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Knife River Corp 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Knife Riv Holding Co.

Filing date:

02/21/2025

TLDR:

Knife River Corp’s 2024 10-K filing shows revenue growth and improved margins driven by pricing initiatives and strategic acquisitions. However, increased expenses and commodity price fluctuations pose risks, suggesting a ‘Hold’ recommendation.

ELI5:

Knife River, a construction materials company, made more money this year because they charged more and bought another company. But they also spent more and face some risks, so it’s best to wait and see how things go before investing.

Accession #:

0001955520-25-000010

Published on

Analyst Summary

  • Revenue increased from $2,830.3 million in 2023 to $2,899.0 million in 2024 (2% increase).
  • Gross Profit increased from $538.9 million in 2023 to $569.8 million in 2024 (6% increase).
  • Gross Margin improved from 19.0% in 2023 to 19.7% in 2024.
  • EBITDA increased from $422.0 million in 2023 to $454.3 million in 2024 (8% increase).
  • EBITDA Margin improved from 14.9% in 2023 to 15.7% in 2024.
  • Adjusted EBITDA increased from $432.4 million in 2023 to $463.0 million in 2024 (7% increase).
  • Adjusted EBITDA Margin improved from 15.3% in 2023 to 16.0% in 2024.
  • Aggregate Reserves: 1.2 billion tons.
  • Internal Sales: Approximately 37% of aggregates used internally.
  • Backlog: $745.6 million.

Opportunities and Risks

  • Competition: Operates in a highly competitive industry.
  • Commodity Prices: Exposed to fluctuations in prices for commodities, labor, and other inputs.
  • Weather Conditions: Business is seasonal and subject to weather conditions.
  • Acquisition Integration: Risks associated with integrating acquired businesses, such as the pending Strata acquisition.
  • Cybersecurity: Vulnerable to technology disruptions and cyberattacks.
  • Debt: Substantial indebtedness and potential for additional debt.
  • EDGE Strategy: Focused on EBITDA margin improvement, discipline, growth, and excellence.
  • Vertical Integration: Integrated business model provides scale, efficiency, and operational excellence.
  • Strategic Acquisitions: Acquisition of Strata Corporation expected to enhance market position.
  • Public Sector Spending: Benefiting from government-funded infrastructure projects.

Potential Implications

Company Performance

  • Increased selling, general, and administrative expenses.
  • Exposure to commodity price volatility.
  • Reliance on government funding for infrastructure projects.

Stock Price

  • Price-to-Earnings Ratio (P/E): 26.20, higher than the industry average.
  • Price-to-Book Ratio (P/B): 3.56, higher than the industry average.
  • Price-to-Sales Ratio (P/S): 1.81, higher than the industry average.
  • Enterprise Value to EBITDA (EV/EBITDA): 12.21, higher than the industry average.

Knife River Corp (KNF) 10-K Filing Analysis – FY2024

Executive Summary

This report analyzes Knife River Corp’s 10-K filing for the fiscal year 2024. Key findings include revenue growth driven by pricing initiatives and strategic acquisitions, improved gross margins, and a strong backlog. However, increased selling, general, and administrative expenses and exposure to commodity price fluctuations pose risks. Overall, the company appears to be executing its EDGE strategy effectively, but careful monitoring of cost management and macroeconomic factors is warranted. A ‘Hold’ recommendation is suggested, pending further observation of the Strata acquisition integration and sustained margin improvements.

Company Overview

Knife River Corporation (KNF) is an aggregates-based construction materials and contracting services provider in the United States. The company operates through five reportable segments: Pacific, Northwest, Mountain, Central, and Energy Services. KNF focuses on vertical integration, strategic acquisitions, and operational excellence. A key strategic initiative is the “EDGE” strategy, focusing on EBITDA Margin Improvement, Discipline, Growth, and Excellence.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights revenue growth driven by pricing initiatives and increased contracting services. The MD&A emphasizes the positive impact of the EDGE strategy on profitability and operational efficiency. The narrative aligns with the financial data, showcasing a focus on margin improvement and strategic growth. The pending acquisition of Strata Corporation is presented as a significant growth opportunity.

Financial Statement Analysis

Key Ratios and Trends

  • Revenue: Increased from $2,830.3 million in 2023 to $2,899.0 million in 2024 (2% increase).
  • Gross Profit: Increased from $538.9 million in 2023 to $569.8 million in 2024 (6% increase).
  • Gross Margin: Improved from 19.0% in 2023 to 19.7% in 2024.
  • EBITDA: Increased from $422.0 million in 2023 to $454.3 million in 2024 (8% increase).
  • EBITDA Margin: Improved from 14.9% in 2023 to 15.7% in 2024.
  • Adjusted EBITDA: Increased from $432.4 million in 2023 to $463.0 million in 2024 (7% increase).
  • Adjusted EBITDA Margin: Improved from 15.3% in 2023 to 16.0% in 2024.

Revenue Composition by Segment (2024):

  • Pacific: 17%
  • Northwest: 23%
  • Mountain: 23%
  • Central: 28%
  • Energy Services: 10%

Revenue Composition by Product/Service (2024):

  • Aggregates: 15.8%
  • Ready-mix Concrete: 18.6%
  • Asphalt: 12.6%
  • Liquid Asphalt: 6.8%
  • Contracting Services: 38.6%
  • Other: 7.6%

Uncommon Metrics

  • Aggregate Reserves: 1.2 billion tons, providing a strong foundation for the business.
  • Internal Sales: Approximately 37% of aggregates used internally, highlighting vertical integration.
  • Backlog: $745.6 million, indicating future revenue potential.

Risk and Opportunity Assessment

Risks

  • Competition: Operates in a highly competitive industry.
  • Commodity Prices: Exposed to fluctuations in prices for commodities, labor, and other inputs.
  • Weather Conditions: Business is seasonal and subject to weather conditions.
  • Acquisition Integration: Risks associated with integrating acquired businesses, such as the pending Strata acquisition.
  • Cybersecurity: Vulnerable to technology disruptions and cyberattacks.
  • Debt: Substantial indebtedness and potential for additional debt.

Opportunities

  • EDGE Strategy: Focused on EBITDA margin improvement, discipline, growth, and excellence.
  • Vertical Integration: Integrated business model provides scale, efficiency, and operational excellence.
  • Strategic Acquisitions: Acquisition of Strata Corporation expected to enhance market position.
  • Public Sector Spending: Benefiting from government-funded infrastructure projects.

Red Flags and Key Observations

  • Increased selling, general, and administrative expenses.
  • Exposure to commodity price volatility.
  • Reliance on government funding for infrastructure projects.

Conclusion and Actionable Insights

Knife River Corp’s 2024 10-K filing reveals a company demonstrating solid execution of its strategic initiatives. Revenue growth, margin improvements, and a strong backlog are positive indicators. However, investors should closely monitor the company’s ability to manage costs, integrate acquisitions effectively, and navigate macroeconomic challenges. The ‘Hold’ recommendation reflects a balanced view of the company’s potential and the inherent risks in its industry.

Financial Ratio and Metric Analysis

Profitability:

  • Gross Profit Margin:

    • Calculation: Gross Profit / Revenue = $569.8 / $2,899.0 = 19.66%
    • Trend: Previous year Gross Profit Margin was 19.0%. Percentage change = (19.66% – 19.0%) / 19.0% = 3.47%
    • Industry: The construction materials industry typically sees gross profit margins between 15% and 25%. Knife River’s margin of 19.66% is within this range.
  • Operating Profit Margin:

    • Calculation: Operating Income / Revenue = $316.2 / $2,899.0 = 10.91%
    • Trend: Previous year Operating Profit Margin was 10.47%. Percentage change = (10.91% – 10.47%) / 10.47% = 4.20%
    • Industry: Operating profit margins for construction materials companies are typically between 5% and 15%. Knife River’s margin of 10.91% is within this range.
  • Net Profit Margin:

    • Calculation: Net Income / Revenue = $201.7 / $2,899.0 = 6.96%
    • Trend: Previous year Net Profit Margin was 6.46%. Percentage change = (6.96% – 6.46%) / 6.46% = 7.74%
    • Industry: Net profit margins for construction materials companies are typically between 3% and 8%. Knife River’s margin of 6.96% is within this range.
  • Return on Assets (ROA):

    • Calculation: Net Income / Total Assets = $201.7 / $2,851.2 = 7.07%
    • Trend: Previous year ROA was 7.03%. Percentage change = (7.07% – 7.03%) / 7.03% = 0.57%
    • Industry: ROA for construction materials companies is typically between 4% and 8%. Knife River’s ROA of 7.07% is within this range.
  • Return on Equity (ROE):

    • Calculation: Net Income / Total Stockholders’ Equity = $201.7 / $1,476.1 = 13.66%
    • Trend: Previous year ROE was 14.44%. Percentage change = (13.66% – 14.44%) / 14.44% = -5.40%
    • Industry: ROE for construction materials companies is typically between 10% and 15%. Knife River’s ROE of 13.66% is within this range.
  • Earnings Per Share (EPS) – Basic:

    • Calculation: $201.7 / 56.607 = $3.56
    • Trend: Previous year EPS was $3.23. Percentage change = (3.56 – 3.23) / 3.23 = 10.22%
    • Industry: EPS varies widely.
  • Earnings Per Share (EPS) – Diluted:

    • Calculation: $201.7 / 56.844 = $3.55
    • Trend: Previous year EPS was $3.23. Percentage change = (3.55 – 3.23) / 3.23 = 9.91%
    • Industry: EPS varies widely.

Liquidity:

  • Current Ratio:

    • Calculation: Current Assets / Current Liabilities = $987.7 / $370.0 = 2.67
    • Trend: Previous year Current Ratio was 2.63. Percentage change = (2.67 – 2.63) / 2.63 = 1.52%
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. Knife River’s ratio of 2.67 indicates strong liquidity.
  • Quick Ratio (Acid-Test Ratio):

    • Calculation: (Current Assets – Inventory) / Current Liabilities = ($987.7 – $380.3) / $370.0 = 1.64
    • Trend: Previous year Quick Ratio was 1.62. Percentage change = (1.64 – 1.62) / 1.62 = 1.23%
    • Industry: A quick ratio of 1.0 or greater is generally considered acceptable. Knife River’s ratio of 1.64 indicates good short-term liquidity.
  • Cash Ratio:

    • Calculation: Cash and Cash Equivalents / Current Liabilities = $281.1 / $370.0 = 0.76
    • Trend: Previous year Cash Ratio was 0.71. Percentage change = (0.76 – 0.71) / 0.71 = 7.04%
    • Industry: A cash ratio of 0.5 or greater is generally considered acceptable. Knife River’s ratio of 0.76 indicates a good ability to cover current liabilities with cash.

Solvency/Leverage:

  • Debt-to-Equity Ratio:

    • Calculation: Total Liabilities / Total Stockholders’ Equity = $1,375.1 / $1,476.1 = 0.93
    • Trend: Previous year Debt-to-Equity Ratio was 1.05. Percentage change = (0.93 – 1.05) / 1.05 = -11.43%
    • Industry: A debt-to-equity ratio of around 1.0 is considered normal. Knife River’s ratio of 0.93 indicates a balanced capital structure.
  • Debt-to-Assets Ratio:

    • Calculation: Total Liabilities / Total Assets = $1,375.1 / $2,851.2 = 0.48
    • Trend: Previous year Debt-to-Assets Ratio was 0.51. Percentage change = (0.48 – 0.51) / 0.51 = -5.88%
    • Industry: A debt-to-assets ratio below 0.5 is generally considered good. Knife River’s ratio of 0.48 indicates a healthy level of solvency.
  • Interest Coverage Ratio (Times Interest Earned):

    • Calculation: Operating Income / Interest Expense = $316.2 / $55.2 = 5.73
    • Trend: Previous year Interest Coverage Ratio was 5.10. Percentage change = (5.73 – 5.10) / 5.10 = 12.35%
    • Industry: An interest coverage ratio above 3.0 is generally considered safe. Knife River’s ratio of 5.73 indicates a strong ability to meet its interest obligations.

Activity/Efficiency:

  • Inventory Turnover:

    • Calculation: Cost of Revenue / Average Inventory = $2,329.2 / (($380.3 + $319.6)/2) = 6.66
    • Trend: Data not available to calculate previous year
    • Industry: Inventory turnover varies depending on the specific products. A turnover of 6.66 is reasonable for this industry.
  • Days Sales Outstanding (DSO):

    • Calculation: (Receivables / Revenue) * 365 = ($267.2 / $2,899.0) * 365 = 33.63 days
    • Trend: Data not available to calculate previous year
    • Industry: DSO varies depending on payment terms. A DSO of 33.63 days is reasonable for this industry.
  • Days Payable Outstanding (DPO):

    • Calculation: (Accounts Payable / Cost of Revenue) * 365 = ($140.8 / $2,329.2) * 365 = 22.07 days
    • Trend: Data not available to calculate previous year
    • Industry: DPO varies depending on payment terms. A DPO of 22.07 days is reasonable for this industry.
  • Asset Turnover:

    • Calculation: Revenue / Total Assets = $2,899.0 / $2,851.2 = 1.02
    • Trend: Previous year Asset Turnover was 1.09. Percentage change = (1.02 – 1.09) / 1.09 = -6.42%
    • Industry: Asset turnover varies depending on the capital intensity of the business. An asset turnover of 1.02 is reasonable for this industry.

Valuation:

  • Price-to-Earnings Ratio (P/E):

    • Calculation: Stock Price / EPS = $92.99 / $3.55 = 26.20
    • Trend: Data not available to calculate previous year
    • Industry: The average P/E ratio for the construction materials industry is around 20. Knife River’s P/E ratio of 26.20 is higher than the industry average, suggesting that the stock may be overvalued.
  • Price-to-Book Ratio (P/B):

    • Calculation: Market Cap / Book Value of Equity = (56.612 * $92.99) / $1,476.1 = 3.56
    • Trend: Data not available to calculate previous year
    • Industry: The average P/B ratio for the construction materials industry is around 2.0. Knife River’s P/B ratio of 3.56 is higher than the industry average, suggesting that the stock may be overvalued.
  • Price-to-Sales Ratio (P/S):

    • Calculation: Market Cap / Revenue = (56.612 * $92.99) / $2,899.0 = 1.81
    • Trend: Data not available to calculate previous year
    • Industry: The average P/S ratio for the construction materials industry is around 1.0. Knife River’s P/S ratio of 1.81 is higher than the industry average, suggesting that the stock may be overvalued.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Calculation: (Market Cap + Total Debt – Cash) / EBITDA = ((56.612 * $92.99) + $689.950 – $281.134) / $454.3 = 12.21
    • Trend: Data not available to calculate previous year
    • Industry: The average EV/EBITDA ratio for the construction materials industry is around 10. Knife River’s EV/EBITDA ratio of 12.21 is higher than the industry average, suggesting that the stock may be overvalued.

Growth Rates:

  • Revenue Growth:

    • Calculation: ($2,899.0 – $2,830.3) / $2,830.3 = 2.43%
    • Trend: 2023 vs 2022 was 12%.
    • Industry: The construction materials industry is expected to grow at a rate of around 4% per year. Knife River’s revenue growth of 2.43% is lower than the industry average.
  • Net Income Growth:

    • Calculation: ($201.7 – $182.9) / $182.9 = 10.28%
    • Trend: 2023 vs 2022 was 57%.
    • Industry: The construction materials industry is expected to grow at a rate of around 6% per year. Knife River’s net income growth of 10.28% is higher than the industry average.
  • EPS Growth:

    • Calculation: ($3.55 – $3.23) / $3.23 = 9.91%
    • Trend: Data not available to calculate previous year
    • Industry: EPS varies widely.

Other Relevant Metrics:

  • EBITDA and Adjusted EBITDA: The company presents EBITDA and Adjusted EBITDA as non-GAAP measures. Adjusted EBITDA excludes unrealized gains/losses on benefit plan investments, stock-based compensation, and one-time separation costs. These adjustments are intended to provide a clearer picture of the company’s core operating performance.

    • EBITDA increased from $422.0 million in 2023 to $454.3 million in 2024, a 7.65% increase.
    • Adjusted EBITDA increased from $432.4 million in 2023 to $463.0 million in 2024, a 7.08% increase.
  • Segment Performance: The company reports revenue and EBITDA by segment (Pacific, Northwest, Mountain, Central, and Energy Services). This provides insight into the performance of different geographic regions and business lines.

    • The Northwest segment has the highest EBITDA margin at 21.6%.
    • The Energy Services segment experienced a decrease in revenue but maintains a high EBITDA margin.

Commentary

Knife River Corporation demonstrates a solid financial performance with improvements in profitability metrics such as gross profit margin, operating profit margin, and net profit margin. The company maintains strong liquidity, as indicated by its current ratio, quick ratio, and cash ratio. While revenue growth is modest, net income and EPS growth are robust, suggesting improved efficiency. Valuation ratios, however, indicate that the stock may be overvalued compared to industry averages. Overall, Knife River exhibits financial health, but investors should carefully consider valuation metrics.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️