Knight-Swift Transportation (NYSE:KNX) Posts Better-Than-Expected Sales In Q1 – Yahoo Finance

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. Although this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

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Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

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.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

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 shorter period to see if we are missing a change in 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%.

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.

Is Knight-Swift Transportation an attractive investment opportunity at the current price? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.