Knife River's Q2 2025 Earnings Call: Key Contradictions in Infrastructure Funding, Strata Integration, and Pricing Strategies

Oregon infrastructure funding and project status, Strata's integration and EBITDA contribution, impact of dynamic pricing on margins, acquisition strategy and impact on 2025 EBITDA are the key contradictions discussed in Knife River's latest 2025Q2 earnings call.



Record Backlog and Market Demand:
- Knife River reported a record backlog of $1.3 billion for Q2 2025, which is the highest in the company's history, marking a $250 million increase from the same time last year.
- This growth is driven by record DOT budgets in Knife River's states, which are growing 14% faster than the U.S. average, and the continued impact of the Infrastructure Investment and Jobs Act (IIJA).

Challenges in Oregon Market:
- Oregon's EBITDA variance for the quarter and year-to-date was over 50% related to the state, highlighting significant challenges.
- The issues in Oregon are primarily due to a slower start in construction activities, fewer projects to bid and build, and macroeconomic factors affecting private projects.

Strata Acquisition Impact:
- Strata's acquisition contributed approximately 8% of Knife River's revenue for the second quarter, which would have reduced consolidated revenue by 5% in the absence of this acquisition.
- The contribution is expected to be 9% to 10% of the company's overall EBITDA for the year, indicating positive financial impact on the company's performance.

Pricing Strategy and Weather Impact:
- Aggregates pricing increased by almost 12%, with additional gains from the dynamic pricing initiative and the Strata acquisition.
- The implementation of dynamic pricing has gained traction, contributing to pricing discipline despite challenges from lower demand and weather-related disruptions.

Regional Trends and Growth:
- Knife River's West segment, including California, Hawaii, and Alaska, showed significant progress with aggregate volumes up almost 60% and ready-mix volumes increasing in some states.
- Growth in these regions is attributed to strong regional demand, increased transportation funding, and a strong backlog, offsetting challenges in Oregon.