Covenant posts increased 4Q revenue, net loss

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Covenant Transport announced Thursday, Jan. 25, financial and operating results for the quarter ended Dec. 31. For the quarter, total revenue increased 4.4 percent to $186.3 million from $178.4 million in the same quarter of 2005. Freight revenue, which excludes fuel surcharges, increased 7.3 percent to $159.3 million from $148.4 million in the 2005 quarter. The company reported a net loss of $894,000 compared to net income of $4.0 million for the fourth quarter of 2005.

For the year ended Dec. 31, total revenue increased 6.3 percent to $683.8 million from $643.1 million during 2005. Freight revenue increased 3.0 percent to $572.2 million in 2006 from $555.4 million in 2005. The company generated a net loss of $1.4 million compared with net income of $5.2 million for 2005.

“The main factor affecting the quarter was the lack of the normal peak shipping season,” said David R. Parker, chairman, president and chief executive officer of Chattanooga, Tenn.-based Covenant. “Demand during the quarter was much less than expected, especially when compared to the strong fourth quarter of 2005. From an operating standpoint, average miles per tractor decreased 2.5 percent versus the fourth quarter of 2005. Even though our rate per loaded mile was up 1.6 percent versus the third quarter of 2006, pricing for spot market and surge business was not as robust as in the past, and our rates were down 1.0 percent versus the fourth quarter of 2005. The combination of lower rates and utilization produced a 4.0 percent reduction in average freight revenue per tractor per week.”

Parker said Covenant’s SRT, Star and Expedited Long‑Haul service offerings are operating reasonably well considering the soft freight environment. “The lack of profitability of our approximately 675 truck Dedicated service offering has been disappointing,” he said. “However, we believe we have identified most of the problems in this operation, including the contracts that carry unfavorable terms.” The company’s 285‑truck Covenant Refrigerated service offering was eliminated on Jan. 14. “The solo‑driver units were combined with SRT, and the team‑driver units were combined with our Expedited Long‑Haul service offering,” Parker said.

“Finally, our regional/solo service offering continues to provide the largest challenge,” Parker said. “The regional operation had approximately 570 trucks assigned at December 31, 2006, down 400 trucks since June 30 and 200 trucks since September 30. We plan to continue to seek the fleet size that most effectively matches our quality freight.”

Parker said Covenant’s primary goal for 2007 is to improve its operating ratio by 100 to 200 basis points versus the full year of 2006. “Due to seasonably slow freight volumes and the resultant concern regarding capacity supply and demand in the marketplace, as well as the need for continued overhaul of the Regional and Dedicated service offerings, improvement during the first half of 2007 could be challenging,” he said. “Our expectation is that the combination of downsizing the Regional service offering, reallocating nonperforming assets from Covenant Refrigerated to SRT and Expedited Long‑Haul, aggressively improving the Dedicated service offering’s profitability as contracts expire, and reducing overhead and capital costs in all nonperforming areas, should produce earnings improvement during the second half of 2007.”