Helped by a fast-growing logistics business and a new less-than-truckload operation quickly finding its feet, Knight-Swift Transportation Holdings Inc. posted profit growth of more than 60% in the first quarter, which executives say ended with plenty of momentum for further improvements.
The leaders of Phoenix-based Knight-Swift told analysts and investors that they still expect contract prices to rise at a double-digit pace for all of 2022 and said they expect the company’s miles per tractor, which were hurt early in the year by a COVID wave, to grow as the year progresses. Underpinning that, CEO Dave Jackson said, is a freight market that remains fundamentally constrained even as demand is only falling off slightly.
Knight-Swift ranks No. 4 on the 2022 FleetOwner 500: Top For-Hire Carriers list.
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“The reports of the death of the freight market […] have been greatly exaggerated,” Jackson said on a conference call, echoing his peers at J.B. Hunt. “I think that what we're seeing a little bit of is seasonality [...] There isn't a lot of urgency. There's not a holiday with a deadline that's driving a lot of this and it will be interesting to see what seasonality looks like when beverage and produce season come into play.”
Helped by a number of acquisitions, Knight-Swift grew its total first-quarter revenues 49% from a year earlier to nearly $1.83 billion. (Excluding fuel surcharges, growth was 45%.) An improved adjusted operating ratio of 80.6% versus 84.5% in early 2021—the truckload segment’s ratio dipped to 78.2% during Q1—helped net profits soar to $208 million.
The revenue share of Knight-Swift’s truckload business fell to 57% in the first quarter from 77% in early 2021 as other units put up strong numbers. Logistics work has grown its top-line share to 17% from 10% and the less-than-truckload unit—built in 2021 via the acquisitions of AAA Cooper Transportation and RAC MME Holdings LLC—accounted for 13% of sales.
CFO Adam Miller said the Knight-Swift team is shifting away from the spot market as a growing number of customers are seeking the security of longer-term contracts in a market that is still struggling with driver and equipment capacity problems. Contract work now accounts for about 85% of Knight-Swift’s regular route trucking business, he added.
“We are especially seeing greater demand from our customers to secure trailer pool capacity through our truckload and logistics segments,” Miller said. “As we make more commitments, as we expect other large carriers are, we are seeing higher tender acceptance levels and fewer non-contract opportunities.”
Knight-Swift’s logistics business more than doubled its external revenues to $280 million in the first three months of the year and grew its operating income to $39.6 million from $7.6 million. That performance has led Jackson and Miller to lift their forecast for 2022 logistics revenue growth to more than 30% from their previous guidance of at least 20%.
Speaking to the broader state of the freight market, Jackson said the various barriers to growing industry capacity—labor, equipment, and fuel chief among them—look likely to give incumbents lasting contract pricing power.
“The cost of everything is on the rise, especially for those that don't have economies of scale,” he said. “Cost per mile has been irreversibly increased in many ways, in many areas […] The trough in rates this cycle could very well be higher than the 2018 peak in rates.”
Other tidbits from the conference call Jackson and Miller hosted April 20:
- The company grew its trailer count by 2,200 during the quarter to a little more than 71,000.
- The Knight-Swift team isn’t done buying LTL capacity. During the quarter, they acquired five facilities in Texas and one in Las Vegas and they are scouting for more M&A and partnerships even as the teams acquired last year are working to connect their operations and explore growth opportunities as a super-regional network.
Shares of Knight-Swift (Ticker: KNX) were up 1.4% to nearly $49 in afternoon trading April 21. Over the past six months, they are still down about 15%, in line with their peers.
