Knife River Corporation, the Bismarck-based construction materials giant, is defying industry norms by prioritizing margins over volume. In 2023, they shattered records for revenue, net income, EBITDA, and adjusted EBITDA - a remarkable feat considering their recent emergence as a standalone publicly traded company.

While analysts celebrate these successes, Knife River's Q1 2024 earnings call reveals a more nuanced strategy: deliberate reduction in sales volume, particularly in aggregate. This seemingly counterintuitive approach is a calculated move to prioritize high-value projects, implement dynamic pricing, and maximize returns on every ton of aggregate sold.

The numbers paint a compelling picture. Despite a 13% year-over-year drop in aggregate volumes, Knife River achieved a 15% surge in average selling price. Similarly, ready-mix volumes dipped by 6%, yet their average selling price climbed 9%.

Less is More: Volume vs. Price

This table illustrates how Knife River is achieving higher profitability with lower sales volume.

This strategic shift is not just about short-term gains. Knife River is aiming for a remarkable 11.5% growth in adjusted EBITDA for their geographic segments, reaching $395 million, despite projecting flat to slightly down volumes for 2024. Their long-term goal of 20% plus EBITDA margins is fueled by this calculated 'less is more' approach, demonstrating their commitment to operational excellence and profit maximization.

A key driver behind these ambitious goals is their newly-formed 'PIT Crew,' or process improvement team. This dedicated group identifies opportunities for capital improvements, operational efficiencies, and tighter cost controls. The PIT Crew's success has led to its expansion, further enhancing Knife River's ability to unearth hidden value and drive profitability.

EBITDA Growth in Geographic Segments

This chart visually represents Knife River's projected EBITDA growth across its geographic segments.

For investors, Knife River's strategy signals a unique position to weather economic storms in a cyclical industry. Their laser focus on maximizing margins, combined with their strategic capital allocation and active pursuit of acquisitions, paints a picture of a company built for long-term success.

Knife River's success lies in their willingness to challenge the 'more is always better' mentality. By selling less but selling smarter, they are not just breaking records but rewriting the rules of the game.

"Fun Fact: Knife River gets its name from the Knife River in North Dakota, where it was founded in 1917. The river was named for the sharp, flint-like stones found along its banks, used by Native Americans for tools and weapons. It's a fitting tribute to a company that, like those ancient artisans, excels at extracting value from seemingly ordinary materials."