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    KNF
    Earnings call· Jun 2026(Q2 FY26)

    Knife River Q2 FY26 earnings call KNF

    Aug 4, 2026 Source

    Executive summary

    Knife River Corporation Q2 FY26 — Strong Operational Performance Despite Headwinds

    Knife River delivered solid underlying operational performance in Q2 FY26, achieving strong revenue growth and materials volume increases. Despite significant external headwinds from elevated energy costs, project delays, and an unfavorable project mix impacting adjusted EBITDA, the company's self-help initiatives are yielding results. Management anticipates improved performance in the second half, supported by robust infrastructure funding and strategic acquisitions, as it navigates a competitive market.

    Highlights

    5

    • Revenue increased 13% year-over-year, converting record backlog.

    • Materials product lines (aggregates, ready-mix, asphalt) saw double-digit volume growth.

    • Aggregate pricing increased 8% on a product mix adjusted basis.

    • Adjusted EBITDA, excluding gains on asset sales, was up 7% year-over-year.

    • Ready-mix production costs decreased 6% per cubic yard, and aggregate variable operating costs lowered 1% year-to-date.

    Concerns

    5

    • Adjusted EBITDA on an as-reported basis was flat year-over-year due to external factors.

    • Higher diesel prices drove a $10 million year-over-year increase in costs, with only $4 million recouped in Q2.

    • Project timing shifts due to weather and schedule changes impacted adjusted EBITDA by approximately $10 million.

    • Market dynamics, primarily the type and timing of work, impacted adjusted EBITDA by approximately $8 million.

    • Aggregates gross margin expansion target for the year was revised from 200 basis points to approximately 100 basis points.

    Guidance & targets

    11
    CategoryTargetConfidence
    Revenue
    $3.4 billion to $3.6 billion
    high materiality
    High
    Adjusted EBITDA
    $520 million to $560 million
    high materiality
    High
    Aggregates volumes
    up high single-digits
    medium materiality
    Medium
    Aggregates pricing (as-reported)
    up mid-single-digits
    medium materiality
    Medium
    Ready-mix volume growth
    mid-teen volume growth
    medium materiality
    Medium
    Asphalt volumes
    up high-single-digits
    medium materiality
    Medium
    Maintenance and improvements capex
    between 5% and 7% of revenue
    medium materiality
    High
    SG&A as a percent of revenue
    broadly in line with last year
    low materiality
    Medium
    Net leverage
    near our long-term target of 2.5x
    high materiality
    High
    Adjusted EBITDA recognition
    55% of our adjusted EBITDA
    medium materiality
    Medium
    Aggregates gross margin expansion
    in that 100 basis point range
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Central
    Driven by the North Dakota DOT budget and the fully integrated teams at Strata and Knife River. Strata is expected to have a record year in 2026 and outperform original EBITDA projections by more than 15%. Benefiting from industrial projects like data centers and power generation.
    Third-party sales: up 34% for the quarter
    		———21% better in EBITDA
    West
    Impacted by delayed P209 project in Hawaii ($3M impact), late construction season start in Alaska (several million dollar impact), and competitive dynamics in Oregon impacting Northern California. Full-year performance expected to be slightly down from prior expectations.
    Backlog: down 16%
    		down 9%———
    Contracting Services
    Revenue growth due to increased paving projects. Gross margins declined related to market dynamics (type of work and timing of incentives) and lower-margin legacy projects from recent acquisitions in the Mountain segment. Expects margins to improve in H2 as legacy jobs are completed and project bonuses are received.
    		up 20%——decline in gross margins

    Operational metrics

    22
    Adjusted EBITDA (excluding asset sales)
    up 7%YoY
    Q2 FY26

    Excluding gains on asset sales from Q2 this year and Q2 last year.

    Adjusted EBITDA (as-reported)
    flatYoY
    Q2 FY26

    On an as-reported basis, adjusted EBITDA was flat with last year related to a few external factors.

    Diesel cost increase
    $10MYoY
    Q2 FY26

    Higher diesel prices drove an increase in cost.

    Fuel surcharge recoupment
    $4M
    Q2 FY26

    Recouped through fuel surcharges.

    Fuel escalator recovery (expected)
    $4M
    Q3 FY26

    Expected to recover through escalators on DOT contracts, with a 1 to 2 month lag.

    Project timing shift impact on Adjusted EBITDA
    $10M
    Q2 FY26

    Estimated impact from project schedule changes and weather-related delays.

    Market dynamics impact on Adjusted EBITDA
    $8M
    Q2 FY26

    Estimated impact from type and timing of work, primarily affecting contracting services margins.

    Aggregate variable operating costs
    down 1%
    YTD FY26

    Lowered despite increased energy costs and inflationary headwinds.

    Ready-mix cubic yards per delivery hour
    improved 12%
    Q2 FY26

    Improved efficiency by ready-mix crews.

    IIJA funds unspent
    38%
    current

    Percentage of Infrastructure Investment and Jobs Act funds yet to be spent in the company's operating states.

    SG&A increase (excluding asset sales)
    3.5%YoY
    Q2 FY26

    SG&A costs were up, excluding gains on asset sales.

    Maintenance and improvements spend
    $48M
    Q2 FY26

    Investment in maintaining fixed assets and improving operations.

    Growth initiatives spend
    $35M
    Q2 FY26

    Investment in acquisitions and organic expansion.

    Net leverage
    3.2x3.1x at this time last year
    end of June FY26

    Net leverage at the end of the second quarter, compared to the prior year.

    Adjusted EBITDA recognition
    55%
    Q3 FY26

    Expected percentage of full-year adjusted EBITDA to be generated in the third quarter.

    Asphalt paving volume
    44% moreYoY
    Q2 FY26

    Increased volume of asphalt paving performed in the quarter.

    Aggregates gross profit
    12% increaseYoY
    Q2 FY26

    Overall increase in gross profit for the aggregate product line.

    Ready-mix gross profit
    21% over last yearYoY
    Q2 FY26

    Higher gross profit for the ready-mix product line.

    Asphalt gross profit
    24% increaseYoY
    Q2 FY26

    Increase in gross profit for the asphalt product line.

    Aggregates delivery volume
    41% moreYoY
    Q2 FY26

    Increased volume of aggregates delivered.

    Ready-mix production costs
    decreased 6%per cubic yard
    Q2 FY26

    Reduction in production costs for ready-mix.

    Asphalt production costs
    reduced 10%per ton
    Q2 FY26

    Reduction in production costs for asphalt.

    Industry KPIs

    7
    MetricValueDetails
    Energy cost hedging$10 millionUSD
    Volume by product linedouble-digit%
    Pricing by product line8%%
    Paving contracting backlog$1.2 billionUSD
    Infrastructure funding exposure38%%
    M a pipeline bolt on acquisitions16acquisitions
    Segment revenue EBITDA growth by segment21% better%

    Orderbook & backlog

    1
    Total backlog$1.2 billionQ2 FY26

    expanded by approximately $50 million sequentially

    Deals & partnerships

    2
    StrataExpanded presence in key markets within the central region, added significant aggregate reserves and rail distribution sites, strengthened vertical integration.

    Successfully integrated, contributing to the Central segment and capturing synergies.

    TexcreteExpected to double ready-mix volumes in Texas.

    Early synergies captured related to purchasing power, teams are being integrated.

    Capital programs

    1
    Sioux Falls Rail-Served Quarryunderway$85 million
    Spent to date: $85 million
    Start: Over the past several quarters

    Benefit: 70 million tons of high-quality quartzite reserves, access to 2 Class I railroads, expands rail service in South Dakota and establishes rail distribution into Nebraska and Iowa

    One of the largest organic investments, intended to expand market reach, enhance distribution capabilities, and serve as a long-term replacement for the primary quarry near Sioux Falls.

    Risks & headwinds

    5
    Higher diesel pricesQ2 FY26, expected to remain elevated through remainder of year

    $10 million year-over-year increase in costs

    Mitigation: Recouped $4 million through fuel surcharges in Q2; expect to recover an additional $4 million through escalators on DOT contracts in Q3.

    Project timing shiftsQ2 FY26, some projects pushed to 2027

    Impacted adjusted EBITDA by approximately $10 million

    Mitigation: Projects have not been canceled; revenue and earnings opportunities remain, but shifted to later timeframes.

    Market dynamics (type and timing of work)Q2 FY26, incentives expected in H2

    Impacted adjusted EBITDA by approximately $8 million

    Mitigation: Expect to pick up gains on jobs in the second half of the year as projects near completion; additional paving benefits pull-through of higher-margin materials.

    Lower-margin legacy projects from acquisitionsQ2 FY26, expected to impact H2

    Decline in gross margins for contracting services

    Mitigation: Expect improvement as these legacy jobs are completed and replaced with new work.

    Competitive bidding environment in contracting servicesQ2 FY26, ongoing

    Putting some pressures on our contracting services margins

    Mitigation: Made a conscientious decision to bid asphalt paving at a more competitive margin to secure work and benefit from the pull-through of higher-margin materials.

    What to watch in Q3 FY26

    5

    Fuel escalator recovery

    Q3 FY26
    Current$4M recouped in Q2
    TargetAdditional $4M recovered

    Why it matters

    This will offset a significant portion of the diesel cost headwind experienced in Q2, impacting overall profitability.

    We expect to recover an additional $4 million through escalators on our DOT contracts. However, that won't occur until the third quarter as there are a 1 to 2 month lag between incurring the costs and recovering them from public agencies.

    Q&A highlights

    6

    How did the prior year's asset sale gains distort SG&A and adjusted EBITDA optics in Q2 and H1, and what's the outlook for H2?

    Nathan explained that SG&A was up $12.5 million year-over-year, but excluding asset sale gains ($10.3 million last year vs. $0.6 million this year), SG&A was up only 3.5%. Adjusted EBITDA, excluding these gains from both periods, was up 7% year-over-year, indicating strong underlying operational performance. SG&A as a percent of revenue is expected to be comparable to last year for the full year.

    “If we set those aside and first just look at SG&A, our costs were actually up 3.5% within SG&A, again, setting those gains aside. So first of all, I mean, we continue to manage our SG&A well, and I'll just note here, we expect overall, excluding gains -- or including the gains, excuse me, to be comparable to last year as a percent of revenue.”

    asked by Kathryn Thompson · answered by Nathan Ring

    2 min read6 chapters

    Detailed Narrative

    01

    Operational Execution & Self-Help Initiatives

    Knife River demonstrated strong operational execution in Q2 FY26, successfully converting a record backlog into a 13% year-over-year revenue increase. The company's self-help initiatives, including price optimization and cost controls, are proving effective. For instance, aggregate crews lowered variable operating costs by 1% year-to-date despite inflationary pressures, and ready-mix crews improved cubic yards per delivery hour by 12%, showcasing efficient field execution.

    02

    External Headwinds & Mitigation Strategies

    Adjusted EBITDA was impacted by approximately $28 million in Q2 due to external factors. Higher diesel prices increased costs by $10 million, with $4 million recouped through surcharges and an additional $4 million expected from DOT escalators in Q3. Project timing shifts in Texas, Hawaii, and Alaska, caused by weather and schedule changes, resulted in a $10 million impact. Furthermore, market dynamics, including project mix and the timing of📎 incentive bonuses, affected adjusted EBITDA by $8 million, with bonuses anticipated in the second half of the year.

    03

    Infrastructure Funding & End-Market Demand

    The underlying demand for Knife River's products and services remains healthy, supported by robust public funding. Approximately 38% of Infrastructure Investment and Jobs Act (IIJA) funds are yet to be spent in the company's operating states, providing a significant tailwind. Additionally, expanding private opportunities, driven by investments in data center development, semiconductor projects, and energy infrastructure, contribute to a strong and diverse end-market demand.

    04

    Acquisition Strategy & Integration Success

    Acquisitions are a cornerstone of Knife River's growth strategy, with 100 completed since 1992. The company focuses on materials-led transactions in high-growth, mid-sized markets, employing a disciplined integration process. The Strata acquisition, for example, expanded the company's presence in the Central region and is expected to outperform original EBITDA projections by over 15% in 2026, demonstrating successful value creation through integration.

    05

    Organic Investments & Strategic Projects

    Knife River has invested approximately $140 million in organic initiatives over the past 18 months, primarily for aggregate reserve expansions and greenfield developments. A key project is an $85 million rail-served quarry near Sioux Falls, expected to be operational in the first half of next year, which will enhance distribution and lower delivery costs. The Spokane prestressed facility also secured a substantial contract for a semiconductor facility in Idaho, highlighting the value of strategic organic growth.

    06

    Balance Sheet & Capital Allocation

    The company maintains a strong balance sheet and liquidity to support growth. It amended its Term Loan B credit agreement, increasing borrowed amounts by $400 million while lowering interest rates, enhancing financial flexibility. Net leverage stood at 3.2x at the end of June, compared to 3.1x last year, with an expectation to end FY26 near the long-term target of 2.5x with no outstanding revolving credit facility borrowings.

    AI-generated summary of the company’s earnings call. Not investment advice.