Knife River Q2 2026 earnings: Revenue rises as margins narrow

Knife River (NYSE: KNF) reported Q2 2026 revenue of $938.6 million, up 13% from $833.8 million, while diluted EPS fell 13% to $0.77 from $0.89. Higher contracting activity, acquisitions and material volumes drove the top line, but lower-margin contracting work, project timing, energy costs and fewer asset-sale gains reduced profitability. The results cover the quarter ended June 30, 2026.

Core financial results

Contracting services revenue increased 20% to $406.5 million, while construction materials revenue rose about 8% to $532.1 million. Gross profit grew much more slowly than revenue, causing gross margin to contract by 1.6 percentage points.

The pressure continued below gross profit: selling, general and administrative expenses increased 18% to $81.7 million, and the prior-year quarter included $10.3 million of asset-sale gains compared with $650,000 this quarter. Consequently, operating income, net income and adjusted EBITDA all declined despite double-digit revenue growth.

Adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures. Net income margin, a GAAP measure, declined to 4.7% from 6.1%.

Business and segment performance

Central and Mountain produced the fastest revenue growth, supported by contracting activity and acquisitions. However, Mountain’s EBITDA was essentially unchanged because project-performance timing and lower-margin contracting work offset the additional revenue. West was the only segment with lower revenue and EBITDA, while Energy Services expanded both EBITDA and margin.

West was affected by less available public-agency work in Oregon and project delays in Hawaii and Alaska related to phasing and weather. Central benefited from higher volumes across all product lines and the Texcrete acquisition, although its margin comparison included $7.9 million of prior-year asset-sale gains. Energy Services benefited from higher California volumes and lower railcar maintenance expenses.

Material demand was broadly higher. Aggregate volumes increased about 14% to 10.0 million tons, ready-mix volumes rose about 15% to 1.2 million cubic yards, and asphalt volumes advanced about 24% to 2.0 million tons. The reported aggregate selling price, which includes freight, delivery and other revenue, increased about 3%; management separately reported an 8% increase on a product mix-adjusted basis.

Contracting growth did not translate into higher profit

Contracting services was the central profitability issue in the quarter. Revenue increased 20% to $406.5 million, but contracting gross profit fell about 24% to $30.9 million, and its gross margin declined to 7.6% from 12.0%. Management attributed the pressure to the type and timing of contracting work, including lower-margin projects and delayed impact projects.

Material product lines provided a partial offset. Gross profit increased to $38.8 million in aggregates, $39.1 million in ready-mix concrete and $20.9 million in asphalt, representing double-digit growth in each category. Those gains were not enough to prevent consolidated gross margin and adjusted EBITDA margin from declining.

Backlog was $1.216 billion at June 30, up sequentially from the first quarter but below $1.253 billion a year earlier. The company expects margins on the current backlog to be slightly lower than on the prior-year backlog, and approximately 85% relates to publicly funded projects. Knife River cautioned that period-to-period backlog changes should not be treated as an indicator of future revenue or earnings.

Cash flow and balance sheet

Cash-flow figures were provided for the first six months of 2026 rather than for the quarter alone. Net cash used in operating activities improved to $133.6 million from $167.8 million a year earlier. Receivables and inventories used $233.2 million and $66.2 million of cash, respectively, partly offset by an $87.6 million increase in accounts payable.

Knife River spent $150.2 million on capital expenditures and $184.4 million on acquisitions during the six-month period. Total growth initiatives were $244.5 million, consisting of the acquisitions and $60.1 million invested in aggregate expansions and greenfield projects. The company expects another $76.4 million of organic growth-project spending during the remainder of 2026.

The company issued an incremental $400 million Term Loan B in May to finance acquisitions and growth initiatives, repay revolving-credit borrowings and support general corporate purposes. At June 30, Knife River had $40.7 million of unrestricted cash, $1.6 billion of gross debt and $387.2 million of available revolving-credit capacity. Net leverage was 3.2 times trailing-12-month adjusted EBITDA.

2026 guidance

Knife River raised its full-year revenue and aggregate-volume outlook. The release did not provide the previous numerical guidance ranges, so the size of the revisions cannot be calculated. Guidance assumes normal weather, economic and operating conditions and excludes future acquisitions.

The higher revenue outlook reflects confidence in material volumes and the opportunity to execute the contracting backlog. However, the unchanged status of the adjusted EBITDA range was not explicitly stated, and the release did not quantify how much of the revenue revision came from acquisitions versus organic activity.

Risks investors need to watch

• Contracting margins: Contracting revenue grew rapidly while gross profit and margin declined. Current backlog margins are also expected to be slightly below the prior-year level.
• Project timing and weather: Delays in Hawaii and Alaska and reduced public-agency work in Oregon hurt West results. Full-year guidance assumes normal weather and operating conditions.
• Cost and depreciation pressure: Energy costs affected Q2 profitability, while depreciation, depletion and amortization are expected to increase at a mid-teens rate for 2026.
• Leverage and investment requirements: Gross debt reached $1.6 billion and net leverage was 3.2 times after acquisition and growth spending. Remaining organic projects are expected to require another $76.4 million in 2026.

Summary

Knife River’s second-quarter revenue growth was supported by higher material volumes, contracting activity and acquisitions, but the mix and timing of contracting work prevented that growth from reaching the bottom line. The main issues to monitor are contracting and backlog margins, project execution in West, and whether stronger material gross profit can offset cost pressure and the company’s higher debt-funded investment level.