Exhibit 99.1
COVENANT TRANSPORT ANNOUNCES THIRD QUARTER FINANCIAL AND OPERATING RESULTS
CHATTANOOGA, TENNESSEE - October 18, 2004 - Covenant Transport, Inc.
(Nasdaq/NMS:CVTI) announced today financial and operating results for the
quarter and nine month period ended September 30, 2004.
For the quarter, net income increased 17%, to $4.7 million from $4.1 million in
2003, and diluted earnings per share increased 14%, to $.32 from $.28 in 2003.
The third quarter of 2004 was negatively impacted by $.02 per share relating to
the previously announced interest cost on a proposed disallowed deduction by the
IRS, and the third quarter of 2003 had been positively impacted by a $.01 per
share adjustment for interest rate changes under FAS 133. The Company's
announced guidance had been a range of $.32 to $.36 per share before the effect
of the $.02 per share interest charge.
Total revenue for the quarter increased 4%, to $151.9 million from $146.5
million in 2003. Freight revenue, before fuel surcharges, remained essentially
constant at $140.6 million in the 2004 quarter and $140.3 million in the 2003
quarter. The Company measures freight revenue, before fuel surcharges, because
management believes that fuel surcharges tend to be a volatile source of revenue
and that removal of such surcharges affords a more consistent basis for
comparing results of operations from period to period.
For the first nine months, net income increased 22%, to $9.9 million from $8.1
million in 2003, and diluted earnings per share increased 20%, to $.66 from $.55
in 2003. Total revenue increased 2%, to $439.4 million from $430.3 million
during the same period of 2003. Freight revenue, before fuel surcharges,
remained essentially constant at $411.3 million in the 2004 period and $410.1
million in the 2003 period.
Chairman, President, and Chief Executive Officer David R. Parker stated, "Our
results were within the range of guidance we previously announced and reflect
continued improvement in our operating margin. We have been executing a strategy
based on
constraining our fleet size and improving our asset productivity, with the goal
of returning to an operating ratio (operating expenses as a percentage of total
revenue) of below 90%. For the third quarter, our operating ratio was 92.7%, the
first time it has been under 93% since the fourth quarter of 1999. This
reflected an improvement of 130 basis points over the 94.0% operating ratio we
posted in the third quarter of 2003.
Our operating results reflected a good freight environment for most of the
quarter as well as high fuel prices and tough competition for drivers. As
previously announced, freight demand was strong during the quarter except for a
soft spot during August. Our business mix reflected a continuation of our trend
toward a shorter length of haul and more dedicated routes as we allocate our
capacity toward more productive customers and lanes. We are maintaining our
historical focus on a substantial transcontinental team operation, but we are
shifting a meaningful portion of medium length of haul movements toward shorter
lengths of haul. The general effects on our business have been higher rates
offset partially by lower mileage utilization and an increase in non-revenue
miles. Overall, we believe the shift has been a major factor in the improvements
in Covenant's profitability over the past several quarters.
For the quarter, we increased our average freight revenue per loaded mile 11.9%
compared with the third quarter of 2003, primarily because of a favorable
relationship between freight demand and available truck capacity. Average
freight revenue per total mile increased 10.5%, reflecting a modest increase in
non-revenue miles associated with a decrease in our average length of haul.
Average freight revenue per tractor per week, our main measure of asset
productivity, increased 2.2%, reflecting higher rates partially offset by fewer
average miles per tractor. Our mileage utilization was negatively impacted by
our shorter average length of haul, a decrease in the percentage of team-driven
tractors, and an increase in the percentage of our tractors that did not have
drivers.
On the expense side, our after-tax costs increased almost 10%, or $.11 per mile
compared with the third quarter of 2003. The main factors were a $.044 increase
in compensation expense driven primarily by increases in driver pay, a $.029
increase in fuel cost per mile
net of fuel surcharge recovery, and an approximately $.022 per mile increase in
our cost of insurance and claims resulting from an increase in our accrual rate
for accidents. One positive development was that the increase in our ownership
and operating costs associated with our tractor/trailer fleet has begun to
flatten out as the maintenance savings of a newer fleet are offsetting more of
the increased capital and trade-in costs of acquiring the new fleet. At
September 30, 2004, the average age of our tractor and trailer fleets were 1.5
years and 2.7 years, respectively, compared with 2.1 years and 4.1 years,
respectively, a year ago.
Looking forward, we believe driver availability will continue to be the most
pressing issue facing Covenant and the industry for the foreseeable future. We
expect competition for quality drivers to remain intense and that driver numbers
will be the most substantial limiting factor on capacity growth. We expect many
carriers to use future rate increases to increase driver compensation. Also, the
actuarial study of our claims accruals that we previously announced has not been
completed. We expect the results of the study to be available during the fourth
quarter.
Our balance sheet remains strong. At September 30, 2004, we had $201.9 million
in stockholders' equity and $60.2 million in balance sheet debt, for a
debt-to-total capitalization ratio of 23%."
The Company will be hosting a conference call on Tuesday, October 19, 2004, at
10:00 a.m. EDT. The public will be able to listen and participate in the call
telephonically by dialing 800-603-1780 access code 1462406. 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
of 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, ports, 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 and changes in the resale value of our used 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; fluctuations in claims expenses that result
from high self-insured retention amounts and differences between estimates used
in establishing and adjusting claims reserves and actual results over time;
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 Sept 30 Nine Months Ended Sept 30
----------------------------- -----------------------------
($000s) 2004 2003 % Change 2004 2003 % Change
---- ---- -------- ---- ---- --------
Freight revenue $140,631 $140,313 0.2% $411,257 $410,145 0.3%
Fuel surcharge revenue 11,304 6,170 28,192 20,155
-------------------- --------------------
Total revenue $151,935 $146,483 3.7% $439,449 $430,300 2.1%
Operating expenses
Salaries, wages and related expenses 55,563 55,863 163,899 165,335
Fuel expense 32,893 26,370 90,708 81,660
Operations and maintenance 7,657 10,161 22,851 30,446
Revenue equipment rentals and
purchased transportation 16,593 18,634 53,745 50,014
Operating taxes and licenses 3,478 3,343 10,631 10,519
Insurance and claims 9,809 8,240 27,073 25,836
Communications and utilities 1,550 1,868 4,866 5,307
General supplies and expenses 3,422 3,527 10,443 10,526
Depreciation and amortization 10,728 9,991 33,209 31,208
-------------------- --------------------
Total operating expenses 141,693 137,997 417,425 410,851
-------------------- --------------------
Operating income 10,242 8,486 20.7% 22,024 19,449 13.2%
Other (income) expenses:
Interest expense 708 538 1,971 1,786
Interest income (11) (43) (30) (106)
Other 297 (251) (254) (206)
-------------------- --------------------
Other (income) expenses, net 994 244 1,687 1,474
-------------------- --------------------
Income before income taxes 9,248 8,242 12.2% 20,337 17,975 13.1%
Income tax expense 4,503 4,192 10,484 9,923
-------------------- --------------------
Net income $4,745 $4,050 17.2% $9,853 $8,052 22.4%
==================== ====================
Basic earnings per share $0.33 $0.28 17.9% $0.67 $0.56 19.6%
Diluted earnings per share $0.32 $0.28 14.3% $0.66 $0.55 20.0%
Weighted avg. common shares outstanding 14,585 14,461 14,634 14,413
Weighted avg. common shares outstanding 14,811 14,692 14,817 14,652
adjusted for assumed conversions
Operating statistics excludes fuel surcharges.
Net margin as a percentage of freight revenue 3.37% 2.89% 2.40% 1.96%
Average revenue per loaded mile $1.410 $1.260 11.9% $1.368 $1.255 9.0%
Average revenue per total mile $1.285 $1.163 10.5% $1.245 $1.155 7.8%
Average revenue per tractor per week $3,035 $2,971 2.2% $2,925 $2,861 2.2%
Average miles per tractor per period 31,043 33,568 -7.5% 91,989 96,444 -4.6%
Weighted avg. tractors for period 3,524 3,584 -1.7% 3,582 3,665 -2.3%
Tractors at end of period 3,517 3,586 -1.9% 3,517 3,586 -1.9%
Trailers at end of period 8,847 8,294 6.7% 8,847 8,294 6.7%
Sept 2004 Dec 2003
--------- --------
Total assets $351,976 $354,281
Total equity 201,936 192,143
Total debt, including current maturities 60,172 61,653
Debt to Capitalization Ratio 23.0% 24.3%