Knight-Swift Transportation Holdings Inc. Q4 FY2025 earnings call

• Truckload Market: Demand was generally stable but lacked typical broad-based seasonal lift until late in the quarter. Volumes were lower than expected, but the Truckload segment saw sequential operating margin improvement. Structurally cutting costs helped overcome a $125 million decline in truckload revenue excluding fuel surcharge, and cost per mile was flat in 2025 despite miles declining 3.6%.
• LTL Business: Grew revenue excluding fuel surcharge 7% year-over-year with shipments per day up 2.1%. Stepped up cost initiatives in response to moderating demand. Opened one new service center and replaced another with a larger site, with door count growing 10% year-over-year.
• Logistics and Intermodal: Logistics revenue declined, with third-party carrier capacity sourcing difficult. Intermodal improved adjusted operating ratio, driven by revenue per load increase and cost reduction. All other segments saw revenue growth, primarily from warehousing and leasing.
• Brand Integration: In the fourth quarter, the Abilene trucking operations were combined into the Swift business to improve efficiency and productivity

Truckload Segment

• Revenue excluding fuel surcharge declined 2.4% year-over-year. Adjusted operating income declined $9.2 million or 10.7% year-over-year, largely due to a 3.3% decline in loaded miles. Revenue per loaded mile, excluding fuel surcharge and intersegment transactions increased 0.7% year-over-year and sequentially improved 1.4% over the quarter. The fourth quarter combined adjusted operating ratio was 70 basis points higher year-over-year. Legacy Truckload brands operated at a 91.6% adjusted operating ratio, while U.S. Xpress improved its adjusted operating ratio 430 basis points year-over-year. In the fourth quarter, the Abilene trucking operations were combined into the Swift business.

LTL Business

• Revenue excluding fuel surcharge grew 7% year-over-year with shipments per day up 2.1%. Revenue per hundredweight, excluding fuel surcharge, increased 5% year-over-year. Adjusted operating income decreased 4.8% and adjusted operating ratio increased slightly by 60 basis points year-over-year. Stepped up cost initiatives were taken in response to moderating demand. Door count grew 10% year-over-year with one new service center opened and another replaced with a larger site.

Logistics Segment

• Revenue for the fourth quarter declined 4.8% year-over-year as volumes were down 1%, while revenue per load was 4.1% lower due to mix change. Gross margin of 15.5% for the fourth quarter declined 230 basis points from third quarter levels and 180 basis points year-over-year. Third-party carrier capacity grew more difficult to source, pressuring gross margins.

Intermodal Business

• Improved its adjusted operating ratio 140 basis points year-over-year to 100.1%, driven by a 2.8% increase in revenue per load as well as structural cost reduction and improvement in network balance. Revenue declined 3.4% year-over-year on a 6% decrease in load count, partially offset by the increase in revenue per load. Sequentially, revenue grew 1.7% up 2.6% increase in load count.

All Other Segments

• Revenue increased 17.7% for the quarter. The operating loss in the seasonally slow period for this category improved $5.9 million or 37.3% year-over-year, primarily driven by growth in the warehousing and leasing businesses

• Projected adjusted EPS for the first quarter of 2026 will be in the range of $0.28 to $0.32.
• Expect a strong bounce back in the all other segments category after its seasonal slow period in the fourth quarter.
• Significantly reduced the range for expected gain on sale based on secondary equipment market trends

• Third-party carrier capacity grew noticeably more difficult to source during the quarter, pressuring gross margins.
• Increase in cargo theft in the industry could further encourage shippers to allocate more business to direct asset-based carrier relationships, potentially pressuring gross margin.
• Regulatory enforcement on smaller carriers caused gains on sale to come in roughly $4 million below the prior quarter level and expectations

Q: Please elaborate on why there's not a more robust outlook for Q1 in light of tailwinds and how to think about Q1 relative to the entirety of the year, and seasonality shifts and margin progression.

A: Adam mentioned that when coming into Q4, projects materialized in October but November volumes were disappointing. Even with strength in late December, it wasn't enough to overcome slower November and holiday disruptions. Andrew added that Q1s are always hard to flex due to seasonality, expecting continued progress on cost and watching LTL volume build.

Q: Regarding priorities and strategic goals, how do margin progression and market play into it, with cost side and revenue side both being factors.

A: Adam said they want to see both revenue and cost improvements. Andrew stated it's a 3-pronged approach: capturing price, bringing volume back, and reducing cost per mile, expecting each to contribute to margin improvement in 2026.

Q: Expand on LTL market insights, market vs network expansion impact, and length of haul expansion's margin implications.

A: Adam said demand shifted downward early in October, had to make cost adjustments. Andrew added they moved to a unified brand to enhance sales efforts, and they're going through network design to bid on new business. Length of haul expansion is still early, with more to come in bids.

Q: Follow-up on brand protection, other brands in portfolio, and TL bid season comments.

A: Adam talked about LTL brand strategy shift to one distinct network for better customer experience. Regarding TL bid season, he's more confident contract rates will be up as capacity exits, with regulatory actions reducing capacity.

Q: Questions on cost-out story progress, rate environment improvement impact on customer contracts, and driver wage risks.

A: Adam said rate is fluid with overflow volumes and spot opportunities for premium. Andrew discussed cost reductions in 2025, continuing projects in maintenance, fuel, insurance, and fixed costs, with AI initiatives to drive efficiency. On driver wages, it's dynamic based on hiring/retaining and market momentum.

Q: Elaborate on shipper commentary on bid season, capacity reductions urgency, and driver wage risks.

A: Adam said it's early bid season with shippers negotiating, some acknowledging risk, others pushing it out. On driver wages, historically share 25-30% of revenue per mile, but now margin to restore before blanket increases.

Q: Dig into truckload and LTL demand and volume improvement commentary.

A: Adam said truckload early January maps were more balanced than typical, leaning towards capacity tightness. LTL saw shipment count restore to normalized levels, with focus on bid season to pick up share.

Q: Bigger picture on prior cycles, pricing cycle, utilization, and driver pay.

A: Adam said goal is to get utilization with price, expecting a more typical cycle. Andrew added they have academies to train drivers and reduced competition from non-compliant academies, positioning well to source drivers