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Why Is Knight-Swift (KNX) Up 9.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Knight-Swift Transportation Holdings (KNX - Free Report) . Shares have added about 9.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Knight-Swift due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at Knight-Swift in Q1

Knight-Swift’s first-quarter 2020 earnings (excluding 6 cents from non-recurring items) of 44 cents beat the Zacks Consensus Estimate of 36 cents. However, the bottom line declined 20% year over year due to persistent weakness in the freight environment amid severe effects of the COVID-19 pandemic. Additionally, total revenues of $1,124.8 million surpassed the consensus mark of $1,090.3 million but fekk 6.6% year over year with sluggish revenues at each of its three segments. Effective tax rate came in at 27.2% compared with 24% in the first quarter of 2019.

Total operating expenses declined 6% year over year to $1.02 billion. Adjusted operating ratio (operating expenses as a percentage of revenues) deteriorated to 88.6% from 88.4% in the year-ago quarter. Knight-Swift’s adjusted operating income declined 8% year over year to $116.79 million due to excess truck capacity amid the soft freight environment, intense competition in the intermodal market and coronavirus-induced consequences.

The company exited the first quarter with cash and cash equivalents of $119.13 million compared with $159.72 million at the end of 2019. During first-quarter 2020, it repurchased shares worth $34.6 million and retuned $14 million to shareholders through dividend payouts.

Due to uncertainties caused by the coronavirus pandemic, the company suspended its previously announced guidance for 2020.

Segmental Results

Revenues in the Trucking segment totalled (excluding fuel surcharge and intersegment transactions) $821.08 million, down 5.1% year over year. Results were hampered by 2.7% decline in average revenue per tractor. Average revenue per tractor was weak in the quarter due to a 3.1% reduction in revenue per loaded mile, excluding fuel surcharge and intersegment transactions).  Adjusted segmental operating income also dropped 4.1% to $110.8 million. Adjusted operating ratio (operating expenses as a percentage of revenues) improved 20 basis points (bps) to 86.5% in the quarter under review. Notably, lower value of this key metric bodes well for the company.

Revenues in the Logistics segment (before intersegment transactions) amounted to $76.76 million, down 12% year over year due to 10% decline in brokerage revenues. While adjusted operating ratio deteriorated 360 bps to 95.2%, segmental operating income slumped 48.9% to $3.71 million.

Revenues in the Intermodal segment (excluding intersegment transactions) totaled $94.6 million, down 18.2% year over year as a result of load count and revenue per load declining 13.2% and 5.8%, respectively. Segmental adjusted operating ratio came in at 102.8%, down 480 bps. Segmental operating loss came in at $2.74 million.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -11.72% due to these changes.

VGM Scores

Currently, Knight-Swift has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. Notably, Knight-Swift has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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