Knight-Swift Transportation Holdings Inc. Q2 FY2025 earnings call

• Truckload business prevented deeper revenue decline while growing margins and operating income year-over-year. U.S. Xpress brand expanded operating margins sequentially.
• LTL network growing with customer base and volumes, but cost of expansion and integration pressured margins. Multiple initiatives underway to normalize operational fundamentals and regain efficiencies.
• Logistics segment disciplined on pricing and cost management, with technology investments enhancing resiliency. Intermodal impacted by import volume decline but expecting load count growth from recent business awards.
• Continued cost-cutting initiatives in Truckload, including reducing underutilized assets, improving utilization, and driving efficiency in fixed and variable costs.

Truckload:

• Revenue excluding fuel surcharge decreased 2.7% year-over-year. Adjusted operating ratio improved by 260 basis points. Adjusted operating income grew 87.5% year-over-year despite loaded miles declining 2.8%. Loaded miles declined, but miles per truck improved 4% year-over-year for 8 consecutive quarters. U.S. Xpress brand expanded operating margins sequentially.

LTL:

• Revenue excluding fuel surcharge grew 28.4% year-over-year. Shipments per day increased 21.7%. Revenue per hundredweight excluding fuel surcharge increased 9.9%, but weight per shipment declined 2.6%. Adjusted operating ratio was 93.1%, a 110 basis point sequential improvement, but adjusted operating income declined 36.8% year-over-year due to early-stage facilities and DHE integration costs.

Logistics:

• Revenue declined 2.6% year-over-year, but adjusted operating income grew 13.3% year-over-year due to disciplined pricing and cost management. Technology investments helped with real-time quotes and trailer tracking.

Intermodal:

• Revenue declined 13.8% year-over-year due to import volume decline on the West Coast. Load count decreased 12.4% and revenue per load declined 1.6%. Operating ratio was negatively impacted by 230 basis points year-over-year. Converted to private chassis in 5 markets during the quarter.

All Other:

• Revenue increased 9% year-over-year, operating income up 73.6% year-over-year, primarily driven by growth in warehousing and leasing businesses. Included a $2.8 million charge for additional premiums related to third-party auto liability risk.

• Projected adjusted EPS for third quarter 2025 is in the range of $0.36 to $0.42.
• Truckload operating income expected to improve sequentially, driven by normalizing freight mix.
• LTL expected modest sequential improvements in revenue and operating margin due to customer base growth, yield improvements, and cost efficiencies.
• Logistics segment projected to have relatively comparable contribution to Q2.
• Intermodal expected to reduce operating loss and operating ratio.
• All Other segment expected to have sequential slowdown in earnings in Q4.
• Full year net cash CapEx revised to $525 million to $575 million, a reduction from original range.

• Fluid policy environment making forecasting difficult.
• Potential service failures from brokers relying on small carriers.
• Capacity exit from the market being a slow process, impacting margin and revenue projections.
• Margin pressure from LTL expansion and integration costs, including staffing and fleet asset ramping.

Q: Talk about supply and demand dynamics and the market outlook for the second half of the year.

A: Adam Miller noted capacity is slowly exiting the market, with some stability in tariffs and trade policy helping customers. Conversations with customers are more stable, and there's some discussion of peak projects, but caution remains due to ongoing market uncertainty.

Q: Discuss truckload margins and mid-cycle outlook.

A: Adam Miller expects mid-cycle truckload margins in the mid-80s, with focus on cost control to leverage margins when the market turns. Andrew Hess added fewer carriers participating in one-way service, positioning Knight-Swift well.

Q: LTL segment growth and margin outlook.

A: Adam Miller said LTL is growing with customer base and volumes, but margin pressure from expansion. Team focused on optimizing costs and technology to improve margins while growing the network.

Q: Fourth quarter guidance and All Other segment.

A: Adam Miller stated uncertainty around fourth quarter guidance due to revenue recognition issues in the All Other segment, with normal seasonal slowdown expected.

Q: Tangible cost savings in Truckload segment.

A: Andrew Hess discussed various cost-saving initiatives, including lean management tools, facility exits, technology-driven improvements in fuel, maintenance, insurance, and trailer utilization, with continued improvement expected.