COVENANT TRANSPORT ANNOUNCES FIRST QUARTER FINANCIAL AND
OPERATING RESULTS
CHATTANOOGA, TENNESSEE - April 20, 2004 - Covenant Transport, Inc.
(Nasdaq/NMS:CVTI) announced today financial and operating results for the
quarter ended March 31, 2004.
For the quarter, revenue remained essentially constant at $137.7 million in the
2004 quarter and $137.9 million in the 2003 quarter. Freight revenue, before
fuel surcharges, also remained essentially constant, at $130.6 million in the
2004 quarter and $130.4 million in the 2003 quarter. Net income decreased to
$721,000, or $.05 per diluted share, from $839,000, or $.06 per diluted share,
for the first quarter of 2003.
Chairman, President, and Chief Executive Officer David R. Parker stated, "We
were encouraged by several trends that developed during the quarter and, based
on these trends, we expect the remainder of the year to improve considerably.
The three main trends were a substantial increase in revenue per loaded mile,
drawing to the end of a substantial fleet upgrade, and significantly decreasing
our number of tractors without drivers.
We were pleased with the progress on the revenue side of our business. Our
revenue per loaded mile, excluding fuel surcharges, increased 5.3%, to $1.318
compared with $1.252 in the same quarter last year. The trend is continuing in
April, as we have renewed several large contracts at meaningfully higher rates.
We are nearing the end of a massive equipment upgrade, in which we accepted
delivery of 1,700 tractors and 3,800 trailers and disposed of 1,700 and 2,900
trailers over the past nine months. Compared with the first quarter of last
year, our operating expenses relating to ownership/lease costs of revenue
equipment increased approximately $.05 per mile. Ownership/lease costs include
both leased and owned equipment and are reflected in the combined cost of
revenue equipment rentals, depreciation, and interest. Of that amount, about
$.02 per mile, or $.08 per share, related to the trade-in costs and accelerated
depreciation for the used equipment mentioned above. The remainder relates the
addition of 1,530 trailers versus year ago in order to improve our customer
service as our average length of haul has decreased and to the increased cost of
revenue equipment. The increases described above were partially offset by
savings in the areas of tractor and trailer maintenance, as the newer fleet
saved us $.017 per mile compared with the same quarter last year. This resulted
in a net increase of approximately $.033 per mile in operating costs relating to
revenue equipment. We expect our ownership/lease cost to drop by approximately
$.02 to
$.025 per mile by the end of the year as the majority of the trade-in and
accelerated depreciation costs associated with the fleet upgrade roll off.
Finally, we experienced lower than anticipated truck utilization during the
quarter primarily caused by intense competition for drivers that resulted in
approximately 6.6% of our tractors being unmanned at the beginning of January.
During the quarter, we announced a $.03 per mile driver pay increase that became
effective March 15 and reduced our unmanned truck percentage by half at March
31. The length of time it took to correct the unseated truck percentage was the
main factor in causing our earnings per share to be $.05 compared with the $.06
per share we expected in January.
Regarding the new federal hours of service rules, I am very proud of the effort
that our office and driving personnel have shown in implementing and following
these new rules. We have experienced some reduction in equipment utilization,
although it is difficult to judge the full extent because of severe winter
weather and seasonally lower freight demand in the first quarter. We are
responding to the new rules by imposing higher detention billing and reducing
the number of loads with multiple stops. Accessorial revenue increased by $.023
per mile during the quarter with detention revenue being the largest component.
We will remain committed that neither the Company nor our drivers will be
negatively impacted financially by these new rules.
Our balance sheet remains strong despite acquiring a substantial amount of
revenue equipment that brought the average age of our fleet at historical lows.
The average age of our tractor fleet was 1.5 years during the quarter compared
to 2.2 years last year. The average age of our trailer fleet was 2.4 years
during the quarter versus 4.6 years last year. At March 31, 2004, we had $192.9
million in stockholders' equity and $40.5 million in balance sheet debt, for a
debt-to-total capitalization ratio of 17%. During the quarter, we paid down
$21.2 million of balance sheet debt and added approximately the same amount in
capitalized value of operating leases. For the year we expect to purchase
approximately 1,200 tractors and 1,600 trailers and trade approximately 1,200
tractors and 1,600 trailers.
Looking forward, we are very encouraged about the remainder of the year. In
forming our outlook, we assume that the economy remains robust and our
customers' freight levels are strong, fuel prices do not move rapidly higher and
we continue to collect surcharges on a consistent basis, our detention and other
accessorial programs are successful, and we attain and maintain an unseated
tractor percentage of 2% to 3% for the remainder of the year. Based on those
assumptions and a continuation of current trends in safety and maintenance
costs, we continue to expect earnings per share for the year in the range of
$1.05 to $1.10 that we announced in January. We expect freight rates to
accelerate throughout the year as freight improves and afford us an opportunity
to improve our margins nicely throughout the year."
The Company also noted the following regarding its first quarter revenue.
Historically, we have measured freight revenue, before fuel and accessorial
surcharges, in addition to total revenue, because we believed that removing
these sometimes volatile sources of revenue affords a more consistent basis for
comparing results of operations from period to period. As a result of the new
federally mandated hours of service rules, the additional accessorial charges
associated with the new rules, and the expectation that the accessorial charges
associated with the rules will become an ongoing part of the business, we
determined it was appropriate to reflect accessorial revenue in freight revenue
beginning with the first quarter of 2004. Freight revenue and related statistics
such as rate per loaded and total mile and revenue per tractor per week have
been reclassified in prior periods to reflect this change.
The Company will be hosting a conference call on Wednesday, April 21, 2004 at
11:00 a.m. EST. The public will be able to listen and participate in the call
telephonically by dialing 800-603-1780 (U.S./Canada) and 706-643-0889
(International), access code 6737086. For more information on how to access the
conference call and for statistical and financial information regarding the
Company that is expected to be discussed during the conference call, please
visit our website at www.covenanttransport.com
Covenant Transport, Inc. is a public 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.
The Company's Class A common stock is traded on the Nasdaq National Market under
symbol, "CVTI."
This press release contains forward-looking statements that involve risk,
assumptions, and uncertainties that are difficult to predict. Statements that
constitute forward-looking statements are usually identified by words such as
"anticipates," "believes," "estimates," "projects," "expects," "plans,"
"intends," or similar expressions. These statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such statements are based upon the current beliefs and expectations of our
management and are subject to significant risks and uncertainties. Actual
results may differ from those set forth in the forward-looking statements. The
following factors, among others, could cause actual results to differ materially
from those in forward-looking statements: excess tractor or trailer capacity in
the trucking industry; decreased demand for our services or loss of one or more
or our major customers; surplus inventories; recessionary economic cycles and
downturns in customers' business cycles; strikes, work slow downs, or work
stoppages at the Company, customers, parts, or other shipping related
facilities; increases or rapid fluctuations in fuel prices as well as
fluctuations in hedging activities and surcharge collection, the volume and
terms of diesel purchase commitments, interest rates, fuel taxes, tolls, and
license and registration fees; increases in the prices paid for new revenue
equipment; the resale value of our used equipment and the price of new
equipment; increases in compensation for and difficulty in attracting and
retaining qualified drivers and independent contractors; elevated experience in
the frequency and severity of claims relating to accident, cargo, workers'
compensation, health, and other claims; high insurance premiums and deductible
amounts; seasonal factors such as harsh weather conditions that increase
operating costs; competition from
trucking, rail, and intermodal competitors; regulatory requirements that
increase costs or decrease efficiency, including revised hours-of-service
requirements for drivers; the ability to successfully execute the Company's
initiative of improving the profitability of medium length of haul movements;
and the ability to identify acceptable acquisition candidates, consummate
acquisitions, and integrate acquired operations. Readers should review and
consider these factors along with the various disclosures by the Company in its
press releases, stockholder reports, and filings with the Securities Exchange
Commission.
For further information contact:
Joey B. Hogan, Executive VP and Chief Financial Officer (423) 825-3336
hogjoe@covenanttransport.com
For copies of Company information contact:
Kim Perry, Administrative Assistant (423) 825-3357
perkim@covenanttransport.com
Covenant Transport, Inc.
Key Financial and Operating Statistics
Three Months Ended March 31
-----------------------------------------------
($000s) 2004 2003 % Change
---- ---- --------
Freight revenue $130,590 $130,353 0.2%
Fuel surcharge revenue 7,077 7,522
---------------------------------
Total revenue $137,667 $137,875 -0.2%
Operating expenses
Salaries, wages and related expenses 51,958 53,810
Fuel expense 27,551 28,788
Operations and maintenance 7,711 9,994
Revenue equipment rentals and
purchased transportation 18,564 14,818
Operating taxes and licenses 3,479 3,431
Insurance and claims 8,265 8,039
Communications and utilities 1,781 1,708
General supplies and expenses 3,497 3,173
Depreciation and amortization 11,803 10,600
---------------------------------
Total operating expenses 134,609 134,361
---------------------------------
Operating income 3,058 3,514 -13.0%
Other (income) expenses:
Interest expense 608 651
Interest income (11) (38)
Other 20 (15)
---------------------------------
Other (income) expenses, net 617 598
---------------------------------
Income before income taxes 2,441 2,916 -16.3%
Income tax expense 1,720 2,077
---------------------------------
Net income $721 $839 -14.1%
=================================
Basic earnings per share $0.05 $0.06 -16.7%
Diluted earnings per share $0.05 $0.06 -16.7%
Weighted avg. common shares outstanding 14,676 14,381
Weighted avg. common shares outstanding 14,858 14,670
adjusted for assumed conversions
Operating statistics excludes fuel surcharges.
Net margin as a percentage of freight revenue 0.55% 0.64%
Average revenue per loaded mile $1.318 $1.252 5.3%
Average revenue per total mile $1.201 $1.150 4.4%
Average revenue per tractor per week $2,749 $2,712 1.4%
Average miles per tractor per period 29,749 30,308 -1.8%
Weighted avg. tractors for period 3,646 3,726 -2.1%
Tractors at end of period 3,589 3,717 -3.4%
Trailers at end of period 9,048 7,516 20.4%
March 2004 Dec 2003
------------ ----------
Total assets $335,331 $354,281
Total equity 192,913 192,143
Total debt, including current maturities 40,453 61,653
Debt to Capitalization Ratio 17.3% 24.3%