Knife River (KNF) Q3 2025: Backlog Jumps 32% as M&A and Pricing Drive Margin Expansion
Knife River delivered record Q3 results, propelled by margin gains, robust M&A execution, and a 32% increase in backlog. Despite weather disruptions and regional headwinds, the company’s EDGE strategy—focused on dynamic pricing, operational efficiency, and targeted acquisitions—continues to strengthen underlying fundamentals. Management’s confidence in sustained growth is underpinned by stabilized Oregon operations, surging public infrastructure investment, and a pipeline of higher-margin projects for 2026.
Summary
- Backlog Composition Shift: Higher-margin asphalt paving and materials now comprise a larger share of future work.
- Oregon Stabilization: Rapid cost actions and resumed projects have reversed prior declines, supporting a flat 2026 outlook.
- M&A Integration Momentum: Recent deals, especially Strata, are delivering modeled synergies and volume leverage.
Performance Analysis
Knife River posted all-time highs in revenue and adjusted EBITDA for the third quarter, driven by strong execution in both legacy and acquired businesses. The company’s adjusted EBITDA margin reached 22.7%, with gross margin improvements across aggregates, ready mix, and asphalt—despite persistent weather and project timing challenges in several regions. Acquisitions, most notably Strata Corporation, provided significant uplift to both volume and profitability, particularly in the Central segment where backlog soared 83% year-over-year, led by Texas and North Dakota.
Ready mix volumes jumped 16%, bolstered by both organic growth and the addition of Strata’s 24 plants, while pricing increased nearly 6%. Aggregates pricing rose 8% overall, with legacy operations sustaining mid-single digit gains, and margins improved even as legacy volumes remained soft due to weather and lower paving activity. Asphalt faced volume and pricing pressure from reduced internal demand and lower liquid asphalt input costs, but cost management still yielded margin improvement. Contracting services margins were pressured by mix and weather, but the backlog now contains significantly more high-margin paving work for 2026.
- Margin Expansion: Operational discipline and dynamic pricing lifted gross margins across all core materials lines.
- Acquisition Synergy Realization: Strata and Albina Asphalt integrations are tracking ahead of modeled expectations, offsetting regional softness.
- Backlog Quality Upgrade: More downstream, margin-accretive work secured, especially in Mountain and Central regions.
Knife River’s performance reflects the compounding effect of self-help initiatives, disciplined capital deployment, and a constructive public funding environment.
Executive Commentary
"Delivering improved results in adverse conditions points to the fundamental strength of our business. Even without the addition of Strata Corporation, our third quarter revenue and adjusted EBITDA would have been records. Looking ahead, we're excited about our future. We're still in the early innings of our self-help initiatives, and we certainly expect the organic business to continue to grow as we fully implement dynamic pricing and operational improvements."
Brian Gray, President and Chief Executive Officer
"Aggregates, ready mix, and asphalt saw margin improvement over the third quarter last year. In aggregates, prices increased 8% and margins improved 50 basis points. We believe the upside in margins for aggregates provides one of the most compelling opportunities for earnings growth."
Nathan Ring, Chief Financial Officer
Strategic Positioning
1. EDGE Strategy Execution
Knife River’s EDGE plan—emphasizing M&A, dynamic pricing, and operational excellence—remains the central driver of value creation. The company is scaling process improvements, focusing on aggregates-led, margin-accretive acquisitions, and embedding dynamic pricing across product lines. These efforts are already translating into record margin performance and enhanced earnings power.
2. Backlog Depth and Mix Transformation
Backlog is up 32% year-over-year, with a notable shift toward higher-margin asphalt paving and materials pull-through. Larger, multi-year projects are now a bigger share, lowering the typical 12-month burn rate but increasing long-term revenue visibility and gross profit potential. The Mountain and Central regions each secured record levels of paving work, positioning the company to capitalize on robust DOT budgets in 2026.
3. Regional Stabilization and Opportunity
Oregon, a recent weak spot, has stabilized through aggressive cost actions, resumed project activity, and a new $4.3 billion transportation funding package. While the funding is below prior legislative ambitions, it provides a floor for near-term activity, especially in Knife River’s bread-and-butter small- and mid-sized overlay projects. Meanwhile, Central and Mountain regions are benefiting from strong public infrastructure tailwinds and are set for further growth as delayed projects move forward.
4. M&A as a Growth Engine
Acquisition integration is delivering on modeled synergies, with Strata’s performance (despite weather) validating the company’s disciplined approach. The M&A pipeline remains robust, focused on infill and adjacent high-growth markets, with management signaling continued deployment of capital at attractive multiples.
Key Considerations
Knife River’s Q3 marks a turning point, with margin structure, backlog mix, and regional execution all pivoting positively. The company’s results and commentary underscore several critical watchpoints for investors as the EDGE strategy matures and public funding cycles drive project flow.
Key Considerations:
- Backlog Margin Dynamics: While contracting services backlog margin is slightly lower, this is offset by a larger share of high-margin paving and materials work, supporting consolidated profit growth.
- Weather and Project Timing Risk: Delays in Mountain and Central regions highlight the ongoing sensitivity to weather and bid timing, which can shift volume and margin realization across quarters.
- Funding and Legislative Uncertainty: Oregon’s new funding package is a stopgap, not a long-term fix, keeping the state’s infrastructure pipeline vulnerable to political and fiscal shifts.
- M&A Integration and Pipeline: Execution risk remains as Knife River scales its acquisition program, but current integrations are ahead of plan, and SG&A investments signal sustained deal flow.
- Dynamic Pricing Traction: The company’s commercial excellence and customer acceptance of dynamic pricing are driving sustained price/cost spread, especially in ready mix and aggregates.
Risks
Knife River’s outlook is tethered to weather volatility, public funding continuity, and the successful integration of acquisitions. Oregon’s funding package offers only a partial solution, leaving longer-term demand exposed to political will. Competitive bid dynamics, especially in Mountain, could pressure margins if market conditions tighten. Any deterioration in public infrastructure budgets or execution missteps in M&A could materially impact results.
Forward Outlook
For Q4 2025, Knife River guided to:
- Continued year-over-year EBITDA growth, contingent on normal weather and backlog execution
- Oregon stabilization and resumed project activity supporting margin and volume
For full-year 2025, management narrowed guidance:
- Consolidated revenue between $3.1 billion and $3.15 billion
- Adjusted EBITDA between $475 million and $500 million
Management highlighted several factors that drive confidence:
- Strong October weather and robust backlog pull-through
- Ongoing stabilization in Oregon and resumed private project activity
Takeaways
Knife River’s record Q3 affirms that its EDGE strategy is delivering margin leverage and backlog quality upgrades, even as regional and weather headwinds persist.
- Margin Upside: Dynamic pricing, operational discipline, and acquisition integration are compounding to lift profitability, with further upside as process improvements scale.
- Backlog Quality: A larger share of high-margin paving and materials work de-risks 2026 earnings and supports long-term growth visibility.
- Execution Watchpoint: Investors should monitor weather volatility, Oregon’s funding trajectory, and the pace of M&A integration for signs of either upside or risk to guidance.
Conclusion
Knife River’s Q3 results and management commentary point to a business gaining operational leverage, with a backlog now richer in high-margin work and a disciplined M&A strategy fueling growth. While external risks remain, the company’s EDGE plan is delivering on its promise of margin expansion and long-term value creation.
Industry Read-Through
Knife River’s results reinforce several key industry trends: Public infrastructure funding continues to drive robust demand for construction materials, but legislative uncertainty can quickly alter outlooks at the state level. Dynamic pricing and operational efficiency are becoming critical differentiators in aggregates and ready mix, as cost inflation and project timing volatility persist. M&A remains a primary lever for regional scale and margin enhancement, with disciplined integration separating winners from laggards. Other materials and construction peers should watch for margin compression risk where backlog mix shifts or weather disrupts execution, and for the increasing importance of public funding cycles in driving near-term visibility.