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Riding the Knight Bus

Here's a knight that definitely does not say "Ni!" While Knight Transportation (NYSE: KNX  ) is already one of the largest publicly traded truckers in terms of market capitalization, its profitable growth story doesn't seem to be over just yet.

Revenue in the fourth quarter climbed almost 30% for this truckload hauler of dry and refrigerated goods. Impressively, revenue was up 22% without the benefit of fuel surcharges, though results do include more than a 15% hike in the average number of tractors operating. All said and done, though, average revenue per loaded mile rose almost 6%.

The company not only hauled more stuff, but hauled it more profitably. The operating ratio improved slightly on a year-to-year basis, and the company saw net income jump more than 27%. Like Heartland Express (Nasdaq: HTLD  ) , Knight had some gains from asset sales in the quarter, but the overall impact was on the order of half a cent of earnings.

Despite the high fuel prices and the rising driver costs, Knight's management continues to seem optimistic about the company's growth prospects. Not only is the company seeing firmness in shipping rates (mid-to-high single-digit increases) and solid driver retention, but it would appear that increases in costs like fuel and insurance are hurting the smaller carriers even more than the larger ones -- giving companies like Knight more room and opportunity to expand.

And expansion is a big part of the story here. Not only is the company adding new tractors, but it's looking to grow by adding new service centers, as well. Still, even with a nearly two-thirds increase in capital spending for the year, the company managed to produce positive free cash flow -- something that not all truckers are achieving these days.

All in all, I like where Knight sits -- particularly with a diversified customer base that gets about one-third of its revenue from grocery stores and their suppliers. Sure, there are competitors like Frozen Food Express (Nasdaq: FFEX  ) and Marten (Nasdaq: MRTN  ) in the refrigerated business, as well as other truckload and less-than-truckload carriers like Swift (Nasdaq: SWFT  ) and Old Dominion (Nasdaq: ODFL  ) . But that hasn't stopped Knight from establishing one of the highest returns on invested capital in the industry, and it looks like the business is still barreling down the highway.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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