Covenant slows amid pandemic but second quarter results beat forecasts
One of Chattanooga’s biggest trucking companies is hitting the brakes on some of its least profitable business lines as it restructures amid changes in freight delivery amid the coronavirus pandemic.
Covenant Logistics Group Inc. the nationwide trucking firm that David Parker began in 1986 and now ranks as the nation’s 43rd biggest trucking carrier, cut its fleet by 10%, or 262 tractors, and shut down its Texarkana facility this spring to consolidate most of its nonmechanical or driving staff at its facilities in Chattanooga and Greeneville, Tennessee.
“In the second quarter, we made significant progress in our efforts to restructure our business units, terminal network, and management team to focus our talent, time and capital on areas where we believe we have the ability to grow and produce a consistent, acceptable margin,” Parker said. “The changes are extensive, and we expect them to be ongoing through the end of the year.”
Covenant said Monday that took a $29.3 million charge in the second quarter for the costs of reducing its terminal network and truck fleet and changing its business mix. As a result, Covenant reported a net loss of $22.3 million, or $1.31 per share, compared with net income of $6.1 million, or 33 cents per share, in the same period a year earlier.
But adjusted for nonrecurring items, Covenant had quarterly earnings in the second quarter of 3 cents per share, which was ahead of the Zacks consensus estimate of analysts following the company who predicted the company would lose 1 cent per share in the quarter.
Covenant shares traded up 10 cents a share on Tuesday to close up 0.72% at $13.95 per share.
Revenues in the threemonth period fell by 11.7% from a year ago to $191.7 million. The results reflect the July 8 sale of the company’s former factoring segment, Transport Financial Solutions, as a discontinued operation.
Covenant Chief Financial Officer Paul Bunn said freight revenues in the industry were “very weak” during the quarter, although they did improve through the three-month period as businesses began to reopen after shutting down in March and April to help fight the spread of the coronavirus.
“Our dedicated operations experienced volatility due to concentration in automotive and automotive supplier businesses that were shut down for significant parts of the quarter, as well as certain other contracts that do not require a minimum load count or payment, so we had to put the trucks to work elsewhere,” Bunn said.
Parker said he was “pleased with our current position, which features strong liquidity, a deleveraged balance sheet, lower overhead costs, increased accountability and speed of decision making, and re-aligned business units.”
“We pushed a lot of disruption and expense into a relatively weak freight quarter,” Parker said. “For the third and fourth quarters, I expect some ongoing operational restructuring costs but not at the level of the second quarter, while our fixed overhead costs continue to come down and the freight environment has improved materially quarter to date compared to the first two quarters.”
Parker said the company will continue to work to reduce its fleet size and sell off some of its assets “to allocate our fleet assets across our contract logistics, expedited, and higher margin irregular route operations and to significantly lower our fixed costs.”
“We believe achieving these goals will position us to enter 2021 with an improved business mix, fleet profile, and cost of operation,” Parker said. “Pursuing our plan will continue to involve difficult decisions and may result in additional strategic restructuring expenses. However, we believe the investment will strengthen our position in the U.S. logistics industry and provide for a less-cyclical business model.”