Knight-Swift projects Q4 adjusted EPS of $0.34–$0.40 as LTL network growth boosts margins

Earnings Call Insights: Knight-Swift Transportation Holdings Inc. (KNX) Q3 2025

MANAGEMENT VIEW

* CEO Adam Miller indicated the freight market remains uncertain, with shippers hesitant and demand patterns deviating from seasonal norms. Miller noted, "the third quarter brought more proactive customer discussions around peak season projects than we have seen since 2021," though he cautioned that visibility into sustained volume build remains low and the company is taking a cautious approach for Q4.
* The company is seeing "less churn of incumbent lanes and growth in awarded volume with low single-digit rate improvement" in early bid season activity. Miller highlighted that customers are increasingly consolidating carrier relationships, focusing on "increasing volumes with quality asset-based carriers."
* Recent regulatory enforcement—particularly regarding English language proficiency and non-domiciled CDL standards—is expected to drive capacity attrition, especially in the one-way over-the-road market, which accounts for 70% of Knight-Swift's truckload business. Miller stated, "If enforcement efforts are sustained and effective, there could be a meaningful shift in the supply-demand dynamic in 2026."
* The company announced consolidation of its LTL business under the AAA Cooper brand. Miller explained, "The consolidated branding recognizes that we are already one business operating seamlessly on one system through one network."
* CFO Andrew Hess said, "our GAAP results from the current quarter include $58 million of significant unusual items." These included trade name impairments, insurance and claims costs, and a loss contingency related to the exit from third-party carrier insurance, which negatively impacted adjusted operating income by $23.2 million and adjusted EPS by $0.10.

OUTLOOK

* Management projects adjusted EPS for Q4 2025 in the range of $0.34 to $0.40. This assumes "current conditions persist and that we experience some seasonality."
* Truckload operating income is expected to improve sequentially in Q4, primarily from operating margin improvement on flat revenue, with modest sequential improvement in revenue per mile and a slight seasonal decline in utilization.
* LTL is anticipated to show continued year-over-year revenue growth and similar adjusted operating margins year-over-year for Q4. Logistics is projected to see sequential increases in revenue and earnings, while Intermodal's contribution is expected to remain stable.
* Full year net cash CapEx is projected between $475 million to $525 million, and the effective tax rate for Q4 on adjusted results is expected to be 23% to 24%.

FINANCIAL RESULTS

* Revenue, excluding fuel surcharge, increased by 2.4% year-over-year. Operating income declined by $31.1 million or 38.2% year-over-year, primarily due to unusual items totaling $58 million.
* Adjusted operating income increased 14.2% year-over-year, driven by growth in the LTL, warehousing, and leasing businesses, offsetting loss contingency and claims costs.
* GAAP EPS for Q3 2025 was $0.05, compared to $0.19 in Q3 2024. Adjusted EPS was $0.32, down 5.9% year-over-year.
* The consolidated adjusted operating ratio was 93.8%, flat year-over-year and sequentially. The effective tax rate on GAAP results was 47%.
* LTL revenue, excluding fuel surcharge, grew 21.5% year-over-year, with shipments per day up 14.2%. Adjusted operating income for LTL increased 10.1%, with an adjusted operating ratio improvement of 250 basis points from Q2.
* Logistics revenue declined 2.2% year-over-year, but adjusted operating income grew 1.9%. Intermodal revenue fell 8.4% year-over-year, but adjusted operating ratio improved by 160 basis points.
* The "all other" category saw revenue increase 29.9% and operating income rise 86.4% year-over-year, driven by warehousing and leasing growth.

Q&A

* Scott Group, Wolfe Research: Asked about a significant drop in "all other" segment results in Q4 and the impact of regulatory changes on capacity. CEO Miller confirmed, "that's correct... It's really driven by our warehousing business where we have a lot of work that we do that's somewhat front-loaded in the year, and there's a lot that just doesn't happen in the fourth quarter."
* Richa Harnain, Deutsche Bank: Questioned LTL margin guidance and synergy opportunities. CFO Hess said, "Pricing has been disciplined. We've not seen any pattern of change there. What we're seeing is some softness. Now it's early in the quarter."
* Ariel Rosa, Citigroup: Asked about cost-cutting progress. CFO Hess detailed advancements in fixed and variable cost reductions, emphasizing "Our goal is to reduce our equipment cost per mile year-over-year each quarter."
* Ken Hoexter, BofA Securities: Sought clarity on adjusted EPS accounting and Q4 demand seasonality. CEO Miller explained, "we adjusted out the impairments, but not the claims expense."
* Ravi Shanker, Morgan Stanley: Queried capacity tightness and bid season. CEO Miller confirmed that no additional capacity tightening is reflected in Q4 guidance.
* Thomas Wadewitz, UBS: Asked about pricing needs for truckload margin improvement. CEO Miller responded, "early in the bid season... probably getting the low single-digit pricing... if that leads to additional volumes and productivity, then yes, that can improve margins."
* Reed Seay, Stephens: Inquired about contract negotiations and leverage from tightening capacity. CEO Miller said, "that's going to be really case by case with our customers."

SENTIMENT ANALYSIS

* Analysts pressed on the sustainability of LTL margins, cost reductions, and regulatory impacts, reflecting a slightly skeptical and cautious tone, particularly regarding the outlook and Q4 seasonality.
* Management maintained a generally confident tone in prepared remarks, with some caution in Q&A. CEO Miller frequently addressed uncertainty, especially regarding demand and regulatory impact, but stated, "we believe the value we deliver through our scale, flexibility and service has allowed us to maintain most of our volume in a challenging market."
* Compared to the previous quarter, analyst questions became more focused on margin sustainability and regulatory headwinds, while management's tone shifted from optimism about cost controls to a more measured confidence amid external challenges.

QUARTER-OVER-QUARTER COMPARISON

* Q3 guidance was more cautious, with Q4 adjusted EPS projected at $0.34–$0.40, compared to previous Q3 guidance of $0.36–$0.42 for Q3.
* Management noted a stronger focus on regulatory enforcement and its potential impact on capacity, which was less emphasized in Q2.
* Analysts in Q3 concentrated more on the nuances of LTL margin sustainability and regulatory risk, whereas Q2 focused on cost-cutting and recovery from market softness.
* Management's confidence in their cost structure improvements and ability to leverage scale remains, but there is an increased emphasis on monitoring regulatory headwinds and managing seasonality.

RISKS AND CONCERNS

* Management highlighted regulatory risks, specifically regarding non-domiciled CDL enforcement and English language proficiency, which could reduce available capacity and impact the one-way over-the-road market.
* Unusual items such as trade name impairments, insurance and claims settlements, and loss contingencies continued to pressure results and created volatility in earnings.
* LTL demand softness was noted early in Q4, with management responding by accelerating cost and yield initiatives to mitigate margin pressure.
* Analyst questions reflected concerns about the timing and impact of regulatory changes, LTL demand softness, and the sustainability of recent margin improvements.

FINAL TAKEAWAY

Management emphasized that while the environment remains uncertain, the company is positioned to benefit from regulatory-driven capacity attrition, disciplined cost controls, and expanded branded LTL operations. The cautious Q4 outlook reflects both seasonal headwinds and external regulatory risks, but ongoing productivity initiatives and a diversified revenue base support Knight-Swift's confidence in achieving improved profitability as market dynamics evolve and normalization begins to take effect.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/knx/earnings/transcripts]

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