Within its third-quarter earnings report, Covenant Logistics (NASDAQ: CVLG) Thursday announced the next steps in an ongoing management transition.
Paul Bunn, who had been senior executive vice president and COO at the truckload carrier, will be promoted to president on Jan. 1, 2023, while continuing to hold his COO title.
The management moves also involve President Joey Hogan transitioning to a part-time executive vice president role “focused on strategic planning, mentoring the leadership team, government relations and other special projects,” according to the company’s prepared statement on its earnings and personnel moves.
Leadership at Covenant has been transitioning away from Chairman and CEO David Parker, who is also the company’s largest shareholder, and toward the next generation of leaders. Parker, Bunn and Hogan were reorganized last year into an “office of the CEO.” In April 2020, Hogan and John Tweed were named co-presidents, while Bunn was named executive vice president and CFO. Tweed ultimately left the company when Hogan was named president and Bunn rose to COO.
“After 25 years, Joey has earned the right to step back on his terms, and I’m grateful to have worked with him over such a long period,” Parker said in his statement. “He has been a great partner and a true leader in every manner, which was most recently evidenced when he said, ‘Paul is ready.’”
As for earnings at Covenant, one truckload segment, Expedited, had a significantly worse quarter measured by operating ratio, while the other truckload segment, Dedicated, saw improvement.
Expedited’s adjusted OR deteriorated to 88.2% from 84.8% in the third quarter of 2021, while the Dedicated division’s adjusted OR improved to 96.8% from 100.1% a year ago.
The total impact of that was an adjusted OR for all of truckload that improved slightly to 92.1% from 92.4%. Expedited accounts for roughly 55% of total truckload revenue.
While operating expenses overall benefited from a one-time gain on a sale of a property in California for $38.7 million, taking that out of the calculation showed the impact of inflation.
Expenses in the quarter excluding the one-time gain were $291 million compared to $255 million a year ago, a 14.1% increase year over year. (The $255 million also excludes a small gain from the third quarter of 2021.)
In the statement, Bunn said the company’s operating cost per mile excluding the sale was up 27 cents per mile, or 13.6%. He cited a wide range of factors: salaries, wages, operations, maintenance and insurance expenses.
Of those increases, about 70% were related to driver pay and non-driver pay accounted for 18%.
Operations and maintenance expenses were up 10 cents per total mile compared to last year.
Higher freight rates from last year helped lead to a revenue gain of 13.5%, up to $311.8 million from $274.5 million. But much of that was tied to fuel and revenue net of the surcharge was up just 6.5% year on year.
Adjusted net income, which does not include the California sale, rose to $22.6 million from $17.2 million, an increase of 30.8%.
That profitability was driven by a 17.7% increase in average freight revenue per tractor, Bunn said.
The company’s brokerage division, Managed Freight, saw its revenue decline to $78.4 million from $90 million a year ago. Its adjusted OR improved slightly to 89% from 89.5%. In the statement, Bunn said the drop in revenue was “attributable to reduced volumes of overflow
freight from both Expedited and Dedicated truckload operations. With the softening freight market, we anticipate both the revenue and operating income attributable to overflow freight to continue to decline.”
Parker’s view of the future was not bullish for the freight market overall. “As we look toward 2023, we anticipate a difficult freight environment coupled with cost inflation, which will pressure margins,” he said. “However, we believe our more resilient operating model, together with diligent execution and teamwork, will result in lower volatility throughout economic and freight market cycles.”