Knife River: Growth Intact, Margins Under Pressure—But a Private-Side Shift Is Building

Record revenue growth and a growing data-center backlog meet fuel and timing headwinds; management guides to the midpoint as it leans on M&A and self-help.

KNF · Earnings Call · 2026-08-04

The market has marked Knife River down hard — the stock is off ~31% in 90 days and ~43% from its 2025 peak — yet the company's underlying performance is arguably more complex than the tape suggests. CEO Brian Gray framed it as a "solid" quarter under the hood:

Despite a few external headwinds that weighed on our financial results, the underlying performance of the business was solid.
Brian R. Gray, President and Chief Executive Officer · 2026-08-04

A quiet shift toward private infrastructure

The quarter's surface numbers showed revenue up 13% to $939 million, but adjusted EBITDA was flat because of diesel costs, weather-driven project timing, and a mix of lower-margin paving work. The more interesting development is the rising contribution from data center and semiconductor construction. CFO Nathan Ring noted that third-party aggregate demand is being boosted by industrial projects, especially in the Central segment: “We have also seen an increase in third-party demand, particularly in the Central segment, where they are executing on a commercial strategy to increase external sales to industrial projects such as data centers and power generation.” — Nathan W. Ring, Vice President and Chief Financial Officer · 2026-08-04 In the Q&A, Brian Gray added that the Central segment's EBITDA rose 21% year over year, helped by these private projects: “the Central segment certainly had an outstanding quarter, 21% better in EBITDA year over year.” — Brian R. Gray, President and Chief Executive Officer · 2026-08-04 This marks a clear departure from the earlier stance that data centers were virtually absent from the backlog — and supports management's confidence in the $1.2 billion total backlog.

Fuel, timing, and the limits of mitigation

The near-term drag came from higher diesel costs, which management quantified at roughly $10 million year over year. The company recovers much of that through fuel surcharge mechanisms on trucking and escalators on DOT contracts — but the timing is imperfect. CFO Nathan Ring explained in prepared remarks that “we expect to recover an additional $4 million through escalators on our DOT contracts, however that won't occur until the third quarter as there's a 1 to 2 month lag between incurring the costs and recovering them from public agencies.” — Nathan W. Ring, Vice President and Chief Financial Officer · 2026-08-04 In the Q&A, Gray also dialed back expectations for aggregate margin expansion from 200 basis points to around 100 basis points for the year, citing the persistent fuel and delivery costs. Prior to this quarter, management had been vocal about using dynamic pricing to offset diesel escalation. On the May call, Gray noted: “We don't need to wait for a midyear increase to come out. We are literally pricing diesel costs, current diesel costs into our current bids going out on a daily basis.” — Brian Gray, President and Chief Executive Officer · 2026-05-05 The reality check this quarter is that such mechanisms lag when fuel costs rise sharply mid-season. Gray provided a further quantified bridge: “We have about $10 million of delayed projects... and we expect to get a portion of that back in the third quarter.” — Brian R. Gray, President and Chief Executive Officer · 2026-08-04

M&A and the profit multiplier

The answer to margins, management insists, is not only better pricing but also a steady stream of vertically integrated acquisitions that pull through higher-margin upstream materials. Knife River has completed 100 deals since 1992, and the integration of Strata and Texcrete is generating profit multiplier effects. Gray highlighted that Strata is now expected to outperform its original EBITDA projection by more than 15% in 2026, and he reinforced the disciplined approach: “Our primary focus is on materials-led transactions and higher growth midsize markets within our footprint or in adjacent new markets.” — Brian R. Gray, President and Chief Executive Officer · 2026-08-04 This organic-plus-inorganic mix is also visible in the Central region's 34% jump in third-party aggregate sales, much of it tied to industrial projects. That ties back to the prior quarter's call when Gray had identified the data-center opportunity as a future tailwind, noting then: “Virtually zero amount of dollars in our backlog are related data centers” — Brian R. Gray, President and Chief Executive Officer · 2026-02-17 — but that is clearly starting to change this quarter.

Outlook: Confidence at the midpoint

Management reaffirmed adjusted EBITDA guidance of $520 million to $560 million for 2026, effectively pointing toward the midpoint, and raised revenue guidance to $3.4–$3.6 billion. Nathan Ring noted that roughly 55% of expected EBITDA will be generated in the third quarter, with the rest coming in the fourth, as the company executes on its $1.2 billion backlog and collects deferred fuel escalators. While the 90-day tape has been brutal, the underlying story is one of a seasonal business that is making a strategic pivot toward faster-growing private verticals. The question for investors is whether the improved mix and pricing power can deliver the volume and margin recovery that management is signaling for the second half — and beyond.