Covenant Transportation Group, Inc. announced Monday financial and operating results for the fourth quarter and year ended Dec. 31, 2013.
Highlights for the quarter included the following:
Total revenue of $176.5 million, a decrease of 0.6 percent compared with the fourth quarter of 2012;
Freight revenue of $140.4 million (excludes revenue from fuel surcharges), an increase of 0.8 percent compared with the fourth quarter of 2012;
Operating income of $8.9 million and an operating ratio of 93.7 percent, compared with operating income of $5.1 million and an operating ratio of 96.3 percent in the fourth quarter of 2012; and
Net income of $3.3 million, or $0.22 per share, compared with net income of $1.5 million, or $0.10 per share in the fourth quarter of 2012.
For the year ended December 31, 2013, total revenue increased 1.5 percent, to $684.5 million from $674.3 million for 2012. Freight revenue, which excludes revenue from fuel surcharges, increased 2.2 percent, to $538.9 million in 2013 from $527.4 million in 2012. The company reported net income of $5.2 million, or $0.35 per share, for 2013 compared to net income of $6.1 million, or $0.41 per share in 2012.
Management Discussion—Asset-Based Operations
Chairman, President, and Chief Executive Officer, David R. Parker, made the following comments, "Operating results were favorable as our asset-based operating ratio improved to 93.6 percent compared with 95.8 percent in last year's fourth quarter.
"For the quarter, total revenue in our asset-based operations decreased to $164.9 million, a decrease of $5.3 million compared with the fourth quarter of 2012. This decrease consisted of lower freight revenue of $3.1 million, along with lower fuel surcharge revenue of $2.2 million. The $3.1 million decrease in freight revenue related to a 5.7 percent decrease in our average tractor fleet, partially offset by a 2.2 percent increase in average freight revenue per tractor per week and an increase of freight revenue contributed from our refrigerated intermodal service offering.
"Average freight revenue per tractor per week increased to $3,568 during the 2013 quarter from $3,490 during the 2012 quarter. Average freight revenue per total mile increased by 3.9 cents per mile (or 2.6 percent) compared to the 2012 quarter, while average miles per unit decreased by 0.3 percent. On average, approximately 5.0 percent of our fleet lacked drivers during the 2013 quarter, compared with approximately 3.2 percent during the 2012 quarter.
"We experienced cost pressure in several areas. Salaries, wages and related expenses increased approximately 0.7 cents per mile due to employee pay adjustments since the fourth quarter of 2012, partially offset by lower workers' compensation expense.
"Operations and maintenance expenses increased approximately 1.8 cents per mile due primarily to higher driver recruiting expenses and additional repair expense for replacing DEF particulate filters on our owned tractors.
"Capital costs (combined depreciation and amortization, revenue equipment rentals and interest expense) increased by approximately $1.1 million. The main factors were an approximately $0.6 million decrease in gains on sale of revenue equipment as we sold less revenue equipment in the 2013 quarter and the used equipment market weakened slightly, and an approximately $0.6 million increase to revenue equipment rentals in the 2013 quarter as compared to the 2012 quarter.
"Higher costs were partially offset by an overall reduction in fuel and insurance costs. Net fuel expense was approximately 11.1 cents per company mile in the 2013 quarter compared with 14.5 cents per company mile in the 2012 quarter due primarily to improved fuel economy and favorable adjustments to fuel surcharge programs from some customers over the last year. We expect to continue investing in more fuel-efficient tractors, and partnering with customers to adjust less favorable fuel surcharge programs. In addition, we expect to continue using fuel price hedges periodically to mitigate the potential volatility in fuel prices relating to the portion of our fuel usage that is not covered by fuel surcharges, which may result in positive or negative results in any given quarter. Gains from fuel hedging transactions were $334,000 in the 2013 quarter compared with $851,000 in the 2012 quarter.
"Insurance and claims per mile cost was 9.4 cents per mile in the fourth quarter of 2013 versus 10.7 cents per mile in the fourth quarter of 2012. Improved safety performance, measured by accidents per million miles, and good claims experience, contributed to the cost improvement in this area."
Management Discussion—Non-Asset Based Brokerage and Other Operations
Mr. Parker offered the following comments concerning Covenant Transport Solutions, Inc. ("Solutions"), the company's non-asset based subsidiary: "For the quarter, Solutions' total revenue increased 58.6 percent, to $11.6 million from $7.3 million in the same quarter of 2012. Operating income was approximately $697,000 for an operating ratio of 94.0 percent, compared with an operating loss of $368,000 and an operating ratio of 105.0 percent in the fourth quarter of 2012. Solutions' gross margins expanded and other operating expenses as a percentage of revenue decreased. In addition, our 49 percent equity investment in Transport Enterprise Leasing ("TEL") contributed approximately $0.6 million of pre-tax income in the fourth quarter."
Cash Flow and Liquidity
Richard B. Cribbs, the company's senior vice president and chief financial officer, added the following comments, "At Dec. 31, 2013, our total balance sheet debt and capital lease obligations, net of cash, were $226.2 million, our stockholders' equity was $100.4 million, and our tangible book value was $100.0 million, or $6.73 per basic share. At December 31, 2013, our ratio of net debt to total balance sheet capitalization was 69.3 percent. Also at Dec. 31, 2013, the discounted value of future obligations under off-balance sheet operating lease obligations was approximately $79.0 million, including the residual value guarantees under those leases, and we believe the value of the leased equipment was approximately equal to the present value of such lease obligations. Since the end of 2012, the company's balance sheet debt and capital lease obligations, net of cash, has increased by $58.1 million, while the present value of financing provided by operating leases increased by approximately $4.7 million. At Dec. 31, 2013, we had approximately $44.1 million of borrowing availability under our revolving line of credit.
"In 2013, we took delivery of approximately 1,054 new company tractors and disposed of approximately 800 used tractors, while holding several additional trucks out-of-service as they are prepared for disposal or are already available for disposal at Dec. 31, 2013. Our current tractor fleet plan for 2014 includes the delivery of approximately 950 new company tractors, and the disposal of approximately 1,250 used tractors as we significantly reduce the number of out-of-service tractors from our fleet. We expect our fiscal 2014 average truck count to essentially equal that of fiscal 2013. With a relatively young average company tractor fleet age of 1.9 years at Dec. 31, 2013, we believe there is significant flexibility to manage our fleet, and we plan to regularly evaluate our tractor replacement cycle and new tractor purchase requirements. In addition, we believe we have sufficient financing available from the captive finance subsidiaries of our main tractor suppliers, our revolving credit facility, and other sources to fund our expected revenue equipment purchases in 2014."