benefits ($44.9 million increase), depreciation and amortization ($10.8 million increase), operating supplies and expenses ($21.5 million increase), and insurance and related expenses ($10.1 million increase). These increases were largely attributed to the Cowan acquisition and claims development. Despite these cost pressures, the overall operating ratio improved to 97.0% from 97.8%.

Financial Health and Capital Allocation

Schneider maintains a strong balance sheet and robust liquidity, providing flexibility for strategic investments and navigating market cycles. As of March 31, 2025, the company held $106.2 million in cash and cash equivalents. Total debt and finance lease obligations stood at $577 million, resulting in a net debt leverage of 0.8 times, well within management's stated comfort zone and intent to remain investment grade (not expecting to exceed 2 times net leverage). The company has access to a $250 million revolving credit facility and a $200 million receivables purchase agreement, with combined available capacity of $234.5 million as of Q1 2025. A $400 million delayed-draw term loan facility, utilized in part for the Cowan acquisition, matures in November 2029.

Cash flow generation remains a key focus. Net cash provided by operating activities was $91.7 million in Q1 2025, a decrease from $97.6 million in Q1 2024, primarily due to changes in working capital. Net cash used in investing activities increased to $126.7 million from $102.1 million, driven by purchases of lease equipment and investments in notes receivable, partially offset by lower net capital expenditures. Net capital expenditures decreased to $97.1 million in Q1 2025 from $111.9 million in Q1 2024, reflecting reduced purchases of transportation and other property and equipment, aligning capital spend with current business and economic expectations. The company has also been active in returning capital to shareholders, repurchasing $103.9 million of shares under its $150 million authorization and consistently paying dividends ($17.0 million paid in Q1 2025).

Outlook, Risks, and Competitive Positioning

Schneider's updated 2025 guidance reflects a cautious but optimistic outlook. Adjusted earnings per share are projected to be between $0.75 and $1.00, with net CapEx expected in the range of $325 million to $375 million. This revised outlook, lower than previous expectations, incorporates increased economic uncertainty and the potential impacts of current trade policy, which are expected to moderate both price and volume trends. Despite this, management anticipates continued year-on-year improvement in results throughout 2025, albeit at a tempered pace.

The outlook assumes more moderate pricing gains and lower volumes in the Truckload network, continued resilience in Dedicated with price in line with prior expectations but lower net fleet growth, and continued volume growth with moderate price improvement in Intermodal. Logistics is expected to see less pronounced year-on-year improvements. The CapEx guidance aligns investment with these expectations while also factoring in potential equipment cost increases due to trade policy, partially offset by anticipated improvements in used equipment sale proceeds.

Several risks could impact this outlook. Unfavorable economic conditions, including inflation and trade disputes, could further dampen demand and pricing. Competitive pressures remain intense across all segments. While capacity is exiting the industry, the pace has been slower than in past cycles, and the resilience of small carriers is a factor to watch. Schneider is exposed to volatility in insurance and claims expenses, exacerbated by rising litigation costs and nuclear verdicts, which increased insurance expense by 32% in Q1 2025. The ability to attract and retain qualified drivers and owner-operators remains a challenge, impacting the transition to a more variable cost model in the Network segment. Furthermore, reliance on railroads for Intermodal operations introduces dependency risk.

In the competitive landscape, Schneider's strategic shift towards Dedicated and its asset-based Intermodal offering position it differently than peers. While JBHT's intermodal scale and technology integration provide cost and efficiency advantages, and ODFL's LTL focus yields superior margins, Schneider's diversified portfolio and integrated technology aim to capture value across multiple modes. The Cowan acquisition strengthens Schneider's position in Dedicated, a segment where competitors like KNX also operate but may face different churn dynamics. Schneider's investment in technology like Freight Power and AI initiatives is crucial for enhancing its competitive edge, aiming to improve operational efficiency and service differentiation to counter rivals' strengths in cost or specific market niches. The company's ability to execute its cost containment initiatives ($40 million target) and drive asset efficiency will be critical in improving margins and competitive positioning, especially in the Network segment, where profitability restoration is a key goal for the second half of 2025.

Conclusion

Schneider National is executing a deliberate strategy to reshape its business mix and enhance its financial resilience in a challenging freight market. The focus on expanding the Dedicated segment, bolstered by the accretive Cowan acquisition, and leveraging its asset-based Intermodal capabilities provides a more stable foundation amidst cyclical volatility. First Quarter 2025 results demonstrated tangible progress, with improved performance across core segments driven by strategic cost controls, operational efficiencies, and disciplined commercial actions.

While macroeconomic uncertainty and trade policy temper the near-term outlook, leading to revised 2025 guidance, management's expectation for continued year-on-year improvement underscores the anticipated benefits of these structural changes. The company's strong balance sheet and focus on free cash flow generation provide the financial flexibility to pursue strategic growth and navigate potential headwinds. Key factors for investors to monitor include the pace of capacity rationalization in the industry, the sustainability of pricing trends, the successful integration of Cowan and realization of synergies, the impact of technology investments on efficiency and differentiation, and the company's ability to manage rising insurance costs and attract/retain drivers. Schneider's strategic evolution, coupled with its focus on operational execution and technological leverage, positions it to potentially capture outsized benefits when the freight market eventually enters a more favorable phase.