Knight-Swift Transportation (KNX)

Freight delivery company Knight-Swift Transportation (NYSE:KNX) announced better-than-expected revenue in Q1 CY2025, but sales were flat year on year at $1.82 billion. Its non-GAAP profit of $0.28 per share was 18.7% above analysts’ consensus estimates.

Company Overview

Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE:KNX) offers less-than-truckload and full truckload delivery services.

The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Competitors offering similar products include C.H. Robinson (NASDAQ:CHRW), Expeditors (NYSE:EXPD), and FedEx (NYSE:FDX).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Knight-Swift Transportation’s sales grew at a solid 9.2% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Knight-Swift Transportation’s recent performance shows its demand has slowed as its annualized revenue growth of 1.2% over the last two years was below its five-year trend. We also note many other Ground Transportation businesses have faced declining sales because of cyclical headwinds. While Knight-Swift Transportation grew slower than we’d like, it did do better than its peers.

This quarter, Knight-Swift Transportation’s $1.82 billion of revenue was flat year on year but beat Wall Street’s estimates by 1.6%.

Looking ahead, sell-side analysts expect revenue to grow 4.3% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Knight-Swift Transportation’s unit economics are better than the typical industrials business, signaling its products are somewhat differentiated through quality or brand. As you can see below, it averaged a decent 30.1% gross margin over the last five years. Said differently, Knight-Swift Transportation paid its suppliers $69.89 for every $100 in revenue.

Knight-Swift Transportation’s gross profit margin came in at 41.8% this quarter, marking a 17.7 percentage point increase from 24.1% in the same quarter last year. Knight-Swift Transportation’s full-year margin has also been trending up over the past 12 months, increasing by 2.9 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Knight-Swift Transportation has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 9.8%, higher than the broader industrials sector.

Looking at the trend in its profitability, Knight-Swift Transportation’s operating margin decreased by 9 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Knight-Swift Transportation, its EPS declined by 9.9% annually over the last five years while its revenue grew by 9.2%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Knight-Swift Transportation’s earnings can give us a better understanding of its performance. As we mentioned earlier, Knight-Swift Transportation’s operating margin declined by 9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Knight-Swift Transportation, its two-year annual EPS declines of 47.4% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q1, Knight-Swift Transportation reported EPS at $0.28, up from $0.12 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Knight-Swift Transportation’s full-year EPS of $1.22 to grow 60.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Knight-Swift Transportation has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.2% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Knight-Swift Transportation’s margin dropped by 10.6 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

Knight-Swift Transportation broke even from a free cash flow perspective in Q1. This result was good as its margin was 5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Knight-Swift Transportation historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.2%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Knight-Swift Transportation’s ROIC averaged 3.8 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Knight-Swift Transportation reported $344.6 million of cash and $3.41 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.10 billion of EBITDA over the last 12 months, we view Knight-Swift Transportation’s 2.8× net-debt-to-EBITDA ratio as safe. We also see its $81.22 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Knight-Swift Transportation beat analysts’ revenue and EPS expectations this quarter. On the other hand, its EPS guidance for next quarter missed significantly. Overall, we think this was a mixed quarter. The market seemed to focus on the negatives, and the stock traded down 3.4% to $38.25 immediately following the results.

Updated: May 16, 2025 at 11:18 PM EDT

Before deciding whether to buy Knight-Swift Transportation or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We see the value of companies helping their customers, but in the case of Knight-Swift Transportation, we’re out. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s growth in unit sales was surging, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets.

Knight-Swift Transportation’s P/E ratio based on the next 12 months is 23.3x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $49.61 on the company (compared to the current share price of $45.32).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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