Knight-Swift Transportation Announces Updated First and Second Quarter Earnings Guidance

Rhea-AI Summary

Knight-Swift Transportation Holdings Inc. updates its first and second-quarter earnings guidance for 2024, with Adjusted EPS for Q1 expected to range from $0.11 to $0.12 due to challenges in the full truckload industry and weather disruptions. The company anticipates Adjusted EPS for Q2 to range from $0.26 to $0.30, reflecting ongoing market challenges and operational performance across various segments.

Positive

• Updated Adjusted EPS for Q1 2024 is expected to range from $0.11 to $0.12, down from the previous estimate of $0.37 to $0.41.
• The full truckload industry faces challenges due to oversupply and weather disruptions, impacting volumes and operating costs.
• Pressure on freight rates during the bid season led to contractual volume losses and increased reliance on the spot market.
• Logistics volumes and margins were affected by softer volume and pricing headwinds, with a shift of loads to the asset division.
• LTL segment shows positive volume and yield trends year-over-year, but weather disruptions impacted operating income.
• Adjusted EPS for Q2 2024 is expected to range from $0.26 to $0.30, lower than the previous estimate of $0.53 to $0.57.
• Market conditions in Q2 include challenging bid season trends and less pronounced seasonality in the truckload market.
• Operational performance expectations for various segments include mid-90's operating ratios, revenue growth, and stabilizing revenues.
• Third-quarter 2024 guidance will be provided with the Q1 2024 earnings release on April 24, 2024, based on current market conditions and management expectations.

Negative

• Lower Adjusted EPS ranges for both Q1 and Q2 2024 compared to previous estimates indicate financial challenges.
• Challenging market conditions, bid season trends, and operational performance impact revenue and operating income.
• Pressure on freight rates and contractual volume losses affect revenue per mile and utilization, creating near-term challenges.
• Weather disruptions and softer volume and pricing headwinds impact logistics volumes and margins.
• Operational challenges in the truckload and LTL segments result in lower operating income than expected.
• Market conditions in Q2 2024 continue to pose challenges, affecting revenue growth and operating ratios across segments.

Insights

Financial Analyst

Looking at Knight-Swift Transportation's revised earnings guidance, the substantial reduction from their initial forecast signals a need for caution among investors. The first quarter's adjusted EPS is projected to be significantly lower, even when accounting for the third-party insurance business' loss. The company's explanation points to an oversaturated full truckload industry, which implies widespread challenges, possibly affecting competitor's performances as well. The shift from contractual volumes to the spot market is noteworthy—it suggests a strategic maneuver to maintain pricing power at the expense of short-term earnings. This tactic could preserve long-term profitability if market conditions improve, but it's a delicate balance that demands scrutiny.

Market Research Analyst

The important aspect highlighted here is the shift in the truckload market and its seasonality, which might indicate deeper systemic issues. The logistics sector is often seen as a barometer for the overall economy, meaning the subdued forecasts for the second quarter could reflect broader economic headwinds. Investors should pay attention to how this reflects on consumer demand and inventory levels across different industries. The continued growth in the LTL segment despite challenges, however, suggests that certain areas within Knight-Swift's operations remain robust. This divergence presents a multi-faceted picture of the company and requires analyzing each segment independently to gauge the company's health.

Transportation Industry Expert

Knight-Swift's weather-related disruptions might seem temporary, but the substantial impact on its LTL operations, due to its concentrated network footprint, points to potential vulnerabilities. As they purchase properties to expand their footprint, it’s key to assess whether this will translate into better resilience against such disruptions in the future. Moreover, the mention of normalizing volumes into March and April provides a glimmer of hope, but investors should assess if this normalization is sustainable or a mere recovery from a low base.

PHOENIX--(BUSINESS WIRE)-- Knight-Swift Transportation Holdings Inc. (NYSE: KNX) ("Knight-Swift", the "Company", or "we") today announced an update to its earnings guidance for the first and second quarters of 2024.

Based on preliminary results, the Company now expects that Adjusted EPS⁽¹⁾ for the first quarter of 2024 will range from $0.11 to $0.12 (which is an update from the previously-announced expectation of $0.37 to $0.41). This range includes a loss of $0.08 per share for the third-party insurance business that ceased operation at the end of the quarter; excluding this insurance loss, the expected Adjusted EPS range would be $0.19 to $0.20.

The full truckload industry continues to be challenging and oversupplied with capacity. The weather disruption in January had a greater impact than initially estimated, as the subsequent recovery was not sufficient to offset the negative impact to volumes and operating costs for the quarter. The early part of the bid season led to greater than expected pressure on freight rates as some shippers are still trying to push rates down further. In some cases, we have lost contractual volumes because we were not willing to commit to further concessions on what we view as unsustainable contractual rates. This resulted in more of our capacity being allocated to the spot market, which creates further pressure on revenue per mile and utilization in the near term but positions capacity to react to changes in the market. The softer volume and pricing headwinds also impacted our Logistics volumes and margins, with further volume pressure on Logistics as we diverted loads to the asset division to partially offset the contractual volume losses noted above.

The less-than-truckload (LTL) segment continues to show positive volume and yield trends year-over-year, though the impact of the weather disruption was greater on this business relative to our Truckload segment as our LTL network footprint is not nationwide and is more concentrated in the areas affected by the weather in the first quarter. While the subsequent volume recovery was more pronounced in the LTL market than in truckload, it was not enough to offset the outsized impact to our operating costs, resulting in lower operating income than expected. Volumes normalized into March and April, and we remain focused on improving our margins while expanding our footprint as we operationalize many of the properties we have recently purchased.

The Company also expects that Adjusted EPS⁽¹⁾ for the second quarter of 2024 will range from $0.26 to $0.30 (which is an update from the previously-announced expectation of $0.53 to $0.57). This updated range assumes the more challenging market conditions noted above continue, such as the bid season trends and less pronounced seasonality in the truckload market than originally projected and reflects:

• Truckload segment operating ratios in the mid-90’s for our existing businesses and continued roughly break-even operating results for U.S. Xpress with overall revenues stabilizing at declines of roughly 5% from the fourth quarter level due to headwinds on revenue per mile and on dedicated services;
• LTL segment operating ratio performing at similar levels as the second quarter of 2023 with year-over-year revenue growth of 10-15%;
• Logistics segment operating ratio in the mid-90’s with year-over-year revenue growth of 10 to 15%, as a result of the U.S. Xpress acquisition;
• Intermodal segment operating ratio approaching breakeven during the quarter with revenues down slightly year-over-year; and
• All Other segments operating income of approximately $10-15 million for the quarter before including the $11.7 million intangibles asset amortization.

We plan to provide third quarter 2024 guidance in conjunction with the first quarter 2024 earnings release on April 24, 2024. Our Adjusted EPS ranges are based on the current freight market, recent trends, and the current beliefs, assumptions, and expectations of management.

(1)

Our calculation of Adjusted EPS starts with US GAAP diluted earnings per share and adds back the after-tax impact of intangible asset amortization (which is expected to be approximately $0.08 per quarter), noncash impairments, and certain other unusual noncash items, if any.

Forward Looking Statements

This press release contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including, without limitation, statements relating to expected Adjusted EPS, the future freight environment (including, without limitation, rates, volumes, capacity, and seasonality), future performance and financial results of our businesses, including revenues, operating income, and operating ratios, and our future LTL network. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Forward looking statements are subject to various risks and uncertainties, including, but not limited to current beliefs, assumptions, and expectations of management, and those risks, uncertainties, and other factors identified from time-to-time in our filings with the Securities and Exchange Commission. Our preliminary results for the first quarter of 2024 have not been subjected to all the review procedures associated with the release of actual financial results and are premised on certain assumptions. Among the other factors enumerated herein, estimates and adjusting entries made during the review process and the completion of all review procedures and preparation of financial statements in accordance with generally accepted accounting principles could cause our actual results for the first quarter of 2024 to differ from the preliminary results. Readers should review and consider the factors that may affect future results and other disclosures in the Risk Factors section of Knight-Swift Transportation Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023, and various disclosures in our press releases, stockholder reports, and other filings with the SEC. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240417007823/en/

Adam Miller, CEO, or Andrew Hess, CFO - (602) 606-6349

Source: Knight-Swift Transportation Holdings Inc.

FAQ

What is Knight-Swift Transportation Holdings Inc.'s updated Adjusted EPS range for the first quarter of 2024?

The updated Adjusted EPS range for Q1 2024 is expected to be between $0.11 to $0.12.

What challenges is the full truckload industry facing according to the press release?

The full truckload industry is facing challenges due to oversupply and weather disruptions, impacting volumes and operating costs.

How did the bid season trends affect Knight-Swift's contractual volumes?

Pressure on freight rates during the bid season led to contractual volume losses and increased reliance on the spot market.

What impact did weather disruptions have on Knight-Swift's LTL segment?

Weather disruptions impacted operating income in the LTL segment due to the concentrated network footprint in affected areas.

What is the expected Adjusted EPS range for Knight-Swift in the second quarter of 2024?

The expected Adjusted EPS range for Q2 2024 is between $0.26 to $0.30, reflecting ongoing market challenges and operational performance across various segments.