Knife River's 'Profit Multiplier' Kicks In: Strong Q1, Record Backlog, and a Growing Data Center Book — Yet the Stock Keeps Falling

Despite a 16% revenue surge and three bolt-on acquisitions, KNF shares are down 21% in the last 90 days as investors weigh fuel costs, tariff noise, and a reset in construction seasonality.

KNF · Earnings Call · 2026-05-05

A Strong Start, but the Market Looks Ahead

Knife River reported a powerful first quarter: revenue climbed 16% year-over-year to $410 million, adjusted EBITDA grew 16%, and adjusted EBITDA margins expanded by 290 basis points. The company entered the construction season with a record $1.2 billion backlog, roughly 75% of which is expected to convert in 2026. Management was bullish on the upper half of the full-year guidance, citing the accretive effect of three recent aggregate-based acquisitions. Yet the equity tells a different story: over the past 90 trading days, KNF is down more than 21%, a stark contrast to the operational vigor. The market appears to be looking through the earnings beat toward macro headwinds—diesel inflation, tariff uncertainty, and the seasonal ramp of the Central segment.

We are a preferred materials vendor for a data center and hyperscaler that is active in this region, and we continue to work with them on a number of ongoing developments.
Brian Gray, President and Chief Executive Officer · 2026-05-05

The Profit Multiplier and a Vertical Moat

The strategic story centers on vertical integration. As CEO Brian Gray reiterated, Knife River's aggregates-based model functions as a profit multiplier: it captures margin at multiple points along the value chain—from upstream materials to asphalt paving, ready-mix, and contracting services. The company is intentionally bidding work that pulls through its own aggregates, and the vertical integration gives it over a dozen distinct "pathways to profit" on any given project. The first-quarter results validate this: aggregates volumes grew 26%, ready-mix 33%, and asphalt 42%—all driven by record backlog and favorable weather in the Mountain region. The M&A engine is also humming. Management completed three deals in the quarter—Morgan Asphalt in Salt Lake City and two ready-mix/aggregate operations in Montana—all negotiated at high single-digit multiples. As Brian noted, the pipeline remains full with hundreds of acquisition opportunities. The company's balance sheet flexibility (target net leverage of 2.5x) allows it to pursue bolt-on deals without stretching. This is a clear differentiator compared to larger, more levered peers.

Dynamic Pricing and Fuel Cost Mitigation

One of the most important levers management is pulling is dynamic pricing. Rather than relying on annual price letters, Knife River has embedded dynamic pricing into its sales culture, allowing it to price aggregates, ready-mix, and asphalt at current cost structures daily. This is critical given the recent spike in diesel costs. The company uses a combination of fuel surcharge clauses, fixed-forward contracts, and escalation clauses to protect margins on the roughly 80% of diesel it considers hedged. CFO Nathan Ring highlighted that gross profit in aggregates expanded by 390 basis points in the quarter, despite the onset of energy inflation in March. “I'm actually very pleased at where we're at and what I'm seeing with pricing and the impact it's having on our overall margins in the aggregates group.” — Brian Gray, President and Chief Executive Officer · 2026-05-05 “The amount of diesel that we use in a year, a full year is about 20 million to 25 million gallons of diesel.” — Brian Gray, President and Chief Executive Officer · 2026-05-05

Data Centers: The Upside Not Yet in Guidance

While the current quarter's backlog does not contain meaningful direct data-center contracting work, the company is supplying materials to 21 active data center projects across its footprint. As Brian Gray explained, most of that revenue flows through aggregates and ready-mix sales—higher-margin upstream materials. He described this as "the tip of the iceberg," with significantly more bid activity in the pipeline. This aligns with a broader global theme: the tape history shows consistent price appreciation in names exposed to AI data centers, high-bandwidth memory, and co-packaged optics. Knife River's exposure is indirect but real, and it is not yet baked into the midpoint of guidance. “Normalizing for geographic mix, pricing was up 4.1%.” — Nathan Ring, Chief Financial Officer · 2026-05-05 This nuance—geographic mix masks the underlying pricing strength—is a recurring theme. Without the Mountain region's heavy contribution of lower-priced, lower-cost materials, pricing would have been notably higher, backing management's confidence in mid-single-digit pricing growth for the year.

What Prior Calls Signal

The strategic messaging has been remarkably consistent. In February, Brian Gray noted that virtually no backlog dollars were tied to data centers yet—the opportunity was ahead. By May, that conviction had strengthened, and the company is now actively bidding on a wave of data center work. Meanwhile, the M&A strategy has been unchanged: negotiated, relationship-based deals at mid- to high-single-digit multiples, as reiterated on the May 2025 call. The consistency reassures investors that the current earnings strength is not a one-off but a continuation of a disciplined growth playbook. “I would say that virtually, zero amount of dollars in our backlog are related data centers. We have a lot of data centers that we're working on right now, but most of that would be in the material supply of the business.” — Brian R. Gray, President and Chief Executive Officer · 2026-02-17 “We went public in June of 2023, and we really started talking internally about our EDGE initiative early in 2023. And so during those two years, I mean, if you look at our results at the end of 2022 compared to the results at the end of 2024, we've improved our EBITDA or adjusted EBITDA by almost $150 million.” — Brian Gray, President and Chief Executive Officer · 2025-02-13 The fundamental trajectory supports the narrative. Total revenue is up 158% over four years, and while the first quarter is seasonally weak (a typical loss-making period), gross margin jumped 2.0 percentage points year-over-year to -0.7%, a clear improvement from the -3% gross margin in the first quarter of 2025. Quarterly revenue of $410M was up 16% y/y, with the Central segment nearly doubling ready-mix volumes after the Texcrete acquisition.

Bottom Line

Knife River is executing well on its growth strategy, and the data center tailwind is a genuine, untapped upside. But the market's 21% drawdown in the past 90 days suggests investors are pricing in risks beyond the numbers—tariff refund dynamics (a global theme in the macro keyword set), diesel inflation, and the possibility of a slower construction season. For now, the stock looks cheap relative to its own trajectory, and the company's visibility into record backlog and a strong DOT funding environment in its states gives it a solid earnings cushion. Watch whether the market begins to recognize the "profit multiplier" at work once the season kicks into high gear.