Freight delivery company Knight-Swift Transportation (NYSE:KNX) missed Wall Street’s revenue expectations in Q3 CY2024, with sales falling 7.1% year on year to $1.88 billion. Its non-GAAP profit of $0.34 per share was 6.1% above analysts’ consensus estimates.
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Knight-Swift Transportation (KNX) Q3 CY2024 Highlights:
- Revenue: $1.88 billion vs analyst estimates of $1.91 billion (1.8% miss)
- Adjusted EPS: $0.34 vs analyst estimates of $0.32 (6.1% beat)
- EBITDA: $260 million vs analyst estimates of $285.8 million (9% miss)
- Adjusted EPS guidance for Q4 CY2024 is $0.34 at the midpoint, in line with analyst estimates of $0.34
- Gross Margin (GAAP): 42.3%, up from 25.2% in the same quarter last year
- Operating Margin: 4.3%, in line with the same quarter last year
- EBITDA Margin: 13.9%, in line with the same quarter last year
- Market Capitalization: $8.54 billion
Company Overview
Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE:KNX) offers less-than-truckload and full truckload delivery services.
Ground Transportation
The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Knight-Swift Transportation’s 8.2% annualized revenue growth over the last five years was decent. This shows it was successful in expanding, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Knight-Swift Transportation’s recent history shows its demand slowed as its revenue was flat over the last two years. We also note many other Ground Transportation businesses have faced declining sales because of cyclical headwinds. While Knight-Swift Transportation’s growth wasn’t the best, it did perform better than its peers.
This quarter, Knight-Swift Transportation missed Wall Street’s estimates and reported a rather uninspiring 7.1% year-on-year revenue decline, generating $1.88 billion of revenue.
Looking ahead, sell-side analysts expect revenue to grow 4.2% over the next 12 months, an acceleration versus the last two years. Although this projection shows the market thinks its newer products and services will fuel better performance, it is still below average for the sector.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Knight-Swift Transportation has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.1%.
Looking at the trend in its profitability, Knight-Swift Transportation’s annual operating margin decreased by 7.8 percentage points over the last five years. Even though its margin is still high, shareholders will want to see Knight-Swift Transportation become more profitable in the future.
This quarter, Knight-Swift Transportation generated an operating profit margin of 4.3%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for Knight-Swift Transportation, its EPS declined by 20.8% annually over the last five years while its revenue grew by 8.2%. This tells us the company became less profitable on a per-share basis as it expanded.
We can take a deeper look into Knight-Swift Transportation’s earnings to better understand the drivers of its performance. As we mentioned earlier, Knight-Swift Transportation’s operating margin was flat this quarter but declined by 7.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business. For Knight-Swift Transportation, its two-year annual EPS declines of 62.5% show it’s continued to underperform. These results were bad no matter how you slice the data.
In Q3, Knight-Swift Transportation reported EPS at $0.34, down from $0.41 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 6.1%. Over the next 12 months, Wall Street expects Knight-Swift Transportation’s full-year EPS of $0.79 to grow by 145%.
Key Takeaways from Knight-Swift Transportation’s Q3 Results
It was good to see Knight-Swift Transportation beat analysts’ EPS expectations this quarter. That the company guided to Q4 EPS in line with expectations is also comforting. On the other hand, its EBITDA missed and its revenue fell short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock traded up 2.4% to $53.84 immediately after reporting.
So should you invest in Knight-Swift Transportation right now?What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
