Covenant Transportation Group Announces Expectations Concerning First Quarter Financial Results
19 March 2019 - 7:01AM
Covenant Transportation Group, Inc. (NASDAQ/GS: CVTI) (“CTG”)
announced today its expectations regarding financial results for
the first quarter of 2019.
Chairman, President and Chief Executive Officer,
David R. Parker, offered the following comments: “After reviewing
preliminary financial and operating information through the end of
February, we expect to report adjusted net income in the range of
$3.4 million to $4.9 million, or $0.18 to $0.26 per diluted share,
for the first quarter of 2019. This compares to a reported adjusted
net income of $4.4 million, or $0.24 per diluted share, for the
first quarter of 2018. The truckload freight environment has been
weaker this year from late January through mid March. We attribute
the softer demand to factors such as late 2018 inventory growth in
advance of the perceived impact of tariffs, the effects of the
partial government shutdown on spending, and extended periods of
inclement weather that impacted the timing of shipping seasonal
goods as well as our ability to safely dispatch our equipment. For
the two months ended February 28, 2019, consolidated freight
revenue has increased 34.9% compared with the two months ended
February 28, 2018. Excluding the freight revenue recognized at our
Landair subsidiary, which was acquired in July 2018, consolidated
freight revenue has increased 5.5% compared with the prior year
period. Regarding our two reportable segments, we have experienced
the following:
- Truckload
Operations – Since December 31, 2018, the fleet size has
decreased approximately 47 trucks (or 1.5%) as of March 15, 2019.
For the two months ended February 28, 2019 as compared to the two
months ended February 28, 2018, average freight revenue per tractor
decreased 4.8%, as average miles per tractor decreased 11.6%, while
average freight revenue per total mile increased 7.7%. The
differences in miles per tractor and average freight revenue per
total mile were impacted in part by the July 2018 acquisition of
Landair, which generates higher revenue per mile and lower miles
per tractor than the average of our other operations. Freight
revenue is defined as total revenue excluding fuel surcharge
revenue.On a year-over-year basis, quarterly operating expenses are
expected to increase on a per mile basis. Salaries, wages and
related expenses are expected to increase significantly primarily
due to professional driver employee pay adjustments since the first
quarter of 2018 and the Landair acquisition, while year-over-year
net fuel expense has also been trending upward as diesel fuel
prices have been increasing over the last few weeks. In addition,
casualty insurance and claims expense per mile is expected to
increase on a year-over-year basis to a level consistent with our
experience in the third and fourth quarters of 2018.
- Managed Freight –
For the two months ended February 28, 2019, our total managed
freight revenue increased approximately 165.6% as compared to the
two months ended February 28, 2018. Excluding the managed freight
revenue recognized at our Landair subsidiary that was acquired in
July 2018, for the two months ended February, 28, 2019, managed
freight revenue has increased 36.8% compared with the prior year
period. Quarterly managed freight profit margins are expected to
improve on a year-over-year basis.
"In addition, our 49% equity investment in
Transport Enterprise Leasing is expected to contribute greater than
$2.8 million of pre-tax income in the first quarter of 2019
compared with a contribution of $1.5 million of pre-tax income in
the first quarter of 2018.
"The stated goals of our capital allocation
strategy are to become increasingly embedded in our customers’
supply chains, to reduce the cyclicality and seasonality of our
business and financial results, and to enhance our long-term
earnings power and return on invested capital. While we expect our
first quarter financial results to reflect less impact from lower
demand than in historical periods, we still have meaningful
work ahead to achieve our full potential.”
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;
Landair Transport and Landair Logistics of Greeneville, Tennessee;
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 the estimated range of earnings
per diluted share is a forward-looking statement. Such items have
not been subjected to all the review procedures associated with the
release of actual financial results and are premised on certain
assumptions. The following factors, among others, could cause
actual results to differ materially from those in the
forward-looking statements: estimates and adjusting entries made
during the review process; the completion of all review procedures
and preparation of financial statements in accordance with
generally accepted accounting principles; the rates and volumes
realized during the first quarter of 2019, 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 impact the
availability or effective driving time of our drivers and other
drivers in the industry, including the terms and exemptions from
hours-of-service and electronic log requirements for drivers and
the Federal Motor Carrier Safety Administration’s Compliance,
Safety, Accountability program applicable to driver standards and
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 (including our acquisition of
Landair); potential impairment of goodwill and other intangible
assets; 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; our ability to remediate the material weakness in internal
controls; a disruption in information technology assets adversely
effecting operations; 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.
For further information contact:Richard B.
Cribbs, Executive Vice President and Chief Financial
OfficerRCribbs@covenanttransport.com
For copies of Company information
contact:Theresa Ives, Executive Administrative
AssistantTIves@covenanttransport.com
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