One of Chattanooga's biggest trucking companies is hitting the brakes on some of its least profitable business lines as it restructures amid changes in freight delivery amid the coronavirus pandemic.
Covenant Logistics Group, Inc. said Monday that took a $29.3 million charge in the second quarter for the costs of reducing its terminal network and truck fleet and changing its business mix. As a result, Covenant reported a net loss of $22.3 million, or $1.31 per share, compared with net income of $6.1 million, or 33 cents per share, in the same period a year earlier.
But adjusted for non-recurring items, Covenant had quarterly earnings in the second quarter of 3 cents per share, which was ahead of the Zacks consensus estimate of analysts following the company who predicted the company would lose 1 cent per share in the quarter.
Revenues in the three-month period fell by 11.7% from a year ago to $191.7 million. The results reflect the July 8 sale of the company's former factoring segment, Transport Financial Solutions, as a discontinued operation.
"In the second quarter, we made significant progress in our efforts to restructure our business units, terminal network, and management team to focus our talent, time and capital on areas where we believe we have the ability to grow and produce a consistent, acceptable margin," Covenant CEO David Parker said. "The changes are extensive, and we expect them to be ongoing through the end of the year."
Parker said freight revenues in the industry were "very weak" during the quarter, although they did improve through the three month period as businesses began to reopen after shutting down in March and April to help fight the spread of the coronavirus.
"Certain strategies we implemented reduced our revenue during the quarter while cost savings are expected to be realized on an ongoing basis," Parker said. "Overall, I am pleased with our current position, which features strong liquidity, a de-leveraged balance sheet, lower overhead costs, increased accountability and speed of decision making, and re-aligned business units."
Parker said the company will continue to work to reduce its fleet size and sell off some of its assets "to allocate our fleet assets across our contract logistics, expedited, and higher margin irregular route operations and to significantly lower our fixed costs."
"We believe achieving these goals will position us to enter 2021 with an improved business mix, fleet profile, and cost of operation," Parker said. "Pursuing our plan will continue to involve difficult decisions and may result in additional strategic restructuring expenses. However, we believe the investment will strengthen our position in the U.S. logistics industry and provide for a less-cyclical business model."
Contact Dave Flessner at firstname.lastname@example.org or 423-757-6340.