I need to thank our OD household of workers for his or her dedication to our clients and their unwavering dedication to executing our long-term strategic plan. Our group stays targeted on controlling what we will management to make sure that we proceed to ship an unmatched worth proposition for our clients. The inspiration of this worth proposition is our means to ship superior service at a good worth. Our clients know that they will anticipate the best customary of service from Previous Dominion day-after-day, which positions them to drive worth for their very own clients. We’re happy to as soon as once more present 99% on-time service within the fourth quarter and a cargo claims ratio of 0.1%.
Our observe document of constantly delivering superior service has helped us to win market share over the long run whereas additionally supporting our ongoing dedication to income high quality. We preserve a disciplined strategy to yield that’s designed to offset our price inflation over the long run whereas additionally permitting us to proceed to make strategic investments in our capability, our know-how, and most significantly, our folks. Whereas these investments have elevated our overhead price within the brief time period, we imagine they are going to help our means to develop with clients within the years forward. Our constant funding in capital expenditures all through this financial cycle has differentiated us from our rivals over time.
That is additionally a elementary part of our price proposition, which has been crucial to our means to win extra market share over the past decade than another LTL service. In the course of the fourth quarter, our group continued to function effectively whereas additionally managing our discretionary spending. These efforts are mirrored by how effectively now we have managed our variable working prices over the previous few years regardless of the decline in our total community density and different inflationary headwinds. To place this in context, in 2022, after we generated an organization document working ratio of 70.6, our direct working bills had been roughly 53% of income.
In 2025, our direct working prices as a % of income had been additionally 53% regardless of the lack of community density related to the lower in volumes. Our efforts to reinforce productiveness have been made potential by key know-how investments in addition to enterprise course of enhancements, which we imagine will permit us to enhance our working ratio and enterprise ranges in the end enhance once more. As we start 2026, we’re cautiously optimistic that we’ll see some restoration in demand throughout the {industry}. With the mixture of our industry-leading service requirements, and extra community capability than we have ever had, we’re higher positioned than another service to capitalize on an enhancing financial system.
Because of this, we’re assured in our means to win market share, generate worthwhile income development, and enhance shareholder worth over the long run. Thanks very a lot for becoming a member of us this morning. And now Adam will talk about our fourth quarter in larger element.
Adam Satterfield: Thanks, Marty, and good morning. Previous Dominion’s income totaled $1,310,000,000 for 2025, which was a 5.7% lower from the prior yr. Our income outcomes replicate a ten.7% lower in LTL tons per day that was partially offset by a 5.6% enhance in our LTL income per hundredweight. Excluding gasoline surcharges, our LTL income per hundredweight elevated 4.9% in comparison with 2024. On a sequential foundation, our income per day for the fourth quarter decreased 4.1% when in comparison with the third quarter of 2025, with LTL tons per day lowering 4.8% and LTL shipments per day lowering 6.5%.
For comparability, the ten-year common sequential change for these metrics features a lower of 0.3% in income per day, a lower of 1.3% in LTL tons per day, and a lower of three.1% in LTL shipments per day. The month-to-month sequential modifications in LTL tons per day through the fourth quarter had been as follows: October decreased 5.3% as in comparison with September, November elevated 2.6% as in comparison with October, and December decreased 4% as in comparison with November. The ten-year common change for these respective months is a lower of three% in October, a rise of two.7% in November, and a lower of 6.8% in December.
For January, our income per day decreased 6.8% when in comparison with January 2025, resulting from a 9.6% lower in our LTL tons per day that was partially offset by a rise in our LTL income per hundredweight. LTL income per hundredweight excluding gasoline surcharges elevated 3.9% in January. Our working ratio elevated 80 foundation factors to 76.7% for the fourth quarter of 2025. Whereas we proceed to function effectively and diligently managed our discretionary spending through the quarter, the lower in our income had a deleveraging impact on lots of our working bills. Our overhead prices are usually extra fastened in nature, elevated 140 foundation factors as a % of income resulting from this impact.
The rise in our overhead price additionally features a 70 foundation level enhance in depreciation as a % of income, which displays the continued execution of our long-term capital funding plan that Marty simply mentioned. Our direct working price as a % of income improved by 60 foundation factors as in comparison with 2024. This was primarily because of the web impression of changes we document within the fourth quarter annually which are associated to third-party actuarial critiques of our damage and accident claims. The outcomes of this annual evaluate impression each the wage, wages, and advantages and the insurance coverage and claims line gadgets on our earnings assertion.
We had been in any other case capable of successfully handle our direct variable price to be in step with the prior yr. Previous Dominion’s money circulate from operations totaled $310,200,000 for the fourth quarter and $1,400,000,000 for the yr, respectively, whereas capital expenditures had been $45,700,000 and $415,000,000 for a similar intervals. We utilized $124,900,000 and $730,300,000 of money for our share repurchase program through the fourth quarter and the yr respectively, whereas our money dividends totaled $58,400,000 and $235,600,000 for a similar intervals. We had been happy that our Board of Administrators accepted a quarterly money dividend of $0.29 per share for 2026, which represents a 3.6% enhance in comparison with the quarterly money dividend paid within the first quarter of 2025.
Our efficient tax charge for the fourth quarter of 2025 was 24.8% as in comparison with 21.5% within the fourth quarter of 2024. We presently anticipate our efficient tax charge to be 25% for 2026. This concludes our ready remarks this morning. Operator, we’ll be glad to open the ground for questions at the moment.
Operator: We are going to now start the query and reply session. Earlier than urgent the keys. Our first query right now is from Jordan Alliger with Goldman Sachs. Please go forward.
Jordan Alliger: Sure. Hello. Good morning. I used to be questioning, may as effectively ask that, are you able to present some kind of ideas and perspective on each, any indication on demand and what you are seeing and listening to from clients and ideas round potential higher tone to quantity as we transfer by the yr. After which possibly it is all along with that, your ideas on seasonality as we go from This fall to Q1 from margins? Thanks.
Adam Satterfield: Sure. I am going to simply begin with the demand and let somebody, I am certain, will most likely get at that OR query. However I feel we have seen some optimistic indicators that we have been actually happy with actually over the past couple of months which have been growing. After which the discharge this week of the ISM was actually very optimistic to see. And possibly as a sign of hopefully what issues will probably be for the rest of the yr. Clearly, over time, we have seen that ISM it is a main indicator and sometimes a few months after that inflects optimistic, we see volumes considerably do the identical.
However simply getting again to current traits for what we have seen the factor I have been most happy with is the rise in wafer cargo. And I feel we have talked for a number of quarters now when attempting to make the decision on when is the demand atmosphere going to lastly flip. We have talked about taking a look at that weight per cargo, for instance, as actually the indicator inside our enterprise. So that basically elevated. We had been down about fourteen fifty kilos in type of September, October timeframe. We noticed that enhance to 14 eighty-nine kilos in November. Which is above what our long-term seasonal enhance could be for that month.
After which we noticed it enhance additional to fifteen twenty kilos in December Once more, that was a couple of 2% enhance Ten-year common is a couple of 1% enhance from November to December in weight. So it just about carried out in January. We’re proper at fourteen ninety-two kilos, so a little bit little bit of a lower, however that was proper consistent with seasonality. And I feel considerably impacted by a little bit disruption we needed to our operations the final week of the month. We might truly been trending greater than that as we progress by the month.
So actually good to see when wanting on the tonnage per day, the load per cargo, all these components main into the beginning of this new yr. And hopefully, lastly seeing the flip that we have been predicting for the final couple of years take form.
Jordan Alliger: Thanks.
Operator: The subsequent query is from Chris Wetherbee with Wells Fargo. Please go forward.
Chris Wetherbee: Sure. Hey, thanks. Good morning, guys. Possibly I am going to simply decide up on that and ask concerning the first quarter type of sequential from an working ratio perspective and possibly any ideas you’ve on income per day for the primary quarter as effectively?
Adam Satterfield: Sure. Clearly, the income per day goes to guide proper into it. And given the information that we simply mentioned for January, we’re out a little bit bit behind seasonality. Once more, on a income per day standpoint. I really feel like we’ll shut that hole. We have seen good efficiency since early, however most likely a little bit catch up in enterprise this week the place we had the climate disruptions final week. So, I feel that can normalize. However hopefully, we will shut the hole with seasonality as we progress by the remaining months of the quarter. Simply from an enormous image prime line standpoint, I really feel like our income for the total quarter will most likely are available someplace between $1,250,000,000 and $1,300,000,000.
The low finish of that vary could be if we underperform seasonality at a charge just like what we simply did within the fourth quarter. After which the highest finish could be regular seasonality. And should you take regular seasonality from January by February to March, that will put us type of proper there within the center. So, we’ll see how that continues to take form. And clearly, we give our mid-quarter updates that can permit for monitoring. So with that stated, the ten-year common change within the working ratio was a rise of 100 to 150 foundation factors from the fourth quarter to the primary. And I feel we will get to the highest finish of that vary.
So I might say a rise of 150 foundation factors might be the goal after which possibly a plus minus 20 foundation factors to proceed to permit for a few of that income uncertainty.
Operator: The subsequent query is from Scott Group with Wolfe Analysis. Please go forward.
Scott Group: Hey, thanks. Morning. So Adam, wished to only you talked concerning the weight per cargo enhancing Can you’ve a do you’ve a way of what is driving that? Is it are we beginning to see among the truckload stuff spill again? Is it simply underlying industrial getting higher? After which possibly simply assist us, I do know that the yield traits decelerate a little bit bit into This fall and possibly beginning in Q1, is that simply the load getting higher or is, you realize, any ideas on simply, you realize, how to consider yield traits as we’re going from right here? Thanks.
Adam Satterfield: Yeah. The I feel the load might be coming from all of the above. our contract clients, weight’s up a little bit bit. Our smaller mother and pop clients which truly we noticed a little bit bit extra development out of or higher efficiency, I say development within the fourth quarter. Weight per cargo was up as effectively. And so I feel that precisely what you stated because the truckload market is altering, we have talked lots concerning the spillover impact and the way that is impacted volumes. During the last couple of years. I feel we’re most likely within the early innings of a few of that beginning to normalize.
I do not know that we’re fully there but, however simply given how there’s some provide rationalization there, It actually appears like that’s starting to occur. And the load actually will put a little bit little bit of strain on our yield metrics. However our steerage for income per hundredweight for the fourth quarter was to be up 5% and that will have been regular seasonality. So we got here in proper at 4.9%. Regular seasonality for the primary quarter could be about 4.5% enhance on a year-over-year foundation. I really feel like we have most likely obtained at the least a 50 foundation level headwind. It appears like proper now with the change in weight per cargo. In order that’s truly an excellent factor.
And January type of got here in proper at about that 4% threshold. In order that’s about what I might anticipate. Until we see additional will increase within the weight that will put strain on that income per hundredweight metric. However the actuality is that is what we’re hoping to see. We need to proceed to see that weight per cargo going up. As a result of the factor that is being missed after we discuss income per hundredweight is what is the income per cargo? And that can proceed to go up as the load will increase. That is going to be in the end what we’re taking a look at for achievement. How are we managing our income per cargo? And our price per cargo.
And we have clearly, the final of years, the working ratio has gone the opposite means as a result of we have had extra price than income there. On a per cargo foundation. In order that weight continues to go up. That is going to assist us proceed to construct density in our community. It may permit for us to have extra true yield on a per cargo foundation and hopefully permit us to show the nook. And get proper again to provide an enchancment in our working ratio and long-term worthwhile development.
Scott Group: Thanks, guys.
Adam Satterfield: Thanks, Scott. The subsequent query is from Ravi Shanker with Morgan Stanley. Please go forward.
Ravi Shanker: Nice. Good morning, everybody. So possibly only a little bit of a shade right here. I feel you and your friends have spoken of some stage of share shift away from LTL to TL within the down cycle, and you have anticipated that to return again when the market tightens up. I imply, now that TL charges have been fairly tight for a few months, are you beginning to see that come again? And what do you assume is the cadence of that coming again to the cycle? Thanks.
Adam Satterfield: Yeah. I feel that, you realize, it is a pure kind of change that occurs. I feel that once you have a look at that truckload atmosphere and quite a lot of these carriers are barely breaking even or worse. We have seen some capability rationalization, if you’ll, in that atmosphere. And I feel that is modified the pricing atmosphere there. And so hopefully, we’ll proceed to see these traits change at a time the place it appears like total industrial demand prepared to start out displaying some indicators of enchancment once more. And once more, we are saying we’re cautiously optimistic about all this as a result of we had enchancment within the ISM final yr at about the identical time.
After which we had the occasion in April that threw chilly water on all the pieces. So we’re in an awesome spot to proceed to deal with any enterprise that comes our means. We have extra capability than we have ever had of their community. We have capability with our gear and capability with our folks. So we will reply to the inflection because it occurs. And I feel that is what has differentiated us from our rivals previously. The flexibility to have the ability to tackle vital quantity development the early innings of the cycle. Is after we’ve gained probably the most market share previously. That is actually what we’re going look to as this cycle ultimately inflects again to the optimistic.
Ravi Shanker: Understood. Thanks.
Operator: The subsequent query is from Ken Hoexter with Financial institution of America. Please go forward.
Ken Hoexter: Hey, nice. Good morning. Adam, possibly simply to comply with on that or Marty, your ideas on headcount down 6%. Shipments down nearly 10%. So we’re seeing a little bit of a decoupling Is there extra alternative as you consider the price cycle? Or is that extra being ready, as you simply talked about, to seize that? And just like cap looks as if you are getting old the fleet. Little bit as you diminished it from what all the way down to $415,000,000 this yr, down one other to $265,000,000 subsequent yr. So now’s there a price impression on upkeep and the like? So possibly simply it is a price concern, however possibly you are speaking about being extra ready for the upside. Thanks.
Adam Satterfield: Sure, we’re undoubtedly ready for the up cycle The typical age of our fleet truly improved this previous yr. It is now all the way down to a median of three level 9 years for our tractor fleet. And that is about the place we prefer it, someplace round 4 years. We have been beneath that earlier than, and we have let it age up a little bit bit. However actually happy with our operations group as they’ve continued to attempt to proper dimension the fleet and ensure we have all of the gear the locations we’d like, but in addition managing by our price inflation from a repairs and upkeep standpoint.
Once we went by return to 2022, 2023, we had price per mile inflation that was extra within the 10% to twenty% sort of vary for every of these years. And we have been kind of flattish, just a few gentle will increase, if you’ll, over the past couple of years. And I feel that is a mirrored image of the administration group’s efforts in that space and persevering with to rightsize. However from an worker depend standpoint, I feel we proceed to handle by. And on the native stage, our managers are ensuring they have the correct quantity of individuals and, obtained the flexibility to flex hours as much as meet the elevated demand from our clients. So we’re in nice form there.
We might anticipated that we might see a little bit attrition by the fourth quarter That is about what we noticed occur. And so the general head depend drifted down a little bit bit. All through the fourth quarter. As we considerably anticipated. So, I feel that can possible be right here. And once you look over the long run, the change in headcount, the change in shipments actually type of match with each other. However what we might anticipate to see is after we get into the early part of the restoration, the variety of hours labored by worker will enhance on a per worker foundation we’ll be capable of step these hours as much as meet the elevated quantity wants as they arrive.
And so it is best to ultimately see the quantity development that is main any development in headcount earlier than these two numbers type of converge once more.
Ken Hoexter: Thanks, John.
Operator: The subsequent query is from Reed Tse with Stephens. Please go forward.
Reed Tse: Hey, guys. Thanks for taking my query. Within the launch, you pointed to fairly low CapEx quantity relative to what you anticipated yr coming into 2025 and type of what you have accomplished traditionally. Are you able to discuss possibly what’s driving that decrease CapEx expense this yr in these expectations behind, that steerage?
Adam Satterfield: Sure. It is, only a perform actually of how what the quantity atmosphere has been for the final couple, three years. And we have continued to run our CapEx plan and that too is one thing that I feel has differentiated us over time. From our {industry}. In actual fact, we have spent about $2,000,000,000 in capital expenditures over the past three years. And the quantity atmosphere clearly has not been strong. However I feel we’re in a extremely great place once you kind of go down the weather of spend from a service heart standpoint, we have some initiatives which are in flight and that is quite a lot of the spend. That we have got this yr.
However we have a little bit over 35% capability in our service heart community. We’re dealing with a little bit over 40,000 shipments per day proper now. And our community is constructed to deal with extra like 55,000 or much more. We have accomplished extra in sure months again in ‘twenty one and ‘twenty two. So we have quite a lot of flex there to have the ability to develop. And the identical factor with the fleet, similar to I discussed earlier, we have continued to proper dimension the fleet if you’ll, and take among the older models out. However we have some that proceed to have to be changed. And that is the vast majority of what’s within the spend there in that class for this yr.
So it’s decrease than as a % of income than our typical vary being 10% to fifteen%, however that is actually only a perform of the constant funding that we have revamped the previous three years and type of the place we stand now and simply wanting the enterprise to develop into the community that we have constructed. And when that begins occurring, you consider our fastened price, and Marty alluded to this in his feedback, our overhead price, should you return to that 2022 interval, they’re up 4 fifty 5 hundred foundation factors. And that is actually the distinction in that document working ratio then versus what we simply accomplished in 2025.
However as soon as we begin getting leverage on all these belongings that we put in place, that overhead price as a % of income can swing again very, in a short time. And the density will permit us to additional enhance our direct price as a % of income as effectively. So that is what provides us the arrogance that after we begin seeing development coming again in our enterprise that we will get our working ratio going again to that 70 sort of threshold and past.
Reed Tse: Bought it. Thanks, Adam.
Operator: The subsequent query is from Jason Seidl with TD Cowen. Please go forward.
Jason Seidl: Thanks, operator. Good morning, Marty, Adam and Jack. Wish to return on kind of your worker headcount numbers and in addition to how ought to we take into consideration driver pay and dock order pay as we transfer all year long if a few of your cautious optimism comes true after we begin seeing a rebound, do anticipate that quantity to go up a little bit bit as we transfer all through the
Adam Satterfield: Effectively, Jason, we at all times give a rise to our workers. And after we function at a 75 we’re within the lucky place to proceed to reward our workers first. And from a stakeholder standpoint, we prioritize our workers, and we need to ensure that they’re rewarded proceed to be motivated to deal with our clients. And once you give 99% on-time service and a cargo claims ratio that is beneath 0.1%, I feel our workers have actually delivered. So we proceed to provide wholesome raises. We did so within the 42% of salaries and wages and 25%. And or at the least within the fourth quarter.
And however we anticipate that we’ll have a little bit little bit of headwind there on these profit price most likely be someplace within the 41% of salaries and wages in 2026. So After which the ultimate piece is the 4 zero one match that we make And I feel that is what ties all the pieces in collectively. And we give a discretionary match yearly that is as much as 10% of our firm’s web earnings. So we proceed to place quite a lot of {dollars} into our workers’ 4 zero one plans to assist them and their households put together for retirement.
Jason Seidl: That is nice shade. Ought to we anticipate the subsequent kind of elevate to be subsequent or this September? Or do you assume it’s going to be before that?
Adam Satterfield: No. September is often the timing of our
Jason Seidl: Okay. Truthful sufficient. Respect the time.
Operator: The subsequent query is from Jonathan Chappell with Evercore ISI. Please go forward.
Jonathan Chappell: Thanks. Good morning. Adam, after two years of chatting with sub seasonality, it looks as if a little bit bit extra cautiously optimistic as you stated and also you laid out a primary quarter the place the center of the vary is February and March are consistent with seasonality. A number of your friends, regardless that they have not reported but, are speaking, to a of, like, if we do x in quantity this yr or tonnage, that results in y in OR. In case you took that February, March midpoint of 1 q enrolled seasonality going ahead, the place would that put your tonnage on a year-over-year foundation? And by affiliation, the place would that put your OR? Enchancment for this yr?
Adam Satterfield: Yeah. You recognize, I feel we usually simply take it one quarter at a time. And clearly, there’s quite a lot of ifs and buts that have gotten to play out and will play out. In that state of affairs. However what they are saying, you’ve some butts and beer and nuts, you’ve a hell of a celebration. And so I am going to I am going to let all you guys, you realize, kind of undergo all these gymnastics. However simply taking a look at extra within the brief run, as a result of I do not need to undersell what the long run might be, We have produced some severe enchancment in our working ratio as soon as we get into these stronger demand environments.
Once we see the script flipped, nonetheless stays to be seen. However the second quarter, we have type of laid framework out for the primary quarter. And the second quarter. Usually you see income develop sequentially about 7% and the typical working ratio enchancment is sequentially 300 foundation to 3 fifty foundation factors. So, that will if we see all of that, if we see the spring surge that sometimes would occur and result in that 7% sort of sequential enhance. Then that will put the working ratio fairly near being flat on a year-over-year foundation within the second quarter. After which we might simply need to kind of take it from there.
However I nonetheless assume we do not need anybody to essentially get out over their skis essentially. At this level from an expectation standpoint. It stays to be seen if this actually goes to guide into that spring surge that we might sometimes see. We actually really feel like the celebs are coming into alignment, however we felt that means earlier than and specifically about February and March. In order that’s why we proceed to say we’re cautiously optimistic about how issues may develop for this yr. However I feel that is why you are seeing among the pullback in capital expenditures and doing different issues that we really feel like we would have liked to do to proceed to handle our prices.
And we have managed our variable prices, and I could not be extra happy than I’m with our operations group. And if you consider the lack of community density, should you return over the previous couple of years, we have added about six service facilities and there is quite a lot of price comes with that, simply overhead price and community line haul price, pickup supply with the lack of density. So to have the ability to handle these prices, says lots to our group. Says lots to the continued funding in know-how the instruments that we give the group to assist type of handle these prices and in addition to the yield self-discipline.
In case you weren’t disciplined with yields all through, we would not have been capable of maintain these prices constant as effectively. So, lots goes into it. And it is a complete group effort from gross sales, operations, pricing price and also you identify it. All of it type of feeds into how we have been capable of proceed to provide sturdy worthwhile development over the long run that the final ten years regardless of this three-year freight recession, we have nonetheless obtained a ten-year common development charge of about 15% in our web earnings. So this says lots to what we have accomplished, however we take into consideration the long run, we obtained quite a lot of room for development forward. And working ratio enchancment.
So, I am proud of what we have accomplished, extra enthusiastic about what can come.
Jonathan Chappell: Nice. Thanks, Adam.
Operator: The subsequent query is from Eric Morgan with Barclays. Please go forward.
Eric Morgan: Hey, good morning. Thanks for taking my query. I wished to only follow-up on the pricing dialogue. Feels like weight per cargo is having a combination impact within the first quarter. Simply curious how we should always take into consideration what the cadence may appear to be wanting a little bit bit additional out, particularly if that should you do kinda maintain that 1,500-pound stage, I feel that’d be a bigger enhance in 2Q and 3Q from final yr. So simply curious how we take into consideration that impression, in addition to possibly size of haul a little bit bit decrease right here. Ought to we simply type of naturally see that yield quantity pattern a little bit bit decrease from combine? Thanks.
Adam Satterfield: Sure, I feel so. I imply simply taking a look at what regular seasonality could be we might be in type of that 4% to 4.5% sort of vary. And once more, if now we have much more of a rise in weight, it might be decrease. Once you look again at a few of our stronger years, from an total income standpoint, quantity atmosphere, these varieties of issues, we have had income per hundredweight development that is been extra within the 3% vary. And that was my level earlier with the remark that generally, I feel we get so down within the weeds and eager about income per underweight. Form of missed the massive image of what is actually the income traits doing.
And what’s our income per cargo versus price per cargo. So, I might like to see our weight per cargo return as much as 1,600 kilos, which is the place we have been in stronger demand environments. And sure, that may put strain on that income per hundredweight That is going to do fantastic issues for the general prime line income in addition to what we might be capable of do an working ratio standpoint. So we’ll proceed to type of handle by that. However actually, we might hope we see that weight per cargo and if we’re speaking about some income per hundredweight that could be a little bit bit decrease than what was reported, final couple of years.
That is most likely an excellent factor within the sense of what is actually happening with the demand atmosphere. It is actually no change with what our yield administration philosophy payment is or how disciplined we proceed to be as we handle price and handle yields.
Operator: The subsequent query is from Rishi Harnane with Deutsche Financial institution. Please go forward.
Rishi Harnane: Okay. Thanks, guys. So Adam, you talked about that final week you noticed some disruption. Possibly simply make clear what went into that. Was it simply climate? And did that weigh in your prices? Ought to we anticipate greater prices this quarter or two in gentle of that climate? Is that embedded in your 150 foundation factors change in OR goal? Additionally one other clarification, curious if the federal government shutdown had any impression on 4Q or potential impression this quarter from that on you or the {industry}? This quarter. After which so these are that is a clarification. After which I suppose simply my actual query past these clarifications is incremental margins.
You stated, you realize, you’ve extra extra capability than you have ever had in your community. Know you stated you are fairly enthusiastic about what’s to return. Ought to we predict that your incremental returns on development may be greater than we have ever seen? I imagine you eclipsed 40% post-COVID, however that was accompanied by actually sturdy income development. So I am undecided if that is a singular scenario.
Adam Satterfield: Yeah. I am going to most likely spend extra time addressing the final actual query However sure, the snowstorm final week clearly was disruptive and that was baked into our income and margin steerage and actually nothing materials to talk from a authorities shutdown standpoint. However I feel simply eager about incremental margins to me, one, we obtained to get again to income development to provide them. However I like to consider that breakdown in our earnings assertion construction, and we speak lots about our direct variable price. These had been 53% of income in 2025. So should you deliver on $1 of enterprise, it is best to be capable of generate a 47% incremental margin if it simply takes variable price.
From that standpoint and simply get full leverage on all of your overhead. And sometimes, is what occurred within the early innings of our restoration. We simply see extra of that variable price And getting that leverage there earlier than you have to get again into investing in new service heart growth and new gear and people different belongings. However as you add new service facilities, that creates incremental prices. You have obtained a brand new service heart supervisor and a group of workers on the facility and the workplace and salespeople and issues like that. So all of it type of ties in collectively.
However once I take into consideration simply the place we stand now, 75% working ratio, we have been at a 70.6 We have talked earlier than about attending to a sub-seventy working ratio. I feel that kind of mid-40s is sensible within the an incremental margin standpoint is sensible within the early innings However then let’s simply keep targeted on getting again to reaching that sub-seventy working ratio. And we actually can get there I referenced this earlier, however once you look again at a few of our actually sturdy years with income development, we have had working ratio enchancment within the 300 or extra foundation level vary in any given yr. So that is what we’ll be targeted on.
That can assist drive that 75,000,000 again to the 70,000,000 And after we get to 70,000,000 after we beat that aim, that is after we’ll set up the subsequent one and doubtless give new incremental margin longer-term sort of objectives that we’re taking a look at as effectively.
Rishi Harnane: I prefer it. Thanks.
Operator: The subsequent query is from Tom Wadewitz with UBS. Please go forward.
Tom Wadewitz: Sure. Good morning. So Adam, I feel there’s you realize, this ISM print was so giant that such an enormous step up that and among the commentary wasn’t as bullish because the quantity and the orders going up lots too. What do you hear from clients? Do you hear that a lot type of excellent news and enthusiasm about, you realize, enchancment in lively exercise or do how do you kinda have a look at what your what your buyer suggestions is and simply type of pondering possibly relative to such an enormous ISM quantity, which I do know traditionally is, you realize, is actually good learn for LTL
Adam Satterfield: Yeah. I feel that, you realize, clearly, we solicit suggestions continually from our buyer base and our gross sales group. Within the fourth quarter. We construct a bottoms-up forecast and we marry that with a top-down forecast the place we’re taking a look at different macroeconomic indicators and issues are beginning to really feel a little bit bit higher even within the fourth quarter final yr, I really feel like we have had some actually good buyer conversations within the sense of what they had been anticipating their volumes may appear to be, the quantity of enterprise that they’d tender to us. And so forth that gave us a little bit sense of optimism. And I simply proceed to say that, that is one month of a print with the ISM.
And that is why we wish everybody to be cautious with it. We’re nonetheless taking a look at volumes which have been down on a year-over-year foundation. And however we really feel like issues are getting higher and we’re nonetheless speaking about income that will be down on a year-over-year foundation within the first quarter. However one of many issues about our enterprise mannequin is, I really feel like when you consider our long-term technique of giving superior service, permitting that service to help a good worth pricing concentrating on 100 to 150 foundation factors of yield above worth or price fairly, That is allowed us to enhance our money from operations. There is a flywheel impact to our enterprise mannequin.
And we have to get that flywheel impact going once more. In order we will get into the early innings, it is these first rotations are a little bit bit slower. We’re simply ensuring everyone is pondering by all of these components. And it isn’t simply going to show round on a dime beginning tomorrow. As a result of that one financial information level got here out. But when we’re within the early levels of this, I feel historical past repeats itself on this {industry}. And also you actually can see how we have outperformed the opposite carriers after we get into these early levels of restoration. And we’re actually in place.
Our group is in place and able to roll So we’re able to put it on the vehicles and see income development coming once more as and the working ratio enchancment will comply with.
Tom Wadewitz: So you’re listening to optimistic enter from clients however possibly to not the diploma of the transfer up within the ISM quantity. Is {that a} honest understanding what you stated?
Adam Satterfield: That is that is honest.
Tom Wadewitz: Okay. Thanks.
Operator: The subsequent query is from Bruce Chan with Stifel. Please go forward.
Bruce Chan: Thanks operator and good morning guys. Adam, you talked about 35% spare capability within the community. And I do know, these previous couple of years, we have been a little bit bit extra targeted on door and facility infrastructure. Simply questioning if that quantity is analogous for the fleet and linehaul community particularly with among the higher planning instruments that you’ve and, you realize, possibly how we should always take into consideration extra fleet CapEx versus know, possibly flexing PT greater if, volumes do certainly speed up?
Adam Satterfield: Sure. We do not have that a lot extra capability within the fleet, if you’ll. That might been heavy with our fleet, however most likely not at that very same sort of stage. We attempt to maintain that a little bit bit tighter. You at all times need to have spare capability, if you’ll, particularly within the trailing gear. You recognize, should you obtained that a lot extra energy, it simply hurts you. It’s extremely punitive from a depreciation. Per unit standpoint. So however a part of our CapEx this yr we have about 105,000,000 that is slated, I feel, for gear. And in order that’s one thing that we’ll proceed to take a look at changing the place we have to exchange We use a tractor for about ten years.
So we have some which are at that time of being changed. And however persevering with to proper dimension the gear pool as effectively and ensuring that we have gear in all the best locations the place we’re seeing development to maintain the road haul community in stability. And we proceed to make changes to the road haul all year long Group has accomplished an outstanding job of constructing certain that we’re assembly service requirements We proceed to tighten a few of our transit occasions in sure lanes as effectively. Regardless of the restricted density that the been within the community.
So wanting ahead to get extra freight again within the system will make a few of that lots simpler, cut back our empty miles, permit us to start out working extra directs and bypassing some breaks and so forth. And that is what provides me consolation in understanding that these direct prices that we have talked about which are 53% of income in 2025 that we will actually present some sturdy enchancment in that quantity. As soon as we get density flowing once more.
Bruce Chan: Okay, nice. Thanks.
Operator: The subsequent query is from Ari Rosa with Citigroup. Please go forward.
Ariel Rosa: Hey, good morning. So I hoped you can deal with aggressive dynamics within the {industry}. Simply possibly converse to what your stage of confidence is that this cycle will play out like previous cycles? And particularly, I am interested in simply the position of Amazon. We have been listening to lots about their development ambition or them trying to broaden within the LTL area, after which, clearly, FedEx is planning the separation of its freight enterprise. Simply discuss how you’re feeling your place. I do know clearly service continues to be distinctive at OD, however simply discuss the way you assume the cycle may play out. This time round. Thanks.
Adam Satterfield: Sure. Effectively, all of the carriers which are there, prime 10 carriers are 80% or so of the {industry}. They usually’re all the identical apart from yellow. That was there earlier than. So we have been competing in opposition to these corporations for years. And I really feel like capability throughout the {industry} continues to be tight and possibly extra so than what the notion out there’s. Once you have a look at the overall variety of service facilities, again in 2022 versus what was reported on the 2024. We have seen a couple of 6% lower within the variety of service facilities within the {industry}.
And once you have a look at shipments per day per service heart, these two metrics on the ‘2 versus the ‘4 are about the identical. So you’re taking an atmosphere that was tight again then and once you have a look at the expansion numbers for different carriers, regardless of how sturdy the quantity atmosphere was in ‘twenty one and ‘twenty two, at the least for the general public carriers, I feel the expansion in tonnage in ‘twenty one was about 4%. Once we grew 16%. So a lot of the carriers run their networks a little bit nearer to full utilization. And I feel that is a structural distinction that now we have. We personal the vast majority of our service facilities and about 95% of our doorways total.
And so we’re snug with persevering with to speculate by the cycle and having extra of that late capability on the market to develop into. And that asset possession provides us that means to take action. In order that’s why we’re assured that after we see the demand atmosphere rising once more that I feel we’ll be capable of considerably outgrow the {industry}. And after we accomplish that, we’ll see stronger returns coming in. And regardless of the difficult atmosphere that we have had for the previous few years, we’re nonetheless producing returns on invested capital of 25% to 30%. And once you have a look at GAAP numbers, true GAAP earnings we have some rivals that have gotten web earnings margins within the low single digits.
And so I feel that would be the alternative what we see in previous cycles is that is when different carriers will enhance charges extra and benefit from provide and demand imbalance. And however for us, we need to proceed on with simply extra of a constant technique. And that is after we see that huge density alternative, if you’ll. And that is what we’re anticipating after we lastly see the flip within the cycle.
Ariel Rosa: Very useful. Thanks.
Operator: The subsequent query is from Jeff Kaufman with Vertical Analysis. Please go forward.
Jeffrey Kauffman: Thanks very a lot and congratulations. A number of my questions have been answered at this level. So I need to return to the gear dialogue you had been having. A number of the truckers I have been speaking to stated, pay attention, we’re having bother quoting our freight liners or our internationals due to the part two tariffs and other people aren’t sure what the rebates are gonna be. However we have extra elementary pricing on our domestically produced vehicles like our Pete’s and Kenworth’s. I used to be simply type of curious what you are seeing on the gear aspect when it comes to quoting exercise from the OEs within the wake of among the tariff modifications?
Adam Satterfield: Sure. I feel that there are at all times challenges that we undergo after we have a look at the price of gear and the way we plan for gear and so forth. And it looks as if each engine change and new regulation it is accomplished nothing however enhance the price of gear. And for us, as I simply talked about, we sometimes will use a tractor for ten years. So when you consider the per unit worth, ten years in the past versus right now, it is considerably completely different. That is an enormous driver of a few of our price inflation. When you consider these on a per unit foundation.
So, In order that’s a part of why we after we have a look at the variety of models we had been going to purchase this yr, you’re taking that every one in consideration. However on the finish of the day, you want the fleet that you simply want, and you have to construct the pricing of these models and each different factor of price that we take care of. Into our price mannequin. And let that drive the output of what we’d like. However I might say once more, that is only one factor of price.
In case you go up and down our earnings assertion, and also you look and take into consideration per unit inflation, we have been capable of common price per cargo inflation of about 3.5% to 4% over the past ten years. Every line merchandise has had vital inflation and extra so than that quantity. That is the significance of why we keep so targeted on our price and managing price and managing efficiencies and discretionary spending we’re doing all these different issues. We’re driving working efficiencies that basically decrease the true inflationary impression that we’re seeing from issues like insurance coverage prices. Group well being and dental medical prices, the price of gear and so forth and so forth.
So our group has accomplished an awesome job leveraging know-how’s enterprise course of enhancements to have the ability to maintain our price inflation low. After which that, in flip, permits us that after we take into consideration attempting to focus on 4% to five% sort of will increase that we have generated over the long run in our income per cargo, that is that optimistic 100 to 150 foundation factors delta that we wish to have the ability to generate these two. However we will not take our eye off the ball when involves managing prices. You have obtained to consider prices day in and time out in good occasions and unhealthy.
And I feel that is what our group has accomplished over the actually over the course of our historical past, however over the previous few years specifically.
Jeffrey Kauffman: Thanks.
Operator: The subsequent query is from Brian Ossenbeck with JPMorgan. Please go forward.
Brian Ossenbeck: Good morning. Thanks for taking the query. Possibly simply to shortly follow-up on the price per cargo. Inflation you are anticipating this yr, is it nonetheless 3.5% to 4%? And also you outlined among the gear and well being care prices. Is that one thing you continue to assume is cheap to anticipate this yr? Then possibly simply to follow-up on the competitors aspect. Personal corporations are clearly getting a bit greater right here as effectively within the wake of Yellow going out of enterprise. Needed to see should you thought that had a any impression, on how the subsequent cycle, upcycle, may play out for the {industry}. Thanks.
Adam Satterfield: Sure. So the price inflation, we’re I feel it may most likely be a little bit bit heavier once more this yr. I am pondering it is most likely going to be extra within the 5% to five.5% vary. And that is core inflation, not likely eager about what gasoline may do. And proper now, we’re taking a look at gasoline costs which have been decrease on a year-over-year foundation. So we’ll see how that continues to play out. However I really feel like we have as I discussed earlier, we’re taking a look at a little bit extra inflation from an worker advantages standpoint. I feel we will proceed to see some pressures there. Inside our group well being and dental price specifically.
After which we have made some continued enhancements to our paid time without work insurance policies and so forth that I referenced. So, anticipating some inflation there, continued inflationary will increase. As simply talked about on the gear on our insurance coverage packages and different issues. So if we will get some density coming again within the system, I feel that’s one thing that might flip that quantity into possibly seeing some enchancment and dealing it again down. However should you simply kind of keep in additional of a impartial quantity atmosphere, if you’ll, I am pondering that we will be extra in that 5% to five.5% vary. And remind me once more the second half was simply the impression of Yellow being out
Brian Ossenbeck: Simply how personal corporations appear to taken up a few of that additional capability that has significant impression on how the {industry} may play out or the cycle may play
Adam Satterfield: Sure, assume lots of these service facilities ended up with the personal carriers. As it has been reported. However once more, taking a look at total capability for the {industry}, variety of service facilities is the perfect factor now we have. That appears to be down. Versus about 6%. And there could also be some service facilities that had been swapped including a number of extra doorways, I feel that is an excellent proxy for capability that is been faraway from the market. So once more, should you had a capability constrained {industry}, again in ‘twenty one and ‘twenty two, the variety of shipments per day per service heart are the identical in 2024 with the place we had been again in that capability constrained atmosphere.
I feel we will see capability constraints after we begin coming again right into a stronger demand atmosphere. And that is what provides us the arrogance that we’ll be capable of win market share and outperform the opposite carriers from a quantity standpoint within the early levels of that restoration.
Brian Ossenbeck: All proper. Thanks very a lot, Adam.
Operator: The subsequent query is from Stephanie Moore with Jefferies. Please go forward.
Stephanie Moore: Nice. Good morning. Thanks. I wished to possibly circle again to a previous query that was requested the place you type of talked by a backside bottoms up evaluation of speaking with clients and possibly among the barely extra optimistic conversations you are listening to from them. Is there any means you’ll be able to parse out the top markets or there’s any focus of finish markets the place you are listening to a few of that optimism from clients whether or not it is inside industrial, is it giant infrastructure type of information heart performs, is it inside client, Any extra perception could be actually appreciated. Thanks.
Adam Satterfield: Effectively, you realize, 55% to 60% of our income is industrial associated, and I feel that is comparable for the {industry}. That is why I assume that is so extremely correlated with the {industry} quantity. So type of listening to it throughout the board. I feel that seeing some enchancment there We have had suggestions that inventories have usually been decrease. So we’re pondering that we’re going see some stock replenishment. However I feel it is kind of various factors for various clients. Our enterprise is so diversified We transfer all the pieces, together with the kitchen sink. So you have obtained, if housing begins enhancing, you will see issues like fall taps and so forth that can have elevated demand there.
And clearly, all the merchandise that go into somebody shifting into a brand new house However I feel that’ll be vital to see some continued enchancment there. If we proceed to see on the economic aspect On the finish of the day, what drives all of it is a wholesome client. And so client confidence and client energy and shopping for patterns will drive whether or not or not we see sustained enchancment within the demand and quantity atmosphere. And so hopefully, when folks begin seeing if tax returns look higher and so they’ve obtained extra discretionary earnings to go spend, After which stock does have to be replenished.
These will all be good issues that can create freight that can discover its means on our vehicles, we’re wanting ahead to it.
Stephanie Moore: Thanks a lot.
Operator: The subsequent query is from Christopher Koon with Benchmark. Please go forward.
Christopher Koon: Hey, good morning. Thanks for taking the query on the finish of the decision. I actually admire the time you guys given right now. It is, you guys do not discuss it as a lot, however are there any AI initiatives that you’re kinda endeavor and within the subsequent 2026 and past that we needs to be targeted on?
Adam Satterfield: Sure. I might put it within the broader context of know-how investments. And clearly, AI is type of the buzzword of the second. And we have some funding there that is going into among the instruments. However I feel from an even bigger image standpoint, you consider Previous Dominion I feel the funding that we have made in know-how, it goes again many years. And we have OD know-how is one in all our branded merchandise. And so we have been on the forefront of tech funding, I feel, for years and years, that will probably be no completely different going ahead. However there’s obtained to be funding going to finish up with a return.
We do not need to simply say we’re investing in you realize, machine studying and AI simply to have the ability to say it, the place’s the proof within the pudding? And assume once you have a look at our price efficiency in 2025, that is type of the proof. And we would not have been capable of handle our line oil prices like now we have if we have not continued to put money into and refine the instruments that our groups are utilizing. And it is the identical factor on the dock It is the identical factor inside our pickup supply operations. We have to proceed to make investments in merchandise which are going to have a return related to them.
You do not need to put money into one thing that going to price you extra on the know-how that you’d different what you are going to save probably. And generally, might be the case. However I feel that our focus will proceed to be what I simply stated, investing the place it may drive working efficiencies. The opposite key half, although, will probably be proceed to put money into one thing that drives a strategic benefit from a customer support standpoint. If we will proceed to attempt to keep forward of the sport, have methods that drive sticky buyer relationships.
These are type of the 2 huge key components that we take into consideration after we take into consideration the {dollars} which are invested in tech initiatives yr in and yr out.
Christopher Koon: Bought it. Thanks. Respect it, Adam.
Operator: This concludes our query and reply session. I want to flip the convention again over to Marty Freeman for any closing remarks.
Marty Freeman: Thanks all in your participation right now. We admire your questions. And please be at liberty to provide us a name later in case you have something additional. Thanks and have an awesome day.
Operator: The convention has now concluded. Thanks for attending right now’s presentation. Could now disconnect.
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