Knife River (KNF) Q2 FY26 earnings call: guidance and Q&A

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

What are the specific drivers (regional, product mix) behind the underlying business gains, particularly in the product line, despite contracting services headwinds?

Brian highlighted the Central segment's outstanding performance (21% EBITDA increase year-over-year), driven by increased third-party sales (up 34%), strong North Dakota DOT budget work, and successful integration of Strata (outperforming EBITDA projections by 15%). The Texcrete acquisition is also performing well, despite weather impacts, and data center construction is contributing.

“As you saw in the earnings release, the Central segment certainly had an outstanding quarter, 21% better in EBITDA year-over-year. And that's being driven by a number of different things in the Central region.”

asked by Kathryn Thompson · answered by Brian Gray

Given H1 performance and Q2 headwinds, can the company still reach the upper end of its FY26 guidance range, and what are the seasonality effects for the rest of the year?

Brian stated that the $24 million-ish in Q2 headwinds (energy, project delays, market dynamics) mean the company will likely hit the midpoint of guidance. Nathan clarified that 55% of adjusted EBITDA is expected in Q3, with the remainder in Q4, similar to prior year seasonality, assuming normal weather and stable energy costs.

“So we are guiding more towards the midpoint of our guidance range that we gave earlier in the year. And as you're looking to see how to model that for your look-forward pieces, we're very similar actually to what we see in the prior year in terms of when EBITDA will be recognized. So we're actually looking at about 55% of our adjusted EBITDA to be generated in the third quarter and the remainder, of course, into the fourth quarter.”

asked by Brent Thielman · answered by Nathan Ring

Given energy cost headwinds, is the 200 basis points aggregates margin expansion target still achievable for the year?

Brian revised the aggregates margin expansion target to "in that 100 basis point range" for the year, down from 200 basis points. This adjustment is due to the continued impact from fuel costs, fuel surcharges (which are at cost), and increased delivery volumes (which typically have lower margins).

“I don't know that we're going to be able to hit the 200. I would say that a safer bet right now would be in that 100 basis point range based on what we're projecting for the continued impact on fuel, the fuel surcharge, the increase in delivery, some of the other headwinds.”

asked by Trey Grooms · answered by Brian Gray

Are competitive dynamics forcing the company to be more aggressive in bidding for contracting services work, or are the Q2 headwinds largely transitory?

Brian confirmed that competitive dynamics are impacting contracting services margins, particularly in regions like Oregon where limited bid lettings force contractors into adjacent states. The company made a "conscientious decision" to bid more aggressively to secure asphalt paving work, leveraging the benefit of pull-through for higher-margin materials.

“Yes, I mean, there are competitive dynamics that are feeding into that lower margin, specifically on contracting services... We made the conscientious decision... to get more aggressive because we know there's a benefit of the pull-through of those higher-margin materials.”

asked by Trey Grooms · answered by Brian Gray

Why was West revenue down 9% and backlog down 16%, especially given the prior expectation for Oregon to be broadly in line with last year?

Brian attributed the West's underperformance to delayed projects in Hawaii ($3M impact), a late construction season start in Alaska (several million dollar impact), and competitive dynamics in Oregon impacting Northern California. While Oregon was broadly in line with expectations for H1, very limited new bid lettings in Q2 mean the full year will likely be slightly down from expectations. Positive signs include strong aggregate sales in Portland and a large prestress contract in Idaho.

“And then what's going on in Oregon and the impact it's having on Northern California and the competitive dynamics that those market dynamics did have an impact for the quarter... And so I would say that from our expectations of being broadly in line for the entire year, that I think that we're going to be slightly down from that.”

asked by Rohit Seth · answered by Brian Gray