Covenant Transportation Group, Inc. (NASDAQ:CVTI) (“CTG”)
announced today financial and operating results for the fourth
quarter ended December 31, 2017.
Highlights for the quarter included the
following:
- Total revenue of $203.3 million, an
increase of 6.5% compared with the fourth quarter of 2016.
- Freight revenue of $181.6 million
(excludes revenue from fuel surcharges), an increase of 4.7%
compared with the fourth quarter of 2016.
- Operating income of $14.8 million
and an operating ratio of 91.8%, compared with operating income of
$12.3 million and an operating ratio of 92.9% in the fourth quarter
of 2016. Operating ratio is defined as: total operating expenses
minus fuel surcharge revenue, divided by freight revenue.
- Net income of $49.3 million, or
$2.68 per diluted share, compared with net income of $6.0 million,
or $0.33 per diluted share in the fourth quarter of 2016.
- In the fourth quarter of 2017, net
income includes $40.1 million, or $2.18 per diluted share, of
income tax benefit resulting primarily from our reasonable estimate
of the revaluation of our net deferred tax balances at December 31,
2017 as a result of the recently enacted Tax Cuts and Jobs
Act.
- The fourth quarter effective income
tax rates were (261.8%) and 44.6% for 2017 and 2016, respectively.
On a non-GAAP basis, excluding the $40.1 million reduction in
income tax expense as a result of the Tax Cuts and Jobs Act, the
fourth quarter of 2017 effective income tax rate was 32.7%.
Primarily as a result of tax-planning strategies implemented during
the fourth quarter of 2017, we were able to remove valuation
allowances on certain state tax net operating losses providing for
additional favorable impact to the effective income tax rate.
Chairman, and Chief Executive Officer, David R.
Parker, made the following comments:“Overall, freight demand was
strong and trucking capacity was tight during the fourth quarter.
The supply – demand environment had positive and negative effects
on our quarterly results. On the positive side, our average
freight revenue per loaded mile improved by approximately 2.6% due
to contractual rate increases negotiated earlier in the year for
our peak business. From a revenue standpoint, we did not
participate in the peak spot market to a material extent due to the
need to plan our limited team capacity for our valued customer
base. On the negative side, with the moderate reduction in the
number of teams in our fleet coupled with the expanded shipping
needs of our customers as compared to the 2016 quarter, additional
third-party capacity was required in the 2017 quarter. This
third-party capacity was significantly more expensive during the
2017 quarter, and we increased our team peak season compensation in
recognition of the highly competitive driver market.
“We continue to evaluate the most effective
level of participation in the peak season and the manner of
allocating our assets and coordinating third party capacity. As
logistics needs continue to evolve related to e-commerce and
omnichannel growth, the duration of what is considered peak season
has shortened over the last few years and now is approximately a
five-week period beginning the week of Thanksgiving and ending on
Christmas Eve. The shortened duration reduces the revenue
opportunity versus previous years. Additional peak season
challenges include, but are not limited to, procurement of
temporarily increased trailer pool needs as well as additional
logistics cost for transition and placement of trailers,
unpredictability of shipper cancellations, expanded operational
employee staffing, and the volatile pricing of acquiring outside
carrier capacity. Even though remaining our most profitable quarter
of each year, the results of the past two peak seasons have been
disappointing, especially considering the planning time and strain
this period places on our organization, and creating carryover
expenses into our first quarter each year. As we plan our 2018 peak
season, we remain committed to provide peak capacity for our
customers, however will need to challenge our pricing models to
insure we are appropriately rewarded for our efforts related to
this valuable annual shipping period.”
Management Discussion—Asset-Based
Truckload OperationsMr. Parker continued: “For the
quarter, total revenue in our asset‑based operations increased to
$166.5 million, an increase of $1.3 million compared with the
fourth quarter of 2016. This increase consisted of a $4.2
million increase in fuel surcharge revenue, partially offset by a
$2.9 million decrease in freight revenue. The $2.9 million decrease
in freight revenue related to a 1.1% decrease in average freight
revenue per tractor in the 2017 period as compared to the 2016
period.
“Average freight revenue per tractor per week
decreased to $4,234 during the 2017 quarter from $4,280 during the
2016 quarter. Average freight revenue per total mile increased by
6.0 cents per mile, or 3.3%, compared to the 2016 quarter and
average miles per tractor decreased by 4.2%. The main factors
impacting the decreased utilization was the approximate 460 basis
point decrease in the percentage of our fleet comprised of
team-driven trucks and a lower average seated truck percentage.
Team-driven trucks decreased to an average of 912 teams (or 35.7%
of the total fleet) in the fourth quarter of 2017 versus an average
of 1,032 teams (or 40.3% of the total fleet) in the fourth quarter
of 2016. On average, approximately 5.2% of our fleet lacked drivers
during the 2017 quarter compared with approximately 4.8% during the
2016 quarter.
“At SRT, our solo-driver refrigerated truckload
subsidiary, we operated profitably for the fourth quarter of 2017
reflecting a substantial improvement over the operating loss SRT
recognized in the fourth quarter of 2016. The improved
year-over-year fourth quarter results reflect improvement in
average rate per total mile, as well as improved net operating
expenses. SRT finished the 2017 fiscal year with approximately $6.8
million of operating income improvement, or greater than 400 basis
points of operating margin, compared to the 2016 fiscal year.
“Salaries, wages and related expenses increased
approximately 3.5 cents per total mile due primarily to employee
pay adjustments since the fourth quarter of 2016, partially offset
by the reduced percentage of team-driven trucks.
“Revenue equipment rentals and purchased
transportation expense for our asset-based business increased
approximately 6.1 cents per total mile. The increased need for
outside capacity to meet the significant demand and service levels
of our customers during this peak season during a time of growing
spot rates for outside carriers was a key contributor to this
increase. In addition, the percentage of our total miles run by
owner-operators grew to 11.2% in the 2017 quarter from 9.9% in the
2016 quarter.
“Net fuel expense decreased by approximately 5.4
cents per total mile in the 2017 quarter, primarily as a result of
lower fuel hedging losses, which were $0.4 million in the 2017
quarter compared with $3.5 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 $0.40/gallon higher in the fourth quarter of
2017 compared with the 2016 quarter.
“Insurance and claims improved to 11.6 cents per
total mile in the fourth quarter of 2017 versus 13.4 cents per mile
in the fourth quarter of 2016. This was our lowest cost per mile
for a fourth quarter since the fourth quarter of 2013. The
performance of our driving, safety, and fleet management personnel,
as well as additional investments in safety technology, contributed
to the cost improvement in this area.”
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 42.6%, to
$36.8 million from $25.8 million in the same quarter of 2016. A
significant portion of the increased 2017 quarter revenue was
associated with outside carriers contracted to assist our
asset-based truckload division with its respective overflow peak
business. Operating income was approximately $3.1 million for an
operating ratio of 91.5%, compared with operating income of
approximately $2.5 million and an operating ratio of 90.4% in the
fourth 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 $0.6 million
in the fourth 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 December 31, 2017, our total balance sheet debt and
capital lease obligations, net of cash, were $198.4 million, and
our stockholders’ equity was $295.2 million, for a ratio of net
debt to total balance sheet capitalization of 40.2%. At December
31, 2017, the discounted value of future obligations under
off-balance sheet operating lease obligations was approximately
$21.6 million. Since the end of 2016, the Company's balance sheet
debt and capital lease obligations, net of cash, decreased by $9.6
million, while the present value of financing provided by operating
leases increased $3.0 million. At December 31, 2017, we had
approximately $53.1 million of borrowing availability under our
revolving line of credit.
“Our net capital expenditures for the year ended
December 31, 2017 approximated $62.1 million compared to $46.5
million for the prior year period. In 2017, we took delivery of
approximately 635 new company tractors and disposed of
approximately 615 used tractors. Our current tractor fleet plan for
full-year 2018 includes the delivery of approximately 510 new
company tractors, and the disposal of approximately 500 used
tractors. For 2018, the average size of our tractor fleet is
expected to be 1.5% to 2.5% above the average for 2017. Our average
company tractor fleet age was 2.1 years at December 31, 2017, up
from 1.8 years at December 31, 2016.”
OutlookMr. Cribbs continued:
“For 2018, we are forecasting sequential operating income
improvement throughout the year. We believe the combination of an
improving economy, tightening truckload supply dynamics, industry
regulatory changes including the ELD mandate and its enforcement,
depleting inventories, year-over-year net fuel expense savings from
our improved fuel hedge positions, and further operational progress
at SRT should deliver increased pre-tax earnings for the full year
of 2018. In addition, we expect earnings improvement from the
estimated favorable effective tax rate impact from the Tax Cuts and
Jobs Act. We are currently estimating our 2018 effective income tax
rate to be in the range of 24.0% to 27.0%. We expect year-over-year
average freight revenue per truck to be positive by a mid to high
single digit percentage, inflecting more positively later in the
year as a large portion of annual contractual rate revisions are
implemented during the second quarter of 2018. Our expectation of
positive year-over-year pretax income includes higher employee
wages for each quarter of 2018. We also expect a decline in the
operating income of our non-asset based logistics service offering
to partially offset the forecasted operating income improvement for
our truckload service offering. Within the non-asset based
logistics service offering, we expect some margin deterioration
resulting from higher purchased transportation expense and we have
planned investments in strategic employees, as well as a new
transport management system to enhance our supply chain services
and growth potential. 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 combined balance sheet and off-balance sheet debt
over the course of fiscal 2018.”
Conference Call InformationThe
Company will host a live conference call tomorrow, January 30,
2018, 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 14532621. 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, the expected fuel economy of new tractors, our
current tractor fleet plan, average fleet size, 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 2018, any repeal of the implementation
of the rule requiring carriers to use ELDs, changes in tax laws or
in their interpretations, 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 Dec 31, |
|
Year Ended Dec 31, |
|
($000s, except per share data) |
|
2017 |
|
|
2016 |
|
% Change |
|
|
2017 |
|
|
2016 |
|
% Change |
|
Freight
revenue |
$ |
181,597 |
|
$ |
173,501 |
|
4.7 |
% |
|
$ |
626,809 |
|
$ |
610,845 |
|
2.6 |
% |
|
Fuel
surcharge revenue |
|
21,709 |
|
|
17,477 |
|
24.2 |
% |
|
|
78,198 |
|
|
59,806 |
|
30.8 |
% |
|
|
Total revenue |
$ |
203,306 |
|
$ |
190,978 |
|
6.5 |
% |
|
$ |
705,007 |
|
$ |
670,651 |
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
Salaries, wages, and
related expenses |
|
63,145 |
|
|
62,860 |
|
|
|
|
241,784 |
|
|
234,526 |
|
|
|
|
Fuel expense |
|
26,829 |
|
|
27,118 |
|
|
|
|
103,139 |
|
|
103,108 |
|
|
|
Operations and
maintenance |
|
11,270 |
|
|
11,637 |
|
|
|
|
48,774 |
|
|
45,864 |
|
|
|
|
Revenue equipment
rentals and |
|
|
|
|
|
|
|
|
|
purchased
transportation |
|
51,235 |
|
|
37,165 |
|
|
|
|
141,954 |
|
|
117,472 |
|
|
|
|
Operating taxes and
licenses |
|
2,681 |
|
|
3,308 |
|
|
|
|
9,878 |
|
|
11,712 |
|
|
|
|
Insurance and
claims |
|
8,843 |
|
|
10,611 |
|
|
|
|
33,155 |
|
|
32,596 |
|
|
|
|
Communications and
utilities |
|
1,857 |
|
|
1,569 |
|
|
|
|
6,938 |
|
|
6,057 |
|
|
|
|
General supplies and
expenses |
|
3,864 |
|
|
4,220 |
|
|
|
|
14,783 |
|
|
14,413 |
|
|
|
|
Depreciation and
amortization, including gains and |
|
|
|
|
|
|
|
|
|
losses on
disposition of property and equipment |
|
18,740 |
|
|
20,224 |
|
|
|
|
76,447 |
|
|
72,456 |
|
|
|
Total
operating expenses |
|
188,464 |
|
|
178,712 |
|
|
|
|
676,852 |
|
|
638,204 |
|
|
|
Operating
income |
|
14,842 |
|
|
12,266 |
|
|
|
|
28,155 |
|
|
32,447 |
|
|
Interest
expense, net |
|
2,042 |
|
|
2,016 |
|
|
|
|
8,258 |
|
|
8,226 |
|
|
Income from
equity method investment |
|
(825 |
) |
|
(550 |
) |
|
|
|
(3,400 |
) |
|
(3,000 |
) |
|
Income
before income taxes |
|
13,625 |
|
|
10,800 |
|
|
|
|
23,297 |
|
|
27,221 |
|
|
Income tax
expense (benefit) |
|
(35,673 |
) |
|
4,818 |
|
|
|
|
(32,142 |
) |
|
10,386 |
|
|
Net
income |
$ |
49,298 |
|
$ |
5,982 |
|
|
|
$ |
55,439 |
|
$ |
16,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
2.70 |
|
$ |
0.33 |
|
|
|
$ |
3.03 |
|
$ |
0.93 |
|
|
Diluted earnings per share |
$ |
2.68 |
|
$ |
0.33 |
|
|
|
$ |
3.02 |
|
$ |
0.92 |
|
|
Basic
weighted average shares outstanding (000s) |
|
18,291 |
|
|
18,195 |
|
|
|
|
18,279 |
|
|
18,182 |
|
|
|
Diluted
weighted average shares outstanding (000s) |
|
18,368 |
|
|
18,291 |
|
|
|
|
18,372 |
|
|
18,266 |
|
|
|
|
|
|
Three Months Ended Dec 31, |
|
Year Ended Dec 31, |
|
|
|
|
2017 |
|
|
2016 |
|
% Change |
|
|
2017 |
|
|
2016 |
|
% Change |
|
($000s) |
SEGMENT REVENUES |
|
SEGMENT REVENUES |
|
Asset-based
truckload revenues |
$ |
144,804 |
|
$ |
147,694 |
|
-2.0 |
% |
|
$ |
534,636 |
|
$ |
541,420 |
|
-1.3 |
% |
|
Covenant
Transport Solutions non-asset based revenues |
|
36,793 |
|
|
25,807 |
|
42.6 |
% |
|
|
92,173 |
|
|
69,425 |
|
32.8 |
% |
|
|
Freight
revenue |
$ |
181,597 |
|
$ |
173,501 |
|
4.7 |
% |
|
$ |
626,809 |
|
$ |
610,845 |
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING STATISTICS |
|
OPERATING STATISTICS |
|
Average
freight revenue per loaded mile |
$ |
2.081 |
|
$ |
2.027 |
|
2.6 |
% |
|
$ |
1.890 |
|
$ |
1.859 |
|
1.7 |
% |
|
Average
freight revenue per total mile |
$ |
1.883 |
|
$ |
1.823 |
|
3.3 |
% |
|
$ |
1.702 |
|
$ |
1.666 |
|
2.1 |
% |
|
Average
freight revenue per tractor per week |
$ |
4,234 |
|
$ |
4,280 |
|
-1.1 |
% |
|
$ |
3,917 |
|
$ |
3,881 |
|
0.9 |
% |
|
Average
miles per tractor per period |
|
29,555 |
|
|
30,856 |
|
-4.2 |
% |
|
|
120,043 |
|
|
121,782 |
|
-1.4 |
% |
|
Weighted
avg. tractors for period |
|
2,558 |
|
|
2,559 |
|
0.0 |
% |
|
|
2,557 |
|
|
2,593 |
|
-1.4 |
% |
|
Tractors at
end of period |
|
2,559 |
|
|
2,535 |
|
0.9 |
% |
|
|
2,559 |
|
|
2,535 |
|
0.9 |
% |
|
Trailers at
end of period |
|
7,134 |
|
|
7,389 |
|
-3.5 |
% |
|
|
7,134 |
|
|
7,389 |
|
-3.5 |
% |
|
|
|
SELECTED BALANCE SHEET DATA |
|
($000s, except per share data) |
12/31/2017 |
12/31/2016 |
|
|
|
|
|
|
Total
assets |
$ |
649,668 |
|
$ |
620,538 |
|
|
|
|
|
|
|
Total
stockholders' equity |
$ |
295,201 |
|
$ |
236,414 |
|
|
|
|
|
|
|
Total
balance sheet debt, net of cash |
$ |
198,443 |
|
$ |
208,075 |
|
|
|
|
|
|
|
Net Debt to
Capitalization Ratio |
|
40.2 |
% |
|
46.8 |
% |
|
|
|
|
|
|
Tangible
book value per basic share |
$ |
16.11 |
|
$ |
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
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