Knight-Swift Transportation Holdings beat analysts’ profit projections in the third quarter as cost-cutting measures implemented after the acquisition of Swift Transportation in September 2017 compensated for slower-than-expected growth in revenue.
The Phoenix-based corporation said net income attributable to the operations of Knight Transportation and Swift was $105.9 million, or 60 cents a share, on revenue of $1.3 billion in the three months ended Sept. 30. In the same period a year ago, the company reported net income of $3.9 million, or 4 cents a share, on revenue of $521.6 million.
The results are not directly comparable because Swift’s results are counted for only 22 days after the merger with Knight was concluded Sept. 8, 2017.
Knight-Swift revenue in the third quarter of 2018 also includes the operations of Abilene Motor Express, which was acquired earlier this year and whose results are not included in 2017 results.
In a statement Oct. 24, Knight-Swift officials expressed satisfaction with efforts to improve performance across all of the company’s business segments, which include dry van and refrigerated truckload, dedicated contract carriage, intermodal and freight brokerage services.
“Our trucking segments operated on a combined basis at an 84.9 adjusted operating ratio,” the company stated, “and our efforts in the first half of 2018 and into the third quarter resulted in stabilization of the Swift tractor fleet, which ended the third quarter at 14,799 tractors [versus 14,753 at June 30, 2018].”
Efforts to minimize driver turnover at Swift are paying off, and the driver hiring pipeline — including students — is at the highest levels since the merger, the company said.
Christian Wetherbee, an analyst with Citibank in New York, said despite missing revenue targets, operating profits exceeded market estimates by $33 million, or 6 cents a share.
“Swift Truckload still needs work on the tractor side, but profitability was much improved and was a driver of the third-quarter upside,” Wetherbee said in a report for clients.
Knight-Swift also said it has taken steps to improve the performance of the Swift Refrigerated business by investing in additional leadership and other initiatives to boost profits.
“We expect to continue to see further progress into the fourth quarter,” Knight-Swift stated.
The results for each of Knight-Swift’s divisions look like this:
• Knight Trucking generated operating income of $56.5 million on revenue of $256.5 million and produced an adjusted operating ratio of 77.8 in the third quarter of 2018. Average revenue per tractor increased 22.2%, and miles per tractor moved up by 2.8% compared with the same period a year ago.
• Swift Truckload generated operating income of $54 million on revenue of $347.4 million and produced an operating ratio of 86.5. Average revenue per tractor increased 4.2%, but miles per tractor declined 11.1% in response to changes in the mix of freight that resulted in shorter hauls compared with the same period a year ago.
• Swift Dedicated generated operating income of $21.8 million on revenue of $144.4 million, producing an operating ratio of 86.6. Average revenue per tractor was relatively unchanged, but contract rates increased 4.6% compared with the 2017 period.
• Swift Refrigerated generated operating income of $8.2 million on revenue of $188 million, producing an operating ratio of 96.1. Average revenue per tractor increased 6.1% compared with the second quarter of 2018, and miles per tractor was flat.
• Knight Logistics generated operating income of $8.8 million on revenue of $87.9 million, producing an operating ratio of 90.2. Gross revenue from freight brokerage jumped 60.6% year-over-year, and revenue per load increased 7.1%.
• Swift Intermodal generated operating income of $9.4 million on revenue of $103.8 million, producing an operating income of 92.3. Revenue per container increased 17.7% in the third quarter compared with the same period a year ago, and the number of loads increased 2.3%.
Looking ahead, Knight-Swift said it expects to spend $500 million to $550 million on capital goods for the full year in 2018, a higher level than in the past due, in part, to a decision to fund more purchases with cash instead of leasing, which had been the practice at Swift in the past.
Aggregate purchases of equipment and their related life cycles, however, are not expected to change meaningfully, Knight-Swift said.
The company said it still expects rate increases in 2019 to range between 5-10%.