Covenant Logistics Group, Inc. hauled in less revenue and profits in the first quarter than it did a year ago, and company CEO David Parker said he expects “a difficult freight environment for the remainder of the year.”
But the Chattanooga-based trucking giant said Thursday it is expanding its poultry feed and live haul transportation in Northwest Arkansas with the purchase of Lew Thompson & Son Trucking Inc., which generated $64 million in sales last year. Covenant will pay $100 million, plus up to $30 million more over the next three years depending upon results, to acquire Lew Thompson.
“We pursued Lew Thompson & Son because of their proven track record of operating a first-class dedicated contract carrier business in a niche market, which we believe has less sensitivity to economic cycles and opportunities to grow,” Parker said in a statement Thursday. “We believe the backing of Covenant will provide additional resources to expand Lew Thompson & Son to best meet the needs of their strong customer base.”
In its quarterly earnings report, Covenant said net income in the first three months of 2023 fell by nearly 25% from the year-ago period to $16.6 million, or $1.20 per share. Revenues declined in the first quarter by 8.5% below year-ago levels to $266.8 million, primarily due to a drop in dedicated and managed freight that company President Paul Bunn said in a statement “aligns with our strategy to replace underperforming business with business that meets our profitability requirements.”
Earnings, adjusted for non-recurring gains and to account for discontinued operations, were 93 cents per share, which was above the 81 cents per share average estimate of analysts who follow the company, according to Yahoo Finance.
“The first quarter’s freight market, consisting of a combination of freight rates and volumes, has materially softened compared to a year ago and has remained soft throughout April,” Parker said in Thursday’s earnings report. “Despite these market headwinds, we are pleased with the resiliency in the first quarter’s profitability of our asset-based segments, consisting of Expedited and Dedicated.”
Parker said the second quarter of 2023 “has shown little improvement in freight market supply and demand” and he expects rate and margin pressure through the year.
“Given the current market conditions, we are intensely focused on cost control across our entire enterprise,” he said.
Shares of Covenant Logistics rose by more than 3.7% on the Nasdaq exchange Thursday after the earnings were released. Covenant’ stock closed Thursday at $35,63, up by 1.28 per share.
Covenant’s stock is up by nearly 77.2% from a year ago.
Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.
David Parker