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Knight-Swift (KNX) Down 7.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Knight-Swift Transportation Holdings (KNX). Shares have lost about 7.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Q2 Earnings Beat at Knight-Swift

The company's earnings (excluding 12 cents from non-recurring items) of 58 cents per share beat the Zacks Consensus Estimate by a penny. Moreover, the bottom line inched up 3.6% on a year-over-year basis. Lower costs aided this upside.

However, total revenues of $1,242.1 million lagged the consensus mark of $1,264.8 million and also decreased 6.7% year over year. This downside was primarily due to the persistent softness in freight demand.

Notably, effective tax rate came in at 24.7% in the quarter under review compared with 22.9% in the second quarter of 2018. For the full year, the same (before discrete items) is still 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.

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Segmental Results

Revenues in the Trucking segment totaled (excluding fuel surcharge and intersegment transactions) $900.65 million, down 4.3% year over year. Results were hampered by 3% dip in average revenue per tractor (miles per tractor declined 6.4% in the quarter). Adjusted segmental operating income inched up 1% to $128,303 million. Adjusted operating ratio (operating expenses as a percentage of revenues) also improved 70 basis points (bps) to 85.8% 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 $80.3 million, down 16.7% year over year due to 13.8% decline in brokerage revenues. While adjusted operating ratio improved 140 bps to 93.7%, segmental operating income climbed 8.8% to $5.02 million.

Revenues in the Intermodal segment (excluding intersegment transactions) totaled $117.73 million, slipping 1.8% year over year as a result of 7.7% fall in load counts. Segmental adjusted operating ratio came in at 96.4%, deteriorating 10 bps while operating income contracted 6.4% to $4.19 million.

Operating Results

Total operating expenses decreased 6.1% year over year to $1.13 billion. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) improved to 87.8% from 88.7% in the year-ago quarter. Knight-Swift’s adjusted operating income inched up 1.5% year over year to $136.97 million owing to rise in trucking revenue per loaded mile (excluding fuel surcharge), expanded margins at the Logistics segment and efficient cost-control measures.

Liquidity

The company exited the second quarter with cash and cash equivalents of $55.06 million compared with $82.49 million at the end of 2018. Long-term debt (less current portion) amounted to $364.71 million compared with $364.59 million in December 2018. During the first half of the year, Knight-Swift repurchased shares worth $86.9 million.

Outlook
 
Knight-Swift expects adjusted earnings per share in the range of 54-57 cents for the current quarter. The same for the fourth quarter is anticipated in the band of 73-77 cents. The company continues to expect capital expenditures for the full year in the $550-$575 million range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Knight-Swift has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Knight-Swift has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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