Covenant Transport, Inc. (Nasdaq: CVTI) announced today financial and operating results for the fourth quarter and year ended Dec. 31, 2005, including a revenue rise of 8.7 percent.
For the quarter, total revenue increased 8.7%, to $178.4 million from $164.2 million in the same quarter of 2004. Freight revenue, which excludes fuel surcharges, increased 0.8%, to $148.4 million in the 2005 quarter from $147.2 million in the 2004 quarter.
The company measures freight revenue, because management believes that fuel surcharges tend to be a volatile source of revenue and the removal of such surcharges affords a more consistent basis for comparing results of operations from period to period.
Net income increased to $4.4 million from a net loss of $6.5 million in the 2004 quarter. Net income per diluted share increased to $0.32 from a loss of $0.44 in the 2004 quarter. The 2004 fourth quarter included a $12.2 million after-tax, or $0.82 per share, increase to insurance claims reserves.
For the year, total revenue increased 6.5%, to $643.1 million from $603.6 million during 2004. Freight revenue decreased 0.5%, to $555.4 million in 2005 from $558.5 million in 2004.
The company generated net income of $5.7 million, or $0.40 per diluted share, for the year compared with $3.4 million, or $0.23 per diluted share, for 2004.
Chairman, President, and Chief Executive Officer David R. Parker made the following comments on the quarter: "Although we still have a lot of work to do, I am very pleased with the progress that we made during the second half of 2005 to stabilize our freight base and improve our revenue per tractor both sequentially and versus a very strong fourth quarter of 2004. Average freight revenue per tractor per week (excluding fuel surcharge revenue) increased to $3,254 in the fourth quarter of 2005, an increase of 1.4% over the 2004 period and 6.1% sequentially over the third quarter of 2005. A key factor in the improvement was a 3.2% increase in average freight revenue per loaded mile, to $1.548 in the fourth quarter of 2005, compared with $1.500 in the fourth quarter of 2004. The increase in rates more than offset a 1.7% decrease in average miles per tractor mainly attributable to a smaller percentage of teams during the fourth quarter of 2005 versus the fourth quarter of 2004.
"In addition to the operational improvements described above, there were several items that affected different line items and had positive and negative effects on earnings for the quarter, including the following:
- Driver payroll increased by approximately $0.03 per mile versus the fourth quarter of 2004 due to pay increases implemented earlier in 2005.
- The decrease in diesel fuel prices (net of fuel surcharge collections) during the quarter had a positive impact of approximately $780,000 compared with the fourth quarter of 2004.
- We accrued additional insurance expense primarily as a result of settlements of prior period claims. The combination of a good safety year in 2005 and the settlement of a substantial balance of claims during the fourth quarter resulted in our estimated balance of open claims being the lowest it has been since 2003 while our reserve for
incurred but not reported claims is the highest it has ever been.
- Depreciation expense was affected by a small gain on disposition of revenue equipment compared with a $1.4 million loss in the fourth quarter of 2004.
"During the quarter we increased borrowing by approximately $4.0 million and reduced our financing under operating leases by a present value of approximately $10.4 million. At December 31, 2005, our total balance sheet debt was $80.3 million and our stockholder's equity was $190.2 million, for a total debt-to-capitalization ratio of 29.7% and a book value of $13.56 per share. Our revenue equipment fleet continues to be one of the youngest in the industry with an average tractor age of 1.4 years and an average trailer age of 3.0 years. In advance of the tighter emission standards that will be implemented in 2007, we are planning an aggressive equipment program that will replace approximately 2,100 tractors and 1,600 trailers during 2006. We expect that approximately 300 tractors and all the trailers will be financed with operating leases and the remaining approximately 1,800 tractors will be purchased. Assuming the lease financing discussed above, and net of proceeds of disposition, we expect our balance sheet capital expenditures for 2006 to be approximately $65.0 million. At December 31, 2005, we had an aggregate of approximately $54 million of available borrowing capacity under our revolving credit facility and securitization facility."
Regarding the restructuring, Mr. Parker said, "We continue to make progress towards our goal of restructuring the company around four service offerings. Highlights since our third quarter discussion include:
- Hiring an external candidate, Steve Taggart, formerly the Chief
Operating Officer of a midwest regional truckload carrier, as Vice
President of Regional Operations, reporting to our newly hired Senior
Vice President of Regional Operations.
- Filling all senior management positions for the service offerings,
except for our Dedicated service offering, which we expect to fill
during the first quarter of 2006.
- Completing the transition of all existing operations and sales
positions to the new service offering structure.
- Commencing our first two regional operations with approximately 80 trucks in each of the Southeast and Midwest.
"We expect to be fully operational under the new service offering structure, which includes system conversions, management realignment, new incentive plans, and financial reporting by the end of the second quarter. The second half of 2006 will be exciting to really begin executing under the new structure."
Mr. Parker continued with the following comments concerning the company's expectations for 2006. "Our primary goal for 2006 is to properly execute the restructuring of our company around our four service offerings. We intend to be patient and to concentrate on properly aligning personnel, resources, and expectations for each service offering in order to establish a solid foundation for long-term success. As we simultaneously execute this plan throughout the entire company, we may experience some bumps and volatility. However, we expect meaningful improvement by the end of 2006, both financially and operationally.
"For the first quarter, we expect average freight revenue per tractor per week to improve at least five percent versus the first quarter last year. Operating costs will increase as a result of driver pay increases initiated in 2005, as well as to reflect general cost increases. We continue to monitor the driver situation very closely and are currently undecided regarding pay increases for 2006. If fuel costs stay at the current levels, we expect our fuel costs, net of surcharge revenue, to be up about $.01 per mile versus the first quarter of 2004. For the quarter, we hope to be profitable but believe the combination of being early in the restructuring process and the volatility of first quarter results makes it too difficult to establish profitability as a firm target.
"For the balance of the year, we expect to show improvement as the year goes on. As the restructuring brings the focus of separate measurement, reporting, and accountability to each division, we anticipate that additional areas for improvement will be identified. The path may not be smooth, but overall our goal will be to improve our financial results each quarter, both sequentially during 2006 and compared with the same quarter in 2005.
"From a fleet perspective we expect to concentrate on replacements instead of adding units during 2006, although we may add company units to match any owner-operator attrition. We do not plan to grow our total fleet size until profitability improves. As more emphasis is placed on our temperature-controlled and expedited divisions, we expect our length of haul to increase slightly. Assuming moderate to strong economic growth, a continuation of tight truckload capacity, and an ability to keep our trucks seated similar to last year, we expect rates to increase in the range of 3% to 5% and our utilization to improve over 2005. On the cost side, we expect our costs, excluding fuel, to be fairly similar to 2005, except for any potential increases in driver pay and general effects of inflation. If fuel prices, which are difficult to predict, stay in the $2.45 range, fuel costs net of surcharge could increase slightly over 2005."
Covenant Transport, Inc. is a publicly traded truckload carrier that offers just-in-time service and other premium transportation services for customers throughout the United States. Covenant operates one of the ten largest fleets in North America, measured by revenue. The company's Class A common stock is traded on the Nasdaq National Market under the symbol, "CVTI."
Covenant Transport, Inc.
Key Financial and Operating Statistics
Three Months Ended Twelve Months Ended
December 31 December 31
($000s) % %
2005 2004 Change 2005 2004 Change
Freight revenue $148,442 $147,196 0.8% $555,428 $558,453 -0.5%
Fuel surcharge revenue 29,978 16,977 87,626 45,169
Total revenue $178,420 $164,173 8.7% $643,054 $603,622 6.5%
Operating expenses
Salaries, wages and
related expenses (1) 64,280 61,879 242,457 225,778
Fuel expense 49,250 37,014 170,755 127,723
Operations and
maintenance 8,779 7,705 33,625 30,555
Revenue equipment
rentals and
purchased
transportation 15,557 16,183 61,228 69,928
Operating taxes and
licenses 3,372 3,585 13,431 14,217
Insurance and
claims (2) 12,507 27,774 41,034 54,847
Communications and
utilities 1,612 1,651 6,579 6,517
General supplies
and expenses 4,555 4,661 17,778 15,104
Depreciation and
amortization 8,610 11,792 39,101 45,001
Total operating
expenses 168,522 172,244 625,988 589,670
Operating income (loss) 9,898 (8,071) 17,066 13,952
Other (income) expenses:
Interest expense 1,261 720 4,203 3,098
Interest income (83) (18) (273) (48)
Other (94) (265) (538) (926)
Other expenses, net 1,084 437 3,392 2,124
Income (loss) before
income taxes 8,814 (8,508) 13,674 11,828
Income tax expense
(benefit) 4,364 (2,032) 8,003 8,452
Net income (loss) $4,450 ($6,476) $5,671 $3,376
(1) Includes a $1.5 million pre-tax insurance charge which was incurred in
the fourth quarter of 2004.
(2) Includes a $18.0 million pre-tax insurance charge which was incurred
in the fourth quarter of 2004.
Basic earnings per share $0.32 ($0.44) $0.40 $0.23
Diluted earnings per
share $0.32 ($0.44) $0.40 $0.23
Weighted avg. common
shares outstanding 13,979 14,663 14,175 14,641
Weighted avg. common
shares outstanding 14,025 14,877 14,270 14,833
adjusted for
assumed
conversions
Operating statistics excludes fuel surcharges.
Net margin as a percentage
of freight revenue 3.00% -4.40% 1.02% 0.60%
Average freight revenue
per loaded mile $1.548 $1.500 3.2% $1.507 $1.400 7.6%
Average freight revenue
per total mile $1.408 $1.364 3.2% $1.357 $1.274 6.5%
Average freight revenue
per tractor per week $3,254 $3,208 1.4% $3,013 $2,995 0.6%
Average miles per
tractor per period 30,376 30,911 -1.7% 115,765 122,899 -5.8%
Weighted avg. tractors
for period 3,471 3,486 -0.4% 3,535 3,558 -0.6%
Tractors at end of period 3,471 3,476 -0.1% 3,471 3,476 -0.1%
Trailers at end of period 8,565 8,867 -3.4% 8,565 8,867 -3.4%
Dec 2005 Dec 2004
Total assets $372,086 $360,026
Total equity 190,208 195,699
Total debt, including
current maturities 80,281 52,170
Debt to Capitalization
Ratio 29.7% 21.0%