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Why Is Knight-Swift (KNX) Down 8.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Knight-Swift Transportation Holdings (KNX). Shares have lost about 8.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Knight-Swift due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Earnings Beat in Q1

Knight-Swift’s  first-quarter 2022 earnings (excluding 10 cents from non-recurring items) of $1.35 per share surpassed the Zacks Consensus Estimate of $1.26. The bottom line surged 62.7% from the first-quarter 2021 figure, aided by higher revenues.

Total revenues of $1,827 million outperformed the Zacks Consensus Estimate of $1,746.8 million. The top line jumped 49.4% year over year, driven mainly by a massive increase in revenues at the Logistics segment.

Total operating expenses (on a reported basis) surged 44% year over year to $1.53 billion. This increase was mainly due to 61.2% escalation in fuel expenses as oil price moves north. Salaries, wages and benefits expenses climbed 44.7% year over year. Knight-Swift’s adjusted operating income rose 82.7% year over year.

Segmental Results

Revenues (excluding fuel surcharge and inter-segment transactions) in the Truckload segment totaled $941.5 million, up 7.9% year over year. Results were driven by an 8.5% increase in average revenue per tractor. Average revenue per tractor was strong in the quarter owing to a 9.4% increase in revenue per loaded mile (excluding fuel surcharge and intersegment transactions). Adjusted segmental operating income rose 29.4% to $205.4 million. Adjusted operating ratio (operating expenses as a percentage of revenues) improved 360 basis points to 78.2%.

Revenues in the Logistics segment (excluding inter-segment transactions) amounted to $280.2 million, up more than 100% year over year owing to the 76.9% increase in load count and a 36.8% rise in revenue per load. Adjusted operating ratio improved to 85.7% in the first quarter from 93.5% in the year-ago period. Segmental adjusted operating income surged more than 400% to $39.9  million.

Revenues in the Intermodal segment (excluding inter-segment transactions) totaled $109.2 million, up 2.1% year over year. Persistent chassis allocations and network fluidity induced a decline in load count but contributed to a 35.9% rise in revenue per load. Segmental operating ratio (on a reported basis) improved to 86.1% in the reported quarter from 96.8% in the year-ago quarter.

The Less-Than-Truckload (LTL) segment, which includes the results of AAA Cooper Transportation, a leading LTL carrier acquired by Knight-Swift in July 2021, generated revenues (excluding fuel surcharges) worth $214.7 million in the March quarter. The segment also includes the results of Midwest Motor Express, acquired last December. Segmental operating ratio (on an adjusted basis) was 85.9%.

Other Details

Knight-Swift exited the first quarter with cash and cash equivalents of $242.9 million compared with $261 million at the end of 2021. Free cash flow for the first quarter of 2022 was $352.4 million. During the March quarter, KNX returned $150 million to its shareholders in the form of share repurchases and $20.1 million as dividends.

2022 Guidance

For the ongoing year, Knight-Swift now expects adjusted earnings per share in the range of $5.20-$5.40 (previous guidance: $5.10-$5.30).

Knight-Swift expects double-digit truckload contract rate increases in 2022. Intermodal volumes are anticipated to decline in the first half of the year, while the same is predicted to increase in the latter half. Logistics revenues are forecast to grow more than 30% in the year (previous guidance: 20%). KNX expects a rise in LTL revenues and margins from the respective year-ago reported figures. Net cash capital expenditures for 2022 are estimated in the band of $550-$600 million. The tax rate is expected to be 25% for 2022.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Knight-Swift has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Knight-Swift has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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