Knight-Swift's stock hurt by profit warning on over-supplied truck market and bad weather

By Ciara Linnane

Knight-Swift Transportation Holdings Inc.'s stock slid 3.5% Wednesday, after the freight company drastically lowered guidance for the first half, citing an oversupplied truck market, disruptive weather in January and a softer-than-expected start to the bid season.

Bid season refers to the time of year when freight companies negotiate rates and contracts for the shipping season.

The early part of the bid season "led to greater-than-expected pressure on freight rates as some shippers are still trying to push rates down further," the Phoenix, Arizona-based company (KNX) said in a statement.

In some cases, Knight-Swift lost contractual volumes because it was unwilling to commit to further concessions on what it deemed "unsustainable contractual rates," said the statement.

That means more capacity being allocated to the spot market, putting further pressure on revenue per mile and utilization in the near term, although it positions the company better to respond to changes in the market, it added.

Softer volume and pricing headwinds also weighed on the company's logistics business, including on margins, and the company diverted loads to the asset division to offset the volume losses.

Knight-Swift is now expecting first-quarter adjusted per-share earnings to range from 11 cents to 12 cents, down from 37 cents to 41 cents previously. The FactSet consensus is for EPS of 38 cents.

The range includes an 8-cent loss for the third-party insurance business which ceased operations at quarter-end.

For the second quarter, the company is expecting adjusted EPS of 25 cents to 30 cents, down from 53 cents to 57 cents previously. The FactSet consensus is for 46 cents.

The updated guidance assumes that current conditions persist. That would lead to 10% to 15% revenue growth for the less-than-truckload segment with operating ratios at roughly the same level as in the same period in 2023.

The LTL segment is showing positive volume and yield trends, although January weather had a greater impact as the footprint is more concentrated in the areas that were worst affected.

"While the subsequent volume recovery was more pronounced in the LTL market than in truckload, it was not enough to offset the outsized impact to our operating costs, resulting in lower operating income than expected," said the statement.

The profit warning comes a day after rival J.B. Hunt Transport Services Inc. posted weaker-than-expected first-quarter earnings. The declines were a "combination of lower volumes and yield pressure" in several of its businesses, plus cost increases related to equipment, insurance and claims, the company said.

Evercore ISI analysts said the warning confirms "how dire TL, logistics, and intermodal conditions are at the tail end of a two+ year freight recession.

Knight-Swift "highlighted all the lingering concerns flagged by JBHT last night, including a tougher bid season, overcapacity, lower utilization, winter weather, and lost share as KNX tries to hold some floor on price," said analysts led by Jonathan Chappell.

The news is negative for the entire cyclical transport earnings season and has reset the eventual recovery "substantially lower," they wrote in a note to clients.

J.B. Hunt's stock (JBHT) was down 7.7% Wednesday.

-Ciara Linnane

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04-17-24 1336ET

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