Transports: After the Firehose and the Fire Alarm – Key Takes from Earnings Seas

Research evidence excerpt

Transports: After the Firehose and the Fire Alarm – Key Takes from Earnings Seas

the dreaded early cycle spread

compression, highlighting the differentiation of that model.

• Tariffs and trade policy remain a dominant macro-overhang. It

was nothing like the overhang and dominant narrative of 1Q25

earnings season, when “Liberation Day” uncertainty was prevalent

in everyone’s minds, but the impact of tariffs and trade policies was

still referenced frequently from the large parcel (UPS) and rails

(NSC) to smaller trucking companies (LSTR and WERN). Much of

the tariff references were tied to lapping the “pull forward” from

1Q25, though management teams did acknowledge uncertainty

regarding next iterations, with a favorite line coming from WERN

CEO Derek Leathers: “we’re a tweet away from another tariff,

potentially”.

• It’s only early in the cycle, but capital returns are beginning to

accelerate. Without a full-blown demand catalyst providing proof

of a sustainable cycle uplift, and with 1Q26 top lines mostly lagging

expectations, it was notable that most companies under our

coverage were aggressive with share buybacks and/or increased

dividends in 1Q26. Granted, the latter is likely an annual calendar

decision from boards of directors, but with much uncertainty in the

macro and the Middle East, an accelerated return of capital to

shareholders is a strong sign of management/board belief in more

favorable medium-term rate/volume/margin prospects.

• The proposed UNP-NSC transcontinental merger moves to the

next phase. The proposed UNP-NSC merger, and updated filing

on April 30, was all the rage during Rail earnings calls, with the

management teams from UNP and NSC reaffirming their belief in

the merits of the transaction, and its eventual regulatory approval,