Knight-Swift revs up earnings, M&A

North America’s largest provider of truckload services reported a net income of $70.4 million in its second full quarter of post-merger operation.    Knight-Swift Transportation Holdings Inc., the parent company formed from the $6 billion merger of Phoenix-based trucking giants Knight Transportation and Swift Transportation, recorded a net income of $70.4 million for the first quarter of 2017, its second full quarter of post-merger operation.
   Now the largest provider of truckload services in North America, the company posted adjusted earnings per share of $0.44, beating consensus analyst expectations by $0.04 per share, but its $1.27 billion in revenues missed expectations by $30 million.
   Given that Knight and Swift had been operating as two separate, competing entities until Sept. 8, 2017, year-over-year income and revenue comparisons would not be meaningful, but the first-quarter results were a marked decline from the fourth quarter of 2017. The company reported earnings of $447.6 million ($2.50 per share) on revenues of $1.4 billion for the fourth quarter, but those figures included an income tax benefit of $364.2 million from recent tax reform legislation enacted in the United States.
   Knight-Swift reported net earnings of $484.3 million ($4.34 per share) on $2.4 billion in revenues for the full year in 2017.
   Group CEO Dave Jackson said the first-quarter results were “encouraging,” as freight demand exceeded seasonal averages, but were weighed down by a continued shortage of qualified truck drivers across the industry.
   That shortage of drivers, coupled with increased demand and stricter adherence to federal hours-of-service regulations following the implementation of mandatory electronic logging devices, has caused pricing for both full truckload and less-than-truckload services to surge over the last several months, with domestic U.S. TL rates rising for the 12th consecutive month on a year-over-year basis in March, according to analysts at Cass Information Systems.
   “Our results for the first quarter were encouraging, reflecting further progress on synergy opportunities across our brands and continued strength in freight demand and pricing, a marked improvement over the difficult first quarter of last year,” Jackson said. “Freight demand was generally strong across our network on a better-than-seasonal basis throughout the quarter.
   “At the same time, given tight unemployment and our uncompromising commitment to safety, we continue to face perhaps the most difficult driver-sourcing challenge we have seen, which is a headwind on our unseated truck count and utilization metrics,” said Jackson. “We expect this driver environment will persist, and as a result, sourcing and retaining drivers remains a top priority across our fleets. We are increasing our efforts and our investment in recruiting and retaining professional drivers for our asset-based businesses.
   “Our average tractor counts in the first quarter were down 1.9 percent at Knight and 8.0 percent at Swift year-over-year, though on a sequential basis we achieved a slight increase in the Knight fleet, prior to acquisitions, and slowed the decline in the Swift fleet,” he added. “We continue to focus on improving yield to support driver wages and improved profitability.”
   Jackson also noted the company’s acquisition of Abilene Motor Express of Richmond, Va., for an undisclosed sum in March.
   In addition to annual revenues of roughly $100 million in 2017, Abilene operates a fleet of about 400 trucks, additional capacity that could help Knight-Swift to capitalize on the ever-tightening truck market.
   “Similar to the approach we took with Barr-Nunn, we will maintain the brand and work with management to realize synergies,” Jackson said. “We are excited to have Abilene as part of our broader family of businesses.”
   Shares of Knight-Swift have fallen 7.4 percent since the announcement of its first-quarter earnings last Wednesday, closing at $39.01 Monday night.