Shares of transportation company Knight-Swift fell 3.5 percent in after-hours trading Wednesday after reporting third-quarter earnings that missed analysts’ expectations. The multimodal transportation provider also released a fourth-quarter outlook that was at consensus (at the midpoint of the range).
(Shares of Knight-Swift (NYSE: KNX ) rose 20% in the month leading up to the report.)
Management said on a conference call with analysts on Wednesday that there was no seasonal increase in demand across the platform ahead of the holidays. However, it noted some constructive conversations with customers about project work for the fourth quarter.
Initial impacts on the driver pool have begun with the discontinuation of indirect CDL issuance and increased English language skills. Early offering season activity offers low-to-mid single-digit rate increases with less customer attrition as many shippers reduce the number of carriers they work with.
Knight-Swift continues to focus on reducing costs and attracting affordable freight to the network.
Noisy and expensive Q3
The Phoenix-based company reported third-quarter adjusted earnings per share of 32 cents, missing the consensus estimate of 37 cents and management’s guidance of 36 cents to 42 cents. (Headline EPS was just 5 cents in the quarter.) The company reported $58 million in “unusual items” in the period, some of which were included in the adjusted number.
Adjusted EPS excludes brand impairments related to the decision to combine less truck brands ($28.8 million) and real estate lease and software impairments ($6 million), among other charges.
The adjusted number included 10 cents per share of third-party insurance termination charges in 2024 ($11.2 million) and charges from previous auto liability claims at US Xpress ($12 million). (Some carriers exclude these items from adjusted EPS.)
Knight-Swift issued fourth-quarter guidance of 34 to 40 cents, compared with the consensus estimate of 40 cents at press time.
Truckload is focused on usage
Knight-Swift’s TL unit saw revenue decline 2 percent year over year as a 7 percent decline in average tractors in service was partially offset by a 5 percent increase in revenue per tractor. Loaded miles per tractor (up 5%) has improved annually in 8 of the last 9 seasons. The company said it still has room to improve its usage metrics.
Earnings per loaded mile (excluding fuel surcharges) were flat at $2.77 for the year.
The unit reported an adjusted operating ratio of 96.2% (the inverse of the operating margin), which was 60 basis points worse per year and 160 basis points worse per second. US Xpress insurance costs were 110bp in the quarter. Legacy Knight-Swift fleets performed a combined 93.7% adjusted OR.
The fourth quarter outlook calls for 250-350 bps sequential margin improvement in TL units (100 bps worse year-over-year at the midpoint of the range).
The LTL unit is integrated under the AAA Cooper banner
The three LTL brands acquired by Knight-Swift — AAA Cooper Transportation (ACT), Midwest Motor Express (MME) and Dependable Highway Express (DHE) — will all operate under the ACT banner beginning Jan. 1. These companies were integrated and put into one operating platform earlier this year.
In 2021, Knight-Swift acquired the ACT Southeast and Midwest regional carrier. The company added Upper Midwest and Northwest MME footprints that same year. Western carrier DHE was acquired on July 30, 2024, leaving the Northeast as the last major region to complete a national network.
The combined platform has more than 170 terminals, including locations acquired from bankrupt Yellow as well as organic additions, covering approximately 70 percent of the United States.
Less than truckload revenue rose 22% year over year in the third quarter as daily shipments increased 14% and revenue per shipment (excluding fuel) rose 7%. (The third quarter of 2024 only included two months of revenue from DHE.)
Yield (income per hundredweight) increased by 6% excluding fuel. A 14 percent increase in transit time was a tailwind for the performance measure.
This unit booked an adjusted OR of 90.6%, 100 bps worse on the year, but 250 bps better than Q2.
Management said LTL demand was slightly soft in the first two weeks of the fourth quarter, but it expects revenue to increase 10% to 15% year-over-year for the period. The adjusted OR is expected to be similar to Q4 2024 (94.5%).
Logistic, interfacial jump from below
The logistics unit saw a modest year-over-year revenue decline, but the bar was up 13 percent from the second quarter and grew revenue by 9 percent sequentially. The adjusted OR of 94.3% was 20 bps better than the second trimester and 50 bps improved over the second trimester. Guidance calls for sequential growth in revenue and operating income in the mid-teens in the fourth quarter.
The intermodal segment reported its first adjusted operating profit in 10 quarters (99.8% adjusted OR). Revenue was down 8% year-over-year but improved 12% from the second quarter as multiples were up 8% and revenue was up 3% each time.
Loads are expected to improve sequentially again in the fourth quarter, with little change likely in the near-headline margin.
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