Werner Enterprises : to Release First Quarter 2025 Earnings and Host Earnings Call Transcript

Published: 2025-05-07 15:19:06 ET WERN

Published on 05/07/2025 at 15:19

Werner Enterprises

First Quarter 2025 Earnings Conference Call

Tuesday, April 29, 2025, 5:00 PM Eastern

Good afternoon and welcome to the Werner Enterprises First Quarter 2025 Earnings Conference Call.

(Operator Instructions) Please note, that this event is being recorded. I would now like to turn the conference over to Chris Neil, Senior Vice President of Pricing and Strategic Planning. Please go ahead.

Good afternoon, everyone. Earlier today, we issued our earnings release with our first quarter results. The release and a supplemental presentation are available in the investors section of our website at werner.com. Today's webcast is being recorded and will be available for replay later today. Please see the disclosure statement on slide two of the presentation as well as the disclaimers in our earnings release related to forward-looking statements.

Today's remarks contain forward-looking statements that may involve risks, uncertainties and other factors that could cause actual results to differ materially. The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation.

On today's call with me are Derek Leathers, Chairman and CEO and Chris Wikoff, Executive Vice President, Treasurer and CFO.

I'll now turn the call over to Derek.

Thank you, Chris, and good afternoon, everyone. We appreciate you joining us today.

Let me start by saying clearly, our first quarter results did not meet our expectations. We faced several challenges during the quarter, some industry wide, some specific to Werner, but we are acting decisively to address them. At the same time, the underlying progress we're making in growing Dedicated, advancing our technology transformation and more aggressively tightening our cost structure puts us in a stronger position as the environment stabilizes.

Today, I'll address our Q1 performance, provide our perspective on the fluid operating environment, walk through the actions we are pursuing and why we are confident in the long term trajectory of the business.

Let's turn to slide five and discuss our first quarter results. During the quarter, revenues were 7% lower versus the prior year. Adjusted EPS was negative $0.12. Adjusted operating margin was negative 0.3%, and adjusted TTS operating margin was 0.4%, net of fuel surcharges.

Our performance was negatively impacted by four factors. First, we experienced elevated insurance costs and claims. This accounted for $0.09 of the adjusted EPS impact, with one verdict late in the quarter representing $0.08 related to a 2019 incident, which we are appealing.

Adverse nuclear verdicts remain an industry wide issue. We, along with our peers, continue to advocate for reform with state and federal government officials. We will continue to do our part to ensure that a more pragmatic approach to verdicts on these lawsuits will prevail. Second was

extreme weather, which was more pronounced in the areas in which we operate. This represented approximately a $0.04 impact to our first quarter EPS. Third, our IT spend was more elevated, to progress our technology strategy and transformation. And fourth, were isolated operating inefficiencies and lower utilization stemming from select customer decisions and stop and go activity from tariff induced uncertainty.

The net effect of these headwinds was adjusted EPS being down $0.25 year-over-year. While our results do not reflect our expectations, there are areas where we continue to see momentum and strength that will position us well as we progress through the rest of the year.

In Dedicated, we were awarded several fleet contracts from new and existing customers during the quarter, representing over 200 trucks that are scheduled to be implemented in late Q2 and early Q3. Awards signed this quarter were the highest since the second quarter of 2022.

Our Dedicated expertise is a competitive advantage that has and will drive growth over the long run. Our customer retention remains strong and interest in our Dedicated solutions from new customers in attractive verticals is on the rise.

Our Dedicated business excels when reliability matters most amongst large enterprise shippers. We expect that supply chain uncertainty in 2025 will continue to play well to our strengths.

In One-Way Truckload, revenue per total mile was up for the third consecutive quarter despite weather disruptions, increased deadhead and network inefficiencies. Over half of the One-Way bid season is complete. Business retention has been good so far. We secured several One-Way awards with some of our largest customers. Contractual rate adjustments have been mixed, although are generally up low to mid-single-digit percent on average.

While our One-Way fleet is smaller versus prior years, we've continued to invest strategically. We remain committed to serving specific specialized segments within One-Way, including Mexico Cross Border, Expedited and highly engineered lanes. Our scale, including one of the largest trailer fleets, provides flexibility and a simplified approach for large enterprise shippers, which is critical during these uncertain times.

Logistics adjusted operating income continues to be positive. While revenue was down 3% and gross margin was down 5% year-over-year, operating expenses excluding purchased freight were down 11%. Sequentially, we saw softer volume in Truckload Logistics, driven by small and mid-sized customers. Gross margin was squeezed in the first half of the quarter, but improved in March.

Moving to slide six. While macro volatility remains, our plan and ability to generate earnings power and drive value remains unchanged. We remain focused around three priorities. First is driving growth in core business, which includes expanding TTS and Logistics operating income margins; increasing One-Way rates; and growing our Dedicated fleet given a pipeline that remains strong. We've been awarded numerous new Dedicated fleets, and we are seeing positive results on several large One-Way bids with strategic customers. We are realizing rate increases on One-Way bids. And within Logistics, we are growing PowerLink and Intermodal.

Second is driving operational excellence as a core competency, which we will deliver by maintaining a resolute focus on safety; providing industry leading reliability, solutions and service to our customers; continuing to advance our technology roadmap and continuing to control cost.

Our commitment to excellence was recently recognized as the Truckload Carriers Association, named Werner, a 2025 TCA Elite fleet. This designation highlights our commitment to providing a top tier workplace for professional drivers. We are progressing our technology strategy and the transition to our Edge TMS platform. Today, all Logistics loads except Final Mile are running through Edge TMS.

We are making progress in TTS with more than half of One-Way Truckload volume and a quarter of Dedicated volume in Edge. We remain focused on transitioning remaining customers and volume to Edge, building out execution capabilities and realizing the anticipated synergies at greater scale.

On the cost containment front, over the last two years, we have taken out $100 million in cost and continue to execute against our cost savings goal for 2025, which we are increasing from $25 million, to $40 million. Chris will cover our actions here and how we are controlling what we can without sacrificing future opportunities.

The final priority is driving capital efficiency. This includes maintaining strong operating cash flow, remaining disciplined and thoughtful in how we allocate capital and maximizing equipment fleet sales.

Capital proceeds exceeded capital expenditures for the quarter as we sold more used equipment than we purchased. We are seeing increased values on used equipment as pricing on new equipment is fluid and recently being influenced by tariffs. We will continue to invest in trucks, trailers, terminals, technology and talent, while maintaining optionality when it comes to evaluating the impact from tariffs on our equipment cost. We reduced debt since year end. Our liquidity is at a new high point as we closed late in the quarter on a new and incremental $300 million credit facility. As a result, we are well positioned to be opportunistic relative to share repurchase and M&A.

Regarding tariffs, our conversations with suppliers and customers reflect a muddied outlook. The environment is fast moving and ever changing. We think about the impact of tariffs on our business in three categories. CapEx and used equipment gains, exposure to Mexico freight and the broader impact on retail and consumer demand.

Relative to CapEx and used equipment gains, our average tractor age of 2.2 years provides flexibility on equipment purchases and sales. We work with several OEMs with varying levels of supply chain exposure to Mexico and Canada and are in close contact as they assess potential tariff impacts on their products. As information becomes clearer, we are considering several strategies to mitigate the impact of higher prices. This includes delaying new tractor purchases and sales, which is feasible given our low age fleet and/or shifting purchases between OEMs to those less impacted by tariffs.

In the event that tariffs stick, we expect low single-digit percent increases to the cost of equipment and parts, but with favorable offsets with growing demand and improved resale values of used equipment, which we are seeing now as an early development in April.

Relative to cross border freight, approximately 10% of total revenues are from cross border Mexico shipments. This includes both US Line haul as well as revenues generated within Mexico. Most of our cross border business is executed in One-Way trucking and Logistics.

Shipments consist primarily of manufacturing, industrial and food and beverage products. Even though there may be some short term impact from tariffs, supply chains that have been expanding in the region will not change overnight. With over 25 years of experience in cross border operations, we have developed strong partnerships with customers and partner carriers. As one of the largest transportation providers in the U.S., with a strong presence in Mexico, we are firm believers that our expertise in this region is a competitive advantage over the long term, and we plan to continue to operate and grow this business.

And lastly, relative to the broader impact on consumer sentiment and spending, through all the noise and challenges of the last few years, the consumer has remained engaged and resilient. We are seeing stable volumes across our discount retail customer base. 62% of our revenues in 2024 were from the retail vertical. Our more concentrated exposure to non-discretionary retail from our relationships with discount and large value retailers is a differentiator and has held up well in past economic slowdowns.

As the current difficult environment lingers, we anticipate ongoing capacity attrition. Long haul truckload employment is below the prior peak in 2019 and additional exits could be accelerated, providing a more favorable backdrop for larger carriers like Werner, and we stand at the ready.

In summary, while elevated insurance and claims expense and challenging weather negatively impacted our results this quarter and tariff uncertainty looms, we continue to execute our long term strategy while taking near term decisive action to position Werner for success.

Our 13,000 hardworking talented team members are committed to move this company forward. And while our hard work is not yet showing up in the bottom line, we have clear line of sight to structural improvements that are being made to position this company for stronger earnings power.

With that, I'll turn it over to Chris to discuss our first quarter results in more detail.

Thank you, Derek. Let's continue on slide eight.

Our performance comparisons here are year-over-year unless otherwise noted.

Adjusted operating loss was $1.8 million and adjusted operating margin was negative 0.3%. Adjusted EPS of negative $0.12 was down $0.25. As Derek noted, this includes a $0.09 headwind during the quarter from increased insurance costs and another approximately $0.04 due to the impact of adverse weather resulting in lower One-Way miles per truck. Elevated technology spend is also contributing year-over-year, a reflection of further progress in our technology strategy and transformation.

Turning to slide nine. Truckload Transportation Services total revenue for the quarter was $502 million, down 9%. Revenues net of fuel surcharges declined 7% to $444 million. TTS adjusted operating income was $2 million. Adjusted operating margin, net of fuel, was 0.4%, a decrease of 430 basis points, of which 160 basis points was due to higher insurance and claims referenced earlier. During the quarter, consolidated gains on sale of property and equipment totaled $2.8 million. Net of fuel surcharges, insurance and gains, TTS operating expenses declined 5%.

Disclaimer

Werner Enterprises Inc. published this content on May 07, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 07, 2025 at 19:18 UTC.