Knight-Swift Transportation warned Wednesday that second-quarter results are likely to disappoint in a news release also confirming it has closed on the previously announced acquisition of truckload carrier U.S. Xpress.

The transportation and logistics provider said a weaker than expected operating environment in the truckload sector would likely result in consolidated operating margin deterioration of 1,100 to 1,200 basis points year over year (y/y) in the second quarter and that its full-year guidance would be updated when it reports results on July 20.

“Persistently soft demand” has volumes and pricing “under greater pressure than originally anticipated,” the statement said. It noted that operating costs in the quarter were stable sequentially from the first quarter.

By comparison, Knight-Swift (NYSE: KNX) reported an 88.7% consolidated adjusted operating ratio (inverse of operating margin) in the first quarter, which was 810 bps worse y/y. The updated guide implies a companywide OR of slightly more than 90% in the second quarter, a far cry from the low-80% range the carrier operated at for the bulk of 2022.

Following a rough first quarter, the company lowered its full-year 2023 earnings-per-share outlook to $3.35 to $3.55, which was a 17% reduction from the midpoint of its initial outlook. It appears analysts were expecting the negative revision as the consensus estimate at the time of Wednesday’s print was just $3.26.

The company’s guidance excludes any impact from the U.S. Xpress (NYSE: USX) deal, which Knight-Swift originally said would be accretive to earnings in 2024, adding more than $1 to adjusted EPS in 2026.

“As we have engaged with more of the U.S. Xpress organization since the announcement, we have even more confidence that our combined efforts will lead to achievement of the profitability targets we communicated,” Knight-Swift CEO Dave Jackson said in a news release.

The acquisition was approved by U.S. Xpress shareholders on Thursday, with an effective closing date of Saturday.

Original deal terms showed a purchase price of $808 million, $324 million in equity with the remainder coming from the assumption of debt.

Knight-Swift’s TL unit will now account for 63% of its total revenue compared to 58% before the deal. The transaction adds roughly $2.2 billion in revenue and a fleet of more than 7,000 tractors that operate in irregular route, over-the-road fleets and dedicated configurations.

“Against the current backdrop of a particularly difficult business environment, the chance to add one of the largest brands in our industry, with significant opportunity to improve earnings, gain customers and reach more professional drivers, is a compelling part of our plan to drive higher highs and higher lows across successive truckload freight cycles,” Jackson continued.

U.S. Xpress was booking operating and net losses in periods leading up to the deal announcement. It recorded an adjusted net loss of $32 million last year and had net income of just $8 million in 2021. Its consolidated adjusted OR was 101.2% last year with its TL fleet operating at a 102.4% OR.

Knight-Swift expects to lower U.S. Xpress’ consolidated OR to a high-80% range by 2026, with margins at its different fleets improving to a low-80% range over time. Knight’s management team has performed similar turnarounds in the past.

Its $6 billion acquisition of Swift Transportation in 2017 created the biggest TL carrier in the nation but also brought on a struggling fleet with a huge debt burden. Through integration, utilization and other initiatives, the Swift side of Knight-Swift has seen ORs improve from low- to mid-90s to sub-80s at times. In some quarters, Swift’s OR outperforms the legacy Knight operations.

Swift executives Tim Harrington and Josh Smith, who played key roles after the merger, will lead U.S. Xpress as president and CFO, respectively.

U.S. Xpress went public at $16 per share in 2018 and registered its last trade on Friday at $6.14.

The deal brings Knight-Swift to roughly $10 billion in annual revenue with a TL fleet of 25,000 tractors and 93,000 trailers.

Further, the latest deal for the nation’s largest TL carrier isn’t expected to impede its ambitions to piece together a national less-than-truckload unit.

Knight-Swift acquired two LTL carriers in 2021, AAA Cooper Transportation in a $1.35 billion deal and Midwest Motor Express for $150 million. Knight-Swift’s newly formed LTL unit generated more than $1 billion in revenue last year, including fuel surcharges. The Northeast and Southwest remain target geographies for the company to build out a national map.

“While the truckload part of the organization focuses on achieving the goals we have laid out for U.S. Xpress, our LTL and M&A teams remain focused on our strategic priority of continuing to build out a nationwide LTL network,” Jackson said.

Shares of KNX were down 2.4% Wednesday at 10:41 a.m. compared to the S&P 500, which was off 0.1%.

More FreightWaves articles by Todd Maiden