Knight Transportation, Phoenix, saw net income fall in the second quarter, but is "cautiously optimistic" that things are starting to look up.


Total revenue increased 14.4%, to $206.1 million from $180.2 million for the same quarter of 2007. Revenue, before fuel surcharge, increased 1.2%, to $154.8 million from $153.0 million for the same quarter of 2007. Net income decreased to $12.7 million from $18.2 million for the same period of 2007. Net income per diluted share for the quarter was $0.15, compared to $0.21 for the same period of 2007.

The company previously announced a cash dividend increase of $0.01 per share to $.04 per share to shareholders of record on June 6, 2008, which was paid on June 27, 2008.

"Although we are not satisfied with our recent results, we are encouraged and cautiously optimistic that the second quarter reflected a first step toward a more favorable relationship between freight tonnage and industry-wide trucking capacity," said Chairman and CEO Kevin P. Knight. "Our progress during the quarter was attributable to a modest improvement in freight demand, what appears to be a shrinking of available truckload capacity, vigilant management of our asset-based fleet, and continued growth in our non-asset based brokerage operations.

Until the second quarter of 2008, Knight had experienced declining asset productivity in its dry van and refrigerated operations for several quarters. Both miles per tractor and average revenue (excluding fuel surcharges) per total mile had suffered, reflecting a combination of weak freight tonnage, a capacity run-up from large tractor orders by many competitors in 2006-2007, and fleet growth.

During the 2008 quarter, Knight improved average revenue per tractor (excluding fuel surcharges) by 2.5%, compared with the second quarter of 2007. Average revenue per total mile (excluding fuel surcharges) improved approximately 2.7%, aided by higher freight rates and a 160 basis point improvement in non-paid empty miles percentage. Average length of haul decreased slightly by 2.6%, compared with the second quarter of 2007.

"We were especially pleased to achieve these improvements in light of adding 94 tractors to our fleet since the end of the first quarter," said Kevin Knight. "On an average basis, however, we operated 61 fewer tractors than in the second quarter of 2007."

"Despite incremental progress in asset utilization, our regional dry van and refrigerated markets remained highly competitive during the quarter. The short-to-medium dry van market, in particular, experienced increased competition from traditionally long-haul carriers that are seeking shorter loads to avoid price competition with intermodal service. The refrigerated market showed encouraging strength in May and June, and all of our asset-based operations seemed to be shifting toward market equilibrium of capacity and demand as the quarter unfolded."

Knight Brokerage operations expanded 43.2%, excluding intercompany transactions, to $9.7 million in revenue for the second quarter of 2008. For the quarter, Knight Brokerage posted an operating ratio of 96.3% with very little capital deployed in that non-asset based business.

From a profitability perspective, Knight Transportation produced a consolidated operating ratio (total operating expenses, net of fuel surcharge, as a percentage of operating revenue, excluding fuel surcharge) of 86.6%. Knight Dry Van continued to lead the way with an operating ratio of approximately 85.9%. Knight Refrigerated showed significant improvement to post an operating ratio of 88.4%.

The soaring cost of diesel fuel and a softening market for used tractors and trailers negatively affected Knight's results.

"Of the approximately 580 basis point increase in our operating ratio compared with the second quarter of 2007, 325 basis points were attributable to an increase in net fuel expense and decreased gain on sale of equipment," says Kevin Knight. "The balance related to a variety of other expenses that increased somewhat in the quarter. We do not expect that experience to indicate a trend and feel well-positioned on the cost side going forward, excluding the impact of any further spikes in the cost of fuel."

During the second quarter of 2008, Knight opened new service centers in Syracuse, N.Y. (Dry), Nashville, Tenn. (Dry) and Dallas, Texas (Refrigerated).