Covenant Transportation (CVTI) Guides Q1 EPS Below Views

Covenant Transportation Group, Inc. (NASDAQ/GS: CVTI) announced today its expectations regarding financial results for the first quarter of 2019.

Chairman, President and Chief Executive Officer, David R. Parker, offered the following comments: “After reviewing preliminary financial and operating information through the end of February, we expect to report adjusted net income in the range of $3.4 million to $4.9 million, or $0.18 to $0.26 per diluted share, for the first quarter of 2019. This compares to a reported adjusted net income of $4.4 million, or $0.24 per diluted share, for the first quarter of 2018. The truckload freight environment has been weaker this year from late January through mid March. We attribute the softer demand to factors such as late 2018 inventory growth in advance of the perceived impact of tariffs, the effects of the partial government shutdown on spending, and extended periods of inclement weather that impacted the timing of shipping seasonal goods as well as our ability to safely dispatch our equipment. For the two months ended February 28, 2019, consolidated freight revenue has increased 34.9% compared with the two months ended February 28, 2018. Excluding the freight revenue recognized at our Landair subsidiary, which was acquired in July 2018, consolidated freight revenue has increased 5.5% compared with the prior year period. Regarding our two reportable segments, we have experienced the following:

(**Consensus sees Q1 EPS of $0.36)

• Truckload Operations – Since December 31, 2018, the fleet size has decreased approximately 47 trucks (or 1.5%) as of March 15, 2019. For the two months ended February 28, 2019 as compared to the two months ended February 28, 2018, average freight revenue per tractor decreased 4.8%, as average miles per tractor decreased 11.6%, while average freight revenue per total mile increased 7.7%. The differences in miles per tractor and average freight revenue per total mile were impacted in part by the July 2018 acquisition of Landair, which generates higher revenue per mile and lower miles per tractor than the average of our other operations. Freight revenue is defined as total revenue excluding fuel surcharge revenue.On a year-over-year basis, quarterly operating expenses are expected to increase on a per mile basis. Salaries, wages and related expenses are expected to increase significantly primarily due to professional driver employee pay adjustments since the first quarter of 2018 and the Landair acquisition, while year-over-year net fuel expense has also been trending upward as diesel fuel prices have been increasing over the last few weeks. In addition, casualty insurance and claims expense per mile is expected to increase on a year-over-year basis to a level consistent with our experience in the third and fourth quarters of 2018.

• Managed Freight – For the two months ended February 28, 2019, our total managed freight revenue increased approximately 165.6% as compared to the two months ended February 28, 2018. Excluding the managed freight revenue recognized at our Landair subsidiary that was acquired in July 2018, for the two months ended February, 28, 2019, managed freight revenue has increased 36.8% compared with the prior year period. Quarterly managed freight profit margins are expected to improve on a year-over-year basis.

"In addition, our 49% equity investment in Transport Enterprise Leasing is expected to contribute greater than $2.8 million of pre-tax income in the first quarter of 2019 compared with a contribution of $1.5 million of pre-tax income in the first quarter of 2018.

"The stated goals of our capital allocation strategy are to become increasingly embedded in our customers’ supply chains, to reduce the cyclicality and seasonality of our business and financial results, and to enhance our long-term earnings power and return on invested capital. While we expect our first quarter financial results to reflect less impact from lower demand than in historical periods, we still have meaningful work ahead to achieve our full potential.”

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