Knife River Corp., an aggregates-led, vertically integrated construction materials and contracting services company, announced financial results for the second quarter ended June 30. Knife River reported second quarter consolidated revenue of $785.2 million, a 10% increase from the prior-year period, led by strong results in each region and more than 10% price increases across all consolidated product lines.
“I am excited to highlight our record results, including our all-time second quarter highs in revenue, net income and EBITDA,” said Brian Gray, Knife River president and CEO. “I want to thank our team members at Knife River for driving our success as a new independent, public company. We successfully completed the tax-free separation from MDU Resources Group, Inc. during the quarter, and we are now better positioned to effectively allocate both capital and resources, and to generate long-term value for our shareholders.
“Reflecting on the quarter, each of our regions benefited from disciplined materials pricing, targeted bidding and solid execution, which are key components of our ‘Competitive EDGE’ strategy – Knife River’s plan for increasing adjusted EBITDA margins and executing on other key initiatives aimed at continued profitable growth,” Gray continued. “As we head into the heart of the construction season, we look to further leverage our aggregates-led, vertically integrated business model to take advantage of industry tailwinds.
“Looking to the future, we remain optimistic that the demand environment, including local, state and federal funding, will continue to support strong construction activity,” Gray said. “This funding has contributed to a record $1.04 billion in contracting services backlog at improved margins. We anticipate steady demand in the high-growth, mid-sized markets in which we operate and are further encouraged by aggregates opportunities currently within our acquisition pipeline. Since our spin-off, we have paid down $35 million in debt to reduce our net leverage to 2.3x EBITDA, providing us even more financial flexibility to invest and grow our business.”
Gray concluded, “Based on our results from the first half of 2023, and the demand we are anticipating for the remainder of the second half of the year, we have raised our revenue guidance to a range of $2.6 billion to $2.8 billion, and raised EBITDA guidance to a range of $320 million to $370 million for fiscal year 2023. To help provide a clear comparison to last year and account for certain one-time costs related to our separation from MDU Resources, we also are transitioning to adjusted EBITDA guidance of $330 million to $380 million. We are highly committed to our EDGE plan, including 15% annual adjusted EBITDA margins by 2025, industry-leading return on invested capital and long-term value creation.”
Regional results are as follows:
Pacific (California, Hawaii)
Second quarter revenue improved $13.8 million year-over-year to $142.2 million, led by strengthened results in Hawaii as the local economy continues to regain momentum through tourism and military spending. The segment also benefited from strong product pricing through continued EDGE-related pricing initiatives, as well as from increased ready-mix volumes in Northern California based in part on its late 2022 acquisition in Modesto. Partially offsetting the region’s increased revenues were lower asphalt volumes and decreased contracting services revenues, both resulting from the late start to the construction season. EBITDA increased $6.8 million year-over-year to $22.0 million, the highest level for the second quarter since 2020, as the region saw higher realized prices and lower equipment operating costs, mainly fuel.
Northwest (Oregon, Washington)
Second quarter revenue improved $28.0 million year-over-year to $179.0 million, led by strong product pricing and increased demand for contracting services. EBITDA increased $17.5 million year-over-year to $40.7 million, supported by consistent market demand and continued EDGE-related pricing initiatives. Contracting services backlog increased 52% year-over-year to an all-time record $257.3 million.
Mountain (Idaho, Montana, Wyoming)
Second quarter revenue improved $5.4 million year-over-year to $175.8 million, with strong product pricing more than offsetting the absence of a significant airport project that largely occurred in the prior-year period. EBITDA increased $4.0 million year-over-year to $32.6 million, supported by demand and pricing momentum. Contracting services remains highly active across all markets, with backlog at an all-time second quarter high of $377.3 million, an 8% increase year-over-year.
North Central (Iowa, Minnesota, North Dakota, South Dakota)
Second quarter revenue improved $20.4 million year-over-year to $187.6 million, led by strong product pricing across all product lines. EDGE-related aggregate price increases in the region more than offset lower volumes. EBITDA increased $8.3 million year-over-year to $24.4 million. Contracting services also began to benefit from the new EDGE-aligned bidding strategy, positively impacting current results and backlog margins. Second quarter backlog decreased 13% year-over-year to $255.4 million.
All Other and intersegment eliminations (Iowa, Nebraska, North Dakota, South Dakota, Texas, Wyoming)
Second quarter revenue improved $5.8 million year-over-year to $100.6 million, as a result of higher average selling prices for asphalt products and ready-mix concrete, offset in part by the sale of non-strategic assets in southeast Texas in December 2022. EBITDA improved $1.2 million year-over-year to $5.4 million as a result of increased pricing, partially offset by higher corporate costs as a result of Knife River standing itself up as a publicly traded company.