‘Very weak demand’ prompts Knight-Swift to make a bigger-than-expected outlook cut; analysts downgrade

Knight-Swift (NYSE:) lowered its full-year profit outlook, sending its shares 5% lower in premarket Friday trading.

The company Q2 EPS of $0.49 on revenue of $1.6 billion. Analysts were looking for a profit per share of $0.59 on revenue of $1.6B.

As a result, KNX lowered its full-year EPS outlook to a range of $2.1-$2.3, a significant downward revision to the prior forecast for earnings of $3.35-$3.55 per share. Analysts were expecting a profit per share of $2.68.

David Jackson, CEO of Knight-Swift, commented, “The absence of typical seasonal demand support reached its fourth consecutive quarter, with absolute demand falling to its lowest point yet for our truckload businesses in April before stabilizing at modestly better levels for the balance of the quarter. Logistics continues to navigate a very weak demand environment while maintaining a low 90’s operating ratio despite being at the point of the cycle where purchased transportation costs seem to be finding a floor while contractual pricing continues to erode.”

“We will continue to take steps in pursuit of long-term opportunities, such as our acquisition of U.S. Xpress earlier this month. We are excited to now be fully working together to accomplish the significant goals we have laid out for this business. We have already begun to realize meaningful cost improvement and are positioning the business to benefit from an eventual rate rebound.”

Following weak results, Evercore ISI analysts downgraded the stock to In Line from Outperform with a $52 per share price target.

“We are moving to the sidelines until there is more clarity on potential margin expansion and EPS growth next year and/or KNX’s revenue/EBIT pie changes more materially to incorporate stickier and higher-margin end markets (i.e., LTL). The final negative catalyst may have arrived in the 2Q earnings release and new guide, but with the stock up on the year and the 2023 EPS outlook now halved from January, the valuation doesn’t work, no matter what part of the cycle the TL market is currently in (interestingly, despite 4 consecutive guide downs, we still haven’t missed the opportunity for a downgrade, as the willingness to ‘buy the trough’ in the shares was so strong all year),” the analysts explained in a downgrade note.

BofA analysts remain Buy-rated on KNX shares “as we move past trough earnings into a potential freight inflection.”

“While near-term earnings remain pressured, we expect significant positive leverage for KNX given its leading operating focus,” the analysts added.