Knife River Raises Revenue Outlook as Margins Slip
Knife River (KNF) posted second-quarter revenue of $938.6 million, up 13% from a year earlier, even as gross margin and net income both contracted.
Knife River (KNF), the construction-materials and contracting company spun off from MDU Resources, reported second-quarter revenue of $938.6 million, up 13% from a year earlier. Net income fell 13% to $43.9 million from $50.6 million a year earlier, and Adjusted EBITDA margin declined to 14.9% from 16.9%.
The results marked a reversal from the trajectory the company had built through early 2026. Revenue growth decelerated from 16% in the first quarter and 15% in the fourth quarter of 2025, while margins moved the opposite direction of what management had guided: the first quarter had shown a 290-basis-point year-over-year improvement in Adjusted EBITDA margin, and the fourth quarter of 2025 had shown a 340-basis-point gain. Total gross profit margin came in at 17.3%, down from 18.9% a year earlier, with contracting services gross margin falling to 7.6% from 12.0% and aggregates gross margin slipping to 19.9% from 20.8%. A smaller gain on asset sales, just $650,000 versus $10.3 million a year earlier, also weighed on reported net income.
Pricing was not the problem. Aggregate pricing rose 8% on a product-mix-adjusted basis, above the mid-single-digit pace the company had guided for the full year and ahead of the high-single-digit pricing gain reported for all of 2025. Contracting services revenue grew 20% to $406.5 million from $340.2 million, a sharp acceleration from the flat-to-modest growth discussed in prior quarters. The gap between strong pricing and volume growth on one hand and compressed margins on the other points to a shift toward lower-margin contracting work and seasonal cost patterns that had not shown up as starkly in the prior two quarters.
Segment performance diverged sharply. West segment revenue declined 9% to $290.4 million with EBITDA down 19% and margin falling to 17.0% from 19.1%, reversing the modest 2% growth the segment had posted in the first quarter. Mountain segment revenue grew 34% to $236.5 million, faster than the 23% growth of the prior quarter, but EBITDA margin fell to 13.1% from 17.6% even as EBITDA dollars held roughly flat, indicating the mix shift toward contracting diluted profitability there as well. Central segment revenue growth decelerated to 28% ($325.6 million) from 49% in the first quarter, though EBITDA margin improved to 16.5% from a negative margin, helped by normal seasonality and the Texcrete acquisition. Energy Services was the exception to the margin pressure, with EBITDA margin expanding to 19.2% from 17.5% on 6% revenue growth.
Backlog rose sequentially to $1.2 billion from $1,216.0 million in the first quarter but remained below the record $1,253.4 million reported a year earlier.
Despite the margin compression, Knife River raised its full-year 2026 revenue guidance to a range of $3,400.0 million to $3,600.0 million, up from $3,300.0 million to $3,500.0 million at both the first-quarter and initial fourth-quarter 2025 guidance. The company left its Adjusted EBITDA guidance of $520.0 million to $560.0 million unchanged across all three releases. It also raised volume guidance for both aggregates and asphalt to high-single-digit growth from mid-single-digit growth.
The higher revenue outlook comes alongside an expanded acquisition pace. Six-month 2026 growth capital spending was $244.5 million, including $184.4 million on acquisitions, after completing three deals in the first quarter — Morgan Asphalt, Sparrow Enterprises and Donaldson Brothers — compared with five acquisitions for all of 2025. To help fund the activity, the company issued an incremental $400 million Term Loan B on May 15, 2026, using proceeds in part to repay revolver borrowings; net leverage held steady at 3.2x.
The combination of raised volume and revenue guidance alongside unchanged Adjusted EBITDA targets suggests Knife River is betting that acquisition-driven scale will offset the margin pressure from its shifting revenue mix over the remainder of the year.