Covenant shows major turnaround in first quarter between 2014, 2015

A Covenant Transport truck drives along I-24 over Cummings Highway.
A Covenant Transport truck drives along I-24 over Cummings Highway.

Covenant Transportation Group officials were cheery Friday morning regarding the company's first quarter earnings, especially after reporting losses at this point a year ago.

David Parker, chairman, president and CEO of Covenant, said during a Friday morning conference call that by-and-large, the company is doing well in terms of freight, demand and customer relations.

"Is there a spot here and a spot there where I could use more freight? Yes," he said.

But "[Shippers] still want our trucks."

With the numbers released this week, Covenant maintains its upward trajectory, though not without minor dips, including Friday's 6.86 percent drop in the company's stock value. Despite the improved results in the first quarter, Covenant earnings and revenues fell short of analysts' expectations, pushing shares of Covenant by $2.44 a share in Nasdaq trading Friday.

But coming off the lean times following the recession, Covenant at one point lost 86 percent of its value and in 2008, saw its stock hit $1.40 a share.

Friday, Covenant shares closed at $33.15, carrying on the rally that began in early 2012.

The Chattanooga-based carrier reported earning a net $10.2 million in the first quarter of this year, resulting in 56-cent-per-share gains.

Like many carriers, Covenant's first quarter earnings reflect a number of industry-wide issues.

Lower-than-anticipated diesel prices have hurt carriers locked into pre-negotiated fuel agreements. Betting on what fuel prices would be, many carriers overshot actual diesel averages and have wound up losing money.

Covenant reported $3.1 million in losses in the first quarter of this year because of "unfavorable fuel hedging results," Parker said.

Also, the widespread shortage of drivers -- estimated to be around 35,000 to 40,000, according to the American Trucking Associations -- has made it difficult for many carriers to fill trucks, and therefore move freight, leaving revenue on the table.

Last summer, the nation's largest truckload carrier, Swift Transportation, sid "driver turnover and unseated truck count were higher than anticipated," resulting in the sell-off of trucks "to offset the impact of idle equipment." The driver shortage ed to most domestic carriers offering higher wages and better incentives to drivers, also cutting into operating income.

For its part, Covenant raised salaries, on average, by approximately 2 cents per mile in the last year. Richard Cribbs, senior vice president and chief accounting officer, said more driver incentives are on the way.

"There will be a time when we will need to increase driver pay additionally," he said Friday.

He said the company is working on some "neat, targeted ways" to increase driver pay.

Covenant has reported fewer empty, idle trucks so far this year. In the first quarter, about 5 percent of the 2,700-truck fleet sat unused, compared to almost 6 percent during the same period a year ago.

The company purchased 105 new tractors in the quarter and expects to buy 700 total by the end of the year, which is expected to lower fuel consumption costs. And in exchange, the fleet will shed 745 used tractors.

Parker said Covenant's team driver program is also partly responsible for first-quarter increases.

He said the quarter was the best for team driver utilization since the "booming '90s."

"That's saying something," he said. "That's a pretty exciting metric for us."

And in the first quarter, Parker said freight revenue per tractor increased about 8.8 cents per mile over 2014, on top of average 7 percent-longer hauls.

"We're getting good miles," he said.

Parker also said Covenant's produce-moving accounts are strong right now and said the warm season looks "to be a good one."

He and Cribbs carefully predicted a positive rest of the year.

With a young tractor fleet, greater operating income and plenty available in the company's credit line, "our outlook for 2015 remains positive," said Cribbs.

He said Covenant expects to gain between 38 cents to 48 cents per share in the second quarter, and grow the fleet up to 5 percent bigger than its 2014 size.

Contact staff writer Alex Green at agreen@timesfreepress.com or 423-757-6480.

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