Knight-Swift Earnings Call: Cost Wins, Cautious Outlook

Knight Transportation ((KNX)) has held its Q4 earnings call. Read on for the main highlights of the call.

Knight-Swift Balances Cost Wins With Market Headwinds in Cautious Earnings Call

The overall tone of Knight-Swift’s latest earnings call was cautiously constructive. Management highlighted clear operational progress—most notably in truckload cost control, growing less-than-truckload (LTL) revenue, intermodal cost improvements, and ongoing technology investments—while acknowledging that these gains were partially masked by a large noncash impairment, modest revenue and earnings contraction, margin pressure in key segments, a weaker used-equipment market, and higher tax rates. Executives remained guarded about the near term but expressed growing confidence that tightening capacity and internal efficiency levers could support margin recovery later in 2026.

Truckload: Earnings Growth Despite Lower Revenue

Knight-Swift’s core Truckload segment delivered a rare combination in a weak freight market: higher earnings on lower revenue for full-year 2025. Adjusted operating income increased by $28 million even as truckload revenue excluding fuel surcharge fell by $125 million. The company held truckload cost per mile flat versus 2024, despite loaded miles declining roughly 3.6%, underscoring disciplined cost management. The performance suggests the carrier is defending profitability through tight expense control and network discipline, even as volumes and pricing remain under pressure.

Sequential Margin Improvement in a Soft Truckload Market

Truckload also showed sequential operating margin improvement in the fourth quarter despite demand that came in weaker than management had expected. Revenue per loaded mile, excluding fuel and intersegment activity, increased 0.7% year over year and improved 1.4% sequentially. That pricing resilience, combined with cost discipline, allowed Knight-Swift to expand truckload margins quarter-on-quarter, a key data point for investors looking for early signs of a cyclical inflection in the truckload market.

LTL: Strong Top Line, But Margin Pressure

The LTL business remained a growth engine on the revenue side. In Q4, LTL revenue excluding fuel rose 7.0% year over year, shipments per day increased 2.1%, and revenue per hundredweight (excluding fuel) climbed 5.0%. However, scaling the network is coming at a cost. Adjusted operating income in LTL fell 4.8% year over year, and the adjusted operating ratio widened by about 60 basis points as growth in facilities and doors outpaced shipment growth. The segment is clearly winning share and pricing, but the margin drag from network expansion remains an overhang near term.

Intermodal: Cost Gains Offset Volume Weakness

Intermodal showed meaningful cost progress even as volumes slipped. The segment’s adjusted operating ratio improved by 140 basis points year over year to 100.1%, essentially breakeven, supported by a 2.8% increase in revenue per load and sequential gains in revenue and load count of 1.7% and 2.6%, respectively. Still, overall intermodal revenue declined 3.4% year over year as load count dropped 6.0%. The business is moving in the right direction operationally, but demand remains soft enough to keep profitability just below the target range.

“All Other” Segments: Growth and Narrowing Losses

The diversified “All Other” category—largely warehousing and leasing—was a relative bright spot. Revenue grew 17.7% year over year, and the segment reduced its seasonal operating loss by $5.9 million, a 37.3% improvement. This suggests Knight-Swift’s broader logistics and asset-light offerings are gaining traction and could become a more meaningful contributor when seasonal patterns normalize and volume improves, particularly given management’s expectation for a strong bounce back after the Q4 trough.

Consolidated Performance: OR Creep and EPS Decline

At the consolidated level, Knight-Swift’s metrics reflected the tough operating environment. Revenue excluding fuel slipped 0.4% year over year in Q4, while adjusted operating income declined 5.3%. The consolidated adjusted operating ratio worsened by 30 basis points year over year and 20 basis points sequentially to 94.0%. Adjusted EPS fell to $0.31 in Q4 2025, down from $0.36 a year earlier—about a 13.9% decline—highlighting the earnings drag from softer demand, margin pressure in certain segments, and rising tax rates despite the company’s cost-saving initiatives.

GAAP Results Hit by Noncash Impairment

GAAP results were sharply affected by a sizable noncash impairment. Knight-Swift recorded $52.9 million of impairment charges in the fourth quarter, primarily tied to combining the Abilene operations into Swift. This pushed GAAP diluted earnings per share into a loss of $0.04, compared with GAAP EPS of $0.43 in the prior-year quarter. While noncash and strategic in nature, the impairment underscores the ongoing portfolio and brand rationalization within the company’s broader truckload network.

Segment-Level Pressure: Truckload, LTL, Logistics and Intermodal

Under the surface of the consolidated numbers, several segments showed profit pressure. In Q4, truckload revenue excluding fuel dropped 2.4% year over year, and adjusted operating income fell $9.2 million, or 10.7%, as loaded miles declined roughly 3.3%. In Logistics, revenue was down 4.8%, volumes slipped 1%, and gross margin deteriorated to 15.5%, falling 180 basis points year over year and 230 basis points sequentially; the adjusted operating ratio rose to 95.8%. Intermodal, despite cost improvements, remained near breakeven with an adjusted OR at 100.1%. Taken together, these results highlight that pricing and volume headwinds are still weighing on profitability across much of the portfolio.

Secondary Equipment Market Weakness and Tax Headwinds

The weakening secondary equipment market added another layer of pressure. Gains on equipment sales came in about $4 million below Knight-Swift’s prior-quarter expectations, driving management to narrow and reduce its gain-on-sale outlook going forward. On top of that, tax rates moved higher. The effective tax rate on GAAP results rose to 21.6%, up 820 basis points year over year, while the non-GAAP effective tax rate climbed to 23.1%, up 460 basis points. These tax headwinds further compressed net income, limiting the benefit of operational improvements elsewhere.

Seasonality and Disappointing Q4 Demand

Q4 demand dynamics fell short of historical patterns. Management noted that truckload did not experience the typical broad-based seasonal lift until late in the quarter. Seasonal project work tapered off more quickly than usual, and border blockades impaired productivity, particularly in the TransMex cross-border operations. These disruptions contributed to weaker-than-expected volumes, exacerbating the impact of lower miles and intensifying the challenge of leveraging fixed costs during what is usually a stronger seasonal period.

Early Signs of a Tighter Freight Market

Even as Q4 volumes disappointed, Knight-Swift pointed to emerging signs of market tightening exiting 2025 and into early January. The company reported higher tender rejection rates, an improved spread between spot and contract rates—the best since early 2022—and a better-than-normal first-quarter network balance. Management attributes these trends largely to industry capacity erosion and increased regulatory enforcement. For investors, these indicators suggest the freight cycle could be turning, potentially setting the stage for improved pricing power and margin expansion later in 2026.

Technology and Operational Levers for 2026

Knight-Swift is leaning heavily into technology to drive the next leg of margin improvement. The company is rolling out a suite of tech-enabled tools—including artificial intelligence, advanced planning and routing systems, and fuel-optimization programs—designed to enhance asset utilization, cut variable costs, and improve revenue capture. While most of the benefits are expected to materialize in 2026, management framed these investments as critical to sustaining lower cost per mile and better network performance as the market tightens.

LTL Network Capacity and Growth Ambitions

Management also spotlighted the long-term growth runway in LTL. The current LTL infrastructure, according to the company, can support approximately $2.0 billion in annualized revenue, indicating substantial unused capacity. Door count expanded about 10% year over year through the opening of a new center and the upgrade of another. While this expansion has compressed margins in the short term, it positions Knight-Swift to capture incremental volume and pricing gains over time as freight demand and network density improve.

Forward-Looking Guidance and Outlook

Knight-Swift’s guidance for the first quarter of 2026 reflects cautious optimism. The company projected adjusted EPS of $0.28 to $0.32, assuming generally stable current conditions, normal seasonal softening in truckload, and a seasonal recovery in LTL. Management expects a strong rebound in the “all other” category following its Q4 seasonal trough and highlighted continued cost progress, noting that truckload cost per mile was flat in 2025 despite a 3.6% decline in miles and is expected to improve further in Q1. LTL is anticipated to move back toward roughly 20% of the revenue mix next quarter. The guidance is also underpinned by tightening capacity dynamics—higher rejection rates and a more favorable spot-versus-contract spread—but executives cautioned that results remain sensitive to changes in market conditions and the weaker secondary equipment market.

In closing, Knight-Swift’s earnings call painted the picture of a carrier grinding through the late stages of a down cycle while investing for the upturn. Operationally, the company is extracting cost efficiencies, growing LTL and ancillary businesses, and deploying technology that should support better margins once demand recovers further. Near-term results remain pressured by soft volumes, margin compression in key segments, higher taxes, and a weaker used-equipment market, with a notable noncash impairment clouding GAAP earnings. For investors, the story hinges on whether emerging signs of market tightening and the company’s internal efficiency levers can translate into a meaningful earnings rebound as 2026 progresses.