Covenant Transportation Group Inc. (NASDAQ:CVTI) has lowered expectations for its upcoming second quarter earnings report due to the current freight market as well as internal issues faced by the trucking company.
The Tennessee-based owner of Covenant Transport and others is forecasting earnings of 17 cents to 23 cents per share, down from its late April expectation of 28 cents to 33 cents per share.
In a statement, Chairman and CEO David R. Parker said, “The main factors contributing to our updated expectations are difficult freight market conditions that have negatively impacted our expected consolidated average freight revenue per loaded mile, average miles per tractor, and empty miles percentage; and higher net fuel cost per mile due to lower fuel surcharge recovery from customers, the lag effect of surcharge adjustments as fuel prices rise, and higher empty mile percentage.”
He also blamed higher depreciation expenses due to the soft used truck market and “increased other costs on a per-mile basis related to worse fixed cost absorption. In addition, we expect to operate approximately 2% fewer average tractors during the quarter than we previously had expected.”
A disproportionate portion of the shortfall against the company’s expectations is expected to come from its refrigerated subsidiary, Southern Refrigerated Transport (SRT).
“We continue to view turning around SRT's performance as our most important objective,” Parker said. "We continue to adjust resources to support SRT's efforts. While we have been pleased with management's energy and receptivity at SRT, we do not view the situation as a near-term turnaround."
This news follows fellow trucking company Werner Enterprises on Monday saying it reduced expected earnings per share for the second quarter of the year to between 21 and 25 cents. This compares to actual earnings of 44 cents per share in the second quarter of 2015 and 28 cents per share in the first quarter of this year.
Both come in the wake of reports that both truckload linehaul and intermodal rates fell again in May despite an increase in truck tonnage following two months of declines. Meantime, a separate report showed while freight shipments increased in May, the level was below that of the past several years.