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Carl Austin Watson David Parker

Chattanooga-based Covenant Transport reported solid third quarter earnings Friday, with a total revenue of $173 million and net income of $7.6 million, or 42 cents per share, for July, August and September.

A year ago, Covenant reported $177.6 million in total revenue and net income of $1.9 million, or 12 cents per share.

Covenant grew its average tractor fleet by 134 trucks and its team-driven trucks by 115 over the past year. Those positives helped the company make slight increases in freight revenue and truck yields, Covenant CEO David Parker said.

But like many motor carriers, previously negotiated fuel hedge agreements hurt Covenant in the quarter as fuel prices remained low. Fuel hedge agreements are designed to protect large fuel consumers from spikes in fuel prices, but can be harmful if prices go the other way and drop.

Covenant officials reported losing $3.9 million because of fuel hedge agreements in the third quarter of this year.

Parker said the quarter was characterized by myriad competitive conditions, including the adverse fuel hedging agreements, the increasing driver shortage and "lackluster freight demand."

Earlier this month, the American Trucking Association reported that the trucking industry will be short 48,000 drivers by the end of 2015, and that the need will grow and become more dire in the foreseeable future. By 2024, ATA experts believe the driver shortage will reach 175,000.

To combat the shortage and the increasingly competitive labor environment — which has become cut-throat among trucking companies — many carriers are boosting driver pay and offering better benefits.

In the third quarter of this year, Parker said Covenant saw salaries, wages and related expenses increase by approximately 1.1 cents per mile over the year-ago level because of the increase in team drivers, driver pay and higher group insurance expenses.

Covenant also is in the process of reinvesting in its fleet, and as of the end of September, has taken in 715 new trailers and disposed of 410 used tractors. The company's 2015 plan calls for the taking of 805 new tractors and disposal of 815 used tractors by the end of the year.

Looking ahead to the final quarter of the year, Senior Vice President and Chief Financial Officer Richard Bribbs predicted a "solid" fourth quarter, with more committed peak season customer volume than a year ago, but at lower average rates than 2014.

Cribbs said the company isn't ready to predict fourth quarter net income against 2014, but he said it's possible that earnings per share decrease year-over-year because of current market demands and fuel hedging contracts.

Parker said ecommerce freight is expected to be up going into the peak season, while demand for non-e-commerce traditional and retail goods transportation is expected to be down. He said online shopping is expected to offset the decline.

Covenant results were a penny a share above what analysts had forecast for the third quarter, helping to boost Covenant shares Friday by $2.53 per share, or nearly 12.7 percent, to close at $22.52 per share in trading on the Nasdaq Exchange.

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

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