Covenant Transportation Group, Inc. (NASDAQ:CVTI) (“CTG”) announced
today financial and operating results for the first quarter ended
March 31, 2017.
Highlights for the quarter included the
following:
- Total revenue of $158.7 million, an increase of 1.5% compared
with the first quarter of 2016.
- Freight revenue of $140.1 million (excludes revenue from fuel
surcharges), a decrease of 3.1% compared with the first quarter of
2016.
- Operating income of $1.2 million and an operating ratio of
99.1%, compared with operating income of $7.4 million and an
operating ratio of 94.9% in the first quarter of 2016. Operating
ratio is defined as: total operating expenses minus fuel surcharge
revenue, divided by freight revenue.
- Net income of $0.5 million, or $0.03 per diluted share,
compared with net income of $4.4 million, or $0.24 per diluted
share in the first quarter of 2016.
- Net income and earnings per share for the first quarter of 2016
included a favorable impact totaling approximately $0.6 million (or
$0.03 per diluted share) of additional income tax benefit due to
the early adoption of ASU 2016-09 “Improvements to Employee
Share-Based Payment Accounting.”
Chairman, and Chief Executive Officer, David R.
Parker, made the following comments: “Freight demand was
moderate during the quarter, and our industry continued to have
excess capacity available in advance of the scheduled
implementation and enforcement of the electronic logging mandate in
December 2017. Many shippers engaged in bid processes as a
means to lower upward pressure on their freight rates before any
meaningful tightening of capacity. In this environment, we
were pleased to raise our yield slightly through eliminating
non-revenue miles and allocating our equipment more
effectively. We intend to continue to pursue these tactics in
advance of a supply-demand relationship that we expect to be more
favorable in the second half of 2017 and beyond. From a cost
perspective, our margins were pressured across nearly all fronts
other than net fuel expense, as we continued to invest in our
people, equipment, and technologies."
Management Discussion—Asset-Based
Truckload OperationsMr. Parker continued: “For the
quarter, total revenue in our asset‑based operations increased to
$145.6 million, an increase of $2.9 million compared with the first
quarter of 2016. This increase consisted of a $7.0 million
increase in fuel surcharge revenue, partially offset by a $4.1
million reduction of freight revenue. The $4.1 million decrease in
freight revenue related to a 63 truck (or 2.4%) decrease in our
average tractor fleet and one less calendar day in the 2017 period
as compared to the 2016 period. Team-driven trucks increased to an
average of 1,003 teams in the first quarter of 2017, an increase of
approximately 2.5% over the average of 979 teams in the first
quarter of 2016.
“Average freight revenue per tractor per week
increased to $3,755 during the 2017 quarter from $3,721 during the
2016 quarter. Average freight revenue per total mile
increased by 0.5 cents per mile (or 0.3%) compared to the 2016
quarter and average miles per tractor per week increased by 0.6%.
A factor contributing to increased year-over-year utilization
was a 180 basis point increase in the percentage of our fleet
comprised of team-driven trucks.
“At SRT, our solo-driven refrigerated truckload
subsidiary, miles per tractor continued to be under pressure while
we re-engineer our freight network. However, average freight
revenue per total mile increased nearly 1.0% on a year-over-year
basis due to lower empty miles percentage. SRT experienced a
year-over-year decline in average freight revenue per tractor of
5.0% compared with the first quarter of 2016, on one less calendar
day. SRT experienced a fifth consecutive quarter of operating
at a loss. On a positive note, SRT’s first quarter of 2017
operating loss was the lowest since the first quarter of 2016.
“Salaries, wages and related expenses increased
approximately 4.0 cents per mile due primarily to a higher
percentage of our fleet comprised of team-driven tractors and
employee pay adjustments since the first quarter of 2016.
“Capital costs (combined depreciation and
amortization, revenue equipment rentals, and interest expense)
increased by approximately $2.2 million. The main factors were the
$2.0 million year-over-year increase in depreciation expense,
primarily as a result of lowering the salvage values during the
third quarter of 2016, and a $0.2 million increase in
year-over-year loss on disposal of equipment, each due to the soft
used truck market. In addition, revenue equipment rental expense
increased $0.2 million, offset by an approximately $0.2 million
decrease in interest expense.
“Operations and maintenance expenses increased
approximately 2.1 cents per mile due primarily due to additional
tractor maintenance expense associated with extending the trade
cycle of our tractors we commenced in the second half of 2016 and
higher unloading expense associated with specific dedicated
contracts that we have added since the first quarter of 2016.
“Insurance and claims expense increased to 10.1
cents per mile in the first quarter of 2017 versus 8.7 cents per
mile in the first quarter of 2016. While we experienced a decrease
in frequency, the increased severity of casualty insurance claims
resulted in an overall increase to expense. Our rate of chargeable
accidents per million miles, as measured by the U.S. Department of
Transportation, was the lowest for a first quarter over the last
ten years.
“Higher costs were partially offset by an
overall reduction in fuel costs. Net fuel expense decreased by
approximately 6.5 cents per total mile to 8.9 cents per mile in the
2017 quarter. Losses from fuel hedging transactions were $1.2
million in the 2017 quarter compared with losses of $5.0 million in
the 2016 quarter. In addition, our fuel surcharge recovery was more
effective during the 2017 quarter and we continue to experience
improved fuel economy as we upgrade our tractor fleet. These
favorable items were partially offset by increased fuel pricing.
Ultra-low sulfur diesel prices as measured by the Department of
Energy averaged approximately $0.49/gallon higher in the first
quarter of 2017 compared with the 2016 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
decreased 3.4%, to $13.1 million from $13.6 million in the same
quarter of 2016. Operating income was approximately $1.4 million
for an operating ratio of 89.0%, compared with operating income of
approximately $1.8 million and an operating ratio of 86.6% in the
first quarter of 2016. In addition, our 49% equity investment in
Transport Enterprise Leasing (“TEL”) contributed approximately $1.0
million of pre-tax income in the quarter compared with $0.9 million
in the first quarter of 2016.”
Cash Flow, Liquidity and
CapitalizationRichard B. Cribbs, the Company's Executive
Vice President and Chief Financial Officer, added the following
comments: “At March 31, 2017, we had approximately $48.9 million of
borrowing availability under our revolving line of credit. At March
31, 2017, our total balance sheet debt and capital lease
obligations, net of cash, were $197.9 million, and our
stockholders’ equity was $235.9 million, for a ratio of net debt to
total balance sheet capitalization of 45.6%. At March 31,
2017, the discounted value of future obligations under off-balance
sheet operating lease obligations was approximately $17.2 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 2016, the Company's balance sheet debt and capital lease
obligations, net of cash, decreased by $10.1 million, while the
present value of financing provided by operating leases decreased
$1.4 million.
“In the first quarter of 2017, we took delivery
of approximately 140 new company tractors and disposed of
approximately 74 used tractors. Our current tractor fleet plan for
full-year 2017 includes the delivery of approximately 645 new
company tractors, and the disposal of approximately 660 used
tractors. For 2017, the average size of our tractor fleet is
expected to be approximately flat as compared to 2016. Our average
company tractor fleet age was 2.0 years at March 31, 2017, up from
1.7 years at March, 31, 2016, and is expected to be between 2.1
years and 2.4 years by the end of 2017. Still with a 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 the remainder of 2017, our outlook is mixed. We expect the
second quarter of 2017 to remain challenged by negative comparisons
in freight revenue per tractor, accelerated depreciation, and
higher maintenance expense and professional driver wages. These
factors will be countered to some extent by year-over-year net fuel
expense savings in all remaining quarters and a flattening of the
negative year-over-year impact of depreciation in the second half
of 2017. At SRT, we are seeing progress and have confidence in our
plan and team, and we expect additional progress in the three
remaining quarters of 2017 versus 2016. To the extent mandatory ELD
implementation and lower truck numbers in our industry decrease
effective capacity, and economic growth spurs volumes, we expect
the supply-demand environment to improve later in 2017 and into
2018. However, the timing and magnitude of these changes are
difficult to predict and may be different in each of our markets.
We are hopeful that these items will deliver earnings improvement
for the second half of 2017 as compared to the second half of 2016.
We expect operating cash flow in excess of net capital expenditures
and to continue to pay down debt in 2017.”
Conference Call InformationThe
Company will host a live conference call tomorrow, April 21, 2017,
at 10:30 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 82607300. 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, yield initiatives, fuel hedges,
equipment purchases and disposals, average fleet size, fleet age,
the value of leased equipment, and the statements under “Outlook”
are forward-looking statements. 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 |
|
Three Months Ended March 31, |
($000s, except
per share data) |
2017 |
|
2016 |
|
% Change |
Freight revenue |
$140,126 |
|
$144,679 |
|
-3.1 |
% |
Fuel surcharge
revenue |
18,618 |
|
11,662 |
|
|
Total
revenue |
$158,744 |
|
$156,341 |
|
1.5 |
% |
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
Salaries,
wages, and related expenses |
59,324 |
|
57,755 |
|
|
Fuel
expense |
25,402 |
|
23,833 |
|
|
Operations and maintenance |
12,413 |
|
11,162 |
|
|
Revenue
equipment rentals and |
|
|
|
purchased
transportation |
25,372 |
|
25,098 |
|
|
Operating
taxes and licenses |
2,735 |
|
2,708 |
|
|
Insurance
and claims |
7,818 |
|
6,897 |
|
|
Communications and utilities |
1,628 |
|
1,477 |
|
|
General
supplies and expenses |
3,727 |
|
3,108 |
|
|
Depreciation and amortization, including gains and |
|
|
|
|
|
|
losses on
disposition of property and equipment |
19,116 |
|
16,885 |
|
|
Total operating
expenses |
157,535 |
|
148,923 |
|
|
Operating income |
1,209 |
|
7,418 |
|
|
Interest expense,
net |
2,081 |
|
2,295 |
|
|
Income from equity
method investment |
(1,025 |
) |
(850 |
) |
|
Income before income
taxes |
153 |
|
5,973 |
|
|
Income tax expense
(benefit) |
(317 |
) |
1,621 |
|
|
Net income |
$470 |
|
$4,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share |
$0.03 |
|
$0.24 |
|
|
Diluted
earnings per share |
$0.03 |
|
$0.24 |
|
|
Basic weighted average
shares outstanding (000s) |
18,256 |
|
18,147 |
|
|
Diluted weighted
average shares outstanding (000s) |
18,336 |
|
18,272 |
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
2017 |
|
2016 |
|
% Change |
($000s) |
SEGMENT REVENUES |
Asset-based trucking
revenues |
$127,007 |
|
$131,092 |
|
-3.1 |
% |
Covenant Transport
Solutions non-asset based revenues |
13,119 |
|
13,587 |
|
-3.4 |
% |
Freight
revenue |
$140,126 |
|
$144,679 |
|
-3.1 |
% |
|
|
|
|
|
|
|
|
OPERATING STATISTICS |
Average freight revenue
per loaded mile |
$1.799 |
|
$1.813 |
|
-0.8 |
% |
Average freight revenue
per total mile |
$1.616 |
|
$1.611 |
|
0.3 |
% |
Average freight revenue
per tractor per week |
$3,755 |
|
$3,721 |
|
0.9 |
% |
Average miles per
tractor per period |
29,873 |
|
30,025 |
|
-0.5 |
% |
Weighted avg. tractors
for period |
2,565 |
|
2,628 |
|
-2.4 |
% |
Tractors at end of
period |
2,570 |
|
2,607 |
|
-1.4 |
% |
Trailers at end of
period |
7,409 |
|
6,903 |
|
7.3 |
% |
|
SELECTED BALANCE SHEET DATA |
($000s, except
per share data) |
3/31/2017 |
12/31/2016 |
|
Total assets |
$609,429 |
|
$620,538 |
|
|
Total stockholders'
equity |
$235,856 |
|
$236,414 |
|
|
Total balance sheet
debt, net of cash |
$197,931 |
|
$208,075 |
|
|
Net Debt to
Capitalization Ratio |
45.6% |
|
46.8% |
|
|
Tangible book value per
basic share |
$12.91 |
|
$12.95 |
|
|
|
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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