Knife River Corporation (KNF) | The Buildout — AI Infrastructure
The Verdict
Knife River mines and processes aggregates, then converts them into ready-mix concrete, asphalt, and paving and construction work. It sits mid-chain in the build-out: new data centers and semiconductor fabs need crushed stone for site work and foundations, concrete for structural pours, and asphalt for access roads and parking, and Knife River sells those materials from quarries and plants close to the job. The company is not a technology supplier, and its materials are not scarce the way power or advanced packaging are, so its link to AI is a demand-side exposure rather than a bottleneck position.
| Market Cap | — |
| Revenue (TTM) | $3.3B |
| Revenue Growth | +12.1% |
| EBITDA Margin (TTM) | 14.8% |
| Net Debt | $1.6B |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Record backlog of $1.17B at March 31, 2026, up 25% year over year; $913.9M is scheduled to be recognized within twelve months.
- Q1 FY2026 revenue and adjusted EBITDA both rose 16% year over year, with adjusted EBITDA margin up 290 basis points in the seasonally weakest quarter.
- Aggregates pricing rose 4.1% normalized (1% as reported) while per-unit production costs fell more than 10%, lifting aggregates gross profit margin 390 basis points.
- Three aggregates-based acquisitions closed in Q1 FY2026 at what management calls 'high single-digit multiples'; 16 deals since the 2023 spin, with roughly $190M–$200M of liquidity and a stated willingness to go near 3x leverage briefly for the right deal.
- Data-center work has moved from Q&A into the prepared strategy narrative: 21 active projects, roughly 230 opportunities in KNF markets, and a semiconductor project already secured for 2027 at the Spokane prestress plant.
What We’re Watching
- Q2 FY2026 net income fell 13% to $43.9M and net margin narrowed to 4.7% from 6.1%; the September 2026 IR deck attributes roughly $24M of Q2 adjusted EBITDA impact to market dynamics, delayed jobs, and fuel, but the source does not bridge to the net-income line.
- The filing discloses that margins on backlog at March 31, 2026 are expected to be lower than on backlog a year earlier, and the September deck frames 2H26 contracting services margins at only ~9–10%.
- Diesel is a live cost: 20M–25M gallons a year, about 80% protected, with diesel up roughly 40% since early July per the September deck and delays in recouping escalation payments.
- The upper-half guidance bias was last restated on the May 5, 2026 call; no guidance language appears after the Q2 print, and the contents of Starboard Value's September 24, 2026 letter are not in the source material.
The demand side of the thesis looks intact: backlog is a record, state DOT budgets across Knife River's states are up about 15%, roughly 46% of IIJA funding remains to be disbursed, and data-center bidding is accelerating even though none of it sits in guidance. The margin side is not yet intact — Q1 FY2026 adjusted EBITDA margin expanded 290 basis points, then Q2 FY2026 net income fell 13% on 13% revenue growth, with only about $24M of the gap explained by identified headwinds. The open question is whether Q2 was a set of one-time items or the beginning of a durable margin reset, and whether the upper-half guidance bias still stands after that print.
Earnings Beat
In Q2 FY2026 (quarter ended June 30, 2026), Knife River reported revenue of $938.6M, up 13% from $833.8M, at a 17.3% gross margin, down from 18.9%. The standout was the bottom line: net income fell 13% to $43.9M and net income margin narrowed to 4.7% from 6.1%. The September 2026 IR deck attributes roughly $24M of Q2 adjusted EBITDA impact to fewer public bid lettings (~$8M), delayed jobs (~$10M), and fuel costs (~$6M); adjusted EBITDA and segment detail were truncated in the source digest, so the cause of the decline is not fully explained.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $939M | $410M | $834M | +12.6% |
| Gross margin | 17.3% | -0.7% | 18.9% | -160bps |
| EBITDA | $138M | −$32M | $138M | −0.6% |
| EPS | $0.77 | $-1.40 | $0.89 | −12.9% |
if you look at that contribution on a full year, that would suggest it was towards the upper half of our current guidance— Brian Gray, President & CEO, 2026-05-05
Management tone: No earnings call on record for the latest period — no Q2 FY2026 call is in the source material. The most recent call captured is Q1 FY2026 on 2026-05-05. Relative to the February 17, 2026 call, management moved to a more quantified posture: guidance was reaffirmed with an explicit skew toward the upper half of the ranges, M&A went from a described pipeline to three closed acquisitions, and diesel became a prominent new topic with a specific 20M–25M gallon exposure and roughly 80% mitigation. Management was candid about the dynamic-pricing coverage gap in newly acquired companies and about its willingness to stretch leverage near 3x; it was less quantified on the size of data-center contribution, which it excludes from the guidance midpoint. The structured reader logged every Q&A response as direct and listed no red flags.
Management Guidance
FY2026 revenue is guided to $3,300M–$3,500M and adjusted EBITDA to $520M–$560M, reaffirmed on the May 5, 2026 call with management saying it currently expects the year to trend toward the upper half of both ranges. Aggregates volumes and pricing are guided up mid-single digits, ready-mix volumes up mid-teens, and asphalt volumes up mid-single digits. Contracting services gross margins are guided higher for the full year; SG&A was reaffirmed; maintenance and improvement capex at 5–7% of revenue ($170M–$235M). Management expects to end 2026 with no borrowings on its $500M revolver, cash on hand, and net leverage near the 2.5x long-term target. Future acquisitions are not included in guidance. The aggregates margin line was tightened from 'approximately 200 basis points' to 'at least 200 basis points.'
Trajectory
Revenue is still growing at a double-digit clip, but the year-over-year rate is moderating as the base builds: Q1 FY2026 revenue was $410.1M, up 16% from $353.5M, and Q2 FY2026 was $938.6M, up 13% from $833.8M. FY2025 full-year revenue was $3,146.0M, and trailing-twelve-month revenue through June 30, 2026 was $3,307.5M. The company's adjusted EBITDA margin climbed from 12.4% in FY2022 to 15.8% in FY2025 and was 15.2% on a trailing-twelve-month basis, but the most recent quarter broke the trend at the net line. Q2 FY2026 gross margin was 17.3% against 18.9% a year earlier, and net income fell 13% to $43.9M. Management points to roughly $24M of identified Q2 adjusted EBITDA headwinds — about $8M from fewer public bid lettings, about $10M from delayed jobs, and about $6M from fuel — as partial explanation.
The Model
The model projects FY+1 revenue of $3,550M and EBITDA of $540M, a 15.2% margin, then FY+2 revenue of $3,870M and EBITDA of $619M, a 16.0% margin. The near-term anchor is the record $1.17B backlog, roughly 75% of which management expects to complete in 2026, plus state DOT budgets up about 15% across Knife River's states and the upper-half bias on FY2026 guidance. FY+2 leans more on the 2027 capacity projects — the rail-served Midwest Aggregates Expansion designed for over 1 million tons a year, the Texas Aggregates Improvements, and the Spokane prestress plant with a secured semiconductor project — plus whatever the acquisition pipeline adds, since future deals are excluded from guidance.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $3.1B | $3.5B | $3.9B |
| YoY Growth | — | +12.8% | +9.0% |
| EBITDA | $480M | $540M | $619M |
| EBITDA Margin | 15.2% | 15.2% | 16.0% |
Projections are the median of 5 independent model runs. The model’s revenue sits 7.5% above analyst consensus.
FY2026 revenue is guided to $3,300M–$3,500M and adjusted EBITDA to $520M–$560M, reaffirmed on the May 5, 2026 call with management saying it currently expects the year to trend toward the upper half of both ranges. Aggregates volumes and pricing are guided up mid-single digits, ready-mix volumes up mid-teens, and asphalt volumes up mid-single digits. Contracting services gross margins are guided higher for the full year; SG&A was reaffirmed; maintenance and improvement capex at 5–7% of revenue ($170M–$235M). Management expects to end 2026 with no borrowings on its $500M revolver, cash on hand, and net leverage near the 2.5x long-term target. Future acquisitions are not included in guidance. The aggregates margin line was tightened from 'approximately 200 basis points' to 'at least 200 basis points.'
What Could Go Right — and Wrong
- Data-center materials move from bids into backlog and disclosed revenue; management currently excludes the category from its guidance midpoint.
- The $1.17B backlog converts on schedule in the 2026 season, with late Q3/Q4 job-site incentives and quality bonuses lifting margins faster than revenue.
- Diesel escalation clauses and surcharges recapture roughly $6M of Q2 fuel headwind as the season progresses.
- Further bolt-on acquisitions close at high single-digit multiples, with Utah and Texas acting as platform springboards.
- The 2027 capacity projects — Midwest Aggregates Expansion, Texas Aggregates Improvements, and Spokane Prestress — ramp at the disclosed cost and productivity targets.
- Q2's net-income decline proves durable rather than a set of identified one-time headwinds.
- Second-half contracting services margins land at the ~9–10% framing instead of the higher full-year commitment, and backlog margins stay below last year's vintage.
- Fewer public bid lettings keep pricing competitive while DOT funding growth slows, or Oregon's 2027 legislative session disappoints.
- Diesel stays elevated and escalation recapture lags, leaving the roughly 20% unprotected slice of 20M–25M gallons to pressure margins.
- Larger consolidators bid up the price of family-owned targets, raising the multiple on the acquisition engine or pushing further into Knife River's markets.
Looking Ahead
The next twelve months turn on the 2026 construction season. Roughly 75% of the record $1.17B backlog is expected to complete in 2026, and management frames second-half contracting services margins at ~9–10%, below the historical level. Delayed projects — Highway 6 and 190 in Texas, and P-209 dry dock work pushed to 2027 — plus diesel recapture and the status of the upper-half guidance bias are the swing factors. Beyond 2026, three 2027 capacity projects and any data-center awards that convert into contracted work set up the following year.
- 2H26Contracting margin test — Framed at ~9–10%, below the historical level for the period.
- Late Q3/Q4 2026Bonus and incentive resets — Job-site incentives and quality bonuses typically settle late Q3 or Q4.
- End 2026Leverage and revolver exit — Management targets ~2.5x net leverage with no revolver borrowings.
- 2027Midwest aggregates expansion — Rail-served; designed for over 1M tons per year at high margins.
- 2027Spokane prestress project — Plant has a large semiconductor project secured for 2027.
- 2027Texas aggregates improvements — Targets 25% lower variable cost and 35% more capacity.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $2.9B | $3.1B | $3.3B | +8.5% |
| Gross Margin | 16.5% | 14.8% | 17.9% | 168bps |
| EBITDA | $453M | $480M | $491M | +5.8% |
| EBITDA Margin | 15.6% | 15.2% | 14.8% | 39bps |
| Net Income | $202M | $157M | $140M | -22.1% |
| Free Cash Flow | $150M | −$70M | $43M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)17.9%
- EBITDA Margin (TTM)14.8%
- Net Margin (TTM)4.2%
- ROIC6.8%
- FCF Conversion8.8%
- SBC / Revenue0.3%
The Company
Knife River Corporation is an aggregates-based construction-materials and contracting-services company operating entirely in the United States. It controls 1.3 billion tons of aggregate reserves and uses about 35% of the aggregates it produces internally, feeding its own ready-mix, asphalt, and contracting operations. In 2025, contracting services accounted for 37% of gross revenue, ready-mix 21%, aggregates 16%, asphalt 11%, and liquid asphalt 8%; the lines do not sum to 100% because of other product lines. The company reports four segments — West, Mountain, Central, and Energy Services — and had 7,400 team members as of the Q1 2026 call.
Vertical integration is the operating design. Management describes it as a 'profit multiplier,' saying that on a given project Knife River can have 'over a dozen distinct pathways to capture profit' — as general contractor, subcontractor, materials supplier to itself, to a project owner, to another prime contractor, or to a competing producer. Its September 2026 IR presentation lists 213 active aggregate sites, 137 ready-mix plants, 56 asphalt plants, and 9 liquid asphalt terminals across 14 states, concentrated in mid-sized, higher-growth markets. Management says nearly 90% of its aggregates volume comes from markets where it holds a leading position, and the company has completed 100 acquisitions since 1992 and 16 since its 2023 spin-off.
Business Segments
Competitive Landscape
The 10-K names large publicly traded aggregates producers among its competitors — Amrize, Cemex, CRH, Eagle Materials, Granite Construction, Heidelberg Materials, Martin Marietta, Construction Partners, and Vulcan — and lists Knife River itself among the ten-largest U.S. aggregates producers. Competition is also local: management says it competes with family-owned producers that have their own margin expectations. Management says nearly 90% of its aggregates volume comes from markets where it holds a leading position, while the evidence pack's neighbor read-through (inferential, not Knife River's own disclosure) notes that larger peers are consolidating — CRH's Arcosa acquisition adds 35 million tonnes of aggregates — widening the scale gap.
- Named in the 10-K competitor list; not discussed by Knife River. The evidence pack's neighbor read-through (inferential) places CRH on 200 U.S. data centers and cites its Arcosa acquisition.
- Named in the 10-K competitor list; not discussed by Knife River. Neighbor read-through (inferential) cites data-center work up 90% and announced Quikrete/NFM and LNA deals.
- Named in the 10-K competitor list; not discussed by Knife River. Neighbor read-through (inferential) cites a Brannan Sand & Gravel aggregate acquisition and a ~$40M Q2 energy headwind.
- Cemex S.A.B. de C.V.Named in the 10-K competitor list; not discussed.
- Eagle Materials, Inc.Named in the 10-K competitor list; not discussed.
Supply Chain
Knife River sits mid-chain in construction materials: it mines and processes aggregates, sells roughly two-thirds of them externally, and feeds the rest into its own ready-mix, asphalt, and paving operations. No neighbor transcript in the source set names the company directly.