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Knight-Swift (KNX) Down 12.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Knight-Swift Transportation Holdings (KNX). Shares have lost about 12.4% in that time frame, underperforming 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 drivers.

Q1 Earnings Beat at Knight-Swift

Knight-Swift's first-quarter 2019 adjusted earnings of 55 cents per share outpaced the Zacks Consensus Estimate of 52 cents. Moreover, the bottom line improved 25% on a year-over-year basis. Lower costs aided the bottom line.

Total revenues of $1,205 million lagged the consensus mark of $1,282 million. Also, the top line deteriorated 5.2% on a year-over-year basis. This decrease was primarily due to a fall in the trucking segment revenues.

Notably, effective tax rate came in at 24% in the quarter under review compared with 21.2% in the first quarter of 2018. For the full year, the same (before discrete items) is expected to be in the 25-26% range.

From the first quarter of 2019 onward, the company started reporting under three segments — Trucking, Logistics and Intermodal— following the realignment of its segments.

Segmental Results

Revenues in the Trucking segment totaled (excluding fuel surcharge and intersegment transactions) $865.63 million, down 4.7% year over year. Results were hampered by 8.7% decrease in miles per tractor and a 3.6% decline in average tractor count. Adjusted segmental operating income increased 15% to $115.52 million. However, adjusted operating ratio (operating expenses as a percentage of revenues) improved 220 basis points (bps) to 86.7% in the quarter under discussion. Notably, lower value of this key metric bodes well for the company.

Revenues in the Logistics segment (before intersegment transactions) amounted to $87.19 million, up 1.3% year over year owing to a 6.2% rise in brokerage revenues. While adjusted operating ratio improved 380 bps to 91.8%, segmental operating income soared 84% to $7.28 million.

Revenues in the Intermodal segment (excluding intersegment transactions) totaled $115.68 million, up 5% year over year. Segmental adjusted operating ratio came in at 98%, deteriorating 160 bps year over year while operating income plunged 40.2% to $2.36 million. This downside was due to rough weather conditions that affected rail lanes apart from slower rail transit times and a rise in costs.

Operating Results

Total operating expenses decreased 7.6% year over year to $1,088.24 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) improved to 88.4% from 90.9% in the year-ago quarter. On the back of efficient cost-control methods and enhanced safety results, Knight-Swift’s adjusted operating income jumped 21.8% year over year to $126.99 million.

Liquidity

The company exited the first quarter with cash and cash equivalents of $60.22 million compared with $82.49 million at the end of 2018. Long-term debt (less current portion) amounted to $364.65 million compared with $364.59 million in December 2018.

Outlook

Knight-Swift expects adjusted earnings per share (EPS) in the range of 62-64 cents (previous view: 62-66 cents) in the second quarter. For the third quarter, adjusted earnings per share are expected between 62 cents and 66 cents. Additionally, capital expenditures for the full year are anticipated in the $550-$575 million range.

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How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Knight-Swift has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, 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 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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