Knife River Corporation (NYSE:KNF) is an aggregates-led construction materials and contracting services provider in the United States. The company operates across 14 states through five reportable segments: Pacific, Northwest, Mountain, Central, and Energy Services. Knife River's 1.1 billion tons of aggregate reserves provide the foundation for its vertically integrated business strategy, with approximately 37% of its aggregates in 2023 being used internally to support value-added downstream products and contracting services.
Business Overview
Knife River is strategically focused on being the provider of choice in mid-size, high-growth markets and is committed to its plan for continued growth and delivering for its stakeholders. The company supplies construction materials to customers and also provides related contracting services, which are primarily to public-sector customers for the development and servicing of highways, local roads, bridges, and other public-infrastructure projects.Knife River has broad access to high-quality aggregates in most of its markets, which forms the foundation of its vertically integrated business model. The company shares resources, including plants, equipment, and people, across its various locations to maximize efficiency. Knife River also transports its products by truck, rail, and barge to complete the vertical value chain, depending on the particular market.
The company's strategically located aggregate sites, ready-mix plants, and asphalt plants, along with its fleet of ready-mix and dump trucks, enable it to better serve its customers. Knife River believes its integrated and expansive business model is a strong competitive advantage that provides scale, efficiency, and operational excellence for the benefit of customers, stockholders, and the broader communities that it serves.
Financials
In the first quarter of 2024, Knife River reported revenue of $329.6 million, a 7% increase from the same period in the prior year. The company's annual revenue for 2023 was $2.83 billion. Gross profit for the first quarter of 2024 was $6.5 million, compared to $4.1 million in the same period of 2023.Knife River's net income for 2023 was $182.9 million, and its operating cash flow was $319.0 million. The company's free cash flow for the year was $194.7 million.
Segment Performance
Knife River's Pacific segment reported a 19% increase in revenue for the first quarter of 2024, driven by higher contracting services revenues in northern California and increased pricing for most product lines. However, gross profit and gross margin decreased due to higher repair and maintenance costs as the segment had an earlier start preparing for the construction season.The Northwest segment achieved record first quarter revenue and EBITDA, with improved gross margins on contracting services and aggregates. This was driven by EDGE-related pricing initiatives and solid execution of early season construction work.
In the Mountain segment, EBITDA decreased $2.3 million, largely due to the absence of $2 million in asset sales from the first quarter of 2023, despite a strong and earlier start to the construction season in Idaho and Montana.
The Central segment had improved revenue on increased pricing across all four product lines, partially offset by a normal seasonal loss as less construction activity is typically completed in the first quarter in these northern markets.
The Energy Services segment delivered solid revenue growth in the first quarter, benefiting from strong demand in the California and Texas markets.
Outlook
For the full year 2024, Knife River is reaffirming its financial guidance. The company expects consolidated revenue between $2.75 billion and $2.95 billion, and consolidated adjusted EBITDA between $425 million and $475 million. This includes adjusted EBITDA of $375 million to $415 million for the geographic segments, including corporate services, and $50 million to $60 million for the Energy Services segment.Knife River anticipates average selling prices for its product lines to improve mid to high-single digits, while volumes are expected to be flat to down low-single digits compared to 2023. The company's contracting services backlog of $959.5 million at the end of the first quarter was higher than the prior year and included higher expected margins.
Liquidity
Knife River ended the first quarter of 2024 with $128 million of available cash and $329 million of available capacity on its revolving credit facility. The company's net leverage position was 1.3 times adjusted EBITDA, compared to its long-term target of 2.5 times.Knife River's strong cash generation and liquidity position allow it to reinvest within its existing operations, as well as pursue strategic acquisitions. The company made organic investments in the first quarter, including a greenfield ready-mix operation in Iowa, a liquid asphalt expansion in South Dakota, and multiple plant upgrades. Knife River also acquired a small ready-mix operation in South Dakota on April 3, 2024.
The company's corporate development pipeline remains active, and it intends to stay disciplined in its approach to capital allocation, ensuring that it pursues high-quality assets that support its growth strategy, return on invested capital, and margin improvement.