Werner signals $45M cost savings target on track while tightening fleet and revenue guidance for 2025

Earnings Call Insights: Werner Enterprises (WERN) Q3 2025

MANAGEMENT VIEW

* Chairman & CEO Derek Leathers opened by acknowledging, "While the second quarter was more favorable, the third quarter presented some challenges, namely in our One-Way business. However, there are several positive developments that we can highlight from the quarter." He pointed to double-digit growth in Logistics and continued sequential and year-over-year revenue growth in Dedicated, as well as a fifth consecutive quarter of year-over-year improvement in revenue per total mile in One-Way trucking.
* Leathers highlighted progress in penetrating new verticals, stating, "We are building a foothold in new verticals like tech and aftermarket automotive parts. Our new customers are seeing the value of our strength and scale in Dedicated in these new applications, but there is a short-term upfront investment as we pursue these opportunities."
* He emphasized the company's technology transformation: "Over the past 4 years, we've completely rebuilt our technology stack from the ground up, replacing every single component, creating a modern, scalable, secure, cloud-based platform."
* The company reported achieving 80% of its $45 million in cost savings targeted for 2025 by the end of the third quarter, with Leathers stating, "Our 2025 cost savings plan is progressing as planned, and by the end of third quarter, we achieved 80% of our $45 million in cost saving target for 2025, and remain on track to reach the full goal by year end."
* Executive VP, Treasurer & CFO Christopher Wikoff said, "Third quarter revenues totaled $771 million, up 3%. Adjusted operating income was $10.9 million and adjusted operating margin was 1.4%. Adjusted EPS was negative $0.03. Discrete tax items negatively impacted adjusted EPS by $0.08 in the quarter."

OUTLOOK

* The company adjusted its full year fleet guidance from up 1% to 4% to down 2% to flat, with management reporting, "The TTS fleet is down 0.1% year-to-date. Implementations of new fleets in Dedicated remain ongoing, but the One-Way fleet decreased during the quarter and is expected to further decline through year-end."
* Guidance for net CapEx was tightened to a range of $155 million to $175 million, with the midpoint unchanged.
* Dedicated revenue per truck per week guidance was narrowed to flat to up 1.5% for the full year, and One-Way Truckload revenue per total mile is projected to be down 1% to up 1% in the fourth quarter compared to the prior year period.
* Wikoff added, "We expect resale values to remain generally stable given OEM production constraints and the evolving regulatory backdrop that will be an incentive towards high-quality used assets."

FINANCIAL RESULTS

* Revenues increased 3% versus the prior year to $771 million, with revenues net of fuel rising 4%. Adjusted operating margin was 1.4%. Adjusted EPS was negative $0.03.
* Legal settlement and related fees for a class action litigation totaled $21.4 million, representing a $0.26 negative impact to GAAP EPS, but were excluded from adjusted EPS.
* Truckload Transportation Services total revenue was $520 million, down 1%, with revenues net of fuel flat year-over-year at $460 million. TTS adjusted operating income was $8.9 million, and the adjusted operating margin net of fuel was 1.9%.
* Dedicated revenue net of fuel was $292 million, up 2.5%. Dedicated average trucks increased 1.2% year-over-year.
* Logistics revenue rose 12% year-over-year to $233 million, with adjusted operating margin of 1.8% driven by volume growth and lower operating expenses.
* Operating cash flow was $44 million for the quarter. Free cash flow year-to-date is $26.2 million. Net debt to adjusted EBITDA was 1.9x at quarter end.

Q&A

* Jordan Alliger, Goldman Sachs, asked about potential improvement in TTS operating ratio for Q4. Wikoff responded, "Q4, we would expect it to be, call it, seasonally softer, down sequentially with revenue softness in Logistics. I think there will be some operating income upside with some of the items that you mentioned, startup expenses dropping off, some One-Way production rebounding, and our cost discipline holding."
* Matthew Milask, Stifel, asked about regulatory capacity reductions. Leathers explained, "Right now if you were to look at current trends, it would project out to be about 30,000 annually that would be placed out of service. But each month, that trend has increased in momentum." He concurred that current enforcement issues will have a larger impact than the ELD rollout.
* Jason Seidl, TD Cowen, asked about bid season rate outlook. Leathers replied, "This year's bid season, we were, for the first time, and you've seen it in 5 consecutive quarters, seeing increases in our rate per mile. As we came out of bids, we were seeing more stability in the outputs of those bids. But we need a lot more where that came from."
* Thomas Wadewitz, UBS, queried on regulatory supply impact and rate needs. Leathers estimated, "If you cut those estimates by half and you look at 150,000-ish of those overlapping drivers, if you will, that's a significant change in market dynamics."
* Nancy Hipp, Morgan Stanley, asked about peak season. Leathers answered, "Peak season... it's going to look similar to a year ago... discount retail holding up pretty well, and what we're seeing in terms of opportunity sets look comparable."
* Scott Group, Wolfe Research, asked about regional tightness and enforcement. Leathers responded, "We absolutely believe there is some avoidance going on... but where we're seeing the tightness happen, often we have the ability to follow up and get more specific on what's happening in the market."

SENTIMENT ANALYSIS

* Analysts pressed on regulatory impacts, startup costs, and the sustainability of recent rate gains, reflecting a slightly negative to neutral sentiment. Several questions sought clarification on market tightness and margin recovery, with direct questions on whether improvement is sustainable and what magnitude to expect.
* Management maintained a confident tone in prepared remarks, highlighting achievements in cost savings, technology, and fleet modernization. During Q&A, tone remained measured but more cautious, repeatedly clarifying that while certain trends are improving, headwinds and uncertainties persist. Leathers used phrases such as "I think," and "We believe," indicating some caution.
* Compared to the previous quarter, analyst skepticism about the pace of margin recovery and the impact of regulatory changes became more pronounced, while management's confidence in long-term positioning remained consistent but with more explicit acknowledgment of near-term headwinds.

QUARTER-OVER-QUARTER COMPARISON

* Full year fleet guidance shifted from up 1% to 4% in Q2 to down 2% to flat in Q3, reflecting a more conservative outlook as Dedicated implementations continue but One-Way fleet declines.
* Revenue grew 3% year-over-year in Q3 compared to a 1% decline in Q2, while adjusted EPS moved from $0.11 in Q2 to negative $0.03 in Q3.
* Dedicated revenue per truck per week guidance narrowed to flat to up 1.5% from a previous 0% to 3% range.
* Cost savings achievement continued, with 80% of the $45 million target reached by Q3, compared to $20 million achieved by mid-year.
* Management tone in Q3 was more focused on technology-driven operational efficiencies and regulatory impacts, as opposed to a Q2 emphasis on sequential financial improvement.
* Analysts’ tone in Q3 was more focused on regulatory and capacity impacts, with less emphasis on demand-side recovery noted in Q2.

RISKS AND CONCERNS

* Margin pressure in Logistics from mix changes and rising purchase transportation costs was cited as a challenge.
* Startup costs in Dedicated were higher than expected but are expected to decline in Q4.
* Ongoing regulatory enforcement around nondomiciled CDLs and English language proficiency is causing capacity attrition, but management sees this as ultimately beneficial for market balance.
* Used truck values and Class 8 net truck builds remain areas of uncertainty amid evolving tariffs and regulatory environments.
* Legal settlements continue to pose one-time cost risks, as evidenced by the $18 million settlement in Q3.

FINAL TAKEAWAY

Werner Enterprises highlighted continued progress on its technology transformation and cost savings initiatives, achieving 80% of its $45 million target for 2025. While Dedicated and Logistics segments showed growth, the company acknowledged challenges in One-Way trucking and higher startup costs. Management adjusted full year guidance to reflect a more cautious outlook on fleet size and revenue per truck, but remains confident that operational excellence, capital efficiency, and regulatory-driven market tightening will position Werner for long-term growth as current headwinds subside.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/wern/earnings/transcripts]

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