The leaders of Knight-Swift Transportation Holdings Inc. say the company is ahead of schedule in nursing to profitability the U.S. Xpress operation they acquired earlier this year.
As part of their third-quarter earnings report Oct. 19, CEO David Jackson and CFO Adam Miller said they expect U.S. Xpress—which in 2022 lost more than $40 million—to post an operating profit in the first half of next year and to add to Knight-Swift earnings per share over the course of all of 2024. Coming out of September, the U.S. Xpress deal was generating about $8 million of monthly cost savings and revenue growth and Jackson and Miller expect that number to reach $10 million by year’s end.
The basic recipe since the Knight-Swift team closed on its $800 million-plus purchase on July 1: Cut spot-market exposure to about 15% of sales from 45%, eliminate broker freight, and convert service centers to Knight-Swift’s terminal-based operating model. Those changes, coupled with work to limit driver turnover—“We don’t think we have to shrink into profitability,” Jackson said—and raise prices, has been quickly paying off.
“There’s still a long way to go, but we are ahead of schedule,” Jackson said on a conference call with analysts in which he noted the “dramatic progress” being made by the combined Knight-Swift/US Xpress team. “We’re so excited for where that business is headed, and with some help from the market, we’ll get there even sooner.”
Phoenix-based Knight-Swift posted a third-quarter net profit of $59.9 million, down considerably from the $195 million in the same period of 2022, on revenues of $2.0 billion, a 6% year-over-year increase. As with J.B. Hunt Transport Services, pricing pressures were the main cause of the bottom-line pressures: Knight-Swift’s truckload miles per tractor during the quarter rose more than 5% from the summer of 2022, but average revenue per tractor dropped 8%. The company’s logistics and intermodal business, meanwhile, saw revenue per load fall nearly 16% and 27%, respectively.
Still, Jackson and Miller provided investors with several other bright spots in addition to the upbeat update on U.S. Xpress. They said Knight-Swift’s LTL group, built in recent years through the acquisitions of Midwest Motor Express and AAA Cooper Transportation, grew its profits 5% on the back of similar growth in daily shipments and continues to build out its terminal network.
In addition—and in contrast to more cautious commentary from their peers at J.B. Hunt—they expect truckload rates to begin trending up soon. While noting that Knight-Swift has “virtually no margin for error on the truckload side of the business right now—and we don’t think that we’re alone in that,” Jackson added that capacity is indeed leaving the market and that prices “have been pushed to the limit.” He and Miller said their team is laying the groundwork with shippers for being able to raise prices in the coming months.
“If the bid season began right now, we would really have a tough time seeing it be positive,” Jackson said. “But as things continue to materialize, I think that natural conditions are going to lead us in that direction.”
Shares of Knight-Swift (Ticker: KNX), which have been beaten up of late, soared on the earnings news and commentary: In midday trading Oct. 20, they were changing hands around $51.20, up more than 11% from their closing price the previous day. The move erased a month’s worth of losses in the stock and pushed Knight-Swift’s market capitalization to $8.2 billion.
Analysts at Stifel think there’s more upside for investors as the freight market finds its feet again.
“Even if it takes a bit longer to come to fruition, we think there is value here,” a team led by Bruce Chan told investors. “Even if the trough drags on longer than expected, management seems confident that things have bottomed. As investors look toward an improvement in the freight cycle, we think the focus can shift to the opportunities at Knight.”
