Third-party insurance business Knight-Swift sinks Q4

Third-party insurance business Knight-Swift sinks Q4

A red Knight Transportation tractor pulling a white Knight trailer on the highway

Knight-Swift says it won’t be able to cut rates any further. (Photo: Jim Allen/FreightWaves)

Knight-Swift Transportation’s management sees weak demand in the first quarter, hoping for a normal sequential improvement through the spring. The company reported worse-than-expected fourth-quarter results on Thursday as somewhat favorable trends to start the period turned sour in the closing weeks.

Knight-Swift (NYSE: KNX ) reported a net loss of 7 cents per share for the fourth quarter of 2023. Adjusted earnings per share, excluding acquisition costs, legal fees and impairments related to the sale of equipment, were just 9 cents, compared with a consensus estimate of 44 cents and a prior result of $1.

“The oversupply of the full truckload market combined with customers’ efforts to reduce inventory levels contributed to a challenging operating environment,” said President and CEO Dave Jackson.

The period included an operating loss of $71.7 million in third-party insurance coverage, down 30 cents from the figure. Knight-Swift said it has initiated a process to exit the business as it continues to see unfavorable claims developments among the pool of smaller carriers it brokers. During the recession, the division also struggled to collect premiums from some operators.

All outstanding liability policies will be canceled and the unit will be liquidated during the first quarter. Knight-Swift will still be subject to some claims, but significantly less than the magnitude experienced in recent quarters.

Analysts cut fourth-quarter numbers to a tape, given the slowdown in industry-wide activity in the last two weeks of December.

Using the normal tax rate, higher net interest expense (due to acquisitions) was an 8-cent windfall compared to the prior year, and a lower gain on equipment sales was a 1-cent windfall.

Table: Knight-Swift key performance indicators – ConsolidatedTable: Knight-Swift key performance indicators – Consolidated

Table: Knight-Swift key performance indicators – Consolidated

The company issued guidance for the first half of 2024, compared with the full-year forecast it normally provides in its fourth-quarter report each year. Knight-Swift is calling for adjusted earnings of 90 cents to 98 cents per share for the period (39 cents at the midpoint of that range in the first quarter and 55 cents at the midpoint of the second quarter range).

Management said inclement weather led to a double-digit percentage decline in revenue in the first two weeks of the year, which was partly the reason for the forecast shortening.

The new guidance assumes continued softness in the truck business in the first quarter, with some seasonality in the second quarter. Contract rates are expected to remain consistently stable. Lower truck demand is expected to remain strong as productivity improves.

First-half guidance (at the midpoint) of 94 cents was less than half the consensus estimate of $2.08 at press time. Most analysts expect at least some acceleration in TL fundamentals in the second half of the year.

The TL segment reported a 26% year-over-year increase in revenue (excluding fuel surcharges) to $1.16 billion, driven by a 30% increase in average tractors in service and a 3% decrease in revenue per tractor. The y/y comparison includes the acquisition of US Xpress, which closed on July 1.

Revenue per loaded mile (excluding fuel) fell 12% year over year, which depressed margins. The adjusted operating ratio of 93.9% was 1,120 basis points worse. US Xpress generated adjusted operating income in the period after several quarters of losses. However, the fleet had a speed of 250 bp in the overall segment.

Jackson said only a “minority” of his customers are currently trying to lower prices. He noted that continued rising costs have left him with little room to pass.

“We are not in a position to lower our rates through proposals at this time,” Jackson said.

Table: Key performance indicators of Knight-Swift - TLTable: Key performance indicators of Knight-Swift - TL

Table: Key performance indicators of Knight-Swift – TL

The LTL segment grew 14% year over year in revenue (excluding fuel) to $232 million. Shipments were up 12% year over year and revenue per shipment was up 2% (up 7% excluding fuel). Revenue per hundredweight increased by 10% excluding fuel.

Knight-Swift added 14 LTL terminals to its network in 2023. The company said it will add a total of 25 terminals in 2024, some previously occupied by Yellow Corp. It will take 60 to 90 days from opening to the new terminal, he said. service centers begin to record harmless results.

The LTL unit recorded an adjusted OR of 85.5% during the period, which was flat y/y.

Table: Knight-Swift Key Performance Indicators – LTLTable: Knight-Swift Key Performance Indicators – LTL

Table: Knight-Swift Key Performance Indicators – LTL

Even with the addition of US Xpress, the logistics division posted a 5% decline in annual revenue. Revenue by cargo declined 7% and the segment posted an adjusted OR of 93.1%, which was 670 bps worse.

The intermodal segment lost money for the third quarter. Revenue fell 16% as revenue per load fell 20%, partially offset by a 4% increase in volumes. 104.7% OR was 1000 bps worse y/y.

Table: Knight-Swift Key Performance Indicators – Logistics and IntermodalTable: Knight-Swift Key Performance Indicators – Logistics and Intermodal

Table: Knight-Swift Key Performance Indicators – Logistics and Intermodal

The post Knight-Swift’s Q4 third-party insurance business appeared first on FreightWaves.

Leave a Comment

Your email address will not be published. Required fields are marked *