Werner Enterprises Faces Persistent Cost Pressures Through First Quarter

Werner Enterprises expects cost pressures to continue into first quarter

Werner Enterprises outlined a plan to return its truckload business to mid-cycle double-digit operating margins, but executives said several cost pressures will continue to weigh on results through the end of the year and into the first quarter.

The Omaha, Nebraska-based carrier reported third-quarter adjusted earnings per share of 16 cents, matching the reduced outlook issued earlier in the month. The result was well below the 36-cent consensus estimate that had been in place before the company’s profit warning.

Consolidated revenue reached $951 million, up 23% from the same quarter a year earlier and at the top of Werner’s revised forecast of $946 million to $951 million. Much of the revenue growth came from higher fuel surcharges and the company’s acquisition of dedicated carrier FirstFleet in January.

For professional drivers, the results illustrate how a stronger freight environment can still create short-term financial pressure for carriers. Werner is adding trucks and recruiting drivers to meet higher customer demand, but the costs of hiring, onboarding and transitioning equipment are being incurred before all of the associated revenue is in place.

“We made the deliberate decision to accelerate investments in driver recruiting and onboarding to capture rising customer demand and support fleet expansion as industry capacity tightens,” Chairman and CEO Derek Leathers said during the company’s earnings call. “We remain confident in our trajectory and our ability to capitalize on the early stages of this freight upcycle.”

Fuel, recruiting and insurance costs weigh on earnings

Werner said higher diesel prices, increased driver procurement expenses and an adjustment to reserves for prior insurance claims reduced third-quarter adjusted earnings by approximately 18 cents per share.

About one-third of that impact came from driver recruiting and sign-on bonuses. Management described those expenses as largely front-loaded and said they do not represent a permanent increase in labor costs. The company added 130 dedicated trucks and drivers during the quarter, but the related revenue did not begin until late in the period.

Fuel and insurance costs accounted for the remaining 12 cents of the earnings impact and are expected to ease as the company moves through the fourth quarter. However, Werner also expects lower gains from equipment sales, higher interest expense and a higher tax rate to create additional pressure.

Diesel prices rose sharply during the quarter. Retail prices fell 1% sequentially in July, then increased 10% in August and another 15% in September. Because truckload fuel surcharges typically operate on a one-week delay, carriers can experience a temporary mismatch between fuel expenses and surcharge revenue when prices rise quickly.

That same timing works in the opposite direction when diesel prices decline. Werner said the current fuel headwind could become a benefit if prices move lower, although the timing of that improvement will depend on how quickly surcharge revenue catches up.

Dedicated business expands after FirstFleet acquisition

Werner’s dedicated segment produced the strongest growth. The unit accounted for 81% of the company’s total truck fleet and reported a 52% year-over-year increase in revenue, excluding fuel surcharges.

Average dedicated truck count rose 44% to nearly 7,000 units. Revenue per truck per week, excluding fuel, increased 6% year over year. The FirstFleet acquisition contributed more than 2,400 tractors and approximately $615 million in annual revenue to the business.

Werner raised its outlook for dedicated revenue per truck per week. The company now expects that measure to increase 4% to 5% year over year for full-year 2026, compared with its previous forecast of 3% to 5% growth.

Management cautioned, however, that recruiting advertising, onboarding expenses and fleet-transition bonuses will continue through the fourth quarter and probably into the first quarter. The timing of equipment deliveries also could affect results, with some trucks equipped with 2026 engines expected to arrive early in the first quarter.

One-way unit improves utilization

Werner’s one-way truckload unit continued to show better utilization after a restructuring that included exiting unprofitable accounts and repositioning underused equipment.

Average trucks in the unit declined 37% year over year to 1,673, while total miles fell 22%. Revenue excluding fuel was down 15%, but revenue per truck per week increased 34%. Miles per truck rose 22%, and revenue per total mile increased 10%, although the rate-per-mile figure was affected by a 116-mile increase in average length of haul.

Werner said the longer average hauls contributed to lower revenue per mile because longer loads generally carry lower per-mile rates. The company expects revenue per total mile in the one-way operation to increase 10% to 13% year over year in the fourth quarter.

The unit improved its margin by more than 800 basis points from a year earlier, although Werner did not disclose the actual margin. About 60% of the one-way revenue book is scheduled to renew during the first half of 2027, and management said it is targeting double-digit increases on many of those renewals.

Fourth-quarter improvement expected to be modest

Werner said it expects only modest sequential improvement in adjusted earnings per share during the fourth quarter. That outlook is below the current Wall Street consensus of 38 cents per share.

The truckload segment reported $714 million in revenue, up 37% year over year, or 28% excluding fuel surcharges. Its adjusted operating ratio was 95.9%, producing a 4.1% adjusted operating margin. The margin improved 220 basis points from a year earlier but declined 140 basis points from the second quarter as cost pressures created an estimated 200-basis-point sequential drag.

Werner’s logistics unit reported a 7% revenue decline to $216 million but returned to profitability with a 0.4% adjusted operating margin. Truckload brokerage improved its operating margin by 600 basis points sequentially.

The company’s results show that the freight recovery is not producing an immediate, across-the-board improvement in carrier profitability. Werner is seeing stronger demand and better utilization in several operations, but fuel, recruiting, insurance and equipment-transition costs are delaying the full benefit. Management expects the investments being made now to support additional growth, with a more favorable margin impact in later quarters.