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Why Is Knight-Swift (KNX) Down 3.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Knight-Swift Transportation Holdings (KNX - Free Report) . Shares have lost about 3.8% 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 its most recent earnings report in order to get a better handle on the important drivers.

In line Earnings at Knight-Swift in Q3

The company’s third-quarter earnings (excluding 4 cents from non-recurring items) of 48 cents were in line with the Zacks Consensus Estimate. However, the bottom line decreased 26.2% year over year. Total revenues of $1,200.5 million lagged the Zacks Consensus Estimate of $1,225.7 million and also declined 10.8% year over year.

Third-quarter results were affected primarily by low revenues at the trucking and intermodal segment. Notably, increased competition in the intermodal space induced 10.3% and 6.8% reduction in volumes and revenue per load, respectively. Effective tax rate in the third quarter was unchanged year over year at 24.6%. For the full year, the same (before discrete items) is still expected in the 25-26% range.

Segmental Results

Revenues in the Trucking segment totaled (excluding fuel surcharge and intersegment transactions) $876.38 million, down 6.4% year over year. Results were hampered by 6.4% decrease in average revenue per tractor (miles per tractor declined 4.1%). Adjusted segmental operating income fell 22.1% to $109.76 million. Adjusted operating ratio (operating expenses as a percentage of revenues) also deteriorated to 87.5% in the third quarter from 84.9% a year ago. Notably, lower value of this key metric bodes well for the company.

Revenues in the Logistics segment (before intersegment transactions) amounted to $83.63 million, declining 24.9% year over year due to 25% fall in brokerage revenues. While adjusted operating ratio deteriorated 470 basis points (bps) to 95.6%, segmental operating income plunged 63.6%.

Revenues in the Intermodal segment (excluding intersegment transactions) totaled $108.76 million, down 16.4% year over year as a result of 10.3% fall in load counts. Segmental adjusted operating ratio of 102.4% deteriorated 980 bps while operating loss came in at $2,652 million against operating income of $9,688 million reported a year ago.

Operating Results

Total operating expenses decreased 8.7% year over year to $1.1 billion. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) deteriorated to 89.6% from 87.1% reported in the year ago quarter. Knight-Swift’s adjusted operating income declined 27.4% year over year to $113.71 million due to weaker segmental revenues.

Liquidity

The company exited the third quarter with cash and cash equivalents of $94 million compared with $82.49 million at the end of 2018. Long-term debt (less current portion) amounted to $364.77 million compared with $364.59 million in December 2018.

Outlook

The company expects seasonal improvement in demand during the ongoing quarter albeit lower than previously anticipated. In 2020, it hopes to see a better freight environment.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Knight-Swift has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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