Acquisition Details - Knife River Corporation (KNF) has entered a definitive agreement to acquire Strata Corporation for $454 million, based on Strata's estimated 2025 adjusted EBITDA, indicating a high single-digit multiple [1] - The transaction is expected to close in the first half of 2025, subject to regulatory approvals and standard closing conditions, with funding from cash on hand and long-term debt issuance [2] - Shares of KNF gained 5.7% during Friday's trading session and 2.6% in after-hour trading following the announcement [3] Strategic Benefits of the Acquisition - Strata, founded in 1910, is a vertically integrated company with over 75 aggregates locations, 28 ready-mix plants, three asphalt plants, and a contracting division, enhancing KNF's market reach and service territory [4][5] - The acquisition aligns with KNF's Competitive EDGE strategy, expected to strengthen its Central Segment growth and improve adjusted EBITDA margin within the first year [6] - Strata's high-quality assets and regional presence will reinforce KNF's long-term growth prospects in a familiar market [6] KNF's Recent Performance and Strategy - KNF's shares have gained 18.8% in the past three months, outperforming the Zacks Building Products - Miscellaneous industry's 7.3% decline [8] - The company has benefited from strong performance across its geographic segments, supported by public funding and the execution of its Competitive EDGE strategy, leading to higher product prices and improved bid margins [8] - KNF has allocated nearly $130 million across six acquisitions this year, expected to drive revenue and EBITDA growth in 2025 [9] - The Zacks Consensus Estimate for KNF's 2025 sales and EPS indicates a 6% and 19% increase, respectively, from the previous year [9] Industry Comparison - Sterling Infrastructure, Inc (STRL) has a Zacks Rank 1, with a trailing four-quarter earnings surprise of 21.5% and a 50.8% stock gain in the past six months, with 2025 sales and EPS expected to increase by 7.3% and 8.1%, respectively [12] - MasTec, Inc (MTZ) also holds a Zacks Rank 1, with a trailing four-quarter earnings surprise of 40.2% and a 26.2% stock gain in the past six months, with 2025 sales and EPS expected to increase by 8.8% and 43.4%, respectively [12][13] - Comfort Systems USA, Inc (FIX) has a Zacks Rank 2, with a trailing four-quarter earnings surprise of 14.7% and a 37.8% stock gain in the past six months, with 2025 sales and EPS expected to increase by 7.9% and 20.8%, respectively [13]

Financial Performance - Revenue for the three months ended September 30, 2024, was $1,105.3 million, a 1.8% increase from $1,090.4 million in the same period of 2023[125]. - Gross profit for the three months ended September 30, 2024, was $273.0 million, compared to $269.4 million in the prior year, reflecting a gross margin of 24.7%[133]. - Net income for the three months ended September 30, 2024, was $148.1 million, up from $146.7 million in the same period of 2023, representing a net margin of 13.4%[133]. - EBITDA for the three months ended September 30, 2024, was $244.6 million, compared to $241.4 million in the prior year, with an EBITDA margin of 22.1%[133]. - Total segment revenues for the three months ended September 30, 2024, were $1,125.0 million, an increase from $1,117.3 million in the same period of 2023[133]. - For the nine months ended September 30, 2024, revenue increased by $58.3 million, largely due to additional contracting services activity[142]. - Gross profit for the nine months improved by $29.2 million, with gross margin increasing by 80 basis points[143]. - Net income for the nine months ended September 30, 2024, was $178.4 million, an increase of $16.2 million from $162.2 million in the same period of 2023[198]. Segment Performance - The Pacific segment reported revenues of $165.0 million for the three months ended September 30, 2024, compared to $157.3 million in the prior year[133]. - The Northwest segment's revenue increased to $218.1 million for the three months ended September 30, 2024, from $209.4 million in the same period of 2023[133]. - The Mountain segment generated $261.1 million in revenue for the three months ended September 30, 2024, up from $255.1 million in the prior year[133]. - Revenue in the Northwest region for the three months ended September 30, 2024, was $218.1 million, a 4% increase from $209.4 million in the prior year[156]. - Revenue for the Mountain region increased by 2% to $261.1 million for the three months ended September 30, 2024, with gross profit remaining flat at $61.1 million[164]. - Revenue in the Energy Services segment decreased by $14.7 million to $125.9 million for the three months ended September 30, 2024, primarily due to lower pricing[182]. Backlog and Project Funding - Knife River's contracting services backlog was $755.1 million as of September 30, 2024, compared to $732.2 million in 2023 and $662.2 million in December 2023[116]. - Approximately 87% of the backlog at September 30, 2024, relates to publicly funded projects, primarily driven by state departments of transportation[117]. - The Infrastructure Investment and Jobs Act (IIJA) is expected to provide $1.2 trillion in funding through 2026, with 48% of formula funding yet to be obligated in Knife River's market areas[118]. Cost and Margin Management - In 2023, Knife River began implementing EDGE initiatives to enhance margins and target higher-margin bidding opportunities across regions[119]. - The process improvement team (PIT crew) has visited 58 plants across 8 states through the third quarter of 2024 to standardize best practices[119]. - The company continues to face challenges from competition and variability in raw material costs, which can impact margins[121]. - Selling, general and administrative expenses rose by $4.7 million year-over-year, primarily due to increased payroll-related costs[139]. - Average selling prices for aggregates increased to $17.32 per ton, up from $16.10 per ton, while ready-mix concrete prices rose to $185.97 per cubic yard from $169.98[135]. Cash Flow and Capital Expenditures - As of September 30, 2024, the company had unrestricted cash and cash equivalents of $220.4 million and working capital of $733.5 million[191]. - Capital expenditures for 2024 are estimated to be between $170 million and $200 million, with $127.2 million spent as of September 30, 2024[193]. - Cash used in investing activities increased to $137.8 million for the nine months ended September 30, 2024, compared to $82.9 million in 2023, primarily due to higher capital expenditures and three acquisitions[200]. - Cash flows from financing activities resulted in a net outflow of $7.0 million for the nine months ended September 30, 2024, a decrease of $43.1 million compared to a net inflow of $36.1 million in 2023, largely due to changes in the company's debt structure[202]. Interest and Debt Management - The company reported an interest expense of $13.9 million for the three months ended September 30, 2024, down from $15.3 million in the same period of 2023[125]. - Interest expense decreased by $1.4 million due to lower average debt balances[140]. - As of September 30, 2024, the company had $266.4 million in term loans outstanding at a variable interest rate of 6.45%[221]. - A hypothetical increase of 1.00% in interest rates would raise the company's interest expense by $2.7 million over the next 12 months[221]. - The company has no outstanding interest rate hedges as of September 30, 2024[222].

Third Quarter 2024 Results Presentation November 4, 2024 Forward Looking Statements 2 The information in this presentation highlights the key growth strategies, projections and certain assumptions for the company and its subsidiaries. Many of these highlighted statements and other statements not historical in nature are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the company believes that its expectations are based on reasonable assumptions ...

Financial Data and Key Metrics Changes - The company achieved record revenue of $1.1 billion for Q3 2024, with a gross profit of $273 million, reflecting a 7% improvement across geographic segments [14][16] - Adjusted EBITDA was down due to a decline in Energy Services and higher SG&A costs, with SG&A expenses increasing by $5 million year-over-year to $64 million [14][15] - The company revised its full-year revenue guidance to a range of $2.85 billion to $2.95 billion and adjusted EBITDA guidance to $445 million to $465 million [21][22] Business Line Data and Key Metrics Changes - Average sales prices for aggregates improved by 7.6% year-over-year, with ready-mix prices up 10% and asphalt prices up 2% [6][16] - Contracting services gross profit margin improved by 120 basis points year-over-year to 12.9%, marking the sixth consecutive quarter of year-over-year margin improvement [8][18] - The liquid asphalt product line had its second-best year ever, although revenue and EBITDA were down from record highs due to lower raw material costs [10][12] Market Data and Key Metrics Changes - The Pacific region saw record revenue of $165 million, driven by price increases and construction activity, particularly in Northern California [8] - The Northwest region's revenue increased by 4%, with EBITDA up 15% to nearly $56 million, benefiting from strong public agency work [9] - The Mountain region maintained record revenue, with a 12% year-over-year increase in backlog [9] Company Strategy and Development Direction - The company is focused on optimizing prices, controlling costs, and pursuing strategic acquisitions, having closed six deals in 2024 [8][12] - The Edge strategy emphasizes growth through both organic means and acquisitions, with a focus on materials-based companies [8][12] - The company anticipates continued growth in the construction industry, driven by infrastructure funding and public projects [12][22] Management's Comments on Operating Environment and Future Outlook - Management believes they are in the early stages of a long infrastructure build-out, positioning the company to capitalize on growth opportunities [12] - The company expects pricing momentum to continue into 2025, with anticipated price increases exceeding costs [6][38] - Management noted that while some private work has been delayed, they expect volumes to increase as interest rates improve [16][29] Other Important Information - The company ended the quarter with $220 million in unrestricted cash and no amounts drawn on its $350 million revolver [20] - The company has a strong pipeline of acquisition opportunities and plans to continue investing in growth [20][48] Q&A Session Summary Question: How did EBITDA margins perform in Q3 for your geographies? - EBITDA margins in geographic segments improved by 90 basis points for the quarter, with a 15% increase year-to-date [23] Question: What are the drivers behind the revised volume guidance? - Volume declines were primarily intentional, focusing on quality over quantity, with some projects being pushed out [27][29] Question: How do recent acquisitions fit into the long-term strategy? - Recent acquisitions are focused on materials-based companies within existing markets, enhancing dynamic pricing efforts [33][34] Question: What is the outlook for pricing and costs moving forward? - The company expects pricing to remain above costs, supported by strong demand and backlog [36][38] Question: Were there any weather impacts in the quarter? - Yes, adverse weather in Texas affected sales and operations, contributing to lower volumes [39][40] Question: What is the funding strategy for M&A? - The funding strategy includes cash on hand and potential leverage, with a focus on maintaining and growing the business [48][53]

Company Performance - Knife River reported quarterly earnings of $2.60 per share, missing the Zacks Consensus Estimate of $2.82 per share, representing an earnings surprise of -7.80% [1] - The company posted revenues of $1.11 billion for the quarter ended September 2024, missing the Zacks Consensus Estimate by 2.49%, compared to year-ago revenues of $1.09 billion [2] - Over the last four quarters, Knife River has surpassed consensus EPS estimates two times and topped consensus revenue estimates three times [2] Stock Movement and Outlook - Knife River shares have increased approximately 47.3% since the beginning of the year, outperforming the S&P 500's gain of 20.1% [3] - The company's earnings outlook, including current consensus earnings expectations for upcoming quarters, will be crucial for future stock performance [4] - The current consensus EPS estimate for the coming quarter is $0.29 on $650 million in revenues, and for the current fiscal year, it is $3.68 on $2.92 billion in revenues [7] Industry Context - The Building Products - Miscellaneous industry, to which Knife River belongs, is currently in the bottom 35% of over 250 Zacks industries, indicating potential challenges ahead [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Knife River's stock performance [5][6]

[Performance Summary](index=1&type=section&id=Performance%20Summary) Knife River Corporation achieved record third-quarter and nine-month financial results, driven by strategic initiatives [Key Financial Results](index=1&type=section&id=Key%20Financial%20Results) Knife River Corporation reported record third-quarter and nine-month financial results, with revenue increasing to **$1.105 billion** in Q3 2024 and net income growing to **$148.1 million** | Indicator | Q3 2024 (in millions) | Q3 2023 (in millions) | % Change | Nine Months 2024 (in millions) | Nine Months 2023 (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $1,105.3 million | $1,090.4 million | 1% | $2,241.8 million | $2,183.5 million | 3% | | **Gross Profit** | $273.0 million | $269.4 million | 1% | $455.7 million | $426.5 million | 7% | | **Net Income** | $148.1 million | $146.7 million | 1% | $178.4 million | $162.2 million | 10% | | **Adjusted EBITDA** | $245.2 million | $247.5 million | (1)% | $381.8 million | $360.0 million | 6% | | **Net Income per Share** | $2.60 | $2.58 | 1% | $3.14 | $2.86 | 10% | [Management Commentary](index=1&type=section&id=Management%20Commentary) Management highlighted the company's fundamental strength and segment diversity, driving record quarterly results and active growth through acquisitions - Geographic segments (Pacific, Northwest, Mountain, Central) contributed a combined record EBITDA of **$224.6 million**, a **6% year-over-year** increase, offsetting the expected decline in the Energy Services segment[3](index=3&type=chunk) - The company has deployed **$129.3 million** on six acquisitions through Nov. 2, 2024, focusing on aggregate reserves and construction materials. Recent acquisitions include Frank B. Marks & Son, Rock Products Manufacturing, a sand reserve in Sioux Falls, and Albina Asphalt[3](index=3&type=chunk) - The company's backlog stands at **$755 million**, higher than the same period last year, with expected margins improving for the sixth consecutive quarter due to the 'EDGE' strategy[4](index=4&type=chunk) - Full-year 2024 guidance has been narrowed to a revenue range of **$2.85 billion** to **$2.95 billion** and an adjusted EBITDA range of **$445 million** to **$465 million**[4](index=4&type=chunk) [Detailed Financial Performance](index=2&type=section&id=Detailed%20Financial%20Performance) Analysis of Knife River's consolidated and segment-specific Q3 2024 financial results, detailing key performance indicators [Consolidated Third Quarter 2024 Results](index=2&type=section&id=Consolidated%20Third%20Quarter%202024%20Results) Knife River achieved record consolidated revenue of **$1.1 billion** in Q3 2024, driven by price increases and strong geographic segment EBITDA - Record Q3 revenue of **$1.1 billion** was primarily driven by price increases in aggregates and ready-mix product lines, along with increased contracting services revenues[5](index=5&type=chunk) - EBITDA contributions from geographic segments increased by **6% year-over-year** for the quarter and **14.8%** for the first nine months of 2024, offsetting decreased EBITDA at the Energy Services segment[5](index=5&type=chunk) [Segment Performance](index=3&type=section&id=Segment%20Performance) Geographic segments demonstrated strong Q3 2024 performance, with Northwest leading in EBITDA growth, while Energy Services saw an anticipated decline [Pacific](index=3&type=section&id=Pacific) The Pacific segment reported record Q3 revenue of **$165.0 million**, with EBITDA increasing by **3%** due to improved margins and contracting services | Metric | Q3 2024 (in millions) | Q3 2023 (in millions) | % Change | | :--- | :--- | :--- | :--- | | **Revenue** | $165.0 million | $157.3 million | 5% | | **Gross Profit** | $34.3 million | $33.3 million | 3% | | **EBITDA** | $29.5 million | $28.6 million | 3% | [Northwest](index=3&type=section&id=Northwest) The Northwest segment achieved record Q3 revenue of **$218.1 million** and record EBITDA of **$55.9 million**, driven by public-agency work and asphalt volumes | Metric | Q3 2024 (in millions) | Q3 2023 (in millions) | % Change | | :--- | :--- | :--- | :--- | | **Revenue** | $218.1 million | $209.4 million | 4% | | **Gross Profit** | $57.4 million | $50.2 million | 14% | | **EBITDA** | $55.9 million | $48.5 million | 15% | [Mountain](index=3&type=section&id=Mountain) The Mountain segment's Q3 revenue increased **2%** to **$261.1 million**, though EBITDA remained flat due to offsetting volume declines | Metric | Q3 2024 (in millions) | Q3 2023 (in millions) | % Change | | :--- | :--- | :--- | :--- | | **Revenue** | $261.1 million | $255.1 million | 2% | | **Gross Profit** | $61.1 million | $59.7 million | 2% | | **EBITDA** | $59.4 million | $59.4 million | 0% | [Central](index=3&type=section&id=Central) The Central segment's Q3 revenue was flat at **$354.9 million**, but EBITDA improved by **7%** to a record **$79.8 million** from disciplined bidding | Metric | Q3 2024 (in millions) | Q3 2023 (in millions) | % Change | | :--- | :--- | :--- | :--- | | **Revenue** | $354.9 million | $354.9 million | 0% | | **Gross Profit** | $85.4 million | $80.4 million | 6% | | **EBITDA** | $79.8 million | $74.8 million | 7% | [Energy Services](index=4&type=section&id=Energy%20Services) The Energy Services segment's Q3 revenue decreased **10%** to **$125.9 million**, with EBITDA falling **26%** due to lower liquid asphalt pricing | Metric | Q3 2024 (in millions) | Q3 2023 (in millions) | % Change | | :--- | :--- | :--- | :--- | | **Revenue** | $125.9 million | $140.6 million | (10)% | | **Gross Profit** | $34.7 million | $46.7 million | (26)% | | **EBITDA** | $33.7 million | $45.7 million | (26)% | [Capital Management and Outlook](index=4&type=section&id=Capital%20Management%20and%20Outlook) Review of Knife River's capital allocation strategy, liquidity, and updated full-year 2024 financial guidance [Capital Allocation & Liquidity](index=4&type=section&id=Capital%20Allocation%20%26%20Liquidity) Knife River maintains a disciplined capital allocation strategy, investing **$129.3 million** in acquisitions, and boasts strong liquidity with **$220.4 million** cash - Capital expenditures are categorized into 'Discipline' (maintenance, improvements) and 'Growth' (organic, acquisitions)[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) - As of Nov. 4, the company has invested **$129.3 million** in six acquisitions and has approved an additional **$23.1 million** for greenfield projects for the remainder of the year[17](index=17&type=chunk) - As of September 30, 2024, the company had **$220.4 million** in cash, **$329.4 million** available under its revolving credit facility, and a net leverage ratio of **1.0x**[18](index=18&type=chunk) [2024 Financial Guidance](index=5&type=section&id=2024%20Financial%20Guidance) Knife River narrowed its full-year 2024 guidance, expecting consolidated revenue between **$2.85 billion** and **$2.95 billion** and Adjusted EBITDA from **$445 million** to **$465 million** Reconciliation of Forecasted Net Income to Adjusted EBITDA (2024 Guidance) | (In millions) | Low (in millions) | High (in millions) | | :--- | :--- | :--- | | **Net income** | $190.0 | $205.0 | | Interest expense, net | $46.0 | $46.0 | | Income taxes | $65.0 | $70.0 | | Depreciation, depletion and amortization | $135.9 | $135.9 | | **EBITDA** | **$436.9** | **$456.9** | | Other Adjustments | $8.1 | $8.1 | | **Adjusted EBITDA** | **$445.0 million** | **$465.0 million** | - The company anticipates price increases of **high single digits** for aggregates and ready-mix, and **low single digits** for asphalt, partially offset by volume declines[19](index=19&type=chunk) [Financial Statements](index=6&type=section&id=Financial%20Statements) Presentation of Knife River's consolidated statements of operations, balance sheets, and cash flows [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) The Consolidated Statements of Operations detail the company's revenues, costs, and expenses, resulting in a net income of **$148.1 million** for Q3 2024 | (In millions) | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $1,105.3 | $1,090.4 | $2,241.8 | $2,183.5 | | **Gross Profit** | $273.0 | $269.4 | $455.7 | $426.5 | | **Operating Income** | $209.1 | $210.2 | $272.1 | $259.2 | | **Net Income** | $148.1 | $146.7 | $178.4 | $162.2 | | **Diluted EPS** | $2.60 | $2.58 | $3.14 | $2.86 | [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet as of September 30, 2024, shows total assets of **$2.88 billion**, with total stockholders' equity growing to **$1.45 billion** | (In millions) | Sept 30, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | **Total Current Assets** | $1,159.6 | $1,011.4 | | **Total Assets** | $2,884.1 | $2,680.9 | | **Total Current Liabilities** | $426.1 | $425.0 | | **Total Liabilities** | $1,435.2 | $1,437.9 | | **Total Stockholders' Equity** | $1,448.9 | $1,243.0 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2024, net cash provided by operating activities was **$149.9 million**, with a net increase in cash of **$5.1 million** | (In millions) | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $149.9 | $152.9 | | **Net cash used in investing activities** | ($137.8) | ($82.9) | | **Net cash provided by (used in) financing activities** | ($7.0) | $36.1 | | **Increase in cash, cash equivalents and restricted cash** | $5.1 | $106.1 | [Supplemental Financial Data](index=9&type=section&id=Supplemental%20Financial%20Data) Additional financial insights including backlog information and detailed product line sales and pricing trends [Backlog Information](index=10&type=section&id=Backlog%20Information) As of September 30, 2024, the company's total backlog was **$755.1 million**, with expected higher margins and **87%** publicly funded projects | Segment (In millions) | Sept 30, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | Pacific | $114.9 | $69.8 | | Northwest | $168.0 | $227.4 | | Mountain | $279.9 | $251.1 | | Central | $192.3 | $183.9 | | **Total** | **$755.1** | **$732.2** | [Product Line Sales and Pricing](index=10&type=section&id=Product%20Line%20Sales%20and%20Pricing) In Q3 2024, sales volumes for key products decreased, while average selling prices increased across all three product lines Sales Volumes (Thousands) | Product | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Aggregates (tons) | 11,169 | 12,022 | | Ready-mix concrete (cubic yards) | 1,148 | 1,271 | | Asphalt (tons) | 3,150 | 3,349 | Average Selling Price | Product | Q3 2024 (per unit) | Q3 2023 (per unit) | | :--- | :--- | :--- | | Aggregates (per ton) | $17.32 | $16.10 | | Ready-mix concrete (per cubic yard) | $185.97 | $169.98 | | Asphalt (per ton) | $68.28 | $66.51 | [Non-GAAP Financial Measures](index=11&type=section&id=Non-GAAP%20Financial%20Measures) Explanation and reconciliation of non-GAAP financial measures used to assess operational performance [Explanation and Reconciliation of Non-GAAP Measures](index=11&type=section&id=Explanation%20and%20Reconciliation%20of%20Non-GAAP%20Measures) The company uses non-GAAP measures like EBITDA and Adjusted EBITDA to provide investors with meaningful information about operational efficiency and financial health - The company uses non-GAAP measures like EBITDA and Adjusted EBITDA to provide insight into operational efficiency, compare performance against peers, and assess borrowing capacity[35](index=35&type=chunk) Reconciliation of Forecasted Net Income to Adjusted EBITDA (2024 Guidance) | (In millions) | Low (in millions) | High (in millions) | | :--- | :--- | :--- | | **Net income** | $190.0 | $205.0 | | Interest expense, net | $46.0 | $46.0 | | Income taxes | $65.0 | $70.0 | | Depreciation, depletion and amortization | $135.9 | $135.9 | | **EBITDA** | **$436.9** | **$456.9** | | Other Adjustments | $8.1 | $8.1 | | **Adjusted EBITDA** | **$445.0 million** | **$465.0 million** | Net Leverage Calculation (as of Sept 30, 2024) | (In millions) | Amount | | :--- | :--- | | Total debt, gross | $691.7 | | Less: Cash and cash equivalents | $220.4 | | **Total debt, net** | **$471.3** | | Trailing-twelve-months Adjusted EBITDA | $454.2 | | **Net leverage** | **1.0x** |

Company Overview - Knife River (KNF) is expected to report a year-over-year increase in earnings, with a projected EPS of $2.82, reflecting a +9.3% change, and revenues of $1.13 billion, which is a 4% increase from the previous year [3] Earnings Expectations - The upcoming earnings report is anticipated to be released on November 4, and the stock price may rise if the actual results exceed expectations, while a miss could lead to a decline [2][3] - The consensus EPS estimate has been revised down by 19.44% over the last 30 days, indicating a bearish sentiment among analysts regarding the company's earnings prospects [4][10] Earnings Surprise Prediction - The Zacks Earnings ESP model indicates that Knife River has a negative Earnings ESP of -0.53%, suggesting that the Most Accurate Estimate is lower than the Zacks Consensus Estimate [10] - Despite the negative Earnings ESP, the company holds a Zacks Rank of 3, making it challenging to predict an earnings beat conclusively [10] Historical Performance - In the last reported quarter, Knife River exceeded the expected EPS of $1.18 by delivering $1.37, resulting in a surprise of +16.10% [11] - Over the past four quarters, the company has beaten consensus EPS estimates three times [12] Industry Context - Otis Worldwide (OTIS), a peer in the Zacks Building Products - Miscellaneous industry, is expected to report an EPS of $0.97, reflecting a +2.1% year-over-year change, with revenues projected at $3.59 billion, up 2% from the previous year [16]

Core Viewpoint - Knife River (KNF) has received an upgrade to a Zacks Rank 2 (Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system is based on changes in earnings estimates, which have a strong correlation with near-term stock price movements [4][6]. - An increase in earnings estimates typically leads to higher fair value calculations by institutional investors, resulting in buying or selling pressure that affects stock prices [4]. Company Performance Indicators - Knife River is projected to earn $3.72 per share for the fiscal year ending December 2024, reflecting a year-over-year increase of 15.2% [8]. - Over the past three months, the Zacks Consensus Estimate for Knife River has risen by 6%, indicating a positive trend in earnings expectations [8]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with only the top 20% receiving a 'Strong Buy' or 'Buy' rating [9][10]. - Knife River's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, suggesting potential for market-beating returns in the near term [10].

Group 1: Market Overview - Several construction sector stocks have been added to the Zacks Rank 1 (Strong Buy) list, indicating a positive outlook for the industry [1] - The broader market is starting to stabilize and rebound, creating opportunities in the construction sector [1] Group 2: Knife River Corporation (KNF) - Knife River Corporation has increased over +100% since its spin-off from MDU Resources Group in 2023 [2] - The company has shown increased profitability and is ranked in the top 40% of over 250 Zacks industries [3] - KNF trades at a forward earnings multiple of 19.7X, with EPS expected to rise 10% in fiscal 2024 and another 13% in FY25 to $4.05 per share [3] Group 3: MasTec (MTZ) - MasTec benefits from increased infrastructure spending in the US and is a leading company in engineering, building, installation, and maintenance [5] - The company is in the top 6% of all Zacks industries, with its stock climbing +42% year to date [6] - Total sales are projected to increase 4% this year and another 8% in FY25 to $13.45 billion, with high double-digit EPS growth forecasted for FY24 and FY25 [6] Group 4: Meritage Homes (MTH) - Meritage Homes operates in the Building Products-Home Builders Industry, which is in Zacks' top 7% [6] - The company trades at a forward earnings multiple of 8.1X, with robust bottom line growth expected to expand 5% in FY24 and another 5% in FY25 to $21.98 per share [6] - Despite a recent dip of -12%, MTH is still up +2% year to date and has gained +30% over the last year [7] Group 5: Conclusion - The construction sector presents abundant opportunities due to infrastructure-related activities and steady demand for new homes post-pandemic [7] - Recent market volatility has created better buying opportunities for highly-ranked construction sector stocks [7]

Group 1: Royal Caribbean Cruises (RCL) - Royal Caribbean Cruises primarily serves the contemporary, premium, and deluxe segments of the cruise vacation industry [1] - The company has a Zacks Rank of 1 (Strong Buy) [1] - The Zacks Consensus Estimate for its current year earnings has increased by 2.4% over the last 60 days [1] - The price-to-earnings ratio (P/E) is 0.43, significantly lower than the industry average of 1.61 [2] - The company possesses a Value Score of A [2] Group 2: Meritage Homes (MTH) - Meritage Homes is a leading designer and builder of single-family homes [1] - The company also carries a Zacks Rank of 1 [1] - The Zacks Consensus Estimate for its current year earnings has increased by 5.1% over the last 60 days [1] - The price-to-earnings ratio (P/E) is 8.73, compared to the industry average of 10.60 [3] - The company possesses a Value Score of B [3] Group 3: Knife River Corporation (KNF) - Knife River Corporation mines aggregates and markets crushed stone, sand, gravel, and related construction materials [1] - The company holds a Zacks Rank of 1 [1] - The Zacks Consensus Estimate for its next year earnings has increased by 1.5% over the last 60 days [1] - The price-to-earnings ratio (P/E) is 19.70, slightly lower than the industry average of 20.70 [4] - The company possesses a Value Score of B [4]