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Knight-Swift Transportation Jumps 11% in January

- By Jacob Maslow

Knight-Swift Transportation Holdings Inc. (KNX) rose more than 11% between Jan. 1 and Jan. 31, with the stock price increasing from $44.52 a share to $49.79. The company's stock was having a mediocre month prior to reporting its fourth-quarter 2017 earnings on Jan. 30, which sent shares up 9.81%.

The company, which recently completed its merger of Knight Transportation and Swift Transportation, posted strong fourth-quarter earnings and provided an outlook for the year ahead.


Knight-Swift expects higher contract rates this year, but cautioned that the industry is facing its worst-ever market for hiring. The lack of new drivers is expected to restrain the company's capacity. According to Reuters, the company increased driver wages 6% to 7% in 2017 after two years of limited pay raises.

CEO Dave Jackson said he expects rates in the company's contract business to increase by the high single digits to low double digits in 2018.

In addition, automated automotive technology has the potential to replace truck drivers.

According to Cogan & Power P.C., "[the] technology is a rapidly evolving field and the American Trucking Association has recently adopted their first official policies regarding the use of the technology within the transportation industry."

Third-party carriers are also facing capacity tightening as new regulations require strict electronic logging.

Earnings

Knight-Swift posted adjusted earnings per share of 52 cents for the fourth quarter, beating expectations of 13 cents. The company recorded $364.2 million in tax reform benefits.

The combined company's revenue hit $1.36 billion in the first quarter following the close of its merger. Net income, which included the federal tax benefit received after the corporate tax rate was lowered to 21%, was $447 million .

Excluding the tax benefit, the company's income was $83.4 million, beating expectations of $72.8 million. Year-over-year comparisons are not provided as this was the combined company's first quarter.

Knight trucking posted $37.7 million in income and $215.4 million in revenue. The Knight logistics branch saw its operating income fall 6% to $3.9 million. Revenues for the division rose to $65.9 million. Combined revenue for the two divisions rose 6.4% from the prior year to $281.3 million.

Yearly and quarterly comparisons are not available for Swift's divisions, but the company provided income and revenue figures reported for four of its divisions. Swift's truckload division posted $67 million in income on $434.7 million in revenue. The dedicated division had $19.5 million in income and $144.6 million in revenue. The refrigerated division recorded $186.6 million in revenue and $13.1 million in income. The intermodal division posted $91.8 million in revenue and $4.6 million in net income.

The company said it will move away from leasing equipment and has set aside $525 million to $575 million for capital expenditures in 2018. It expects to achieve $150 million in synergies by 2019.

Analyst ratings and dividend

Morgan Stanley recently increased the company's stock price target from $50 to $60.

Knight-Swift also announced shareholders will receive a quarterly c ash dividend of 6 cents per share on March 27. The dividend will be payable to all shareholders on record as of March 1.

Disclosure: The author does not own any of the listed equities.

This article first appeared on GuruFocus.