Covenant revenues grow to record high
Aided by its purchase of Landair Holdings in July, Covenant Transportation Group Inc. reported record revenue and adjusted earnings for the fourth quarter.
The Chattanooga-based trucking company said Wednesday that its net income, after adjustment for one-time tax and merger expenses, totaled $17 million, or 92 cents per share, in the final three months of 2018. In the same period a year earlier, Covenant reported adjusted earnings of $9.2 million, or 50 cents per share.
The fourth quarter results beat Wall Street estimates, which averaged 76 cents a share among four industry analysts surveyed by Yahoo finance.
“Higher freight revenue per tractor at each of our three historical truckload businesses, strong growth and improved margins at our brokerage unit, the addition of Landair, and favorable impacts from our minority investment in Transport Enterprise Leasing all contributed to our record results,” Covenant CEO David Parker said in the earnings announcement. “Equally important, through our strategy of becoming “closer to the customer,” we believe we have improved our revenue mix and reduced our exposure to seasonal and cyclical volatility by growing around our most capital-intensive service offerings with longer-term contractual business in the dedicated, logistics and warehousing markets. We intend to continue executing this plan in 2019.”
Richard B. Cribbs, the company’s executive vice president and chief financial officer, predicted adjusted eanings this year “will grow modestly over 2018, based on the favorable impact of a full year of earnings contribution from Landair’s service offerings, partially offset by investment in growing the Managed Freight segment.”
Cribbs said the freight market in January has thus far been consistent with
the company’s expectations, but not as strong as January 2018, nor the majority of 2018.
“Beyond the general freight environment, we believe company-specific improvement opportunities exist as we continue to execute on our strategic direction to grow our contract logistics service offerings including dedicated contract truckload, warehousing and transportation management services,” Cribbs said.
Covenant’s freight revenue in the fourth quarter was up a strong 34.4 percent over a year ago to $244 million and adjusted operating income grew by more than 55 percent from a year ago to $23 million.
Average freight revenue per tractor per week increased to $4,304 during the 2018 quarter from $4,234 during the 2017 quarter. Average freight revenue per total mile increased by 25.2 cents per mile, or 13.4 percent, compared to the 2017 quarter and average miles per tractor decreased by 10.4 percent.
But the tight labor market for truck drivers continued to push up labor costs for Covenant.
“Salaries, wages and related expenses increased 18.8 cents per total mile due primarily to the impact of the Landair acquisition and employee pay adjustments since the fourth quarter of 2017, higher group health insurance, as well as $800,000 of stock compensation expense recognized in the fourth quarter of 2018 for meeting the performance-based vesting target for a group of 2016 restricted share grants that was not previously expected to vest,” Parker said.
“Net fuel expense decreased by 3.2 cents per total mile in the 2018 quarter, primarily as a result of improvement in fuel hedging activity.
Covenant announced its fourth quarter results after the market closed Wednesday. Ahead of the announcement, Covenant traded up by 15 cents per share to $22.38 per share. Over the 12 months, however, Covenant shares have declined by 21.4 percent.