Covenant Transportation Group, Inc. (NASDAQ:CVTI) (“CTG”)
announced today financial and operating results for the second
quarter ended June 30, 2017.
Highlights for the quarter included the
following:
- Total revenue of $164.3 million, an increase of 3.5% compared
with the second quarter of 2016.
- Freight revenue of $145.6 million (excludes revenue from fuel
surcharges), an increase of 0.8% compared with the second quarter
of 2016.
- Operating income of $4.0 million and an operating ratio of
97.3%, compared with operating income of $7.3 million and an
operating ratio of 94.9% in the second quarter of 2016. Operating
ratio is defined as: total operating expenses minus fuel surcharge
revenue, divided by freight revenue.
- Net income of $1.5 million, or $0.08 per diluted share,
compared with net income of $3.6 million, or $0.20 per diluted
share in the second quarter of 2016.
Chairman, and Chief Executive Officer, David R.
Parker, made the following comments: “Freight demand built
throughout the quarter and continues to be favorable in July on a
seasonally adjusted basis. April was the slowest month
overall, in part due to reduction of a portion of freight from
customers as we made decisions to protect our yield model in our
expedited service offering. In addition, we assisted customers in
our dedicated service offering to re-engineer improved efficiency
of their freight network that resulted in a reduction of the number
of high-utilization dedicated trucks that they required from
us. The loss of volume led to a 2.8% year-over-year reduction
in average miles per tractor for the month. Freight demand
improved gradually in May as we replaced the lost freight with new
high-quality freight. In June, capacity tightened resulting in a
0.5% year-over-year increase in average miles per tractor despite
our Star subsidiary experiencing a 6% reduction due to automotive
plant shutdowns in its network as automotive manufacturers managed
new vehicle inventories. Consistent with the monthly
improvement in utilization, we experienced sequential monthly
growth in our average rate per total mile as we replaced the
freight demand we had lost during April. We were pleased with the
disciplined approach in which our sales and operations teams met
this quarter’s challenges and look forward to a more favorable
supply-demand relationship 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
$147.6 million, an increase of $2.9 million compared with the
second quarter of 2016. This increase consisted of a $4.3
million increase in fuel surcharge revenue, partially offset by a
$1.4 million reduction of freight revenue. The $1.4 million
decrease in freight revenue related to an 11 truck (or 0.4%)
decrease in our average tractor fleet and a 0.2% decrease in
average freight revenue per tractor in the 2017 period as compared
to the 2016 period. Team-driven trucks increased to an average of
1,012 teams in the second quarter of 2017, an increase of
approximately 0.4% over the average of 1,007 teams in the second
quarter of 2016.
“Average freight revenue per tractor per week
was essentially constant at $3,754 during the 2017 quarter and
$3,761 during the 2016 quarter. Average freight revenue per
total mile increased by 0.9 cents per mile (or 0.5%) compared to
the 2016 quarter and average miles per tractor decreased by 0.7%.
The main factors impacting the decreased utilization were the
temporary impacts of replacing the customer freight we lowered in
April and the loss of freight from automotive plant shutdowns,
partially offset by a higher average seated truck percentage. On
average, approximately 4.8% of our fleet lacked drivers during the
2017 quarter compared with approximately 6.2% during the 2016
quarter.
“At SRT, our solo-driven refrigerated truckload
subsidiary, we experienced a year-over-year decline in average
freight revenue per tractor of 1.6% compared with the second
quarter of 2016, resulting from a 1.9% year-over-year reduction in
average miles per tractor, partially offset by a 0.3% increase in
average rate per total mile. However, year-over-year rates and
utilization improved sequentially each month of the quarter with
normal seasonality. SRT’s operating loss narrowed sequentially and
reflected a substantial improvement over the operating loss SRT
recognized in the second quarter of 2016.
“Salaries, wages and related expenses increased
approximately 3.4 cents per mile due primarily to employee pay
adjustments since the second quarter of 2016 and a 1.4 cent per
mile increase in workers’ compensation to 2.1 cents per company
mile compared to an atypically favorable prior year quarter of only
0.7 cents per mile.
“Capital costs (combined depreciation and
amortization, revenue equipment rentals, and interest expense)
increased by approximately $4.6 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 of a majority
of our operating tractors during the third quarter of 2016, and a
$2.6 million increase in year-over-year loss on disposal of
equipment, each due to the soft used truck market.
“Insurance and claims expense increased to 10.1
cents per mile in the second quarter of 2017 versus 8.5 cents per
mile in the second quarter of 2016. Our rate of chargeable
accidents per million miles, as measured by the U.S. Department of
Transportation, increased by 6.0% in the second quarter of 2017
compared with a very favorable second quarter of 2016. For
the first half of 2017, our year-to-date frequency rate was tied
for the second lowest for a first half of the fiscal year 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 mile to 8.0 cents per total mile in the
2017 quarter. Losses from fuel hedging transactions were $1.5
million in the 2017 quarter compared with losses of $4.1 million in
the 2016 quarter. In addition, our fuel surcharge recovery was more
effective during the 2017 quarter and we expect to 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 $0.25/gallon
higher in the second 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
increased 18.1%, to $16.7 million from $14.1 million in the same
quarter of 2016. Operating income was approximately $1.6 million
for an operating ratio of 90.5%, compared with operating income of
approximately $1.5 million and an operating ratio of 89.5% in the
second quarter of 2016. In addition, our 49% equity investment in
Transport Enterprise Leasing (“TEL”) contributed approximately $0.8
million of pre-tax income in the quarter compared with $1.2 million
in the second 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 June 30, 2017, we had approximately $55.9 million of
borrowing availability under our revolving line of credit. At June
30, 2017, our total balance sheet debt and capital lease
obligations, net of cash, were $188.7 million, and our
stockholders’ equity was $237.2 million, for a ratio of net debt to
total balance sheet capitalization of 44.3%. At June 30,
2017, the discounted value of future obligations under off-balance
sheet operating lease obligations was approximately $15.8 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 $19.4 million, while the
present value of financing provided by operating leases decreased
$2.9 million.
“In the first half of 2017, we took delivery of
approximately 305 new company tractors and disposed of
approximately 252 used tractors. Our current tractor fleet plan for
full-year 2017 includes the delivery of approximately 640 new
company tractors, and the disposal of approximately 650 used
tractors. For 2017, the average size of our tractor fleet is
expected to be approximately flat to down 1.0% as compared to 2016.
Our average company tractor fleet age was 2.2 years at June 30,
2017, up from 1.7 years at June 30, 2016, and is expected to be
between 2.1 years and 2.4 years by the end of 2017. With a
relatively young fleet 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 third quarter of 2017, we expect a favorable
year-over-year comparison in freight revenue per tractor. It is
still too early in our continuing discussions with peak customers
to provide guidance regarding freight yields for the fourth quarter
of 2017. For the remaining half of the year, we expect
year-over-year net fuel expense savings, and a flattening of the
year-over-year impact of the changes to our depreciation policy
adopted in the third quarter of 2016, somewhat offset by higher
maintenance expense and professional driver wages. At SRT, we
expect additional progress in the two remaining quarters of 2017
versus 2016. To the extent mandatory ELD implementation and
resulting lower truck numbers or decreased daily driving time for
newly-compliant carriers remove industry-wide freight
transportation 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. Our goal remains to deliver earnings improvement for the
second half of 2017 as compared to the second half of 2016.”
Conference Call InformationThe
Company will host a live conference call tomorrow, July 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
CTG2. An audio replay will be available for one week
following the call at 877-919-4059, access code 23495585. 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 supply and
demand relationship, fuel economy on our new tractor fleet, average
fleet size, 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 |
|
INCOME STATEMENT DATA |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
($000s, except per share data) |
|
2017 |
|
|
2016 |
|
% Change |
|
|
2017 |
|
|
2016 |
|
% Change |
Freight
revenue |
$145,586 |
|
$144,436 |
|
0.8 |
% |
|
$285,712 |
|
$289,115 |
|
-1.2 |
% |
Fuel
surcharge revenue |
|
18,740 |
|
|
14,396 |
|
|
|
|
37,358 |
|
|
26,058 |
|
|
|
Total
revenue |
$164,326 |
|
$158,832 |
|
3.5 |
% |
|
$323,070 |
|
$315,173 |
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Salaries,
wages, and related expenses |
|
58,584 |
|
|
55,940 |
|
|
|
|
117,908 |
|
|
113,694 |
|
|
|
Fuel
expense |
|
24,911 |
|
|
25,720 |
|
|
|
|
50,313 |
|
|
49,554 |
|
|
|
Operations and maintenance |
|
12,044 |
|
|
11,707 |
|
|
|
|
24,457 |
|
|
22,868 |
|
|
|
Revenue
equipment rentals and |
|
|
|
|
|
|
|
|
purchased
transportation |
|
28,987 |
|
|
27,378 |
|
|
|
|
54,358 |
|
|
52,477 |
|
|
|
Operating
taxes and licenses |
|
2,097 |
|
|
2,881 |
|
|
|
|
4,832 |
|
|
5,589 |
|
|
|
Insurance
and claims |
|
7,914 |
|
|
6,726 |
|
|
|
|
16,632 |
|
|
13,622 |
|
|
|
Communications and utilities |
|
1,706 |
|
|
1,465 |
|
|
|
|
3,334 |
|
|
2,942 |
|
|
|
General
supplies and expenses |
|
3,462 |
|
|
3,680 |
|
|
|
|
7,190 |
|
|
6,788 |
|
|
|
Depreciation and amortization, including gains and |
|
|
|
|
|
|
|
|
losses on
disposition of property and equipment |
|
20,659 |
|
|
16,019 |
|
|
|
|
39,775 |
|
|
32,904 |
|
|
Total
operating expenses |
|
160,364 |
|
|
151,516 |
|
|
|
|
318,799 |
|
|
300,438 |
|
|
Operating
income |
|
3,962 |
|
|
7,316 |
|
|
|
|
4,271 |
|
|
14,735 |
|
|
Interest
expense, net |
|
1,961 |
|
|
1,955 |
|
|
|
|
4,041 |
|
|
4,251 |
|
|
Income from
equity method investment |
|
(800 |
) |
|
(1,150 |
) |
|
|
|
(1,825 |
) |
|
(2,000 |
) |
|
Income
before income taxes |
|
2,801 |
|
|
6,511 |
|
|
|
|
2,055 |
|
|
12,484 |
|
|
Income tax
expense |
|
1,253 |
|
|
2,879 |
|
|
|
|
545 |
|
|
4,500 |
|
|
Net
income |
$1,548 |
|
$3,632 |
|
|
|
$1,510 |
|
$7,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$0.08 |
|
$0.20 |
|
|
|
$0.08 |
|
$0.44 |
|
|
Diluted earnings per share |
$0.08 |
|
$0.20 |
|
|
|
$0.08 |
|
$0.44 |
|
|
Basic
weighted average shares outstanding (000s) |
|
18,281 |
|
|
18,189 |
|
|
|
|
18,269 |
|
|
18,168 |
|
|
Diluted
weighted average shares outstanding (000s) |
|
18,359 |
|
|
18,275 |
|
|
|
|
18,347 |
|
|
18,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
2017 |
|
|
2016 |
|
% Change |
|
|
2017 |
|
|
2016 |
|
% Change |
($000s) |
SEGMENT REVENUES |
|
SEGMENT REVENUES |
Asset-based
trucking revenues |
$128,891 |
|
$130,302 |
|
-1.1 |
% |
|
$255,898 |
|
$261,394 |
|
-2.1 |
% |
Covenant
Transport Solutions non-asset based revenues |
|
16,695 |
|
|
14,134 |
|
18.1 |
% |
|
|
29,814 |
|
|
27,721 |
|
7.6 |
% |
|
Freight
revenue |
$145,586 |
|
$144,436 |
|
0.8 |
% |
|
$285,712 |
|
$289,115 |
|
-1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
OPERATING STATISTICS |
|
OPERATING STATISTICS |
Average
freight revenue per loaded mile |
$1.810 |
|
$1.797 |
|
0.7 |
% |
|
$1.804 |
|
$1.805 |
|
0.0 |
% |
Average
freight revenue per total mile |
$1.621 |
|
$1.612 |
|
0.5 |
% |
|
$1.619 |
|
$1.612 |
|
0.4 |
% |
Average
freight revenue per tractor per week |
$3,754 |
|
$3,761 |
|
-0.2 |
% |
|
$3,755 |
|
$3,741 |
|
0.4 |
% |
Average
miles per tractor per period |
|
30,105 |
|
|
30,325 |
|
-0.7 |
% |
|
|
59,978 |
|
|
60,347 |
|
-0.6 |
% |
Weighted
avg. tractors for period |
|
2,573 |
|
|
2,584 |
|
-0.4 |
% |
|
|
2,569 |
|
|
2,606 |
|
-1.4 |
% |
Tractors at
end of period |
|
2,577 |
|
|
2,589 |
|
-0.5 |
% |
|
|
2,577 |
|
|
2,589 |
|
-0.5 |
% |
Trailers at
end of period |
|
7,271 |
|
|
6,793 |
|
7.0 |
% |
|
|
7,271 |
|
|
6,793 |
|
7.0 |
% |
|
|
SELECTED BALANCE SHEET DATA |
|
|
|
|
($000s, except per share data) |
6/30/2017 |
12/31/2016 |
|
|
|
|
|
Total
assets |
$615,920 |
|
$620,538 |
|
|
|
|
|
|
Total
stockholders' equity |
$237,167 |
|
$236,414 |
|
|
|
|
|
|
Total
balance sheet debt, net of cash |
$188,677 |
|
$208,075 |
|
|
|
|
|
|
Net Debt to
Capitalization Ratio |
44.3% |
|
46.8% |
|
|
|
|
|
|
Tangible
book value per basic share |
$12.97 |
|
$12.95 |
|
|
|
|
|
|
For further information contact:
Richard B. Cribbs, Executive Vice President and Chief Financial Officer
Richard.Cribbs@ctgcompanies.com
For copies of Company information contact:
Kim Perry, Administrative Assistant
Kimberly.Perry@ctgcompanies.com
Covenant Transportation (NASDAQ:CVTI)
Historical Stock Chart
From Jun 2024 to Jul 2024
Covenant Transportation (NASDAQ:CVTI)
Historical Stock Chart
From Jul 2023 to Jul 2024