Given that everyone knew year-on-year comparisons of trucking company financial results between 2025’s second quarter and the corresponding three months of 2024 were always going to be bad, there’s been a focus this year at a few companies of how things look sequentially in comparison to the first three months of this year.
That was the case also with Werner Enterprises (NASDAQ: WERN), which released its earnings Tuesday and followed up with an earnings call with analysts.
Right off the bat on the call, Werner CEO Derek Leathers declared: “We generated solid results during the second quarter and are encouraged by the sequential improvement in financial performance relative to Q1. “
Werner’s bottom line results were positively impacted by the reversal of two liabilities it had been carrying on its books, one of them related to the nuclear verdict from 2018 that was reversed by the Texas Supreme Court during the quarter. The reversals impacted operating and net income.
But strip that out and Leathers’ comments have a solid basis. For example, in the first quarter, Werner posted a non-GAAP adjusted operating margin of negative 0.3%. In the second quarter, that margin was 2.2%.
Revenue in the second quarter was $753.1 million, up from $712.1 million in the first quarter. The adjusted operating ratio (OR) for the Truckload Transportation Services segment was 97.5% in the second quarter, compared to 99.6% in the first quarter.
Adding to that, CEO Christopher Wikoff said the first indications from the current quarter were positive. Wikoff said he expects another sequential improvement in revenue, with much of it attributed to new customers in the company’s Dedicated division. He also said Werner is “seeing very positive momentum” in its logistics operations.
Good numbers in logistics, used equipment sales
The transportation team at TD Cowen led by Jason Seidl said in a report after the earnings call that Werner had “(found) its footing” in the second quarter, but that it wasn’t just freight transportation at the truckload carrier that was the largest unexpected contributor.
Instead, he cited as an example the company’s logistics segment. It grew its operating income to $4.3 million in the second quarter compared to $550,000 a year earlier.
Seidl said the performance in logistics “beat our estimates nicely” and reflects load growth of 7% year on year “on execution in winning new business.” “Year on year growth momentum is expected to continue in (the second half) which we view positively given widely anticipated core demand softness,” Seidl wrote.
Another area of significant improvement cited by both Seidl and the company was in used vehicle sales, which Ryder (NYSE: R) recently cited as a sequential area of improvement. “Used truck and trailer values have accelerated since March, benefiting from tariff and other macro uncertainty,” Leathers said.
Specifically, Werner said its gains on sale of property and equipment were $5.9 million in the second quarter, up from $2.7 million a year earlier. First quarter equipment sales were $2.8 million.
The difference was not volume; Werner said it sold 54% and 60% fewer tractors and trailers, respectively. But the average unit price was “much higher,” it said.
What the big rail merger means to Werner
The timing of Werner’s earnings report made it the first truckload carrier to report following the announcement of a merger agreement between Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC). Given that one of the planned benefits of the transcontinental hookup would be putting rails in better position to compete with trucks, it was inevitable that analysts would ask about it.
Leathers said he wanted to be “a bit careful about getting too much into the weeds” about the merger, but still described it as good news. Both companies are the predominant intermodal partners for Werner in their respective services areas, Union Pacific in the West and Norfolk Southern in the East, he said.
Current features of Werner’s routes, Leathers said, make it more difficult to shift that traffic to rail: length of haul, cross-border Mexican business, expedited freight. “Those are for different reasons much tougher to tackle and much tougher to convert,” Leather said.
But he added: “I’m not naive enough not to believe that there won’t be some freight out there that’s convertible, and that’s why we have an intermodal product, and that’s why we’ve had some good success converting it ourselves.”
The company’s Dedicated offering is about 65% of the revenue of the Truckload Transportation Services sector. Leathers said that business is “completely insulated from any kind of rail merger.”
He also stressed that intermodal has always been an offering at Werner. There are opportunities in that mode “around the edges,” Leathers said, “and we’re constantly working with our customers on some of those opportunities because if it’s going to go intermodal, I’d rather it go intermodal here than somewhere else.”
Impact of the English language rule
Another issue that has risen in importance since Werner’s first quarter conference call is the enforcement of the English language proficiency rule for drivers.
In response to an analyst question, Leathers said he does not expect any impact on Werner’s fleet from enforcement. “We’ve always kept our English language proficiency test in place throughout the time that the rule wasn’t being enforced,” he said.
The impact on broader capacity so far has been minimal, Leathers added. The month to month and a half when enforcement has been underway is too short to have an effect, he said: “1.5 months in government time is like 1.5 minutes in everybody else’s life, meaning it just goes slower than we’d like to see.”
But he added that Werner has seen enforcement “starting to ramp up,” with differences among states in the level of enforcement.
He cited 1,500 out of service orders as a result of enforcement, a level he said is “at a slower rate than we would have expected or that maybe we would have wished for.”
Talking the Texas Supreme Court decision
The earnings call was also the first opportunity Leathers had to publicly address its victory at the Texas Supreme Court that reversed a 2018 nuclear verdict that had grown in size to more than $100 million.
Leathers said the decision “provided much needed clarity in the state of Texas, but legal reform is still needed in many states across the country. We will continue to work at the state level and with others in and outside our industry for fairness and reasonableness regarding these types of claims and lawsuits.”
He called the decision that ended the legal saga from a 2014 fatal wreck the “end of a decade-long and difficult chapter.” He also said Werner would not “lose sight of the tragic loss for the Blake family,” which suffered fatalities and serious injury in the crash with a Werner truck.
In response to an analyst question, Leathers said he hoped the Texas Supreme Court decision would be “a start of a tidal wave of similar decisions, but I think that would be a bit optimistic at this point.”
The road to tort reform can be long, Leathers said. “We think we’ve got a lot of work to do still as an industry and as a company,” he said. “We’ve got to do that at a state-by-state level. It’s difficult work, but work that needs to be done.
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