Knight-Swift Transportation cut earnings expectations by 58% for the first half of the year on Wednesday, citing an oversupplied truck market, poor weather in January and a tough start to bid season.
The company said adjusted earnings per share for the first quarter will range between 11 and 12 cents compared to a 39-cent outlook (at the midpoint of the guidance range) provided in late January. It is calling for adjusted EPS of 26 to 30 cents in the second quarter versus the previous 55-cent expectation (at the midpoint of the range).
Knight-Swift’s (NYSE: KNX) new outlook for the first quarter includes an 8-cent-per-share loss associated with the shutdown of its third-party insurance business. That unit brokered liability coverage to small carriers. It struggled to collect premiums and endured unfavorable claims developments in recent quarters. In total, it lost $125 million last year, $72 million in the fourth quarter alone.
Shortly after the company announced it was shuttering the insurance business, CEO Dave Jackson stepped down.
Analysts will likely add back the 8-cent hit to Knight-Swift’s first-quarter result as the insurance unit is being disposed. That puts adjusted EPS at 19 to 20 cents for the quarter, compared to the current consensus estimate of 29 cents.
The consensus estimate for the second quarter was 48 cents on Tuesday.
Knight-Swift said it has had to put more equipment in the spot market as it has walked away from some contractual freight.
“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,” a news release said.
Running more equipment in the spot market offers no rescue. Depressed spot rates are also weighing on total revenue per mile, and absent contractual commitments, equipment utilization metrics have moved lower. However, the company believes this is the best course as it positions the capacity to quickly react to any positive inflection.
It is forecasting a mid-90% operating ratio for the legacy TL business in the second quarter, with the acquired U.S. Xpress fleet seeing break-even results.
The logistics business is not only suffering from unfavorable demand and yield dynamics, but also as the company has “diverted loads to the asset division to partially offset the contractual volume losses.” The logistics unit is expected to see 10% to 15% year-over-year (y/y) revenue growth due to the U.S. Xpress acquisition and an OR in the mid-90% range during the second quarter.
The segment posted a 93.1% OR in the fourth quarter.
The release said its less-than-truckload unit continues to see y/y volume and yield growth, but operating income will be worse than expected due to its geographic concentration in regions most impacted by winter storms. It noted LTL volumes “normalized into March and April.”
The second-quarter call for LTL is y/y revenue growth of 10% to 15% and a flat OR. (2023 second-quarter OR was 85.1%.)
Knight-Swift’s intermodal business is “approaching breakeven during the quarter with revenues down slightly year-over-year.”
The update comes one day after a big earnings miss from multimodal provider J.B. Hunt Transport Services (NASDAQ: JBHT). A tough bid season and elevated costs associated with carrying excess capacity to meet future demand were to blame for the miss.
Shares of KNX were off 4.6% at 10:21 a.m. EDT on Tuesday while shares of JBHT were down 7.6%. The S&P 500 was up 0.1% at the time.
Chris
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Timothy
Knight Swuft has had problems for years. They are paying way to much for assets and properties and have no problems with that. They dont really cate as it’s a discover mill company in the first place. Their LTL assets cannot compete as they are way over leveraged. They hired totalkybinexperienced help both in the driver segment and definitely in the mgt segment and think this is working for them. BTW, the CEO didnt ‘step down’ either, he was forced out by the Knight family who has never been able to run this place at a profit and has fudged their books for many years. This company’s problems should surprise nobody. Incompetence is the name of the game for this place.
James Bauman dba Kirplopus MC 895097
As a small carrier, booking loads from spot mkt; I don’t see KNX’s decision to divert from contract to spot freight as wise; but of course devil in details; which I don’t have details. I see your FW SONAR showing current spread @ 63cpm higher contracts vs spot. I don’t see the spot market heating up much this year; so with my knowledge / gut feeling, I’d grab the contract freight that KNX says is “too cheap;” as spot prices can only be cheaper than the “too cheap” contracts offered. TIAA says the avg broker margin is 13%. Most trips with miles are only paying $1.90 incl fuel on spot. At 13% higher gross to broker avg; these trips pay $2.18 to broker (or legacy like KNX when spot). If FW SONAR correct; where contract is 63cpm higher vs this 1.90; that means contract -to -legacy KNX = 2.53/mi. $2.53 sure beats $2.18. Doesn’t make sense to try and “force up” contracts; as this is just supply demand…. capitalism. BTW I survive as small carrier running spot by taking the freight that legacy carriers’ drivers hate…. the small short trips. I live in Charlotte; just this week for example; Got $400 for 40 miles Charlotte – Salisbury, NC (Dillards). Then got $550 Salisbury – to – Raleigh (Allen Lund). Then $550 back home from Raleigh to Fort Mill, SC (near Charlotte). This = $1500 / 340 mi; in a day. VERY survivable; and home lots…. reading this LOL.
Steven R Manson
Sorry all, if you cut prices we don’t roll….I don’t work for free and if my profit becomes ower than working at home, I’m gone
Jason Wilson
We are constantly being told we must drop our rates back to 2014 pricing or below if we want to secure freight. 🤔 but it’s 2024….. The math doesn’t add up.
Over half these guys taking these rates go under and wonder why
Americans supporting Americans… it’s time to raise and take back our industry before there’s nothing left