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XPO provides freight transportation services in North America, France, the United Kingdom, and elsewhere in Europe. The company operates in two segments: North American less-than-truckload (LTL) and European transportation. Founded in 1989, the company was formerly known as XPO Logistics Inc.

Q2 2026

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XPO (XPO): Company Profile, Stock Price, News, Rankings

legacy

Welcome to the XPO Second Quarter twenty twenty five Earnings Conference Call and Webcast. My name is Melissa, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. If you have a question, please dial 1 on your telephone keypad.

Please limit yourself to one question when you come up in the queue. If you have additional questions, you're welcome to get back into the queue, and we'll take as many as we can. Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward looking statements and the use of non GAAP financial measures. During this call, the company will be making certain forward looking statements within the meaning of applicable securities laws, which by their nature involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those projected in the forward looking statements.

A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release. The forward looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward looking statements, except by the extent required by law. During the call, the company will also refer to certain non GAAP financial measures as defined under applicable SEC rules. Reconciliations of such non GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and in the related financial tables or on its website. You can find a copy of the company's earnings release, which contains additional important information regarding forward looking statements and non GAAP financial measures in the Investors section on the company's website.

I'll now turn the call over to XPO's Chief Executive Officer, Mario Herrick. Mr. Herrick, you may begin.

Good morning, everyone, and thank you for joining our call. I'm here with Kyle Wissmans, our Chief Financial Officer and Ali Fagri, our Chief Strategy Officer. Earlier today, we reported strong second quarter results. We generated $2,100,000,000 of revenue and adjusted EBITDA of $340,000,000 Our adjusted diluted EPS of $1.05 exceeded expectations. And our North American LTL business continued to outperform the industry, building on our momentum across the network.

Over the past two years, we've improved our adjusted operating ratio by four seventy basis points in a soft rate environment, underscoring the strength of our operating model. And in the second quarter, we outpaced both the industry and normal seasonality on margin expansion. This was underpinned by above market yield growth, ongoing cost efficiencies and most important, the superior service that supports our customers. Additional highlights of the quarter include our strategic investments in the network and the technology that differentiates our value proposition. I'll speak to our recent progress starting with customer service.

In the second quarter, we achieved year over year improvement in damage frequency and a damage claims ratio of 0.3%. This reflects the discipline we bring to our service culture. We also continue to raise the bar with on time performance with our thirteenth straight quarter of year over year improvement. Our network speed and reliability are key differentiators for customers. We're continuing to elevate our world class service levels with a customer loving mindset across our organization, a significant network expansion and technology driven operating excellence.

The ongoing investments we're making in the network support both long term growth and efficiency. Since launching our LTL growth plan in 2021, we've added nearly 6,000 tractors and more than 17,000 trailers to our fleet. Our average tractor age is now less than four years, which improves reliability and reduces maintenance costs. On the real estate side, we're seeing strong contributions from the growth of our footprint. In recent quarters, we've opened some of the largest LTL service centers in North America, including two additional break bulk locations in Carlisle, Pennsylvania and Greensboro, North Carolina.

These facilities sit in key freight corridors and are ramping up fast, helping us move more direct loads by building density in the network. Our customer shipments are flowing more efficiently end to end and we're reducing both re handles and miles while also enhancing our pickup and delivery operations. Almost all of the acquired facilities are now open and we've met our target of 30% excess door capacity. This positions us to capture profitable share in the freight market rebound and unlock more operating leverage. Now let's turn to pricing, which continues to be a key driver of our outperformance.

Our strong service levels are enabling us to earn above market yield growth and win new business. In the second quarter, we increased yield excluding fuel by 6.1% year over year with sequential growth from the first quarter. And we see a long runway to further align our pricing as we enhance our value to customers. We're also seeing a benefit to mix from local accounts and premium services, which now represent a larger share of our revenue and carry higher margins. Demand continues to grow for our premium offerings, including our grocery consolidation service, which we expect to ramp in the coming months.

It's an attractive end market with significant growth potential, our differentiated service offering uniquely positions us to gain share in this vertical. Cost efficiency is another area of the business where we made meaningful progress in the quarter, most notably with labor productivity and line haul. Our proprietary labor planning platform gives our managers visibility into volume flows with the ability to adjust staffing to demand in real time. We're seeing significant benefits, including a second quarter improvement in labor hours per shipment versus the prior year. This is just one example of how our best in class technology helps us improve margins even when demand is down.

It's a competitive advantage that will compound as industry volumes recover. On the line haul side, we reduced outsourced miles to just 6.8 of total miles, which brought down our purchase transportation expense by 53% year over year. That's more than 900 basis points lower than last year and the best level in our history with more opportunity ahead. And our new AI powered line haul models are driving additional savings, reducing normalized linehaul miles by 3%, empty miles by over 10%, and freight diversions by more than 80%. Recently, we started piloting AI driven functionality for trailer and route assignments in pickup and delivery operations.

The early results are encouraging with positive trends in stops per hour and trailer utilization. We're excited about what AI can mean for our operations and our customers, and we expect it to become increasingly important to our strategy over the long term. In closing, we reported another quarter of outperformance that showcased the operating momentum we built across every part of the business. We delivered strong yield growth, realized cost savings throughout the network and deepened our competitive edge through world class service and technology. Our AI initiatives are already generating measurable returns and our investments in the network are unlocking new levels of efficiency and flexibility.

We're operating from a position of strength with a clear plan to deliver sustained margin expansion and long term value creation. With that, I'll turn it over to Kyle to walk through the financials. Kyle, over to you.

Thank you, Mario, and good morning, everyone. I'll cover the company's financial performance, along with our balance sheet and liquidity position. Total company revenue was $2,100,000,000 in line with last year and up 6% sequentially from the first quarter. In our LTL segment, revenue declined 3% on a year over year basis, largely due to a reduction in fuel surcharge revenue tied to the price of diesel. Excluding fuel, LTL revenue was down 1%.

On a sequential basis, LTL revenue increased 6%. On the cost side in LTL, we continue to make meaningful progress in reducing our purchase transportation expense. Our third party carrier expense declined 53% year over year as we in sourced more line haul miles. This resulted in $36,000,000 in savings for the quarter. With labor, we held our cost of salary, wages and benefits roughly flat year over year by improving productivity, which offset inflationary pressures.

Our technology has been the key to realizing steady productivity gains across our network. In terms of equipment, our maintenance cost per mile improved 6% supported by the addition of newer tractors to our fleet. LTL depreciation expense increased 13% or $10,000,000 consistent with our strategy investing in the network, including our rolling stock. Next, let's turn to adjusted EBITDA. Companywide, we generated $340,000,000 adjusted EBITDA, down 1% from a year ago.

In our LTL segment, we grew adjusted EBITDA by 1% to $300,000,000 and expanded this margin by 90 basis points to 24.2%. These results speak to the strength of our operating model. We have the ability to deliver strong yield growth and cost discipline in a soft environment as we did in the second quarter. This helped offset headwinds from lower fuel surcharge revenue, tonnage and pension income. For our European Transportation segment, we reported adjusted EBITDA of $44,000,000 while the Corporate segment had a $4,000,000 loss.

For the total company, second quarter operating income was $198,000,000 which is a 1% increase from the prior year. Net income was $106,000,000 which equates to $0.89 of diluted earnings per share. And on an adjusted basis, EPS was $1.05 compared with $1.12 a year ago. Lastly, we generated $247,000,000 of cash flow from operating activities in the quarter and deployed $191,000,000 of net CapEx. Moving to the balance sheet, we ended the quarter with $225,000,000 of cash on hand.

Combined with available capacity under our committed borrowing facility, this gave us $824,000,000 of liquidity at quarter end. And our net debt leverage ratio improved to 2.5 times trailing twelve months adjusted EBITDA compared with 2.7 times a year ago. Looking ahead, while we remain committed to investing in initiatives that support long term growth, we expect our CapEx to moderate and our free cash flow conversion to increase going forward. This positions us with greater flexibility to return capital to shareholders over time and pay down debt. Regarding share buybacks, we initiated a program with $10,000,000 of common stock repurchased in the second quarter.

And we plan to scale up our buyback activity as free cash flow increases. This reflects our confidence in the long term value of our shares. With that, I'll hand it over to Ali to walk through our operating results.

Thank you, Kyle. I'll begin with the review of our operating results for the LTL segment, where we continue to execute well despite the soft freight environment. Total shipments per day declined 5.1% compared with the prior year. We drove meaningful growth in our local channel with shipments up by high single digits, which is an acceleration from the prior quarter. We're capturing share in this high margin segment through targeted outreach and a value proposition that clearly resonates with our customers.

With weight per shipment down 1.6%, tonnage per day declined 6.7%, largely in line with normal seasonal trends. Importantly, we improved both tonnage and shipments per day on a year over year basis from the first quarter, a positive trend we anticipate will continue in the second half. Looking at the monthly numbers compared with the prior year, for tonnage, April was down 5.5%, May was down 5.7% and June was down 8.9%. For shipments per day, April was down 4.1%, May was down 5% and June was down 6.2%. For July, we estimate that tonnage will be down in the 8% range, which is slightly better than normal seasonality compared to June.

Turning to pricing, we delivered another quarter of strong yield performance. Yield excluding fuel was up 6.1% year over year and revenue per shipment increased 5.6%. Both underlying metrics also improved from the first quarter marking our tenth consecutive quarter of sequential increase in revenue per shipment. We expect our sequential pricing gains to continue through the rest of the year supported by our high service levels, premium offerings and growth in the local channel. Our approach to pricing is highly disciplined and managed with our proprietary technology to ensure a fair price for the value we deliver.

This is a key driver of our margin improvement. Moving to profitability, we improved our adjusted operating ratio by 300 basis points sequentially to 82.9% in the second quarter, outperforming normal seasonality and delivering on our outlook. On a year over year basis, this is an improvement of 30 basis points, making us the only public LTL carrier to expand margins. We achieved these strong results through a combination of disciplined yield management, cost efficiencies and productivity gains, all enhanced by our technology. Looking at our European transportation business, we made solid progress despite the tough macro backdrop.

We increased revenue 4% year over year and delivered a 38% sequential increase in adjusted EBITDA, ahead of seasonal expectations. We also grew adjusted EBITDA year over year in several key markets including The U. K. And Central Europe. This demonstrates the strength of our execution and customer relationships.

Another encouraging sign is the value of prospective business in our sales pipeline, which is trending higher than the prior year. We're seeing increased demand across Europe as customers respond to the quality and range of our service offerings. To wrap up, I'd like to highlight the levers that are driving our industry leading margin expansion in LTL. First, we're consistently delivering above market yield growth and we expect to sustain that going forward as our pricing initiatives continue to gain traction. We're also making further improvements to our cost structure, realizing significant savings from insourcing line haul miles and becoming more productive across our network.

Our proprietary technology is a key factor in these gains as it helps us extract more value from every shipment. The structural advantages underlying our strategy enable us to drive margin expansion even as industry volumes are down. We're uniquely positioned to outperform in any part of the cycle and deliver long term earnings growth. Now we'll take your questions. Operator, please open the line for Q and A.

Thank Our first question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.

Hey, thanks. Good morning. Maybe you can just give us a little bit of color on the OR for the third quarter. And I know you talked about 100 basis points of improvement for the year, how we're thinking about that. And then maybe just big picture, the grocery stuff sounds new.

Maybe Mario, just talk a little bit about what the opportunity of that is and why that's an attractive market?

You got it, Scott. So first, starting with the third quarter OR outlook. We do expect another strong quarter for margin performance. And now typically, normal seasonality for us on OR sequentially increases by two to two fifty basis points from Q2 to Q3. But given what we're seeing so far, we expect our Q3 OR to be at a similar level to Q2, so call it flattish on a quarter over quarter basis, which represents, Scott, both a very strong year on year improvement and a significant outperformance to seasonality on a sequential basis.

And that's going be driven by our continued strength in yield and our effective cost management as well. Now when you look at the full year OR, given how volume trended in the first half of the year and what we expect in the third quarter, we expect full year tonnage should be down in that mid single digit range. And obviously, nobody can predict the macro, so we'll see how the year plays out. But as we said last quarter, this would be supportive of 100 basis points of year on year OR improvement and which is a very strong outcome in a soft trade environment and will be the only LTL carrier improving margins again year on year after improving them by two sixty basis points last year. In terms of the new offering on the grocery consolidation side, it's a great business.

This is a business where you would have a grocer that has suppliers shipping product into their docks, and then we help them effectively consolidate that freight in our terminals and then be able to get all of that freight all at once at a grocer. It's an attractive market. We estimated to be Scott about $1,000,000,000 in market size, and it comes with a very good margin. And we today, we are underrepresented in that segment of business. We are in that low single digit range, and we expect to grow in it over time.

Our service product has never been better, so we can support our customers there on those services. And we've had early success here in the second quarter onboarding a few customers, and we expect that to ramp in the back half of the year as well.

Thank you. Our next question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question.

Hey, great. Good morning, Mario and team. I guess I'm going to jump over to a side that we don't talk about much, but Europe really posted some pretty stronger than expected results. Maybe talk a little bit more about what was the surprise drivers there? What we can expect as we move into the rest of the year?

And then on the core side, just how low purchased transportation are we testing the limits of what you want to do? And I guess, Mario, what's the next leg of operational improvement to continue to drive you toward the upper 70s?

Yes, you got it. I'll start on the line haul side and the cost levers for improvement, and I'll turn it over to Ali to discuss Europe. But when you look at the starting with the line haul insourcing, so we were down to a new record, 6.8% here in the second quarter, and we expect to continue to bring that down in that mid single digit range through the course of the the back half of the year. Now let's say that will be a level for us if you think of 2026 because our entry point in 2025 was higher than the exit point. We're still going to get a comp dynamic of a good cost guide in 2026.

Now keep in mind though, for us, the biggest improvement in that cost category is around making sure that we are immune to truckload rates coming up. So in the next up cycle, when volume is up, when yield is even higher than what it is today, we would be able to get less of a headwind from truckload rates going up, and that's going to be a meaningful improvement compared to prior up cycles. The other two levers of cost that we're very excited about moving forward, the first one is around AI capabilities and technology. We have launched many capabilities here in the second quarter, and we're going to continue to launch these in the back half of the year going into 2026. And if you think about it, again, even in the trough of the cycle, we are improving productivity across our network.

And when you see that cycle turn, we expect to meaningfully improve productivity as well. Here in the second quarter, we launched new AI enhancements to our line haul models that enabled us to reduce the total line haul miles we're driving for the same amount of volume in that low to mid single digit range, which is a great, great benefit for us. And we're also piloting now P and D incremental capabilities in AI that will make our P and D cost even lower. So we're excited about the outlook of these technologies we're launching across the network. And the other lever is around the new break bulk location that we have been launching here for the course of the last year.

Typically, in LTL, the larger the service center, the more efficient you are. And when you think about it here in the first half, we launched two of the largest service centers and trucking in North America, in Greensboro, North Carolina and in Carlisle, Pennsylvania. And these allow us to build density in our line haul network, reduce re handles and be able to get effectively a much more efficient network in how we operate it, even improved service quality as well. So these are all the cost levers we expect to compound over time here beyond 2025, going into 2026, 2027, 2028 as we launch those capabilities.

And then, Ken, on the Europe side, you're right. The second quarter was a strong quarter for us in what was a challenging environment. We grew year over year organic revenue for the sixth consecutive quarter. And then if you look at adjusted EBITDA sequentially, was up nearly 40% and that was much better than normal seasonality. I think in particular, we saw strength in The UK and Central Europe on the EBITDA side.

Both markets for us were up in that low to mid single digit range on a year over year basis as you think about EBITDA growth. As you think about the second half of the year and the third quarter in particular, typically EBITDA in our European segment steps down sequentially Q2 to Q3 by call it mid single digit million dollar sequentially, But we would expect to outperform that as we move from into the third quarter from a seasonality perspective.

Great job on outperforming seasonality on both sides. Thank you very much for the time. Appreciate it.

Thank you. Our next question comes from the line of Fadi Chamoun with BMO Capital Markets. Please proceed with your question.

Yes, good morning Mario and team. I have kind So of big picture question. So you've highlighted some of the cost and especially focusing on the revenue levers that executing on to drive this revenue per shipment performance. My question is, kind of we're in the third year of this kind of muted freight market right now. If we have another year of this kind of performance kind of end market being muted, being tough, are you experiencing like a change in the conversation with your customer?

Does it get harder to achieve the type of leverage from the initiatives that you're doing on the service side, the initiatives that you're doing on penetrating local channel? Does it get harder as you go into another year potentially of weak end market market demand? I'm just wondering how should we think about kind of going into 2026 about this momentum that is very self help driven here on that revenue per shipment if we have another year of you know, muted, you know, backdrop for freight demand?

Well, Sadi, if you look at it, if you take a step back, we've been delivering yield performance that is meaningfully above market now for a number of years. But a lot of that, if you take a step back when we started our plan, the yield differential between us and the best in class carrier normalized for weight per shipment and length of haul was about 15 points. And through the course of the last few years, we were able to take that gap from probably 15 points down to the low double digit, low teens. And we have another year double digit percentage to go above market over the next, call it, five years for us to bridge the gap with a best in class carrier. So we have a massive runway ahead of us in terms of these improvements. And high level, if you break down that delta, when we started our plan, about half of it was driven by a better service product that led that carrier to have better pricing over time.

About 500 basis points were these premium services that were a gap for us. We didn't have them in our portfolio of offering for customers. And about 2.5 points of yield differential were driven by our local channel, which represented 20% of our book of business as opposed to 30% is what the target would be. And by going from 20% of the book being small to medium sized businesses to 30%, that's equivalent to about 2.5 points of yield. Now our goal for the first category on service leading to better pricing is to bridge that gap a point a year incremental to what the market is doing.

And this is what effectively we've been doing here over the last few years. If you look at accessorial revenue, we launched a half a dozen or so premium services last year, and these are resonating very well with our customers, especially when you couple them with a great service product. So more and more customers are signing up for these services. When we started our plan, our assessorial as a percent of revenue were 9% to 10%, and we can go up to 15% is what the target is. And we're currently, call it, a couple of points better than where we started, and we still have another runway for three years of outperformance.

And then same thing on the local channel growth. When we started, we were at 20% as a percent of total. We're now in the low to mid-twenty percent range. Here, this last quarter, Clari, we grew the local segment, the small to medium sized businesses, high single digit on a tonnage basis, which is an acceleration from the first quarter as well. So when you look at it, our goal is to bridge that gap zero five point a year and we're two years into a five year runway for that aspect.

So when you think of our yield initiatives, all of them have a very long runway, years ahead of us. And even though what is the trough of the cycle, I mean, the ISN has been subseasonal now for the better half of three years and then or the better part of three years. And yes, we are delivering impeccable yield across the board, and we expect that to continue over the quarters and years to come and even get better in an up cycle.

Thank you. Our next question comes from the line of Jonathan Chappell with Evercore ISI. Please proceed with your question.

Thank you. Good morning. Ali, you gave a message on monthly tonnage that's kind of similar to some of your peers who reported earlier in June, kind of much weaker than expected, pretty big deceleration. Then July, still weak, but slightly better than normal seasonality. As we think about what Mario had said about a flat OR 2Q to 3Q, with comps getting easier on tonnage in August and September, do you expect that 8% to whittle its way down to a mid single digit decline?

Or are we starting from such a low point in June that even better than the normal seasonality would relate to a high single digit tonnage decline in the third quarter?

Sure, John. So you're right. July was down somewhere in that 8% range, and that was slightly better than what we saw in June on a year over year basis and also better than normal seasonality relative to June. Now when you think about Q3 as a whole, the comps do get easier as we move through the quarter. If you recall, John, back in August, industry demand did soften as a whole and that continued into the month of September.

So, we would expect those year over year tonnage declines to moderate as we move through the third quarter and for the full quarter tonnage to be down less on a year over year basis than what you saw in the month of July.

Thank you. Our next question comes from the line of Jordan Alliger with Goldman Sachs. Please proceed with your question.

Yes, sort of taking things a different direction. Let's just say that we finally get some manufacturing expansion whenever that is next year or what have you and the negative tonnage inflects to positive. Can you maybe talk through how with all the stuff that you've done in the last two or three years, what sort of incremental margins you think you could produce over the course of the start of the next up cycle and through it? Thanks.

Yes. You got it, Jordan. So if you first of all, we're incredibly excited about the up cycle when it comes. I mean, obviously, even in a freight soft soft market and the down cycle, we're delivering margin improvement two years in a row is the expectation. And obviously, in the up cycle, we're going to it's we're off to the races. But I'll walk you through a couple of items. In terms of incremental margins, we do expect to be comfortably over 40% of incrementals.

If you go back to late last year in the fourth quarter, the last quarter of revenue growth before the soft thirty first half of the year, our incrementals were in the 70% range, our EBIT incrementals. Obviously, we'd love it to be 70% in the up cycle, but we would say we don't want to set too big of an expectation. So we're comfortably in that 40% range. Now what are the drivers? I just mentioned earlier on our yield initiatives driving above market yield growth.

Now it's normal in an up cycle to see LTL yield across the industry go up meaningfully. So if the industry is doing it to high single digit or high single digit, we expect to outperform that by a few points in terms of overall yield performance. If you break it down, all the levers that we have in terms of growing with the small to medium sized businesses, I mean, so far year to date, we've onboarded more than 5,000 new local customers. So this kind of gives you an example on the momentum that we've built in an up cycle with these type of customers. Similarly, when you think about the premium services, all of these are launched and gaining steam.

We're building pipelines on each one of them. And in an upcycle, carriers that don't have the capacity might have service issues. And in that particular case, we'll be able to onboard more of these premium services and grow them at a higher clip. When you look at the cost side, historically, we used to have a bigger headwind from purchased transportation, where when the upcycle comes, typically truckload rates go up. In that particular case, our exposure now is a much, much lower exposure, which means higher incremental margins.

Similarly, on the productivity side, when you look at a post yellow bankruptcy, when tonnage was up, we improved productivity the two quarters after they ceased operation by 7% in one quarter, 4% in the following quarter. Currently, the trough of the cycle, we're improving productivity by about one point a quarter. So when you fast fast forward with the compounding effect of the AI initiatives, our technology, you can imagine productivity is going to be at a much, much higher clip as well. And ultimately, we have now larger locations, 30% excess capacity, a fleet agent is in a fantastic place, service quality is in a fantastic place. And I'll tell you I can tell you how excited we are when that upcycle comes.

It will be a meaningful expansion and meaningful incremental margins there as well. Thank you.

Thank you. Our next question comes from the line of Ari Rosa with Citi. Please proceed with your question.

Hey, good morning and congrats on some of the improvement here in a tough freight market. Mario, was curious to get your thoughts. Just obviously, there's a industry disruption event happening next year with the separation of the largest player from his parent. I'm curious if you're seeing any impact on the market or the competitive dynamics from that. And just if you could talk about the overall competitive environment and the extent to which you're seeing maybe people being a little bit more aggressive on pricing than what we've seen in the past. Thanks.

Yes. So overall for the FedEx, spending the freight business, I think it would be good for the industry overall, because it will continue to ensure that focus on price discipline and margin expansion. And as a standalone entity, as an LTL carrier, one of the biggest drivers for profit growth over time is driven by margin expansion. And every LTL operators knows that the number one lever to improve margins is around pricing. So we believe that's going to help overall the industry as a whole.

But otherwise, they're I a great company. They're a great competitor today, and they will be a great competitor tomorrow. I don't see that changing if they were on a stand alone basis or part of bigger FedEx.

Thank you. Our next question comes from the line of Stephanie Moore with Jefferies. Please proceed with your question.

Great. Good morning. This is Joe Hoffman on for Stephanie Moore. Congrats on the good results.

I guess my question is on how we should think about pricing into the back half. You've talked about consistent above market yield. But in terms of the sequential improvement in yield we've seen, can we expect to see that kind of pace continue into the second half? And then just obviously the growth in local channels is a big driver of that. So can you sustain kind of that high single digit type click growth in the local channel? Thanks.

Sure. This is Kyle. So when you think about Q3 yield ex fuel, we would expect to continue to improve sequentially from Q2. And now that improvement would continue into Q4 as well. So if you think on a year over year basis, we'd expect Q3 yield ex fuel to grow at or above the level we saw in Q2.

Now if you think pricing in terms of revenue per shipment, we'd also expect revenue per shipment to increase sequentially in both Q3 and Q4 this year. And to put that in context, that's building on 10 consecutive quarters of sequential improvement we delivered. So we feel really good about a lot of initiatives we have on the pricing front. Speaking specifically to local channel, when you think about local, as Mario mentioned, the start of this initiative, we're about 20% share. We're now in the low to mid-20s, but the goal is to get to 30%. So you think about the ability to have that help us continue to grow yield in the back half, it should help us in the back half as well as years to come.

Thank you. Our next question comes from the line of Chris Wetherbee with Wells Fargo. Please proceed with

Hey, thanks. Good morning, guys. I wanted to ask about labor productivity and get a sense of maybe how you think that plays out in the back half of the year. Obviously, you're guiding to better than normal seasonality on the operating ratio. So potentially, this plays into that.

But I guess as you think about the improvement maybe in labor cost per shipment or how you think about that growth, do you need to see better volume environment to make further progress on that? Are there levers you can pull in the near term even in a down volume environment?

Well, if you think about the ability our ability to drive labor productivity in the quarter, even with tonnage being challenged, we're able to grow improved productivity 1%, if you think about on a labor cost per shipment basis. So we continue to expect to improve that. When you think about a lot of our we have that are tech enabled, we expect to see further improvements both on the dock when you think about motor moves per hour. If you think about pickup and delivery, our ability to do that. And then I think Mario mentioned this too, but if you think about line haul cost and the ability to really integrate some of those larger service centers, that's going to help us drive further labor productivity when you think about those breaks coming up to speed.

So we feel very good about our ability to drive momentum on the labor front.

Thank you. Our next question comes from the line of Richard Harnen with Deutsche Bank. Please proceed with your question.

Hey, thanks. So I wanted to ask a little bit more about the revenue environment and what exactly happened in June. So, you're the second LTL carrier now that's talked about a pretty steep deceleration that happened in June. And then, very pleased to see a snapback sort of in July, but maybe talk through the dynamics of what happened there. Then as we think about the full year, I appreciate that comps do get easier, but just risks to the guide and how you intend to offset that if the tonnage environment continues to be shaky.

Sure. This is Ali. So when you think about our shipment trends throughout the second quarter, they were very consistent and also in line with seasonality. Now, we did see softer weight per shipment in the month of June and there was really two dynamics that were driving this. First, macro and tariff uncertainty did have a greater impact on weight per shipment for some of our small to medium sized customers.

We do think this impact is transitory. This is a channel where we're seeing very strong growth and is OR accretive for us. And we also did have a tougher comp in the month of June as well on a weight per shipment standpoint. So if you look at it on a two year stack basis, that does help normalize for some of that dynamic. Now as you go into the third quarter, we have seen some of that weight per shipment decline on a year over year continue into early July.

However, more recently, we've seen some normalization in that trend versus seasonality. So we would expect that trend on weight per shipment to improve on a year over year basis as we move through the third quarter. And then overall, as you think about our ability to deliver on our OR outlook, obviously, we're not immune to the macro. However, as we've demonstrated, we do have multiple levers to pull on both the yield and the cost side to mitigate the impact of lower volumes. You saw that here in the first half of the year and in Q2 in particular, our decremental margins were 9% in the quarter.

And what's going to allow us to deliver on that sort of performance comes back to the yield outperformance, our ability to continue to grow yield above market. And then also on the cost side, when you think about our cost structure being about two thirds variable, we have the ability to manage labor, to align our labor cost to the volume we're seeing in the network, and our technology plays a big part in that as well.

Thank you. Our next question comes from the line of Tom Wadewitz with UBS. Please proceed with your question.

Yes, good morning. So wanted to ask you a little bit about the grocery. Again, I know you had a question on that, talked about that a bit. But is that something that is a couple of players are big in that and it's kind of specialized and you'll probably take some share from a few players? Like that's kind of unusual for big LTL to be in that area?

And then so just thinking about that kind of competitive dynamic there. And then how many areas are there left in the pipeline like that, that just things that are LTL, you have a large number of customers, variety of customers. So we don't necessarily know what the next area is you might look at. But how many other things are there in the pipeline in 2026, 2027 that are like, hey, this is an interesting part of the market that we don't compete actively today and we can add that on? Thank you.

Thanks, Tom. So when you look at the grocery business, it is a more consolidated business in the LTL segment. And the reason why is that a great service is a prerequisite to be able to deliver on those expectations for the customers. And what we with our service improvements, I mentioned earlier on that our on time has improved for the thirteenth consecutive quarter here for us. And similarly, claims side, we have one of the best claims ratios in the industry as well.

And that's resonating with customers. So we're seeing actually some of these customers come to us and ask us to get onboarded and be able to kind of get to service them in that line of business as well. So it is more consolidated today, and we expect to grow and adhere over the quarters and years to come. Now if you recall last year, we have launched a number of these premium services all the way from must arrive by date, for example, where you have to get to a customer within a certain time window and date window to services like retail store rollout, like expanding our trade show offerings. So all of these come at a higher yield because typically, the customer pays an extra fee for the incremental service that they're asking for.

Now in terms of what's left out of these services, the first thing Tom, I'd say for each one of those, once you launch them, you train your sales force on how to sell them and then you build the pipeline for these opportunities and that pipeline grows over time. So that's going to be the gift that keeps on giving here over the quarters and years to come. With Grocery specifically, we're now building the pipeline. We're to start converting a number of these accounts here in the back half of the year and going into 2026. Other services include, for example, expedite service is something we don't offer today, although we have one of the fastest networks in the industry in terms of transit times.

But offering that incremental expedited service for the customer is something we're contemplating. Things like security dividers in our trailers are things we're contemplating. But we're looking there is another, call it, three, four or so incremental premium services we're looking at here for the next year or two.

XPO (XPO) Q2 2025 Earnings Call Transcript

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