Knight-Swift Reports 69% Earnings Drop in Q3

The company’s Q3 results were mixed when it came to Wall Street expectations. (Knight-Swift Transportation Holdings)

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Knight-Swift Transportation Holdings Inc. on Oct. 19 reported that its third-quarter earnings dropped by 69% year-over-year, even as revenue increased.

The Phoenix-based truckload carrier posted net income attributable to its operations of $60.2 million, or 37 cents per diluted share, compared with $194.8 million, or $1.21, during the same time the previous year. However, total revenue increased by 6.5% to $2.02 billion from $1.9 billion.

“We continue to be in a depressed truckload freight market where rate expectations from shippers are often close to, if not below, operating costs,” Knight-Swift CEO David Jackson said during a conference call with investors. “Spot rates are not at sustainable levels and are proving not to be survivable for those that are dependent on that type of freight.”

Jackson said the business is approaching an inflection point where shippers are applying rate pressure at the same time that uncertainty about capacity is creeping into the market.

“We are not seeing enough of that kind of activity — enough supply leave and/or enough strength in volumes to move rates to a meaningful inflection position — right now,” Jackson said, “but it does appear that the stage is being set for positive rate pressure in the next bid season.”

Jackson listed improving the performance of the Knight-Swift truckload business, growing its less-than-truckload business and driving a turnaround at U.S. Xpress Enterprises — which Knight-Swift acquired earlier this year — as three key objectives he’s pursuing.

“There’s much in our control that we can do, including being better at cost, running more miles safely and in hiring and retaining driving associates,” Jackson said. “Our people are digging in and working hard, we’re grateful for that.”

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Jackson 

The company’s Q3 results were mixed when it came to Wall Street expectations. Analysts had been looking for EPS of 39 cents per share and quarterly revenue of $1.92 billion, according to Zacks Consensus Estimate.

The Knight-Swift truckload segment saw Q3 revenue rise 21.9% to $1.18 billion compared with $967.8 million last year. The segment contended with tough market conditions that included softening demand and sustained gains in fuel prices. Operating income fell 72.5% to $48.4 million from $175.8 last year. The segment consists of irregular route truckload, dedicated truckload, refrigerated, expedited, flatbed and cross-border operations.

Adjusted operating ratio for the segment improved slightly from Q2 thanks to cost reductions, but Jackson is not satisfied. “The truckload operating ratio excluding U.S. Xpress was at 91.5 and we are just simply not comfortable with an OR that starts with a 9,” he said.

Operating ratio measures a company’s expenses as a percentage of revenue and determines efficiency. The lower the ratio, the greater the company’s ability to make a profit. An operating ratio below 100 indicates a company can generate a profit and an operating ratio above 100 indicates the company is not producing enough revenue to remain profitable after it pays all of its expenses.

The company’s LTL segment saw revenue increase 6.9% to $240 million compared with $224.4 million the prior year. The report noted that volumes were built throughout the quarter as a result of industry disruptions. However, those gain were partially offset by wage increases and higher labor costs needed to maintain service levels throughout the quarter.

Operating income for LTL increased 4.6% to $32.3 million from $30.9 million last year.

The logistics segment reported that revenue decreased 24.5% to $158.6 million from $210 million. Gross margins during Q3 fell as pressure on top-line pricing stopped being offset by corresponding reductions in purchased transportation costs. Operating income fell 62.3% to $10.4 million from $27.5 million.

The intermodal segment saw revenue fall 22.6% to $101.2 million from $130.8 million. While the segment did experience a 5.5% year-over-year increase in load count, revenue per load declined 26.6% as a result of soft demand and competitive truck capacity.

The implementation of improved rail partner pricing during the quarter helped offset the volume and price declines and improve operating margin slightly. Still, Q3 operating income fell by 135.3% to a loss of $4.52 million from a gain of $12.83 million a year ago.

TD Cowen analyst Jason Seidl said the carrier’s Q3 results were “in line with our estimate.” In a report, he added, “Tightened guidance points to sequential improvement in Q4, albeit off a low base.”

Knight-Swift ranks No. 7 on the Transport Topics Top 100 list of the largest for-hire carriers in North America. U.S. Xpress ranks No. 24.