Covenant Logistics Group Inc. officials said a reduction in interest rates could inject momentum into home sales across the country and help revive the broader freight market.
Chattanooga, Tennessee-based Covenant (NASDAQ: CVLG) reported second-quarter earnings after the market closed Wednesday. Company officials held a conference call to discuss the results with analysts on Thursday.
“I was with housing folks yesterday … in the floor covering business, and they’re just basically waiting for interest rates to drop in the housing [market]. They think the backlog is gigantic as soon as people can afford the payments,” Covenant Chairman and CEO David R. Parker said.
“We see the battle going on in Washington with the Federal Reserve on the interest rate, and I think that is a catalyst because [President Donald Trump] will win. Whether that’s in November, October, or next March, he’s going to win that battle, and those interest rates are going to go down, and housing is going to improve.”
Parker said the housing market is a big part of the trucking industry.
“It’s just a big nucleus of freight for the housing industry. The better the economy, the more freight that’s going to be available for all of us,” Parker said.
Covenant Logistics Group’s freight revenue rose 7.8% year-over-year in the second-quarter to $276.5 million, a quarterly record.
The company’s total revenue rose 5% year-over-year to $302.85 million. Adjusted earnings per share was 45 cents in the quarter, compared to 52 cents in the same year-ago quarter.
Covenant Logistics exceeded Wall Street’s earnings per share and revenue forecasts for the quarter at $0.419 and $287.25 million.
Tripp Grant, executive vice president, said revenue rebounded during the second quarter due factors such as growing the company’s dedicated fleet, new business in managed freight, a small acquisition and receding impact of weather and avian influenza.
Covenant Logistics expedited segment posted second-quarter freight revenue of $83.2 million, a year-over-year decrease of 6.4%. Average total tractors decreased by 50 units, or 5.5%, to 860, compared to 910 in the prior year quarter.
The company’s expedited average freight revenue per tractor per week decreased 1% year-over-year to $7,442.
“Our expedited segment yielded a 93.9 adjusted operating ratio, a result only slightly better than the year ago quarter,” Grant said. “While this result falls short of our expectations for this segment, we were pleased with the year over year consistency.”
For the quarter, freight revenue in the company’s dedicated segment was $90.2 million, 10.2% year-over-year increase. Average total tractors increased by 162 units, or 11.7%, to 1,546.
Covenant Logistics average freight revenue per tractor per week in its dedicated segment decreased 1.4% year-over-year to $4,486, partially offset by a 7% year-over-year increase in freight revenue per total mile at $3.06.
Covenant’s managed freight segment saw revenue of $77.5 million in the second quarter, an increase of 28% from the same time last year. The warehousing segment had revenue of $25.5 million during the quarter, a 1% year-over-year gain.
“Our baseline expectations for the second half of the year includes additional start ups in our dedicated segment, a slowly improving general freight market and modest peak season that will benefit expedited and dedicated, and a wide range of outcomes in managed freight,” Grant said.
