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Knight-Swift's (KNX) Q4 Earnings Top Estimates, Stock Up

Zacks Equity Research

Knight-Swift Transportation Holdings Inc.‘s KNX fourth-quarter 2018 earnings (excluding 7 cents from non-recurring items) of 93 cents per share outpaced the Zacks Consensus Estimate of 92 cents. Moreover, the bottom line surged 78.8% on a year-over-year basis. The upside can be attributed to improved operational efficiency across all segments. Shares of the company have increased more than 10% ever since it reported better-than-expected earnings on Jan 29.

Total revenues of $1,394.6 million lagged the consensus mark of $1,452.6 million. Nevertheless, the top line improved 2.6% on a year-over-year basis. The increase was primarily driven by the company’s strong asset-light businesses and improved average revenue per tractor. The buyout of Abilene Motor Express in March 2018 also contributed to the company’s top line.

Notably, effective tax rate came in at 25% in the quarter under review compared with 24.6% in the third quarter of 2018.

Segmental Results

Revenues in the Knight Trucking segment totaled (excluding fuel surcharge and intersegment transactions) $260.8 million, up 21% year over year. The upside was driven by increases in contract and non-contract rates on the back of 12.2% increase in average revenue per tractor as well as 7.9% increase in average tractor count. Adjusted segmental operating income surged 44.4% to $57.2 million. Also, adjusted operating ratio (operating expenses as a percentage of revenues) improved 350 basis points (bps) to 78.1% in the quarter under discussion. Notably, lower value of this key metric bodes well.

Revenues in the Knight Logistics segment (before intersegment transactions) amounted to $97.2 million, up 47.5% year over year owing to a 56% rise in brokerage revenues. While adjusted operating ratio improved 330 bps to 90.7%, adjusted segmental operating income soared more than 100% to $9 million.

Revenues in the Swift Truckload segment (before fuel surcharge) totaled $377.4 million. The Swift Dedicated, Swift Refrigerated and Swift Intermodal segments logged revenues of $149.9 million, $181.8 million and $111.5 million, respectively. Segmental adjusted operating ratio came in at 75.9%, 83.8%, 92.8% and 88.6% in Swift Truckload, Swift Dedicated, Swift Refrigerated and Swift Intermodal, respectively.

The company has been able to stabilize the Swift consolidated tractor fleet, ending the fourth quarter with 14,737 operational tractors compared sequentially with 14,769 in the third quarter.

Operating Results

Adjusted operating expenses declined 3.9% year over year to $1020 million. Adjusted operating ratio (defined as operating expenses, as a percentage of revenues) improved to 82.2% from 87.2% in the year-ago quarter. On the back of efficient cost-control methods and enhanced safety results, Knight-Swift’s adjusted operating income surged 42% year over year to $221.7 million.

Knight-Swift Transportation Holdings Inc. Price, Consensus and EPS Surprise

 

Knight-Swift Transportation Holdings Inc. Price, Consensus and EPS Surprise | Knight-Swift Transportation Holdings Inc. Quote

 

Liquidity

This Zacks Rank #3 (Hold) company exited 2018 with cash and cash equivalents of $82.5 million compared with $76.6 million at the end of 2017. Long-term debt (less current portion) amounted to $364.6 million compared with $364.8 million in December 2017. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Outlook

Knight-Swift still expects adjusted earnings per share (EPS) in the range of 52-55 cents in the first quarter of 2019. The Zacks Consensus Estimate for first-quarter earnings is at 53 cents.

The company continues to expect second-quarter 2019 earnings in the range of 62-66 cents. For full year, Knight-Swift expects capital expenditures in the $550 million-$575 million range, primarily comprising replacements of existing tractors and trailers. Excluding discrete items, the company predicts full-year effective tax rate in the range of 25-26%.

Segments to be Realigned

Moreover, the company is focusing on realignment of segments, which is likely to be effective in the first quarter. The three reportable segments will include — Trucking, Logistics and Intermodal.

Upcoming Releases

Investors interested in the Zacks Transportation Sector are keenly awaiting fourth-quarter 2018 earnings reports from key players like Air Lease Corporation AL, Atlas Air Worldwide Holdings, Inc. AAWW and Old Dominion Freight Line, Inc. ODFL. While Old Dominion is scheduled to report fourth-quarter earnings on Feb 7, Atlas Air Worldwide and Air Lease will release the same on Feb 19 and Feb 21, respectively.

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