There has been a lot of talk about the improvement in the U.S. economy, yet Knight-Swift Transportation (KNX 50.70, +5.36, +11.8%), a multiple truckload and logistics services company, had the action in the fourth quarter that proved such talk isn't cheap.
The company's business was robust, evidenced by an increase in average revenue per tractor for its Truckload (+6.7%), Dedicated (+2.6%), and Refrigerated (+0.7%) segments. The Intermodal segment, meanwhile, enjoyed an 8% increase in revenue per container.
Total revenue in the fourth quarter increased 370.2% to $1.36 billion, bolstered by the acquisition of Swift Transportation in September 2017. Revenue was in-line with analysts' average expectation, but adjusted earnings of $0.52 per diluted share exceeded analysts' average expectation by a comfortable margin.
The latter is among the reasons investors have responded favorably to the company's earnings report. Another key driver was the company's acknowledgment that the freight environment continued to strengthen in the fourth quarter and "showed more staying power than is typical into late December and January."
Business could have been even better in the fourth quarter, yet Knight-Swift continued to face challenges finding qualified drivers. A lack of drivers led to a 2.5% decrease in utilization for the Truckload segment and caused a sequential decrease of 423 tractors in the Swift fleet during the quarter.
The shortage of drivers has created some some wage pressures for the company, but Knight-Swift helped mitigate profit margin concerns with the declaration that it expects to meet its merger synergy goals. Furthermore, the company said it expects contract rates to increase high single-digits to low double-digits throughout 2018.
Shares of KNX have enjoyed an outsized gain following the report and have trucked their way to a new all-time high. At the current price, KNX is up 16.0% year-to-date and is trading at approximately 25x estimated 2018 earnings.
In a research note this morning, Cowen said it was raising its price target on the stock to $46 from $38, but cited valuation as a reason why it was staying on the sidelines for now.