Knife River (NYSE:KNF) reported second-quarter revenue growth of 13% year over year as it converted a record backlog into higher sales, while adjusted EBITDA was flat on a reported basis amid higher diesel costs, weather-related project delays and lower-margin contracting work.
President and Chief Executive Officer Brian Gray said adjusted EBITDA increased 7% from the prior-year period when excluding gains on asset sales in both quarters. He characterized the company’s underlying operating performance as solid, citing double-digit volume growth in materials, higher gross profit across aggregates, ready-mix and asphalt, and an 8% increase in aggregate pricing on a product-mix-adjusted basis.
Fuel, Weather and Project Timing Weighed on Results
Gray said higher diesel prices raised costs by approximately $10 million year over year during the quarter. Knife River recovered $4 million through fuel surcharges in the second quarter and expects to recoup an additional $4 million through escalators in Department of Transportation contracts during the third quarter, reflecting a one- to two-month lag in public-agency reimbursements.
The company estimated that project timing shifts and adverse weather reduced quarterly adjusted EBITDA by about $10 million. In Texas, excessive rain and schedule changes delayed asphalt production and paving on two major highway projects. In Hawaii, a modified construction schedule delayed the P-209 project, affecting concrete and cement volumes. Alaska’s unusually cold winter extended road restrictions until June 15, delaying the construction season by more than a month.
Gray said the affected projects were not canceled, but some of the expected work has shifted to later periods. In particular, most of the volume missed on the Texas highway projects is expected to move into 2027 because crews already have full schedules for the rest of the current year.
Contracting-services results also reflected a change in the type and timing of work. The company performed more asphalt paving during the quarter, which Gray described as lower-risk and generally lower-margin work than the larger general-contracting roadway expansion jobs performed a year earlier. He said performance and quality bonuses on paving jobs are typically received later in projects, and Knife River expects to recognize some of those gains during the second half.
The company estimated that these market dynamics, including the timing of project incentives, reduced second-quarter adjusted EBITDA by approximately $8 million.
Materials Volumes Rise Across Product Lines
Chief Financial Officer Nathan Ring said aggregate volumes increased 14%, supported primarily by internal demand from the company’s downstream operations. About 75% of aggregate volume growth came from legacy operations and 25% from acquisitions, Gray said. Knife River now expects full-year aggregate volumes to rise by a high-single-digit percentage.
Reported aggregate pricing rose 3%, but Ring said the figure was affected by sales of 630,000 tons of lower-priced natural fines. Adjusting for product mix, aggregate pricing increased 8%. The company continues to expect aggregate pricing to rise by a mid-single-digit percentage on a reported basis for the full year.
Aggregate gross profit increased 12%, though gross margin declined slightly because of increased delivery volumes and higher fuel costs. Aggregate deliveries rose 41% year over year, and delivery revenue and fuel surcharges generally carry lower margins than materials sold at company plants.
- Ready-mix volumes increased 15%, aided by the Texcrete acquisition, while gross profit rose 21% and gross margin improved 80 basis points.
- Asphalt volumes rose 24%, including a 44% increase in internal asphalt volumes tied to more paving activity. Gross profit also increased 24%, while gross margin improved 50 basis points.
- Contracting-services revenue increased 20%, although margins declined due to project mix, incentive timing and lower-margin legacy jobs acquired in the Mountain segment.
Ring said the acquired legacy projects are being completed and replaced with new work, with most of the remaining impact expected to occur in the third quarter. He said Knife River expects second-half contracting-services margins to be in line with those reported in the second half of the prior year.
Backlog, Guidance and Capital Allocation
Knife River expanded backlog by about $50 million sequentially to $1.2 billion at the end of the second quarter. Ring said the company expects approximately 55% of its full-year adjusted EBITDA to be generated in the third quarter, assuming normal weather and stable operating conditions.
The company raised its 2026 revenue outlook to a range of $3.4 billion to $3.6 billion and reaffirmed adjusted EBITDA guidance of $520 million to $560 million. Ring said the company is guiding toward the midpoint of that EBITDA range following the second-quarter headwinds.
During the quarter, Knife River invested $48 million in maintenance and operational improvements and $35 million in growth initiatives, including acquisitions and organic expansion. It also amended its Term Loan B agreement, increasing borrowings by $400 million while lowering its interest rate. Net leverage was 3.2 times at the end of June, compared with 3.1 times a year earlier.
Acquisitions and Organic Growth Projects
Gray said acquisitions remain a central component of Knife River’s growth strategy. Since its 2023 spin-off, the company has integrated 16 acquisitions. He highlighted Strata, which expanded Knife River’s Central segment and added aggregate reserves and rail distribution sites. Supported by a record North Dakota DOT budget and full integration efforts, Knife River expects Strata to post a record year and exceed its original EBITDA projections by more than 15%.
The company has invested about $140 million in organic initiatives over the past 18 months, primarily in aggregate reserve expansions and greenfield projects. One major project is an approximately $85 million rail-served quarry near Sioux Falls, South Dakota, with roughly 70 million tons of quartzite reserves and access to two Class I railroads. The first phase is expected to become operational in the first half of next year.
Gray also said Knife River’s Spokane, Washington, prestress facility secured a substantial contract during the second quarter to supply components for a semiconductor facility in Idaho. He said the company sees growing opportunities tied to data centers, advanced manufacturing, energy infrastructure and future bridge replacement work.
Gray closed by noting that the company recorded the safest second quarter in its history and said management remains focused on execution during the remainder of the construction season.
About Knife River (NYSE:KNF)
Knife River Corporation, headquartered in Bismarck, North Dakota, is a leading integrated construction materials and contracting company in the western United States. The company specializes in producing and supplying aggregates, asphalt mix, ready-mixed concrete and other heavy construction materials used in highway, commercial and residential projects.
In addition to material production, Knife River offers a comprehensive suite of contracting services, including heavy civil construction, road building, underground and open-pit mining and logistics support.
