Covenant Transportation Group, Inc. (NASDAQ:CVTI) (“CTG”) announced
today financial and operating results for the third quarter ended
September 30, 2016.
Highlights for the quarter included the following:
- Total revenue of $164.5 million, a decrease of 5.2% compared
with the third quarter of 2015.
- Freight revenue of $148.2 million (excludes revenue from fuel
surcharges), a decrease of 3.4% compared with the third quarter of
2015.
- Operating income of $5.4 million and an operating ratio of
96.3%, compared with operating income of $14.6 million and an
operating ratio of 90.5% in the third quarter of 2015. Operating
ratio is defined as: total operating expenses minus fuel surcharge
revenue, divided by freight revenue.
- Net income of $2.9 million, or $0.16 per diluted share,
compared with net income of $7.6 million, or $0.42 per diluted
share in the third quarter of 2015.
Chairman, and Chief Executive Officer, David R.
Parker, made the following comments: “The trucking environment in
the third quarter was characterized by moderate freight volumes,
and a depressed market for used tractors. To combat these
forces, we are taking steps to modestly reduce certain portions of
our fleet, conserve capital expenditures, emphasize driver
retention, and continue providing world class supply chain services
to our valued customers. In addition, we are proactively
addressing the used equipment market by accelerating the
depreciation rate on most of our tractors, and we are in the
process of enhancing the management personnel and processes to
improve the efficiency of our solo refrigerated service offering at
Southern Refrigerated Transport (“SRT”).
"On a consolidated basis, net income for the third quarter
declined by approximately $4.8 million, or $0.26 per diluted share,
compared with the third quarter of 2015. The main operating
differences included the following:
- Depreciation increased $4.6 million, or $0.15 per diluted
share.
- Casualty insurance and claims expense increased $1.7 million,
or $0.06 per diluted share.
- Average freight revenue per tractor declined 1.2%, lowering
profit by approximately $1.0 million, or $0.04 per diluted
share.
- Effective income tax rate declined to 27.1% from 43.9%,
providing a benefit of approximately $0.04 per diluted share. This
reduced effective income tax rate is not expected to occur in
future quarters.”
Management Discussion—Asset-Based
Truckload OperationsMr. Parker continued: “For the
quarter, total revenue in our asset‑based operations decreased to
$148.6 million, a decrease of $11.0 million compared with the third
quarter of 2015. This decrease consisted of a $7.3 million
reduction of freight revenue, along with lower fuel surcharge
revenue of $3.7 million. The $7.3 million decrease in freight
revenue related to a 116 truck (or 4.3%) decrease in our average
tractor fleet and a 1.2% decrease in average freight revenue per
tractor. Team-driven trucks increased to an average of 996 teams in
the third quarter of 2016, an increase of approximately 3.1% over
the average of 966 teams in the third quarter of 2015.
“Average freight revenue per tractor per week
decreased to $3,768 during the 2016 quarter from $3,814 during the
2015 quarter. Average freight revenue per loaded mile
decreased by 1.9 cents per mile (or -1.1%) compared to the 2015
quarter. This decrease was partially offset by a 10 basis
point decrease 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 0.2%. The main
factors impacting the decreased utilization were a weaker overall
freight environment and lower seated truck percentage, partially
offset by a 270 basis point increase in the percentage of our fleet
comprised of team-driven trucks. On average, approximately 6.4% of
our fleet lacked drivers during the 2016 quarter compared with
approximately 4.6% during the 2015 quarter.
"In our expedited and dedicated service
offerings, we experienced some strengthening of supply-demand
dynamics sequentially. Compared with the second quarter of
2016, quarterly miles per tractor improved 3.0% in the expedited
unit and 2.1% in the dedicated unit, respectively. Compared with
the second quarter of 2016, average freight revenue per total mile
increased 1.1% in the expedited unit and decreased 0.2% in the
dedicated unit.
“At SRT, miles per tractor and average freight
revenue per total mile continued to be under pressure while we
attempt to re-engineer our freight network in a difficult
environment. SRT experienced a sequential decline in average
freight revenue per tractor of 4.2% compared with the second
quarter of 2016 and a year-over-year decline of 11.0% compared with
the third quarter of 2015. SRT experienced a third
consecutive quarter of operating at a loss. We are focused on
transitioning to new leadership, enhancing the culture and employee
morale, building lane density and optimizing the freight network,
removing excess equipment to improve capital costs, and improving
on the excellence of our customer service. Turning around
SRT’s performance continues to be one of our most important
objectives and should not be considered a near-term project.
“Capital costs (combined depreciation and
amortization, revenue equipment rentals, building rent, and
interest expense) increased by approximately $3.8 million. The main
factor was the $4.6 million year-over-year increase in depreciation
expense, primarily as a result of lowering the salvage values
effectively increasing the rate of depreciation on a significant
percentage of our tractors due to the expectation that the soft
used truck market could continue for an extended period that we
expect will continue to negatively affect our year-over-year
results for at least the next three quarters.
“Insurance and claims worsened to 10.4 cents per
mile in the third quarter of 2016 versus 8.0 cents per mile in the
third quarter of 2015. This was primarily as a result of increased
frequency and severity of accidents, including a couple of severe
accidents that occurred near the end of the third quarter.”
Management Discussion—Non-Asset Based
Logistics and Other OperationsMr. Parker offered the
following comments concerning Covenant Transport Solutions, Inc.
(“Solutions”), the Company’s non-asset based logistics
subsidiary: “For the quarter, Solutions’ total revenue
increased 14.4%, to $15.9 million from $13.9 million in the same
quarter of 2015. Operating income was approximately $1.8 million
for an operating ratio of 88.5%, compared with operating income of
approximately $0.9 million and an operating ratio of 93.4% in the
third quarter of 2015. In addition, our 49% equity investment in
Transport Enterprise Leasing (“TEL”) contributed approximately $0.5
million of pre-tax income in the quarter compared with $1.0 million
in the third 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 September 30, 2016, we had approximately $47.6
million of borrowing availability under our revolving line of
credit. At September 30, 2016, our total balance sheet debt and
capital lease obligations, net of cash, were $218.1 million, and
our stockholders’ equity was $225.4 million, for a ratio of net
debt to total balance sheet capitalization of 49.2%. At
September 30, 2016, the discounted value of future obligations
under off-balance sheet operating lease obligations was
approximately $20.1 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 $27.4 million, while the present value of financing
provided by operating leases increased by approximately $1.5
million.
“In the first three quarters of 2016, we took
delivery of approximately 650 new company tractors and disposed of
approximately 909 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 the remainder of 2016 includes
no additional deliveries of new company tractors, and the disposal
of approximately 140 additional used tractors . For the year, the
average size of our tractor fleet is expected to be approximately
3.5% to 5.5% below the average for 2015. With a relatively young
average company tractor fleet age of 1.7 years at September 30,
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.”
Conference Call InformationThe
Company will host a live conference call tomorrow, October 20,
2016, at 10:00 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
CTG3. An audio replay will be available for one week
following the call at 877-919-4059, access code 71073390. 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 market 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, 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, 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 |
|
INCOME STATEMENT DATA |
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
($000s, except per share data) |
|
2016 |
|
|
2015 |
|
% Change |
|
|
2016 |
|
|
2015 |
|
% Change |
|
Freight
revenue |
$ |
148,229 |
|
$ |
153,522 |
|
|
-3.4 |
% |
|
$ |
437,344 |
|
$ |
449,003 |
|
|
-2.6 |
% |
|
Fuel
surcharge revenue |
|
16,271 |
|
|
19,990 |
|
|
|
|
42,329 |
|
|
67,175 |
|
|
|
Total revenue |
$ |
164,500 |
|
$ |
173,512 |
|
|
|
$ |
479,673 |
|
$ |
516,178 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
Salaries, wages, and
related expenses |
|
57,972 |
|
|
60,241 |
|
|
|
|
171,666 |
|
|
177,624 |
|
|
|
|
Fuel expense |
|
26,436 |
|
|
30,526 |
|
|
|
|
75,989 |
|
|
94,931 |
|
|
|
Operations and
maintenance |
|
11,359 |
|
|
12,728 |
|
|
|
|
34,227 |
|
|
35,666 |
|
|
|
|
Revenue equipment
rentals and |
|
|
|
|
|
|
|
|
|
purchased
transportation |
|
27,831 |
|
|
27,548 |
|
|
|
|
80,308 |
|
|
76,714 |
|
|
|
|
Operating taxes and
licenses |
|
2,815 |
|
|
2,879 |
|
|
|
|
8,404 |
|
|
8,162 |
|
|
|
|
Insurance and
claims |
|
8,362 |
|
|
6,682 |
|
|
|
|
21,985 |
|
|
21,727 |
|
|
|
|
Communications and
utilities |
|
1,546 |
|
|
1,527 |
|
|
|
|
4,488 |
|
|
4,547 |
|
|
|
|
General supplies and
expenses |
|
3,405 |
|
|
2,060 |
|
|
|
|
10,193 |
|
|
9,993 |
|
|
|
|
Depreciation and
amortization, including gains and |
|
|
|
|
|
|
|
|
|
losses on
disposition of property and equipment |
|
19,328 |
|
|
14,692 |
|
|
|
|
52,232 |
|
|
43,368 |
|
|
|
Total
operating expenses |
|
159,054 |
|
|
158,883 |
|
|
|
|
459,492 |
|
|
472,732 |
|
|
|
Operating
income |
|
5,446 |
|
|
14,629 |
|
|
|
|
20,181 |
|
|
43,446 |
|
|
Other
(income) expenses: |
|
|
|
|
|
|
|
|
Interest expense |
|
1,959 |
|
|
2,041 |
|
|
|
|
6,210 |
|
|
5,962 |
|
|
|
Interest income |
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
Other |
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
Other
expenses, net |
|
1,959 |
|
|
2,041 |
|
|
|
|
6,210 |
|
|
5,962 |
|
|
Equity in
income of affiliate |
|
450 |
|
|
1,000 |
|
|
|
|
2,450 |
|
|
3,720 |
|
|
Income
before income taxes |
|
3,937 |
|
|
13,588 |
|
|
|
|
16,421 |
|
|
41,204 |
|
|
Income tax
expense |
|
1,068 |
|
|
5,961 |
|
|
|
|
5,568 |
|
|
12,349 |
|
|
Net
income |
$ |
2,869 |
|
$ |
7,627 |
|
|
|
$ |
10,853 |
|
$ |
28,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
0.16 |
|
$ |
0.42 |
|
|
|
$ |
0.60 |
|
$ |
1.59 |
|
|
Diluted earnings per share |
$ |
0.16 |
|
$ |
0.42 |
|
|
|
$ |
0.59 |
|
$ |
1.57 |
|
|
Basic
weighted average shares outstanding (000s) |
|
18,194 |
|
|
18,119 |
|
|
|
|
18,177 |
|
|
18,175 |
|
|
|
Diluted
weighted average shares outstanding (000s) |
|
18,287 |
|
|
18,320 |
|
|
|
|
18,258 |
|
|
18,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
|
|
2016 |
|
|
2015 |
|
% Change |
|
|
2016 |
|
|
2015 |
|
% Change |
|
($000s) |
SEGMENT REVENUES |
|
SEGMENT REVENUES |
|
Asset-based
trucking revenues |
$ |
132,332 |
|
$ |
139,625 |
|
|
-5.2 |
% |
|
$ |
393,726 |
|
$ |
412,489 |
|
|
-4.5 |
% |
|
Covenant
Transport Solutions non-asset based revenues |
|
15,897 |
|
|
13,897 |
|
|
14.4 |
% |
|
|
43,618 |
|
|
36,514 |
|
|
19.5 |
% |
|
|
Freight
revenue |
$ |
148,229 |
|
$ |
153,522 |
|
|
-3.4 |
% |
|
$ |
437,344 |
|
$ |
449,003 |
|
|
-2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING STATISTICS |
|
OPERATING STATISTICS |
|
Average
freight revenue per loaded mile |
$ |
1.797 |
|
$ |
1.816 |
|
|
-1.1 |
% |
|
$ |
1.802 |
|
$ |
1.789 |
|
|
0.8 |
% |
|
Average
freight revenue per total mile |
$ |
1.619 |
|
$ |
1.635 |
|
|
-1.0 |
% |
|
$ |
1.614 |
|
$ |
1.611 |
|
|
0.2 |
% |
|
Average
freight revenue per tractor per week |
$ |
3,768 |
|
$ |
3,814 |
|
|
-1.2 |
% |
|
$ |
3,750 |
|
$ |
3,814 |
|
|
-1.7 |
% |
|
Average
miles per tractor per period |
|
30,595 |
|
|
30,667 |
|
|
-0.2 |
% |
|
|
90,930 |
|
|
92,367 |
|
|
-1.6 |
% |
|
Weighted
avg. tractors for period |
|
2,602 |
|
|
2,718 |
|
|
-4.3 |
% |
|
|
2,605 |
|
|
2,707 |
|
|
-3.8 |
% |
|
Tractors at
end of period |
|
2,581 |
|
|
2,721 |
|
|
-5.1 |
% |
|
|
2,581 |
|
|
2,721 |
|
|
-5.1 |
% |
|
Trailers at
end of period |
|
7,090 |
|
|
6,598 |
|
|
7.5 |
% |
|
|
7,090 |
|
|
6,598 |
|
|
7.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
SELECTED BALANCE SHEET DATA |
|
($000s, except per share data) |
9/30/2016 |
12/31/2015 |
|
|
|
|
|
|
Total
assets |
$ |
606,982 |
|
$ |
647,423 |
|
|
|
|
|
|
|
Total
stockholders' equity |
$ |
225,400 |
|
$ |
202,160 |
|
|
|
|
|
|
|
Total
balance sheet debt, net of cash |
$ |
218,145 |
|
$ |
245,540 |
|
|
|
|
|
|
|
Net Debt to
Capitalization Ratio |
|
49.2 |
% |
|
54.8 |
% |
|
|
|
|
|
|
Tangible
book value per basic share |
$ |
12.38 |
|
$ |
11.15 |
|
|
|
|
|
|
|
For further information contact:
Richard B. Cribbs, Executive 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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