According to Covenant Logistics Group, the freight industry has been up and down in recent months due to inflationary pressures and declining freight demand, but the company remains positive about its future.
During the results call, Covenant chairman and CEO David R. Parker stated, “We’re going to get a [return to] school rebound and then move into the Christmas season shortly thereafter.” “I believe there will be an increase. So far, we haven’t observed a drop, or, to put it another way, we’ve replaced every piece of lost revenue with new business. So far, that’s the story of the tape.”
Parker also stated that the corporation should have a better understanding of the freight market after August when hundreds of trucks leave the industry.
“I think August will start informing us about this recession we’re in and what it’ll do to transportation,” Parker predicted. “One thing we do know is that this market produces hundreds of thousands of trucks.” The trucks that have been on the spot market for the previous two years are leaving and closing their doors, which will provide a nice little tailwind in terms of capacity.”
Covenant (NASDAQ: CVLG), situated in Chattanooga, Tennessee, posted $1.63 profits per share in the second quarter, up 70% from the same period last year. Revenue for the quarter was $317.38 million, a 23 percent increase over the previous year.
During the second quarter, the company’s freight revenue increased 15% year on year (y/y) to $267 million. Revenue from the accelerated truckload segment jumped by 39.2 percent to $121.6 million, while revenue from the dedicated segment increased by 18.2 percent to $96.7 million.
Covenant’s managed freight division generated $80.2 million in revenue, a 12% increase over the same period the previous year. The warehouse business generated $18.3 million in revenue during the quarter, a 20% increase year on year.
Covenant also completed a $30 million (1.3 million shares) stock repurchase plan that began in the first quarter, as well as a $75 million (2.4 million share) stock repurchase plan initiated in the second quarter. According to officials, the proposals indicate how to create value for shareholders.
“We’ll maintain [the stock repurchase plan] in place and be opportunistic about repurchasing shares in the future,” said Covenant’s chief financial officer, Tripp Grant. “It may just slow in the second half of the year.”
One analyst mentioned how Walmart, a Covenant client, lowered its quarterly and full-year profit estimate on Monday, claiming that inflation is pushing shoppers to spend more on basics and less on higher-margin items such as apparel and electronics.
Parker stated that Covenant’s relationship with Walmart is doing “extremely nicely.”
“We primarily focus on Walmart product that comes from the West Coast, so our relationship with Walmart has been quite successful,” Parker said. “Have there been any hiccups?” Yes, due to labor constraints, we are unable to transport everyone to the warehouses. However, the freight has remained as strong as it was six or eight months ago. We anticipate that trend to continue.”
Covenant officials continue to predict that 2023 will be a “breakout year.” According to Paul Bunn, Covenant’s executive vice president, and COO, the company has tried to transition its customer base from less cyclical industries to ones that are more focused on full-service logistics.
“We are optimistic in the second half of 2022 and planning for 2023 based on company-specific factors such as the investments we have made in the sales force, the [AAT Carriers] acquisition, the share repurchase, and reducing insurance costs to a more normalized level,” Bunn added. “We stated last quarter that 2023 will be a breakout year for Covenant, and we remain confident in our ability to produce cash and maximize the opportunity for our shareholders.”
(Source: Freightwaves) Revenue and operating income in millions
