Knife River Corp. announced financial results for the third quarter ended Sept. 30, reporting consolidated revenue of $1,090.4 million, a 12% increase from the prior-year period, led by strong results in each region and double-digit price increases across all core product lines.
EDGE-related price optimization and bidding strategies contributed to a 47% year-over-year increase in net income, to $146.7 million, and a 43% year-over-year increase in Adjusted EBITDA, to $247.5 million. Also contributing to the year-over-year improvement in quarterly results were historically high profits at our Energy Services business, as well as EDGE initiatives focused on enhancing productivity and operational excellence.
Contracting services backlog was $732.2 million at improved margins and higher total profit relative to the same time last year.
Third quarter revenue improved $29.0 million year-over-year to $181.4 million, driven by increased volumes from previously delayed work, and rebounding market activity driving all product lines. The segment continues to benefit from higher realized prices across its markets.
Contracting services revenue increased 12%, again largely related to the completion of work that had been delayed by weather earlier in the year. EBITDA improved $13.0 million year-over-year to $37.6 million, an all-time record, led by strong volumes at improved margins.
“We have achieved record financial results in consecutive quarters, driven in part by our ‘Competitive EDGE’ strategy and in part by the strong markets where we operate,” said Brian Gray, Knife River president and CEO. “Our third quarter 2023 revenue, net income, EBITDA and Adjusted EBITDA were better than any quarter in Knife River history.
“I would like to thank our entire Knife River team for their continued discipline in executing our EDGE plan to increase Adjusted EBITDA margins and deliver on our strategic goals,” Gray said. “A key part of that plan is optimizing our pricing to fully realize the value of our core products – aggregates, ready-mix concrete and asphalt – as well as our contracting services. Price increases outpaced costs for the quarter and positively contributed to our margins, as we made further progress toward our previously stated margin-expansion goals. On the contracting services side, we continued to be more selective by targeting higher-margin projects. This approach, combined with the timing of bid lettings in our states, has contributed to a lower backlog than third quarter 2022. However, the work in the backlog reflects improved margins and higher total profit than the prior year’s backlog.
“We remain optimistic about the long-term strength of our markets, including the positive impact from local, state and federal funding,” Gray said. “As of August, nearly $80 billion in funding from the Infrastructure Investment and Jobs Act has been allocated to projects in states where Knife River operates. Additionally, states are also approving their own infrastructure spending, with Texas and Minnesota each recently announcing significant new funding for transportation infrastructure.
“Given our results for the first nine months of the year, we have raised and narrowed our guidance for revenue and Adjusted EBITDA,” Gray said. “We expect full year 2023 revenue in the range of $2.7 billion to $2.8 billion and Adjusted EBITDA in the range of $400 million to $430 million. We are committed to our EDGE plan, to improving margins, to providing industry-leading return on invested capital, and to upholding our ‘Life at Knife’ culture – being a great place to work and putting people first.”
Idaho, Montana, Wyoming
Third quarter revenue improved $51.0 million year-over-year to $255.1 million, led by strong commercial, residential and public agency activity within the contracting services business. Volumes increased across all product lines and the segment benefited from improved product pricing. EBITDA improved $20.8 million year-over-year to an all-time record of $60.4 million. Contracting services revenue increased 29% and the segment realized higher margins, benefiting from sustained market strength.
Iowa, Minnesota, North Dakota, South Dakota
Third quarter revenue improved $10.8 million year-over-year to $305.1 million. Strong price increases across all product lines more than offset volume declines. EBITDA improved $11.9 million year-over-year to an all-time record of $70.5 million. Strong execution and the implementation of new bidding strategies to target higher-margin work has begun to lift margins toward EDGE-related goals. Contracting services revenues and gross margins were also positively impacted by improved bid margins across the region and job productivity gains.
All Other and Intersegment Eliminations
Iowa, Nebraska, South Dakota, Texas, Wyoming, Corporate
Third quarter revenue improved $19.5 million year-over-year to $139.4 million, as a result of historically strong market conditions at the Energy Services business as well as improved materials market conditions in the South Region. With the Honey Creek Quarry in Texas becoming fully operational in the second quarter, this quarter the plant realized higher volumes and lower production costs. EBITDA for All Other improved $18.5 million year-over-year to $24.0 million. For the quarter, one-time costs associated with the separation from MDU Resources Group totaled $4.0 million; net recurring costs incurred by corporate services were approximately $3.5 million.