Covenant Revenue Rises as Trucking Yield Recovers
Adjusted earnings rebounded to $0.42 a share as truckload profitability improved from the first quarter.
Covenant Logistics Group (CVLG), a transportation and logistics provider, reported a 9.9% increase in second-quarter revenue to $332.9 million, while operating income fell 23.5% to $8.8 million. Diluted earnings declined to $0.32 a share from $0.36 a year earlier.
The quarter marked a sequential recovery after three consecutive declines in adjusted earnings. Adjusted earnings had fallen from $0.44 a share in the third quarter of 2023 to $0.31 in the fourth quarter and $0.26 in the first quarter of 2024 before rising to $0.42 in the latest period.
Revenue increased 8.4% from the first quarter, while freight revenue excluding fuel surcharges rose 4.5% sequentially to $294.7 million. Operating income climbed 40.7% from the first quarter, and the adjusted operating ratio improved 70 basis points to 95.9%, remaining 130 basis points above its year-earlier level.
Combined Truckload yield strengthened for a second consecutive quarter as freight revenue per tractor per week reached $5,870 and revenue per total mile rose to $2.90. The gains reflected higher rates and a shift in business mix, while miles per tractor fell 8.0% from a year earlier. The weighted-average fleet contracted 8.6%, leaving segment freight revenue down 3.2% at $167.8 million.
Truckload profitability improved from the first quarter, with adjusted operating income rising 79.8% to $8.7 million and the adjusted operating ratio improving 220 basis points to 94.8%. Costs per mile increased about 16% from a year earlier, slightly faster than revenue per mile, and higher maintenance and insurance claims reduced earnings by about $0.08 a share relative to the company’s expectations and historical averages.
Within Truckload, Expedited shifted about 15% of its fleet from uncommitted or commoditized freight into multi-year committed-capacity contracts. Its revenue per tractor per week rose to $7,949 and its adjusted operating ratio improved to 94.6%, though a 17.0% reduction in average tractors pushed freight revenue down 11.4%. Dedicated freight revenue increased 4.3% to $94.0 million as agricultural protein business expanded and Covenant exited less-profitable nonspecialized business.
Managed Freight revenue rose 28.4% to $99.5 million, primarily because of a fourth-quarter acquisition, while adjusted operating income declined to $2.6 million as purchased-capacity costs outpaced contractual revenue per load. Warehousing revenue increased 4.4% after a significant customer launch, though startup costs and operating inefficiencies reduced adjusted operating income to $0.9 million.
Covenant expects a modest sequential increase in third-quarter earnings as operating-margin improvement partly offsets the absence of second-quarter equipment-sale gains, tax benefits and interest income. The company projected $50 million to $60 million of capital expenditures in the second half after spending less than $1 million in the first half; net indebtedness had declined $6.9 million from year-end to $289.7 million.