Covenant Transportation Group, Inc. (NASDAQ:CVTI) announced
today financial and operating results for the first quarter ended
March 31, 2016.
Highlights for the quarter included the
following:
- Total revenue of $156.3 million, a decrease of 6.5% compared
with the first quarter of 2015.
- Freight revenue of $144.7 million (excludes revenue from fuel
surcharges), an increase of 0.9% compared with the first quarter of
2015.
- Operating income of $7.4 million and an operating ratio of
94.9%, compared with operating income of $10.0 million and an
operating ratio of 93.0% in the first quarter of 2015. Operating
ratio is defined as: total operating expenses minus fuel surcharge
revenue, divided by freight revenue.
- Net income of $3.8 million, or $0.21 per diluted share,
compared with net income of $10.2 million, or $0.56 per diluted
share in the first quarter of 2015.
- Net income and earnings per share for the first quarter of 2015
included a federal income tax credit of approximately $4.7 million,
or $0.26 per diluted share.
Chairman, and Chief Executive Officer, David R.
Parker, made the following comments: “Our team did a solid
job executing in a difficult freight environment during the first
quarter. We continued to provide excellent customer service,
picking up awards from several large customers during the
quarter. In addition, our safety record was the best for a
first quarter in at least 15 years. Continuing to provide
safe, high-quality service allowed us to land several new pieces of
business that are expected to contribute during the second half of
2016 after ramping up during the second quarter. Late in
fiscal 2015, we chose enterprise-wide cost-controls as CTG’s 2016
annual “Wildly Important Goal” as part of our ongoing Four
Disciplines of Execution agenda in which each department has been
competing and is held accountable to amass and implement cost
saving ideas to lower our cost per mile. Not only has this
effort reduced our costs, it is expected to further reduce our
controllable costs throughout the year, and it has energized our
people around this core value.
"From a profitability perspective, operating
income declined by approximately $2.6 million compared with the
record first quarter of 2015. The main factors contributing
to the decline were a $1.9 million increase in losses on fuel
hedging contracts and an approximately $1.7 million negative impact
on depreciation expense due to accelerating the depreciation on
tractors scheduled for sale and lower gain on sale of tractors sold
during the quarter. Otherwise, our asset-based truckload
productivity was essentially flat on higher rates and lower
utilization, we generated strong performance from our Solutions
non-asset based brokerage business, and cost savings in certain
areas offset increases in other areas. In addition, we paid
down approximately $61.2 million of debt and capital lease
obligations to end the quarter with a net debt to total
capitalization ratio of 47.1%. Looking ahead, we remain cautious as
the second quarter freight environment has started slowly. While we
are hopeful that inventory levels are corrected sooner rather than
later, it may be several additional quarters until freight demand
increases and trucking capacity subsides to a point where supply
and demand are more favorably balanced."
Management Discussion—Asset-Based
Truckload OperationsMr. Parker continued: “For the
quarter, total revenue in our asset‑based operations decreased to
$142.8 million, a decrease of $14.5 million compared with the first
quarter of 2015. This decrease consisted of a $2.3 million
reduction of freight revenue, along with lower fuel surcharge
revenue of $12.2 million. The $2.3 million decrease in freight
revenue related to a 79 truck (or 2.9%) decrease in our average
tractor fleet, partially offset by a 0.5% increase in average
freight revenue per tractor and a $0.9 million increase of freight
revenue contributed from our refrigerated intermodal service
offering. Team-driven trucks increased to an average of 979 teams
in the first quarter of 2016, an increase of approximately 5.5%
over the average of 928 teams in the first quarter of 2015.
“Average freight revenue per tractor per week
decreased to $3,721 during the 2016 quarter from $3,743 during the
2015 quarter. Average freight revenue per loaded mile
increased by 5.1 cents per mile (or 2.9%) compared to the 2015
quarter. This increase was partially offset by a 120 basis
point increase in empty miles percentage (miles for which we do not
receive freight revenue or fuel surcharge revenue). In
addition, average miles per tractor decreased by 1.0%. The main
factor impacting the decreased utilization was a weaker overall
freight environment, partially offset by a 300 basis point increase
in the percentage of our fleet comprised of team-driven trucks, and
a higher seated truck percentage. On average, approximately 4.2% of
our fleet lacked drivers during the 2016 quarter compared with
approximately 4.9% during the 2015 quarter.
“Salaries, wages and related expenses increased
approximately 2.0 cents per mile due to a higher percentage of our
fleet comprised of team-driven tractors, and employee pay
adjustments since the first quarter of 2015.
“Net fuel expense increased by approximately 5.7
cents per total mile to 15.4 cents per mile in the 2016 quarter.
Losses from fuel hedging transactions were $5.0 million in the 2016
quarter compared with losses of $3.1 million in the 2015 quarter.
In addition, our fuel surcharge recovery was less effective during
the 2016 quarter. These headwind items were partially offset
by improved fuel pricing and improved fuel economy of our tractors.
Ultra low sulfur diesel prices as measured by the Department of
Energy averaged approximately $0.84/gallon lower in the first
quarter of 2016 compared with the 2015 quarter. We expect to
continue using fuel price hedges periodically to mitigate the
potential volatility in fuel prices relating to the portion of our
fuel usage that is not covered by fuel surcharges, which may result
in favorable or unfavorable results in any given quarter.
“Capital costs (combined depreciation and
amortization, revenue equipment rentals, building rent, and
interest expense) increased by approximately $1.5 million. The main
factor was the decline in the market for used tractors, which
caused us to record an approximate $1.3 million acceleration of the
depreciation of tractors scheduled for sale in 2016 and recognize a
$0.4 million reduction in gain on sale of revenue equipment
compared with gain on sale during the 2015 quarter. In
addition, depreciation expense increased to reflect higher prices
for new tractors as we continued to replace older tractors with
new, more fuel efficient equipment that also offers dependability,
lower operating costs, improved safety technology, and improved
driver satisfaction. These increased capital costs were
partially offset by an approximately $0.3 million decrease in
revenue equipment rental expense.
“Insurance and claims improved significantly to
8.7 cents per mile in the first quarter of 2016 versus 13.1 cents
per mile in the first quarter of 2015. Our rate of chargeable
accidents per million miles, as measured by the U.S. Department of
Transportation, was the best for a first quarter since we started
recording that data in 2001. The performance of our driving,
safety, and fleet management personnel, as well as additional
investments in safety technology, and favorable claims experience,
contributed to the cost improvement in this area."
Management Discussion—Non-Asset Based
Brokerage and Other OperationsMr. Parker offered the
following comments concerning Covenant Transport Solutions, Inc.
(“Solutions”), the Company’s non-asset based subsidiary: “For
the quarter, Solutions’ total revenue increased 36.3%, to $13.6
million from $10.0 million in the same quarter of 2015. Operating
income was approximately $1.8 million for an operating ratio of
86.6%, compared with operating income of approximately $0.3 million
and an operating ratio of 96.6% in the first quarter of 2015. In
addition, our 49% equity investment in Transport Enterprise Leasing
(“TEL”) contributed approximately $0.9 million of pre-tax income in
the quarter compared with $1.4 million in the first quarter of
2015.”
Cash Flow, Liquidity and
CapitalizationRichard B. Cribbs, the Company's Executive
Vice President and Chief Financial Officer, added the following
comments: “At March 31, 2016, we had approximately $44.3 million of
borrowing availability under our revolving line of credit. At March
31, 2016, our total balance sheet debt and capital lease
obligations, net of cash, were $184.4 million, and our
stockholders’ equity was $207.1 million, for a ratio of net debt to
total balance sheet capitalization of 47.1%. At March 31,
2016, the discounted value of future obligations under off-balance
sheet operating lease obligations was approximately $19.3 million,
including the residual value guarantees under those leases, and we
believe the value of the leased equipment was approximately equal
to the present value of such lease obligations. Since the end
of 2015, the Company's balance sheet debt and capital lease
obligations, net of cash, decreased by $61.2 million, while the
present value of financing provided by operating leases increased
by approximately $0.7 million. Due primarily to collections of the
peak season freight revenues billed from late November through
December 31, 2015, our net accounts receivable balance decreased by
approximately $37.5 million at March 31, 2016 compared to December
31, 2015. In addition, we sold and collected the proceeds from
approximately 365 trucks that were recorded as “Assets held for
sale” on our consolidated balance sheet at December 31, 2015. The
Assets held for sale balance decreased by approximately $24.3
million at March 31, 2016 compared to December 31, 2015.
“In the first quarter of 2016, we took delivery
of approximately 100 new company tractors and disposed of
approximately 430 used tractors (including the 365 tractors that
had been recorded as Assets held for sale at December 31, 2015).
Our current tractor fleet plan for full-year 2016 includes the
delivery of approximately 865 new company tractors, and the
disposal of approximately 1,265 used tractors (including 365
tractors that had been recorded as Assets held for sale at December
31, 2015). For the year, the average size of our tractor fleet is
expected to be approximately 2% to 5% below the average for 2015.
With a relatively young average company tractor fleet age of 1.8
years at March 31, 2016, we believe there is significant
flexibility to manage our fleet, and we plan to regularly evaluate
our tractor replacement cycle and new tractor purchase
requirements.”
OutlookMr. Cribbs continued:
“Our outlook for the second quarter of 2016 is cautious given the
near-term freight environment. General freight levels have been
soft in April, and many of our customers are not predicting
improvement in their shipping levels until the second half of the
year. Outside of the general freight environment, we have
on-boarded two significant accounts that will fully commence late
in the second quarter, but start-up costs and network changes are
likely to delay profit contribution of the new business until the
second half of 2016. Meanwhile, we continue to focus on cost
controls. Taking into consideration all of these factors, we
currently expect earnings per diluted share to be in a range of
$0.28 to $0.33 for the second quarter of 2016. For the second
quarter of 2015, we reported earnings per diluted share of
$0.60. There are two primary differences between reported
results for the second quarter of 2015 and our expected range for
the second quarter of 2016. First, the 2015 quarter included
a $3.5 million pretax, or $0.12 per share after tax, benefit from
release of an insurance policy for the 2013-2014 policy period, and
a similar event is not expected in the 2016 quarter. Second,
net fuel cost per mile was 10.9 cents (including a $2.5 million
loss on fuel hedging contracts) in the 2015 quarter, and we have
forecasted net fuel cost per mile for the 2016 quarter to be
approximately 14.5 cents per mile (including a $4.7 million loss on
fuel hedging contracts), assuming diesel fuel prices similar to
those we experienced in the first quarter of 2016."
Conference Call InformationThe
Company will host a live conference call tomorrow, April 28, 2016,
at 11:00 a.m. Eastern time to discuss the quarter.
Individuals may access the call by dialing 800-351-4894
(U.S./Canada) and 800-756-3333 (International), access code
CTG1. An audio replay will be available for one week
following the call at 877-919-4059, access code 67136705. For
additional financial and statistical information regarding the
Company that is expected to be discussed during the conference
call, please visit our website at
www.ctgcompanies.com/investor-relations under the icon "Earnings
Info."
Covenant Transportation Group, Inc. is the
holding company for several transportation providers that offer
premium transportation services for customers throughout the United
States. The consolidated group includes operations from Covenant
Transport and Covenant Transport Solutions of Chattanooga,
Tennessee; Southern Refrigerated Transport of Texarkana, Arkansas;
and Star Transportation of Nashville, Tennessee. In addition,
Transport Enterprise Leasing, of Chattanooga, Tennessee is an
integral affiliated company providing revenue equipment sales and
leasing services to the trucking industry. The Company's Class A
common stock is traded on the NASDAQ Global Select under the
symbol, “CVTI”.
This press release contains certain statements
that may be considered forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
and such statements are subject to the safe harbor created by those
sections and the Private Securities Litigation Reform Act of 1995,
as amended. Such statements may be identified by their use of
terms or phrases such as "expects," "estimates," "projects,"
"believes," "anticipates," "plans," "intends," “outlook,” and
similar terms and phrases. Forward-looking statements are
based upon the current beliefs and expectations of our management
and are inherently subject to risks and uncertainties, some of
which cannot be predicted or quantified, which could cause future
events and actual results to differ materially from those set forth
in, contemplated by, or underlying the forward-looking statements.
In this press release, the statements relating to freight
demand, customer contracts, inventory levels, trucking capacity,
fuel hedges, equipment purchases and disposals, average fleet size,
the value of leased equipment, and the statements under “Outlook”
are forward-looking statements. Such items have not been subjected
to all the review and audit procedures associated with the release
of actual financial results. The following factors, among
others, could cause actual results to differ materially from those
in the forward-looking statements: the rates and volumes realized
during our peak business during the fourth quarter, elevated
experience in the frequency and severity of claims relating to
accident, cargo, workers' compensation, health, and other claims,
increased insurance premiums, fluctuations in claims expenses
that result from our self-insured retention amounts, including in
our excess layers and in respect of claims for which we commute
policy coverage, and the requirement that we pay additional
premiums if there are claims in certain of those layers,
differences between estimates used in establishing and adjusting
claims reserves and actual results over time (including with
respect to the adverse judgment on the 2008 cargo claim announced
in the third quarter of 2014), adverse changes in claims experience
and loss development factors, or additional changes in management's
estimates of liability based upon such experience and development
factors that cause our expectations of insurance and claims expense
to be inaccurate or otherwise impacts our results; changes in the
market condition for used revenue equipment and real estate that
impact our capital expenditures and our ability to dispose of
revenue equipment and real estate on the schedule and for the
prices we expect; increases in the prices paid for new revenue
equipment that impact our capital expenditures and our results
generally; changes in management’s estimates of the need for new
tractors and trailers; the effect of any reduction in tractor
purchases on the number of tractors that will be accepted by
manufacturers under tradeback arrangements; our inability to
generate sufficient cash from operations and obtain financing on
favorable terms to meet our significant ongoing capital
requirements; our ability to maintain compliance with the
provisions of our credit agreements, particularly financial
covenants in our revolving credit facility; excess tractor or
trailer capacity in the trucking industry; decreased demand for our
services or loss of one or more of our major customers; our ability
to renew dedicated service offering contracts on the terms and
schedule we expect; surplus inventories, recessionary economic
cycles, and downturns in customers' business cycles; strikes, work
slowdowns, or work stoppages at the Company, customers, ports, or
other shipping related facilities; increases or rapid fluctuations
in fuel prices, as well as fluctuations in hedging activities and
surcharge collection, including, but not limited to, changes in
customer fuel surcharge policies and increases in fuel surcharge
bases by customers; the volume and terms of diesel purchase
commitments and hedging contracts; interest rates, fuel taxes,
tolls, and license and registration fees; increases in compensation
for and difficulty in attracting and retaining qualified drivers
and independent contractors; seasonal factors such as harsh weather
conditions that increase operating costs; competition from
trucking, rail, and intermodal competitors; regulatory requirements
that increase costs, decrease efficiency, or reduce the
availability of drivers, including revised hours-of-service
requirements for drivers and the Federal Motor Carrier Safety
Administration’s Compliance, Safety, Accountability program that
implemented new driver standards and modified the methodology for
determining a carrier’s DOT safety rating; the ability to reduce,
or control increases in, operating costs; changes in the Company’s
business strategy that require the acquisition of new businesses,
and the ability to identify acceptable acquisition candidates,
consummate acquisitions, and integrate acquired operations;
fluctuations in the results of Transport Enterprise Leasing, which
are included as equity in income (loss) of affiliate in our
financial statements; the number of shares repurchased, if any; the
effects of repurchasing the shares on debt, equity, and liquidity;
the effects of repurchasing no or a nominal number of shares; and
the ultimate uses of repurchased shares, if any. Readers
should review and consider these factors along with the various
disclosures by the Company in its press releases, stockholder
reports, and filings with the Securities and Exchange Commission.
We disclaim any obligation to update or revise any
forward-looking statements to reflect actual results or changes in
the factors affecting the forward-looking information.
Covenant Transportation Group,
Inc. |
|
Key Financial and Operating
Statistics |
|
|
|
|
|
|
|
|
|
INCOME STATEMENT DATA |
|
|
|
Three Months Ended Mar 31, |
|
($000s, except per share data) |
|
2016 |
|
|
2015 |
|
% Change |
|
Freight
revenue |
$ |
144,679 |
|
$ |
143,335 |
|
|
0.9 |
% |
|
Fuel
surcharge revenue |
|
11,662 |
|
|
23,881 |
|
|
|
|
Total revenue |
$ |
156,341 |
|
$ |
167,216 |
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
Salaries, wages, and
related expenses |
|
57,755 |
|
|
58,253 |
|
|
|
|
Fuel expense |
|
23,833 |
|
|
31,894 |
|
|
|
|
Operations and
maintenance |
|
11,162 |
|
|
10,797 |
|
|
|
|
Revenue equipment
rentals and |
|
|
|
|
|
purchased
transportation |
|
25,098 |
|
|
23,208 |
|
|
|
|
Operating taxes and
licenses |
|
2,708 |
|
|
2,661 |
|
|
|
|
Insurance and
claims |
|
6,897 |
|
|
10,769 |
|
|
|
|
Communications and
utilities |
|
1,477 |
|
|
1,527 |
|
|
|
|
General supplies and
expenses |
|
3,108 |
|
|
3,682 |
|
|
|
|
Depreciation and
amortization, including gains and |
|
|
|
|
|
losses on
disposition of property and equipment |
|
16,885 |
|
|
14,382 |
|
|
|
Total
operating expenses |
|
148,923 |
|
|
157,173 |
|
|
|
Operating
income |
|
7,418 |
|
|
10,043 |
|
|
|
Other
(income) expenses: |
|
|
|
|
|
Interest expense |
|
2,295 |
|
|
2,204 |
|
|
|
|
Other |
|
- |
|
|
- |
|
|
|
Other
expenses, net |
|
2,295 |
|
|
2,204 |
|
|
|
Equity in
income of affiliate |
|
850 |
|
|
1,385 |
|
|
|
Income
before income taxes |
|
5,973 |
|
|
9,224 |
|
|
|
Income tax
expense (benefit) |
|
2,176 |
|
|
(1,003 |
) |
|
|
Net
income |
$ |
3,797 |
|
$ |
10,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
$ |
0.21 |
|
$ |
0.56 |
|
|
|
Basic
weighted average shares outstanding (000s) |
|
18,147 |
|
|
18,145 |
|
|
|
Diluted
weighted average shares outstanding (000s) |
|
18,272 |
|
|
18,307 |
|
|
|
|
|
|
|
Three Months Ended Mar 31, |
|
|
|
|
2016 |
|
|
2015 |
|
% Change |
|
($000s) |
SEGMENT REVENUES |
|
Asset-based
trucking revenues |
$ |
131,092 |
|
$ |
133,369 |
|
|
-1.7 |
% |
|
Covenant
Transport Solutions non-asset based revenues |
|
13,587 |
|
|
9,966 |
|
|
36.3 |
% |
|
|
Freight
revenue |
$ |
144,679 |
|
$ |
143,335 |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
OPERATING STATISTICS |
|
Average
freight revenue per loaded mile |
$ |
1.813 |
|
$ |
1.762 |
|
|
2.9 |
% |
|
Average
freight revenue per total mile |
$ |
1.611 |
|
$ |
1.586 |
|
|
1.6 |
% |
|
Average
freight revenue per tractor |
$ |
48,371 |
|
$ |
48,120 |
|
|
0.5 |
% |
|
Average
miles per tractor per period |
|
30,025 |
|
|
30,338 |
|
|
-1.0 |
% |
|
Weighted avg. tractors for period |
|
2,628 |
|
|
2,707 |
|
|
-2.9 |
% |
|
Tractors at
end of period |
|
2,607 |
|
|
2,722 |
|
|
-4.2 |
% |
|
Trailers at
end of period |
|
6,903 |
|
|
6,690 |
|
|
3.2 |
% |
|
|
|
SELECTED BALANCE SHEET DATA |
|
($000s, except per share data) |
3/31/2016 |
12/31/2015 |
|
|
Total
assets |
$ |
569,531 |
|
$ |
647,423 |
|
|
|
Total
stockholders' equity |
$ |
207,100 |
|
$ |
202,160 |
|
|
|
Total
balance sheet debt, net of cash |
$ |
184,371 |
|
$ |
245,540 |
|
|
|
Net Debt to
Capitalization Ratio |
|
47.1 |
% |
|
54.8 |
% |
|
|
Tangible
book value per basic share |
$ |
11.38 |
|
$ |
11.15 |
|
|
|
For further information contact:
Richard B. Cribbs, Senior Vice President and Chief Financial Officer
(423) 463-3331
Richard.Cribbs@ctgcompanies.com
For copies of Company information contact:
Kim Perry, Administrative Assistant
(423) 463-3357
Kimberly.Perry@ctgcompanies.com
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