Covenant Transportation Group, Inc. (NASDAQ:CVTI) (“CTG”)
announced today financial and operating results for the fourth
quarter ended December 31, 2016.
Highlights for the quarter included the
following:
- Total revenue of $191.0 million, a decrease of 8.2% compared
with the fourth quarter of 2015.
- Freight revenue of $173.5 million (excludes revenue from fuel
surcharges), a decrease of 9.2% compared with the fourth quarter of
2015.
- Operating income of $12.3 million and an operating ratio of
92.9%, compared with operating income of $24.3 million and an
operating ratio of 87.3% in the fourth quarter of 2015. Operating
ratio is defined as: total operating expenses minus fuel surcharge
revenue, divided by freight revenue.
- Net income of $6.0 million, or $0.33 per diluted share,
compared with net income of $13.2 million, or $0.73 per diluted
share in the fourth quarter of 2015.
Chairman, and Chief Executive Officer, David R.
Parker, made the following comments: “The trucking
environment in the fourth quarter improved sequentially compared
with the third quarter of 2016. The peak freight season was more
condensed than in 2015 as rapidly growing e-commerce sales continue
to compress the holiday inventory stocking and delivery season.
This year, the pace of freight and need for our value-added
expedited services was concentrated largely between the week of
Thanksgiving through Christmas Day, which was shorter than the past
two peak seasons.
"On a consolidated basis, net income for the fourth quarter
declined by approximately $7.2 million, or $0.40 per diluted share,
compared with the fourth quarter of 2015. The main operating
differences included the following:
- Average freight revenue per tractor declined 3.2%, lowering net
profit by approximately $4.4 million, or $0.24 per diluted
share.
- Depreciation and amortization, including gains and losses on
disposition of property and equipment increased $2.2 million on a
pre-tax basis, or $0.07 per diluted share.
- Covenant Transport Solutions, our logistics subsidiary,
operating income declined by approximately $1.4 million, or $0.05
per diluted share.
- Excluding Covenant Transport Solutions, non-driver wages
decreased approximately $1.8 million on a pre-tax basis, or a
benefit of $0.06 per diluted share.
Management Discussion—Asset-Based
Truckload OperationsMr. Parker continued: “For the
quarter, total revenue in our asset‑based operations decreased to
$165.2 million, a decrease of $11.1 million compared with the
fourth quarter of 2015. This decrease consisted of an $11.6
million reduction of freight revenue, partially offset by a $0.5
million increase in fuel surcharge revenue. The $11.6 million
decrease in freight revenue related to a 119 truck (or 4.4%)
decrease in our average tractor fleet and a 3.2% decrease in
average freight revenue per tractor. Team-driven trucks increased
to an average of 1,032 teams in the fourth quarter of 2016, an
increase of approximately 6.8% over the average of 966 teams in the
fourth quarter of 2015.
“Average freight revenue per tractor per week
decreased to $4,280 during the 2016 quarter from $4,423 during the
2015 quarter. Average freight revenue per loaded mile
decreased by 14.3 cents per mile (or -6.6%) compared to the 2015
quarter. This decrease was partially offset by a 100 basis
point improvement in empty miles percentage (miles for which we do
not receive freight revenue or fuel surcharge revenue) and a 2.4%
increase in average miles per tractor. The primary contributor to
lower freight revenue per loaded mile and higher miles per tractor
was the capacity strategy of certain e-commerce customers to reduce
the number of tractors contracted under daily rates regardless of
miles in favor of more traditional mileage-based capacity. This
allowed the available trucks to run additional miles, but had the
effect of reducing our recognized freight revenue per mile. Another
factor impacting the increased utilization was a 430 basis point
increase in the percentage of our fleet comprised of team-driven
trucks.
“At SRT, our refrigerated truckload subsidiary,
miles per tractor and average freight revenue per total mile
continued to be under pressure while we re-engineer our freight
network in a difficult environment. SRT experienced a
year-over-year decline in average freight revenue per tractor of
7.8% compared with the fourth quarter of 2015. SRT
experienced a fourth consecutive quarter of operating at a loss. On
a positive note, SRT experienced a sequential increase in average
freight revenue per tractor of 4.3% compared with the third quarter
of 2016.
“Depreciation and amortization, including gains
and losses on disposition of property and equipment increased by
approximately $2.2 million. The main factors were a $1.0 million
decrease in year-over-year gain on disposal of equipment due to the
soft used truck market, and the $1.1 million year-over-year
increase in depreciation expense, primarily as a result of lowering
the salvage values during the third quarter of 2016 due to the soft
used truck market.
“Non-driver wages for our asset-based operations
decreased by approximately $1.8 million primarily due to reduced
incentive compensation.”
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
decreased 18.9%, to $25.8 million from $31.8 million in the same
quarter of 2015. Operating income was approximately $2.5 million
for an operating ratio of 90.4%, compared with operating income of
approximately $3.9 million and an operating ratio of 87.7% in the
fourth quarter of 2015. In addition, our 49% equity investment in
Transport Enterprise Leasing ('TEL') contributed approximately $0.6
million of pre-tax income in the quarter compared with $0.9 million
in the fourth 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 December 31, 2016, we had approximately $55.6 million
of borrowing availability under our revolving line of credit. At
December 31, 2016, our total balance sheet debt and capital lease
obligations, net of cash, were $208.1 million, and our
stockholders’ equity was $236.4 million, for a ratio of net debt to
total balance sheet capitalization of 46.8%. At December 31,
2016, the discounted value of future obligations under off-balance
sheet operating lease obligations was approximately $18.7 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 $37.5 million, while the
present value of financing provided by operating leases remained
essentially constant.
“In 2016, we took delivery of approximately 650
new company tractors and disposed of approximately 1,074 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 2017 includes the delivery of approximately 485 new
company tractors, and the disposal of approximately 460 used
tractors. For 2017, the average size of our tractor fleet is
expected to be approximately 1.0% to 2.0% above the average for
2016. Our average company tractor fleet age was 1.8 years at
December 31, 2016, and is expected to be between 2.1 years and 2.4
years by the end of 2017. With the relatively young age, 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:
“For 2017, we are forecasting sequential improvement throughout the
year. In the first half of 2017, we do not expect to match the
earnings per share levels we generated for the first and second
quarters of 2016. However, we believe the combination of an
improving economy, growth of time-sensitive e-commerce freight,
industry regulatory changes, retail inventory declines,
year-over-year net fuel expense savings from our improved fuel
hedge positions, and operational progress at SRT should deliver
earnings improvement that result in higher earnings for the second
half and potentially the full year of 2017. We expect our average
truck count to start the year with a year-over-year decrease in the
first quarter of 2017 and to grow slowly over the remainder of the
year. We expect year-over-year average freight revenue per total
mile to be lower into at least part of the second quarter and then
inflect positive for the remainder of the year. Miles per tractor
improvement is expected in all quarters as the percentage of our
team-driven trucks should be increased on a year-over-year basis.
As a result of the weak used truck market and decisions to extend
the trade cycle of our tractor fleet, we expect increased
year-over-year depreciation expense for the first half of 2017,
followed by moderate year-over-year decreases for the second half
of 2017, as well as increased maintenance expense throughout the
year with the slightly higher-aged fleet. The largest variable we
foresee is the pace and magnitude of improvement at SRT, which we
believe could contribute up to $10.0 million of pre-tax income in
improved results as compared with 2016. The pace and amount of
change will depend, in large part, on our ability to enhance the
freight network, which depends on internally re-engineering lanes
and a stronger refrigerated freight market. Our success in turning
around SRT is expected to determine whether our earnings per share
in 2017 exceed our results for 2016. From a balance sheet
perspective, with net capital expenditures scheduled to be below
normal replacement cycle, along with positive operating cash flows,
we expect to further reduce balance sheet and off-balance sheet
debt over the course of fiscal 2017.”
Conference Call InformationThe
Company will host a live conference call tomorrow, January 26,
2017, 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
CTG4. An audio replay will be available for one week
following the call at 877-919-4059, access code 79617437. 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 December 31, |
|
Year Ended December 31, |
|
($000s, except per share data) |
|
2016 |
|
|
2015 |
|
% Change |
|
|
2016 |
|
|
|
2015 |
% Change |
|
Freight
revenue |
$ |
173,501 |
|
$ |
191,117 |
|
-9.2 |
% |
|
$ |
610,845 |
|
|
$ |
640,120 |
|
-4.6 |
% |
|
Fuel
surcharge revenue |
|
17,477 |
|
|
16,945 |
|
3.1 |
% |
|
|
59,806 |
|
|
|
84,120 |
|
-28.9 |
% |
|
|
Total revenue |
$ |
190,978 |
|
$ |
208,062 |
|
-8.2 |
% |
|
$ |
670,651 |
|
|
$ |
724,240 |
|
-7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
Salaries, wages, and
related expenses |
|
62,860 |
|
|
67,154 |
|
|
|
|
234,526 |
|
|
|
244,779 |
|
|
|
Fuel expense |
|
27,118 |
|
|
27,230 |
|
|
|
|
103,108 |
|
|
|
122,160 |
|
|
|
Operations and
maintenance |
|
11,637 |
|
|
10,792 |
|
|
|
|
45,864 |
|
|
|
46,458 |
|
|
|
Revenue equipment
rentals and |
|
|
|
|
|
|
|
|
|
purchased
transportation |
|
37,165 |
|
|
41,869 |
|
|
|
|
117,472 |
|
|
|
118,583 |
|
|
|
Operating taxes and
licenses |
|
3,308 |
|
|
2,854 |
|
|
|
|
11,712 |
|
|
|
11,016 |
|
|
|
Insurance and
claims |
|
10,611 |
|
|
10,182 |
|
|
|
|
32,596 |
|
|
|
31,909 |
|
|
|
Communications and
utilities |
|
1,569 |
|
|
1,615 |
|
|
|
|
6,057 |
|
|
|
6,162 |
|
|
|
General supplies and
expenses |
|
4,220 |
|
|
4,014 |
|
|
|
|
14,413 |
|
|
|
14,007 |
|
|
|
Depreciation and
amortization, including gains and |
|
|
|
|
|
|
|
|
|
losses on
disposition of property and equipment |
|
20,224 |
|
|
18,016 |
|
|
|
|
72,456 |
|
|
|
61,384 |
|
|
Total
operating expenses |
|
178,712 |
|
|
183,726 |
|
|
|
|
638,204 |
|
|
|
656,458 |
|
|
Operating
income |
|
12,266 |
|
|
24,336 |
|
|
|
|
32,447 |
|
|
|
67,782 |
|
|
Other
(income) expenses: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
2,016 |
|
|
2,483 |
|
|
|
|
8,226 |
|
|
|
8,445 |
|
|
|
Interest income |
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
Other |
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
Other
expenses, net |
|
2,016 |
|
|
2,483 |
|
|
|
|
8,226 |
|
|
|
8,445 |
|
|
Equity in
income of affiliate |
|
550 |
|
|
850 |
|
|
|
|
3,000 |
|
|
|
4,570 |
|
|
Income
before income taxes |
|
10,800 |
|
|
22,703 |
|
|
|
|
27,221 |
|
|
|
63,907 |
|
|
Income tax
expense |
|
4,818 |
|
|
9,473 |
|
|
|
|
10,386 |
|
|
|
21,822 |
|
|
Net
income |
$ |
5,982 |
|
$ |
13,230 |
|
|
|
$ |
16,835 |
|
|
$ |
42,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
0.33 |
|
$ |
0.73 |
|
|
|
$ |
0.93 |
|
|
$ |
2.32 |
|
Diluted earnings per share |
$ |
0.33 |
|
$ |
0.73 |
|
|
|
$ |
0.92 |
|
|
$ |
2.30 |
|
Basic
weighted average shares outstanding (000s) |
|
18,195 |
|
|
18,058 |
|
|
|
|
18,182 |
|
|
|
18,145 |
|
|
Diluted
weighted average shares outstanding (000s) |
|
18,291 |
|
|
18,205 |
|
|
|
|
18,266 |
|
|
|
18,311 |
|
|
|
|
|
|
Three Months Ended December 31, |
|
Year Ended December 31, |
|
|
|
|
2016 |
|
|
2015 |
|
% Change |
|
|
2016 |
|
|
|
2015 |
% Change |
|
($000s) |
SEGMENT REVENUES |
|
SEGMENT REVENUES |
|
Asset-based
trucking revenues |
$ |
147,694 |
|
$ |
159,309 |
|
-7.3 |
% |
|
$ |
541,420 |
|
|
$ |
571,798 |
|
-5.3 |
% |
|
Covenant
Transport Solutions non-asset based revenues |
|
25,807 |
|
|
31,808 |
|
-18.9 |
% |
|
|
69,425 |
|
|
|
68,322 |
|
1.6 |
% |
|
|
Freight
revenue |
$ |
173,501 |
|
$ |
191,117 |
|
-9.2 |
% |
|
$ |
610,845 |
|
|
$ |
640,120 |
|
-4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING STATISTICS |
|
OPERATING STATISTICS |
|
Average
freight revenue per loaded mile |
$ |
2.027 |
|
$ |
2.170 |
|
-6.6 |
% |
|
$ |
1.859 |
|
|
$ |
1.881 |
|
-1.2 |
% |
|
Average
freight revenue per total mile |
$ |
1.823 |
|
$ |
1.929 |
|
-5.5 |
% |
|
$ |
1.666 |
|
|
$ |
1.688 |
|
-1.3 |
% |
|
Average
freight revenue per tractor per week |
$ |
4,280 |
|
$ |
4,423 |
|
-3.2 |
% |
|
$ |
3,881 |
|
|
$ |
3,967 |
|
-2.2 |
% |
|
Average
miles per tractor per period |
|
30,856 |
|
|
30,133 |
|
2.4 |
% |
|
|
121,782 |
|
|
|
122,508 |
|
-0.6 |
% |
|
Weighted
avg. tractors for period |
|
2,559 |
|
|
2,678 |
|
-4.4 |
% |
|
|
2,593 |
|
|
|
2,700 |
|
-3.9 |
% |
|
Tractors at
end of period |
|
2,535 |
|
|
2,656 |
|
-4.6 |
% |
|
|
2,535 |
|
|
|
2,656 |
|
-4.6 |
% |
|
Trailers at
end of period |
|
7,389 |
|
|
6,978 |
|
5.9 |
% |
|
|
7,389 |
|
|
|
6,978 |
|
5.9 |
% |
|
|
|
SELECTED BALANCE SHEET DATA |
|
($000s, except per share data) |
12/31/2016 |
12/31/2015 |
|
|
|
|
|
|
Total
assets |
$ |
619,505 |
|
$ |
646,717 |
|
|
|
|
|
|
|
Total
stockholders' equity |
$ |
236,413 |
|
$ |
202,160 |
|
|
|
|
|
|
|
Total
balance sheet debt, net of cash |
$ |
208,074 |
|
$ |
245,540 |
|
|
|
|
|
|
|
Net Debt to
Capitalization Ratio |
|
46.8 |
% |
|
54.8 |
% |
|
|
|
|
|
|
Tangible
book value per basic share |
$ |
12.95 |
|
$ |
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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