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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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Q4 2025

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Q4 2024

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

legacy

Welcome to XPO Q4 twenty twenty four Earnings Conference Call and Webcast. My name is Latanya, 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. 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 make 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 it is in 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 to the extent required by law. During this call, the company also may 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 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 will now turn the call over to XPO's Chief Executive Officer, Mario Harrick. Mr. Harrick, you may begin.

Good morning, everyone. Thanks for joining our call. I'm here with Kyle Wissmans, our Chief Financial Officer and Ali Faghri, our Chief Strategy Officer. This morning, we reported a strong fourth quarter with year over year earnings growth and LTL margin expansion that outperformed the industry. I'm pleased with the substantial progress we've made in the drop of the freight market cycle.

For the full year, we grew revenue by four percent to a record $8,100,000,000 company wide. We also generated $1,300,000,000 of adjusted EBITDA, a 27% increase from the prior year reflecting significant operating leverage. And we delivered a 31% increase in adjusted diluted EPS at 3.83 for the year. Turning to our FTL segment, we're making great strides in executing our plan and optimizing all parts of the business. The results we've delivered so far are just the beginning of our potential.

You can see that in the two sixty basis point improvement in our adjusted operating ratio, which was better than our targeted range. This was underpinned by record customer service levels, which translated to profitable market share gains and above market yield growth for the year. And we have a well defined plan to keep driving our OR toward becoming industry best. We also seamlessly integrated 25 new service centers into our network, establishing a major competitive advantage of customer service capacity. And we operated more cost efficiency across the board, including our line haul operations where we reduced outsourced miles to the best level in our history.

Now I'll summarize the highlights of 2024 in each of these areas starting with world class service. This is our most important lever for growth and profitability. In the fourth quarter, we delivered a damage claims ratio of 0.2%, which is an improvement from 0.3 last year. Importantly, we reduced damage frequency each quarter to a new company record. This metric is a real time indicator of the service quality that our customers experience.

To put it in perspective, we've improved damage frequency by over 80% since 2021 and we have significant room to make further progress over time. We also improved our on time performance year over year for the eleventh consecutive quarter. This is a testament to the speed and reliability that our customers value in our network. Next, I want to talk about a lever that touches every part of our plan, our network investments. On the real estate side, I mentioned that we brought 25 new service centers online last year and will integrate the remaining acquired sites over the next few months.

When we expand our network capacity, we create more opportunity to improve service because it balances our network, adds density in strategic markets and helps us run the business more efficiently. We're also adding rolling stock to serve our customers and support our ongoing in sourcing of line haul transportation. Since 2021, we've produced over 15,000 trailers at our in house manufacturing facility and we're the only LTL carrier in North America with this capability. This is a major advantage because trailers are the backbone of efficient LTL operations. We rely on this capacity to consolidate and move freight across our network.

We've also purchased nearly 5,000 tractors during the same period. We ended 2024 with an average fleet age of four point one years, giving us one of the youngest tractor fleets in the industry. As a result, we're operating our fleet at a lower cost per mile. Because we made these strategic investments throughout 2023 and 2024, we currently have nearly 30% excess door capacity and a robust fleet in the trough of the cycle. That's a major improvement from a few years ago when our excess capacity was about half of what it is today.

We're one of only a few LTL carriers in North America with this kind of capacity in hand. It allows us to respond quickly to surges in demand and it puts us in a strong position to accelerate operating leverage and profitable growth in a freight market upcycle. Yield is another key lever for us and the most impactful metric underlying margin improvement. For the full year, we grew yield excluding fuel by 7.8% year over year, directly contributing to our two sixty basis points of OR improvement. Both yield and margin are being driven by our internal initiatives and proprietary technology.

Here again, we see a long runway for further gains including a double digit pricing opportunity in the coming years propelled by three dynamics. First, by aligning price with the service value we deliver, we've been consistently outperforming the market and yield growth and we expect this to continue. Second, we're committed to evolving our service offering to meet our customers' needs. The premium services we introduced last year contributed to above market yield growth and account for an increasing share of our revenue mix. And third, investments in our sales force are generating market share gains with local customers.

This is a strategic lever for margin expansion. The final component of our strategy is cost efficiency with our primary focus being line haul insourcing and variable costs. In 2024, we reduced our purchased transportation costs by 32%, driven by a reduction of more than 600 basis points in line haul miles outsourced to third parties. We accelerated this initiative in the fourth quarter when we reduced our outsourced miles to 10.7% of total miles. That's nearly 900 basis points lower than a year ago, primarily due to the expansion of our RoadFlex operation.

And we expect this metric to drop into the single digits this year, which would be a new historic low. Our reduced reliance on third party truckload carriers will help insulate our cost structure when demand returns and truckload rates rise, generating higher incremental margins versus prior up cycles. Importantly, we're also managing our labor costs more effectively with our proprietary technology. Our systems can forecast volume trends using predictive AI, so we can quickly align labor hours at the service center level. In 2024, this resulted in consistent table productivity improvements and a changing volume environment and we expect our technology to continue to deliver incremental benefits to our cost structure as we grow.

Turning to Europe, we increased full year segment revenue by 3%, which outperformed the industry in a soft macro. Our most robust performance was in The UK, where we grew year over year organic revenue by double digits. In summary, we delivered our strongest year of LTL margin improvement since 2016 and we achieved that in a historically soft freight environment. We also cemented our foundation for future growth, validated the opportunity ahead of us and positioned the business to capitalize quickly in a freight market recovery. We're in our strongest position yet to unlock the potential within our network and we expect to deliver significant margin expansion and earnings growth this year.

Now I'm going to hand the call over to Kyle to discuss the financial results. Kyle, over to you.

Thank you, Mario, and good morning, everyone. I'll take you through our fourth quarter financial results, balance sheet and liquidity, as well as our planning assumptions for 2025. We reported a strong fourth quarter reflecting the continued execution of our plan. Our total revenue for the quarter was $1,900,000,000 which is 1% lower than the prior year on a company wide basis. In our LTL segment, revenue was down 3% year over year, reflecting a 23% decline in fuel surcharge revenue tied to the price of diesel.

Excluding fuel, we increased segment revenue by 2%. We're continuing to realize new cost efficiencies in our LTL operations, including another material reduction in purchased transportation, due largely to insourcing more of line haul miles. Our purchased transportation expense in the fourth quarter was 47% lower than a year ago, equating to a savings of $39,000,000 We also managed LTL labor effectively with hours per shipment improving year over year by 1%. This helped mitigate a fourth quarter increase of 3% in total salary, wages and benefits, primarily due to inflation. And we've realized continued cost efficiencies in our fleet operations with our investments in new equipment bringing down our maintenance cost per mile by 10% year over year.

Depreciation expense increased by 16% or $11,000,000 reflecting the investments we're making in the business. This continues to be a key priority for capital allocation and LTL. Next, I'll add some detail to adjusted EBITDA starting with the company as a whole. We generated adjusted EBITDA of $3.00 $3,000,000 in the quarter, an increase of 15% from a year ago. Our adjusted EBITDA margin of 15.8% with a year over year improvement of two twenty basis points.

Looking at just the LTL segment, we grew adjusted EBITDA by 20% to $280,000,000 LTL adjusted EBITDA includes the impact of $34,000,000 real estate gain in the fourth quarter. This primarily stemmed from the planned sale of the service center in Brooklyn as we opened a larger site we acquired in the same market. Excluding real estate, we grew LTL adjusted EBITDA by 6% year over year to $246,000,000 The increase is driven by yield growth and cost efficiencies, which more than offset the non operational headwind from lower fuel surcharge revenue. In our European Transportation segment, adjusted EBITDA was $27,000,000 and corporate adjusted EBITDA was a loss of $4,000,000 for the quarter. Looking at the fourth quarter company wide, we reported operating income of $148,000,000 up 24% year over year and we grew net income from continuing operations by 31% to $76,000,000 representing diluted EPS from continuing operations of 0.63 On an adjusted basis, diluted EPS increased by 16% year over year to $0.89 And lastly, we generated $189,000,000 cash flow from operating activities in the quarter and deployed $108,000,000 of net CapEx.

Moving to the balance sheet, we ended the quarter with $246,000,000 of cash on hand. Combined with available capacity under our committed borrowing facility, this gave us $757,000,000 of liquidity. Our net debt leverage ratio at year end was 2.5 trailing twelve months adjusted EBITDA. This is improvement from three times at the end of twenty twenty three. While we remain committed to investing in our long term growth initiatives, we expect LTL CapEx to moderate as a percent of revenue from the past two years of significant network expansion and additions to our fleet.

With a lower CapEx profile and sustained earnings growth, we can generate higher levels of free cash flow, giving us greater flexibility to return capital to shareholders over time. Before I close, I'll summarize this year's planning assumptions to help you with your models. For 2025, we expect total company gross CapEx of $600,000,000 to $700,000,000 interest expense of $220,000,000 to $230,000,000 pension income of approximately $6,000,000 an adjusted effective tax rate of 24% to 25 and a diluted share count of 120,000,000 shares. These assumptions are included in our fourth quarter investor presentation. Now, I'll turn it over to Ali, who will cover our operating results.

Thank you, Kyle. I'll start with our LTL segment, which delivered another quarter of margin improvement and earnings growth. Our results were characterized by strong underlying trends and our volume outperformed the industry as a whole. On a year over year basis, our shipments per day were down 4.4% and our weight per shipment was down 1.3% resulting in a 5.7% decline in tonnage per day. Within shipments per day, we grew volume from our local customer base year over year by high single digits.

This is our highest margin business and an important part of our strategy. We expect to accelerate market share gains in our local channel this year. On a monthly basis, our October tonnage per day was down 8%, November was down 4.1% and December was down 4.4%. Looking just at shipments per day, October was down 6.5%, November was down 4.3% and December was down 2%. For January, tonnage was down 8.5% from the prior year with a three point impact from weather disruptions throughout the month.

Excluding this impact, January tonnage per day was largely in line with seasonality. Our pricing trends remained strong throughout the quarter reflecting our progress in aligning price with the value of our service and growing range of premium offerings. This is one of our most promising underlying trends. This enabled us to deliver another quarter of above market pricing growth. On a year over year basis, we grew fourth quarter yields ex fuel by 6.3% and revenue per shipment by 5.8%.

Importantly, we achieved sequential improvements in both yield growth and revenue per shipment from the third quarter as well as on a two year stack basis. We've now increased revenue per shipment sequentially in every quarter for two consecutive years. And we expect to accelerate yield growth in the current quarter reflecting the ongoing momentum of our pricing initiatives. Turning to margin, we improved our fourth quarter adjusted operating ratio by 30 basis points year over year to 86.2%. Over the past two years, we've improved adjusted OR by a total of four ten basis points.

Sequentially, our fourth quarter adjusted OR increased by 200 basis points, outperforming normal seasonal trends. We're driving this outsized margin expansion through a combination of yield growth, cost initiatives and productivity gains, all facilitated by our proprietary technology. We've now delivered year over year OR improvement for five consecutive quarters in a historically soft freight environment. And not only did margin come in above our target range, we were the only public LTL carrier to expand margin in 2024 in the trough of the cycle. Moving to the European business, we made meaningful gains in the quarter against the soft macro backdrop.

We increased segment revenue on a year over year basis for the sixth consecutive quarter supported by strong pricing. In some key geographies like The UK, we increased adjusted EBITDA by double digit versus the prior year reflecting disciplined cost control. And we grew our fourth quarter sales pipeline sequentially by high single digits positioning our European business to accelerate results when the macro recovers. Before we go to Q and A, I want to summarize the key drivers behind the considerable outperformance we achieved in 2024 and how that enhances our market position. Our service quality is at record levels and we expect our pricing initiatives to continue to drive above market yield growth.

We're just beginning to capture the massive pricing opportunity ahead of us. We're also optimizing our cost structure by reducing line haul outsourcing to historic lows and leveraging our technology to become more productive and cost efficient. And we remain intently focused on margin supported by our operational initiatives, investments in network capacity and compelling value proposition for customers. We've created a solid foundation for years of ongoing margin expansion with meaningful upside in a freight market recovery. Now, we'll take your questions.

Operator, please open the line for Q and A.

Thank you. We will now conduct a question and answer session. Our first question comes from Ken Hoexter with Bank of America. Please proceed.

Great. Good morning. Great job on the continued performance. You mentioned going to single digits on the in sourcing. Maybe can you talk about where you are in that Network two point zero, right?

What other opportunities you can still see to continue to improve that cost base? Ali, you mentioned still room to go. And then Mario, you've talked about the kind of different service level improvements that lead you to get that pricing long term. Can you talk about what you still see as the opportunity there to close that margin gap versus the industry leader that you kind of talked about in terms of using that price and what's left on that margin gain? Thanks.

Thanks, Ken. If you look at the I'll start with the latter part of the question. If you look at the opportunity ahead of us, a lot of it goes back to yield improvement. When we started our plan back in 2021, there was about 15 points of yield differential between us and best in class. And over the last few years, we are now, call it, in the low teens in terms of margin opportunity or pricing opportunity ahead of us.

And there are three levers for us to capture that pricing opportunity and that's going to lead to above market yield growth like we saw here in 2024 and we expect that to be the case over the years to come. But that marginal opportunity, the three levers are one that continued service improvement with heating more and more from our customers, they they want to do more business with us and we are being able to about half that delta was driven by a better service for a longer period of time that we are now bridging over the years to come. And there's a five to ten year runway of bridging that gap. The second category is around premium services. We mentioned this earlier, where last year we launched a half a dozen or so premium services.

And these are things that our customers are asking for, whether it's shipping into for a retail store rollout or shipping in and out of a trade show. And today, our assessorial as a percent of revenue when we started the plan went about a 10%, best in class 15%. And in 2024, we were able to get one point of that delta and we expect that the cadence to get a point over the next four years in terms of bridging that gap. And the third area is around local accounts. Roughly around when we started 20% or so of our business was local accounts.

These come at a higher margin and higher yielding. And we've made tremendous progress in 2024. We've added more than 10,000 new local accounts and this was based on us hiring 25 more local sellers. But that's overall opportunity. Think of it as being in the low teens of incremental yield improvement over the next five to ten years above what we're seeing in market yield growth.

In terms of line haul in sourcing, so we delivered our 2027 target three years ahead of plan, like we said we would. And we in the fourth quarter, we went at 10.7% outsourced, which was nearly 900 basis points of in sourcing on a year over year basis. We expect that to be in the single digit territory in 2025, so we're going to continue to in source. Long term opportunity, there will always be some residual we're going to keep as outsourced, probably in that mid single digit plus range as we exit next year. But importantly, Ken the reason why we are very excited about the outlook on this because usually when the cycle turns, truckload rates go up as well.

And this is going to help insulate our P and L and our margin performance and get higher incremental margins in the upcoming upcycle versus compared to prior upcycles given the lower reliance on third party truckload.

Our next question comes from John Chappell with Evercore ISI. Please proceed.

Thank you. Good morning. Ali, if I heard you correctly, you said expect yield to accelerate in the current quarter. So I just wanted to be clear that 6.3, someone pointed out to me today, probably the best pricing on any industrial company, let alone transport company in this environment. You expect that to be better than 6.3% in the first quarter?

And if so, what does that translate to as far as sequential OR guide is concerned?

So John, we do expect our yield growth to accelerate here in the first quarter relative to the 6.3% growth that we delivered in the fourth quarter. We would also expect our contract renewals to accelerate as well. And that's being driven by the initiatives that Mario just outlined as our service continues to improve, that's allowing us to earn a higher price. We're also making continued progress on improving our mix of premium services and local customers. And all of that is what's translating to that acceleration that we're seeing here in the first quarter.

Now in terms of OR, we do expect a strong quarter from a margin performance standpoint here in the first quarter. Normal seasonality for us is for OR to deteriorate about 50 basis points from the fourth quarter to the first quarter, and we expect to outperform seasonality. We also expect, John, for our OR to improve sequentially from Q4 to Q1 and that's going to be driven by the continued strength that we're seeing from both the yield side and the cost side as well. And as I noted, our baseline expectation is for yield to accelerate here in the first quarter. Now from a volume perspective, Q1 does tend to be a tougher quarter to predict given the weather impact and also the fact that the quarter tends to be more heavily weighted towards the month of March.

And the magnitude of how much we're going to improve our OR sequentially into the first quarter will ultimately depend on how tonnage plays out through the rest of the quarter. However, we do expect to outperform seasonality even with that weather impact that we saw earlier in the quarter.

Our next question comes from Scott Group with Wolfe Research. Please proceed.

Hey, thanks. Good morning, guys. Just want to follow-up there. Rather than looking sequentially, do you guys think you'll see margin improvement in in the first quarter year over year? And then I know last year you gave some full year guidance on the LTL operating ratio.

I'm just curious if you have any thoughts on in terms of how much improvement we can expect this year? Thank you.

Okay. Scott, so for the first quarter, as Ali said, we typically see that deterioration from Q4 to Q1. And of 50 basis points, we expect to outperform that, we expect to outperform also on a sequential basis to improve OR. Now getting on a year on year basis, there's a path for that, but we'll see what the rest of the quarter has in store for us here as we execute in February and March. In terms of full year OR expectation, we do expect to have another strong year from both an OR improvement and earnings growth perspective.

And this is despite continuing to be in a soft macro environment, our baseline expectation is for OR to improve 150 basis points for the full year. At a high level, all the things I mentioned earlier on are all contributors from a yield perspective. We continue to do a great job in terms of the service product being excellent for our customers and being able to get yield flow through on that. We are renting our premium services. A lot of these things we launched through the course of the year.

So we are building the pipeline and converting that pipeline. On the local channels, we have our 24%, twenty five % more local sellers are now fully ramped up and we've onboarded more than 10,000 new local accounts. On the cost side, the team I'm very proud of the team for their execution. We keep on doing a great job at managing labor to the volume we're seeing in the environment. We're in sourcing line haul faster than we've ever done before with our Road Flex operation.

And ultimately, we have larger locations in many markets. We will end the quarter with 30% excess capacity, which is also going to help us. So if you look at all of these things, 150 basis points is the baseline that we expect for improvement for the full year. And if we do see an inflection in demand and demand improves through the course of the year and we start seeing the upcycle, there's upside to that number as well.

The next question comes from Chris Wetherbee with Wells Fargo. Please proceed.

Hey, thanks. Good morning guys. Wanted to pick up on the pricing. So obviously you guys have initiatives that are driving upside relative to what we're seeing in the market. But I guess could you maybe walk us through kind of how these conversations are going and kind of how you think you are realizing this relative outperformance?

I guess volume obviously has been on the softer side, but pricing accelerating. I guess, as you break that down and think about the conversations with customers, what are the key points that are sort of allowing you to continue to outperform? And maybe how you think about the sustainability of that through 2025?

So when you look, Chris, at the conversation with customers, not all of our pricing is coming in from price increases to customers. So a lot of it is coming from the mix dynamic of having more local business and we're being able to onboard that business and grow it. And it's also coming by giving the customers an incremental services that they are asking for and these incremental services obviously come at a cost for us, but higher yield and higher margin as well. And they appreciate that tremendously when you think about areas like shipping into retail stores and being able to have a thousand shipments going to multiple retailers all at the same time and meeting those expectations, all of that is really constructive for customers. And similarly on the service product, keep in mind that we have a big gap between us and the best in class provider, so we are bridging the difference in that gap.

So the way we think high level about pricing is that you want to price incrementally typically higher than cost inflation by 100 basis points to 200 basis points and there's always upside to that through all the things I just mentioned.

Okay. That's helpful. And one quick follow-up, I think you noted 1Q tonnage in line with normal seasonality. What do you guys see as normal seasonality for 1Q tonnage?

So Chris, typically, what you'll see is that tonnage is about flattish sequentially from Q4 to Q1. So if you roll forward normal seasonality here, that would imply tonnage down somewhere in that mid single digit plus range on a year over year basis. So a few points better on a year over year basis relative to what we saw in the month of January. And as we noted earlier, March does have an outsized impact on the quarter overall. So we'll see how the rest of the quarter plays out.

And as normal, we'll give another update on our February volume trends in early March.

Thank you. Our next question comes from Tom Wadewitz with UBS. Please proceed.

Yes, good morning and great to see the continued strong execution. Wanted to see if you could give a couple of thoughts on just maybe competitive dynamic in local. I guess I'm kind of thinking about what's going on with FedEx Freight and you're going to invest in a couple of hundred salespeople. Maybe that's just been offset to selling before. But I wonder, are you seeing other LTLs invest more in local?

Is there any change in competitive dynamic? Or is that kind of a clean runway for you to keep leveraging that investment you made and continuing to see that mix improve in terms of just high single digit growth in that area?

Well, first starting with the spin of a competitor. I mean, they are a competitor today, they'll be a competitor tomorrow. We do believe high level being a standalone LTL carrier only reinforces the great dynamics in our industry because one of our most important scorecards as a carrier is margin improvement over time, which predominantly, as the LTL carrier knows this, it's driven by yield performance. So again, we don't expect things to change there drastically. Now when you look at the competitiveness for the local business, I mean, we compete today with all the carriers out there.

Our goal is to provide the best service possible. I always tell the team we're a customer loving organization and every interaction we have with the customer, we want it to be an interaction of delight. And when you think of a local mom and pop shop, this is what they want. They want a great relationship with that local seller. They want to make sure that we're going to go through anything we can to make sure they are getting a great experience with us and that pays dividends over time.

Similarly, we have added more salespeople to the team. It's a combination of again more boots on the ground and having this great service product is what is enabling us to grow in that channel.

Okay. And in terms of the, I guess, the incremental margins, you mentioned you'd expect stronger performance without the headwind of stronger higher talkload rates when the cycle improves, right? So maybe just refresh on what the right area is for incremental margins and what can it be if you really see the cycle move, you see waste for shipment improve and pricing accelerate all that? So thanks for the time.

Hey, Tom, it's Kyle. So when you think about incremental margins, we would expect 25% to be another strong year of incremental margins, comfortably above 40%. That's really where we've been tracking more recently. And if you think about why we can drive that, it's really as we talked about earlier on the call, it's a lot of the yield strength that can contribute to the top line growth. And obviously, if you're driving top line with higher yield, that will have strong flow through.

And as Mario mentioned, you think about the yield initiatives being in the early innings, whether it's growing local, driving more premium service shares, we're going to have strong renewals, that will really help us drive strong incremental margins here in 2025. And again, I think the other point too when you think about us is, as the demand network recovers right now, we're in a great position to really pull in more of that volume. Again, we're going to have up to 30% of additional capacity right now. That's really going to help us capture more of that volume and that volume coupled with a really strong pricing will help drive strong incremental margins in 2025.

Thank you. Our next question comes from Jordan Allager with Goldman Sachs. Please proceed.

Yes. Maybe just following a little bit, can you give some thought, a lot of talks been on yield and what have you. Can you give a little bit of thought on as we roll into this year, perhaps some positive signals from ISM, any sense from customer sentiment perspective around demand and perhaps some optimism? And then sort of secondly, the 150 basis points of OR improvement, any sense for sort of your base level volume expectation would be to sort of center in on that?

Yes. I'll first start with the customer demand outlook and then turn it over to Kyle to discuss some of the outlook through the course of the year. But on the customer side, Giulio, we are hearing more positivity from customers than we have in the past. Obviously, for us, the 150 basis points does not imply a recovery through the course of 2025, but that could be potential upside. Now as you know, we typically survey customers on a quarterly basis, some of our top customers, to ask them what they are seeing in the overall macro.

And the majority expect a gradual improvement in demand this year. Just to give you an example, we saw a 10 increase in the percentage of customers that expect an acceleration in demand in 2025 versus what the survey we have done three months ago. And for the first half of the year, half the customers responded they expect an acceleration in demand, while only 15% expect a deceleration. And if you go back three months ago, it was there was a bigger portion of flat customers and then the acceleration versus deceleration went about even. So we are seeing much more optimism.

As you said, we're all seeing it in the ISM. Today, two thirds of our customers are industrial companies and we've seen the ISM here pop over 50 in the month of January. Importantly, we have seen the new orders part of that ISM index get to 55 and all of these are very good leading indicator for higher industrial demand over time. Again, we can't obviously we can't control the macro and we see what the year has absorbed, but we are hearing more optimism from customers.

And Jordan, if you think about tonnage and how we think about that for 2025, our baseline expectation that we're contemplating in the OR improvement is really flattish tonnage in 2025. So any improvement in underlying demand backdrop should be upside to that. Again, when you think about tonnage, our expectation is to outperform, thinking about our service improvements, getting the damage claims there to 0.2% reflects that. And we're also continuing to make gains in local channels we already talked about on the call. When you think about that coupled with again having upwards of 30% excess capacity, we're in a great position to capitalize on a demand recovery when that happens, but our baseline expectation for 25% in the outlook is a flattish funded expectation.

Thank you. The next question comes from Brian Ossenbeck with JPMorgan. Please proceed.

Hey, good morning. Thanks for taking the question. So maybe just a quick follow-up on the incremental margins. Can you talk a little bit about the ramp up of the new facilities? Looks like you sold one in Brooklyn, but is that still above the 4% in how are those progressing?

And then just a separate comment question, obviously the NMFTA is moving to change how some of the classes are organized and categorized. I'm assuming that you're dimensioning a lot of stuff already, but given your high exposure to SMBs, I'm not quite sure if they're ready for such a change. So maybe you can talk through a little bit about what that means for the shipper base and if there's going to be any sort of friction, disruption or confusion there? Thank you.

Thanks, Brian. I'll start with the latter half of the question, turn it over to Karl to talk about the real estate side. But when you look at the changes that are coming here in the month of July, the NMFDA is implementing effectively changes how freight is getting classified, where it's based on subcategories of products where density could change the class by which freight is being rated. So let's say that's a change for customers and a lot of customers are worried about that change. But overall, if you look at we analyze all of our shipment data where some customers could have a slightly higher price, some customers could have a slightly lower price.

But overall, we don't expect the change to be material in terms of how we do pricing. And our goal is to be there to support our customers through the change and we're doing a lot of outreach, communication, training, all these kind of pieces where they will see impact. On dimensioning, we today we dimension the majority of our freight. We use a combination of overhead dimensioners. I think we have technology on the handheld devices that our drivers can dimension freight at the dock of customers.

And we also obviously get dimensions from customers as well. So we'd use that dimension data and work with our customers to make sure it's a smooth change for them and it doesn't impact that operation either.

Yes, Brian, and if you think about the real estate, in the quarter, we did have a gain. That gain was driven by the Brooklyn site. So we completed the sale of Brooklyn and we opened a large and really better located facility in the same market. And if you think about what that means, this is part of the overall plan that we had when we acquired the sites at the end of twenty twenty three. So a little less than half those sites we acquired are going to be net adds.

So there are going to be some service centers we're going to exit. And from those, some are leased properties, we're going to let those roll off or we'll sublease at favorable terms. And then on the owned property side, we're still working through divestiture plan starting there with Brooklyn, which was a good thing. But when you think about what that means for '25, it's very soon we're going to get some level of proceeds in '25 and gains. It's a bit early to quantify and provide a timing for those, but you'll see those as we press through '25.

And one point of context to give to, when you think about what we've marketed so far, we are seeing interest from companies outside of LTL. Brooklyn is an example actually purchased by a non LTL company. So more to come here throughout 2025.

Thanks. It comes from Jason Seidl with TD Cowen. Please proceed.

Thank you, operator. Mario and team, good morning. Appreciate the time. You guys have a big focus on local customers. Maybe you could help us out with some numbers.

Where do they stand when you compare them to sort of national customers in terms of profitability? And what percent of the business are they now? And where do you think you can get them to?

Good morning, Jason. This is Ali. So we're looking to grow our local channel mix from roughly about 20% of revenue to 30 plus percent over time. And this is both higher yielding and higher margin business for us. We're making a lot of good progress on this.

You saw in the fourth quarter, we grew our local shipments by high single digits on a year over year basis. As Mario noted, we also onboarded over 10,000 new local customers in 2024. If you look at our mix currently, we're somewhere in the low 20% range. So we've closed a few points of that gap from going from 20% of revenue to 30%. And we would expect as we move out over the next few years, you'll see us claw a few hundred basis points of that revenue mix gap every single year as we move to growing our mix to that 30% target we have over the next few years and beyond.

No, that's good color. A quick follow-up. Mario, you said the network's at 30% excess capacity currently. Given the network that you have now versus where it was before, where do you think excess capacity sort of needs to be to be at an optimal level for your operations?

We are currently. So usually as an LTLK, Jason, you want to be at that 30% excess capacity at the drop of the cycle, because usually you need about, call it, mid teens and excess capacity for the fluctuation of volume between the beginning of the month and the end of the month or the beginning of the quarter and the end of the quarter. So effectively being at 30% in the trough is a very good place to be at. Now keep in mind, when we purchased the service centers at the end of twenty twenty three, we picked all the locations where we historically were capacity constrained. Think of markets like Nashville, Tennessee Atlanta, Georgia Columbus, Ohio Indianapolis Minneapolis, Houston, Texas.

So all of these are sites that are or areas that where we needed that incremental capacity and now we've got it. So when you think about the next upcycle, we've been positioning the business for the last few years to be able to capitalize on that very effectively. And if you look at all the categories in real estate, we're feeling fantastic where we are. On rolling stock, our fleet age is down to four point one years. We've added nearly 5,000 new trucks and more than 15,000 new trailers over that period of time.

And we're feeling very good about being able to capitalize on that. You couple this with a lower reliance on purchase transportation, which usually goes up in the context of an upcycle. This gives us a ton of confidence of getting high incremental margins, as Kyle just mentioned, in future upcycles. Whenever the upcycles start, we'll be this year.

I guess first question is, obviously, getting a lot of benefit in the OR from yield, but cost is contributing as well. Just Mario, could you address some of your initiatives there? Where are you? What inning essentially? Is there a lot more opportunity to go in areas such as dock operations, Bexio smart, pick up delivery optimization?

You got it, Scott. So there are two primary levers for improvements and cost management that we have. One is around labor efficiency and density in our line haul network. So it ties to how many labor hours we're using versus the volume we have in the network. And the second area is around third party line haul insourcing.

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