CHATTANOOGA,
Tenn., July 27 /PRNewswire-FirstCall/ -- Covenant
Transportation Group, Inc. (Nasdaq/GS: CVTI) announced today financial and
operating results for the second quarter ended June 30, 2009.
Financial and Operating Results
For the quarter, total revenue decreased 31.0%, to
$144.1 million from $208.7 million in the same quarter of 2008. Freight revenue, which for
these purposes excludes fuel surcharges, decreased 19.4%, to $129.2 million in the 2009 quarter from $160.5 million in the 2008 quarter. The Company measures freight
revenue because management believes that fuel surcharges tend to be a volatile
source of revenue and the removal of such surcharges affords a more consistent basis
for comparing results of operations from period to period. The Company
reported net loss of $3.1 million, or ($0.22) per basic and diluted share, in the second quarter of
2009 compared to a net loss of $2.3 million, or
($0.17) per basic and diluted share, for the
second quarter of 2008.
Management Discussion -- Asset Based Operations
Chairman, President, and Chief Executive Officer, David R. Parker, made the following comments: “Our results for the
quarter reflected continued weak freight demand, excess tractor and trailer capacity
in the truckload industry, and significant rate pressure from customers. These
factors led to an approximate 9.9% reduction in average freight revenue per
tractor per week. This reduction in asset utilization was partially offset by lower
fuel expense and continued cost-control efforts across all of our companies.
For the quarter, our operating ratio (operating expenses, net of fuel surcharge
revenue, as a percentage of freight revenue) deteriorated by only 30 basis points.
Our team is managing the company in this environment by implementing
efficiencies in every aspect of our business, making tough cost-cutting decisions, and
prudently managing our tractor and trailer capital expenditures while maintaining a
relatively young fleet.
“On the revenue side of our business, total revenue decreased $64.6 million, or 31.0%. Of this decrease, $33.4 million related to lower fuel surcharge revenue. The
balance of $31.2 million related to lower freight
revenue. In anticipation of lower freight volumes, we proactively reduced our
average tractor fleet by approximately 388 trucks (11.2%) versus the second
quarter of 2008. Despite the fleet reduction, we experienced an approximate 2.0%
decrease in average miles per tractor compared with the second quarter of 2008,
which was our highest 2008 quarter for average miles per tractor. Average freight
revenue per total mile decreased approximately 8.1%, compared with the same
quarter of 2008, and reflected a 2.3% sequential reduction in rates from the first
quarter of 2009.
“On the expense side of our business, a favorable year-over-year
comparison in net fuel cost contributed significantly to offsetting some of the
negative effects of the revenue decline. Fuel expense, net of fuel surcharge
revenue, declined $11.1 million compared with the second
quarter of 2008, primarily as a result of lower diesel fuel prices, a reduction
of 13.0 million company-truck miles, and multiple operational improvements that
have improved our fuel efficiency and are expected to continue to provide
benefits in the future. On a cost per company mile basis, net fuel expense was
approximately 8.0 cents per mile less than the same
quarter last year.
“Insurance and claims had a negative impact on our financial results.
Insurance and claims expense was approximately 4.0
cents per mile worse at 9.6 cents per mile in
the current quarter compared to the second quarter of 2008’s exceptional 5.6 cents per mile, which included the benefit of a
policy release premium refund equal to approximately 0.4
cents per mile. The remaining negative impact was the result of additional
severity of accidents in the current quarter compared to the second quarter of
2008. While we believe our high self-insured retention limits provide us with a
cost-effective means of covering our insurance and claims costs, having this
high deductible program can result in greater volatility of our insurance and
claims expense on a quarter-to quarter basis.
“Salaries, wages, and benefits expense continues to be an area of cost
containment. Our cost per mile decreased approximately 4.7 cents per mile reducing this line item to 41.4% of freight revenue
in the 2009 quarter from 41.7% in the 2008 quarter. With freight revenue
continuing its significant decline, we believe being able to reduce these expenses as
a percentage of freight revenue is a significant accomplishment for the second
quarter of 2009. Our entire company shared in the sacrifices to manage these
expenses through a combination of pay reductions, staffing reductions, and
benefits management.
“We were able to reduce our largest fixed cost – the capital cost of
our revenue equipment and terminals by approximately $1.8 million quarter over quarter by reducing the size of the fleet.
However, our lower average freight revenue per truck combined with higher equipment
costs, lower salvage values, and higher interest rates, increased our costs of
depreciation, lease expense, and interest expense as a percentage of freight revenue
to 18.2% compared with 15.8% in the 2008 quarter."
Management Discussion—Non-Asset Based Brokerage Operations
Mr. Parker offered the following comments concerning Covenant Transport
Solutions, the Company’s brokerage subsidiary: “For the quarter, our freight
brokerage division, Solutions’ total revenue decreased 14%, to $11.7 million from $13.5 million in
the same quarter of 2008. Load volumes were up 11% over the same period in 2008,
however the decreased fuel prices resulted in lower fuel surcharge revenue for
this division. Solutions’ net revenue (total revenue less purchased
transportation) for the quarter decreased 16% as purchased transportation was 82.2% of
total revenue in the current quarter, up from 81.8% of total revenue in the prior
year quarter. Solutions’ operating expenses as a percentage of net revenue
decreased to 14.2% of net revenue in the second quarter from 16.5% of net revenue in
the second quarter of 2008.
Cash Flow and Liquidity
Richard B. Cribbs, the Company's Senior Vice
President and Chief Financial Officer, added the following comments: "We believe
our overall capital position remains secure. At June
30, 2009, our total balance sheet debt, net of cash was $163.9 million and our stockholders’ equity was $110.4 million, for a total net debttocapitalization ratio of 59.7%.
At June 30, 2009, our tangible book value was
$96.5 million, or $6.86 per share. At June 30, 2009, the discounted
value of future obligations under off-balance sheet lease obligations was
approximately $85.7 million, including the residual value
guarantees under those leases. Since the end of 2008, the Company's balance
sheet debt, net of cash has increased by only $2.0
million, while the present value of financing provided by operating leases has
decreased by approximately $11.1 million.
“At June 30, 2009, we had $25.9 million of available borrowing capacity under our
revolving credit facility and were in compliance with our financial covenant. In
addition, we have financing available from the captive financial subsidiaries of our
main tractor suppliers to fund all of our remaining expected tractor purchases
in 2009.
“Based on our perception that sequential freight demand decreases have
flattened, we have no current plans to further reduce our expected 2009 new
tractor purchases. Our annual tractor fleet plan for 2009 now includes the purchase
of approximately 950 tractors and disposal of approximately 1,250 tractors, for
expected full-year net capital expenditures of approximately $50 million to $60 million. In this depressed freight economy, we
are continuously evaluating our tractor replacement cycle and new tractor
purchase requirements. With an average fleet age of only 25 months, we have
significant flexibility to manage our fleet. We have the ability to cancel tractor
orders within specified notice periods, although any cancellations would affect the
availability of trade slots to dispose of used tractors, which could affect
expected proceeds of disposition.”
Outlook
Mr. Parker addressed the Company’s outlook for the rest of the year:
“Our goal of profitability for the year has not changed. However, because of the
magnitude of year-over-year reductions in freight rates and our results for the
first six months of 2009, we acknowledge the reduced probability of achieving our
goal, but continue our expectation of recording a profit for the final six
months of 2009. Based on our second quarter results, to attain profitability for
the second half of 2009 will require us to implement additional identified cost
savings, avoid multiple large casualty claims, maintain net fuel costs at
current levels, hold rates steady, and slightly improve utilization of our remaining
fleet of trucks for the rest of the fiscal year. To achieve profitability for the
entire fiscal year would require success on the cost items, no large casualty
claims, plus a near-term change in the freight environment that allows moderately
higher freight rates and miles per truck.”
The Company will host a conference call
tomorrow, July 28, 2009, at 10:30
a.m. Eastern Time to discuss the quarter. Individuals may access the
call by dialing 800-311-9404 (U.S./Canada) and
334-323-7224 (International), access code 0500. An audio replay will be
available for one week following the call at 877-919-4059, access code 58716468. For
financial and statistical information regarding the Company that is expected to
be discussed during the conference call, please visit our website at www.covenanttransport.com under the
icon “Investor Relations”.
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. The
Company's Class A common stock is traded on the Nasdaq Global Select 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. Such statements may be identified by their use of terms or
phrases such as "expects," "estimates," "projects," "believes," "anticipates,"
"plans," "intends," 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
our goal of profitable operations in the last six months of 2009 and factors
impacting attainment of such goal; the impact of our high self-insured retention;
our overall capital position; tractor purchases and disposals, and net capital
expenditures, are forward-looking statements. Such items have not been subject to
all of 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: 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 high self-insured retention amounts and 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 causes 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 and changes in the resale value of our used equipment that
impact our capital expenditures or 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 ability to improve the
performance of each of our service offerings and subsidiaries; our ability to maintain
compliance with the provisions of our credit agreements, particularly the
financial covenant in our revolving credit facility; our ability to reduce dependency
on broker freight; 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 slow downs, 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; 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 or decrease efficiency, including revised
hours-of-service requirements for drivers; 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.
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 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.
SOURCE Covenant Transportation
Group, Inc.