Knight-Swift Transportation significantly lowered its 2023 full-year outlook Thursday, citing the expectation for further weakness in truckload and intermodal rates, lower gains on equipment sales, and losses at recently acquired U.S. Xpress.
The corporate is now calling for full-year earnings per share of $2.10 to $2.30, well below the prior guide of $3.45 (on the midpoint of the range) and its initial outlook of $4.15 (on the midpoint). Further, the brand new outlook is simply barely greater than half of the $4 EPS mark that management and analysts had previously pointed to as a probable floor during cycle troughs.
The consensus estimate on the time of the Thursday print was $2.76, in response to Yahoo Finance.
Revenue per mile in Knight-Swift’s (NYSE: KNX) truckload segment is now expected to say no between high-single and low-double-digit percentages this yr. The carrier was previously expecting only a high-single-digit decline.
Revenue per loaded mile excluding fuel surcharges was down 11% yr over yr (y/y) within the second quarter. Loaded miles per tractor fell 4%. The mixture led to a 15% y/y decline in revenue per tractor.
Cost inflation and lower equipment utilization weighed on the division’s operating ratio. A 91.8% OR was nearly 1,300 basis points worse y/y. Management said the period represented the bottom utilization rate for any second quarter in the corporate’s history, citing soft demand and a good labor market because the detractors. Nevertheless, it said the metric bottomed in April and improved through the rest of the quarter.
Lower gains on sale were a perpetrator as well. Guidance for gains on the sale of apparatus was lowered by $5 million on each end of the brand new range of $10 million to $15 million per quarter.
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Management also called out weakness within the intermodal unit as a reason for the guidance reduction. Intermodal loads were 4% higher y/y within the quarter, but revenue per load fell 25% y/y (15% lower sequentially). The unit posted a 106.4% OR, booking a $6.6 million operating loss.
The outlook calls for breakeven leads to intermodal during 2023, with volumes improving y/y but rates being further pressured.
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Other headwinds caused management to reel in guidance.
It said the U.S. Xpress operations, which weren’t included in prior guidance, will probably be a 25-cent to 30-cent drag within the back half of the yr. Higher rates of interest are roughly a 35-cent headwind y/y, and a loss in its third-party insurance business, versus the prior outlook for a profit, is a 45-cent hit to the unique outlook.
The U.S. Xpress acquisition is predicted to be accretive in 2024, with the unit seeing breakeven operating leads to the primary half of the yr. The longer-term goal of $1 in adjusted EPS by 2026 was reiterated.
“If past cycles are any indication, the longer the time spent at the underside, the more pronounced the rebound might be,” President and CEO Dave Jackson said. “As such, while we diligently control costs and mitigate risk in the present environment, we’re positioning our business for the eventual recovery.”
The corporate is seeing some uptick in demand in its less-than-truckload segment, partially on account of the troubles at carrier Yellow Corp. (NASDAQ: YELL). Management said it has the capability to soak up as much as double-digit increases in volumes and can look to be “opportunistic” in acquiring terminals that turn into available available on the market, just like what it did when Central Freight Lines shut down.
“We stand able to help and serve our customers, especially in the event that they are coping with some uncertainty along the way in which,” Jackson said.
Shipments per day in LTL were down 4% y/y within the quarter and weight per shipment was off 1%. Nevertheless, revenue per hundredweight excluding fuel increased 7%. The unit booked an 85.1% OR, which was 640 bps worse y/y.
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Consolidated second-quarter earnings per share of 49 cents were greater than 90 cents lower y/y and eight cents light of consensus.
Headwinds included higher interest expense (5 cents), a loss in its third-party insurance business on account of unfavorable claims development (7 cents) and lower gains on sale (4 cents), amongst other items. Nevertheless, the carrier didn’t must contend with the 16-cent hit it took a yr ago on account of valuation changes in its equity stake in Embark Trucks. That position was liquidated when the corporate was taken private in May.
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Management expects the loss in its insurance business to be roughly $10 million within the back half of 2023 in comparison with $38 million in the primary half. It’s “temporarily reducing exposure to 3rd party insurance risk in an unusually difficult environment for small operators,” and can work to boost premiums on its book of business.
“We’re confident that our margins will return in a short time when the market improves,” said CFO Adam Miller.
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