Knight-Swift again eyes big rate increases as new bid season nears

TL margins turn the corner

The company’s TL unit reported a 6.5% y/y revenue increase, excluding fuel. Revenue per tractor (ex-fuel) was up 11% y/y while the average tractor count was down 4%.

Knight-Swift has been culling its truck fleet through the downturn to improve asset utilization. Loaded miles per tractor increased 1%, which was an eighth straight y/y improvement. Deadhead was down 170 basis points y/y to 12.1%. Revenue per loaded mile (ex-fuel) increased 10% y/y. (The metric was up by a mid-teen percentage in its over-the-road service.)

An 89.2% adjusted operating ratio (inverse of operating margin) was 700 bps better y/y and in line with the midpoint of management’s guidance range. U.S. Xpress, which was acquired in 2023, operated at a low-90% adjusted OR in the quarter while Knight-Swift’s legacy brands operated at 88%. Management noted that one-way margins exceeded dedicated margins in the period. (Approximately 29% of Knight-Swift’s TL fleet operates under dedicated contracts.)

The carrier is meaningfully pricing freight above cost inflation. During the first quarter, an increase in revenue per total mile (ex-fuel) lagged the increase in cost per mile (net of fuel surcharges) by 90 bps. The spread flipped to 390 bps positive in the second quarter, with rate gains outpacing cost inflation by 840 bps in the third quarter.

The company is again calling for 650 to 750 bps of y/y TL margin improvement in the fourth quarter, implying an 85.9% adjusted OR (330 bps better sequentially). Its guidance also calls for revenue to increase y/y by a low-double-digit percentage (ex-fuel).

It said it will look to selectively grow the fleet, but acknowledged “sourcing quality drivers is as challenging as it has been in years.” Knight-Swift’s new bid season kicks off next month and it will ask for “at least double-digit [rate] increases” for starters, Miller said on Wednesday evening call with analysts.

“I think we’ll start the bid season with the idea of probably low-to-mid double digits and see how it develops from there.”

National LTL map may be completed organically

Knight-Swift entered the less-than-truckload market in 2021 when it acquired AAA Cooper. It added Midwest Motor Express later that year and Dependable Highway Express in 2024. It has opened over 50 locations organically over the past five years, including four new locations in May.

However, it still needs to fill in the Northeast portion of the map to complete a true national network. It said Wednesday it has already chosen a few locations in the region and plans to add terminals organically at a “very deliberate” pace.

Revenue at the unit was up less than 1% y/y (ex-fuel) as tonnage increased 3% and revenue per hundredweight (ex-fuel) fell 1%. Increases in weight per shipment (+5%) and length of haul (+6%) had mostly offsetting impacts on yield.

Revenue per shipment (ex-fuel) increased 4% y/y. Contractual rate renewals were up by a mid-single-digit percentage.

The LTL unit booked a 91.4% adjusted OR, 80 bps worse y/y. A $4.6-million decline in gains on sale was a 130-bp y/y margin headwind.

The company’s fourth-quarter outlook calls for a high-single- to low-double-digit y/y increase in revenue (ex-fuel), with 100 to 200 bps of y/y margin improvement, implying a 93.6% OR at the midpoint of the range.

Other Q3 takeaways

The logistics unit reported 120 bps of y/y margin improvement to a 93.1% adjusted OR. Brokerage gross margin increased 110 bps y/y to 18.9% (350 bps better sequentially) as the company “maintained a disciplined approach to profitability and carrier selection.”

The intermodal unit booked a second straight operating profit (97.8% adjusted OR). Load counts increased 13% y/y to the highest level in over five years and revenue per load was 15% higher (up 5.5% y/y ex-fuel).

Knight-Swift issued fourth-quarter adjusted EPS guidance of 78 to 84 cents, which bracketed the 82-cent consensus estimate at the time of the print.

The third-quarter adjusted EPS number benefitted y/y from a $22-million reduction in net interest expense (10 cents per share), a lower tax rate (5 cents per share) and a slight increase in gains on equipment sales (1 cent per share). However, the other income line was down $3.5 million y/y (2 cents per share).

Why it matters? Knight-Swift is the nation’s largest asset-based TL carrier and serves as a bellwether for market trends. The company’s third-quarter results highlight that the market has transitioned from a cyclical downturn to a structural recovery.

More FreightWaves articles by Todd Maiden:

• Heartland Express sees earnings turnaround in Q3
• Werner Enterprises issues Q3 profit warning
• J.B. Hunt experiences growing pains in Q3