Covenant Transport reports huge quarter earnings

Covenant Transport reports huge quarter earnings

July 26th, 2012 by Ellis Smith in Business Around the Region

A Covenant Transport truck drives along I-24 over Cummings Highway in this file photo.

Photo by Gillian Bolsover

Covenant Transport announced its best quarter in years on Wednesday, growing net income to $4.3 million, or 29 cents per share.

Analysts had expected earnings of just 3 cents per share at the Chattanooga-based trucking company.

"The financial results of the second quarter of 2012 marked our best financial performance in several years," said David Parker, chairman, president and CEO of Covenant.

Freight revenue for the quarter hit $134.2 million, a slight increase from the second quarter of 2011.

But Parker remained cautious about the economy, which has beaten Covenant's share price down to less than $4 during the recession from heights of more than $20 during the early 2000s.

"While the pace of economic growth remains uncertain and the driver market is extremely tight, we believe the trucking economy's freight demand and capacity remain closely in balance," Parker said.

He cited regulatory issues, increasing costs and the tight driver market as continued pressures on Covenant's bottom line.

Increased competition for the best drivers drove up wages by about 1.4 cents per mile, and maintenance expenses increased by 6.2 cents per mile. However, the company offset some of the cost by using more owner-operators in its fleet.

"We are continuing our objective of growing our owner-operator fleet," Parker said.

Covenant shrunk its fleet during the quarter, contracting by 230 tractors in the first half of the year, as the average number of miles per unit decreased by 1 percent.

Freight revenue grew just 0.4 percent over the second quarter of 2011, and total revenue in the company's asset-based operations decreased $1.7 million compared to the second quarter of 2011, mainly because of reduced fuel surcharges.

However, Covenant's cost-saving measures increased average weekly revenue per tractor to $3,335 during the quarter, up from $3,198 during the second quarter of 2011, according to a news release.

Average freight revenue per mile increased 5.4 percent, or about 7.4 cents per mile, due in part to a smaller fleet and partly because of increased fuel efficiency.

"We expect to continue managing our idle time and truck speeds, investing in more fuel-efficient tractors and partnering with customers to adjust fuel surcharge programs which are inadequate to recover a fair portion of rising fuel costs," Parker said.

Moving forward, Covenant plans to continue reducing the number of company tractors while adding to its owner-operator fleet, said Richard Cribbs, senior vice president and chief financial officer.

The company's plan for 2012 includes the delivery of about 350 tractors and the disposal of 500 tractors, a net decrease of 150 tractors.

Before the second-quarter results were released Tuesday, Covenant shares fell 9 percent to $3.80 per share on Wednesday, down 38 cents. But in after-hours trading, the stock rebounded to more the offset the losses for the day.