Knight-Swift: 68% Of Third-Quarter Rate Gain Reached Margin, Up From 50% In Second Quarter
Management says cost inflation is not eating rate gains, and it called a fourth-quarter warehousing loss seasonal.
Knight-Swift's truckload costs are not swallowing its price increases, CFO Andrew Hess told analysts on the company's third-quarter earnings call: 68% of the quarter's rate improvement flowed through to margin, up from 50% in the second quarter. CEO Adam Miller added that the new cycle "still has plenty of gas left in the tank."
The price-versus-cost scorecard
Hess said truckload revenue per mile, excluding fuel surcharge, rose 12.2% year over year in the third quarter, versus 2.5% in the first quarter. Over the same stretch, cost per mile growth stayed in a range of 3.3% to 3.8%.
Hess said he was responding to investor worry that cost inflation could consume rate gains. He cited driver pay and fuel as the most acute pressures, with insurance and claims possibly volatile and equipment costs still rising. Miller said the company is "not immune from cost pressures."
Consolidated revenue rose 14.2%, and adjusted earnings were 83 cents per share versus 32 cents a year earlier. The adjusted operating ratio was 89.3%, a 450 basis point improvement (4.5 percentage points).
One-way operating margins exceeded dedicated margins for the first time in a few years, Hess said.
Miller: margins are not at upcycle levels
Asked by a Morgan Stanley analyst whether supply alone can carry an upcycle if demand does not show up, Miller said margins have "improved meaningfully, but still nowhere near where they would be in the midst of an upcycle." He said the company is "in the early innings on this."
He said stable demand still leaves room for rates to improve, given capacity, turndowns and mini-bid activity. Miller also said the company has more peak-season project arrangements than at any time since the pandemic. He said earlier that market challenges have been driven by capacity, not demand.
Fourth-quarter guidance and the warehousing dip
Fourth-quarter adjusted earnings should land between 78 cents and 84 cents per share, according to investor relations head Brad Stewart. Truckload operating income should improve sequentially, while less-than-truckload and the all-other segments follow their usual seasonal step down.
The all-other segments are expected to post an operating loss, Stewart said. Warehousing revenue is recognized on customer activity, which slows around the holidays, while the facility cost base has grown. The segments' projection also carries an estimated $6.5 million for the receivables securitization facility, which was booked below the line in interest expense in prior years.
Hess said the best assumption for 2027 is a similar quarterly cadence.
What to watch: the bid season
A Wells Fargo analyst framed high single digits or low double digits as the contract-rate bar for 2027. Miller said that if demand lifts, contract rates could improve from low double digits. On starting the bid season, the transcript is garbled; Miller appears to refer to a double-digit increase, and the exact level is not clear from it.
Hess said fourth quarter is historically a hard time to add seated trucks, but the company expects to make progress on its seated truck count in 2027.
Sources
- First look: Knight-Swift’s Q3 beats expectations - FreightWaves — freightwaves.com
- Knight-Swift Transportation (KNX) Q3 Earnings Report Preview: What To Look For — Yahoo Finance
- Gear Up for Knight-Swift (KNX) Q3 Earnings: Wall Street Estimates for Key Metrics — Yahoo Finance
- Knight-Swift Transportation Holdings (KNX) Tops Q3 Earnings and Revenue Estimates — Yahoo Finance
- Knight-Swift: Q3 Earnings Snapshot | wusa9.com — Associated Press
