Covenant Logistics Group (NASDAQ: CVLG) turned in a strong performance in the first three months of the year, declaring it the strongest first quarter earnings in the company’s history.

Non-generally accepted accounting principles earnings of 56 cents per share blew past Wall Street consensus forecasts by 20 cents per share, according to SeekingAlpha. The GAAP earnings of 65 cents topped consensus forecast by 30 cents per share. 

In the first quarter of last year, GAAP and non-GAAP net income losses were 12 cents and 9 cents per share, respectively.

A 4.8% gain in revenue to $220.9 million beat consensus forecasts by $15 million.

Virtually all of the company’s benchmark numbers were improved. Freight revenue per loaded  mile was up 5.45%. Freight revenue per total mile climbed a little more than 4%. 

The truckload carrier’s adjusted operating ratio was up by 620 basis points to 94.2% from 100.4% in the first quarter of 2020.

Despite the strong numbers, the relatively short statement put out by Covenant Chairman and CEO David Parker took aim at the company’s Dedicated division and its performance as a soft spot.

In language similar to that of Eric Fuller, the CEO of fellow Chattanooga-based truckload carrier U.S. Xpress talking about his own company’s Dedicated segment, Parker said the Covenant Dedicated division is locked into some “underperforming contracts” that the company is working to “improve the profitability through rate negotiations and contract structure.”

If those contracts can’t be reworked, “we expect to exit the relationships and transition to new customers that will provide an acceptable level of profitability on the use of our assets,” Parker said in the statement. “We have a robust pipeline of opportunities for our Dedicated service offering that we believe will help us make this transition in the most efficient manner possible.”

Improvement in the performance of the Dedicated division is expected in the third quarter of 2021, Parker said.

The Dedicated division’s operating ratio was 101.8% on an operating loss of $1.2 million. That was a deterioration of 40 bps from a year ago.

But the expedited division saw its OR improve to 91% from 102.3%, an improvement of 1,130 bps, an enormous year-on-year shift. Operating income for Expedited rose to $6.23 million from a loss of $1.75 million last year. But revenue was down, to $69.27 million from $76.98 million. 

The improved operating and net income figures and OR came even as the company saw a significant drop in the number of tractors it was operating, which in turn contributed to a decline in some revenue categories. 

The decline in tractors has been signaled by Covenant for months as part of its restructuring. The number of tractors dropped 12.8%, to 2,571 from 2,947 in the first quarter of 2020. But each tractor averaged 3.8% more miles for the quarter. 

That presumably contributed to the drop in the Expedited division’s revenue, as well as a decline in Dedicated. That segment saw its revenue drop 7.6% to $64.6 million. 

In his statement, Parker noted that Covenant has been in the midst of a restructuring for several months but still managed to turn in a strong performance. Speaking about the quarterly numbers, he said that “even more encouraging is the fact that we are less than a year into restructuring our business and have substantial remaining opportunity for further improvement.”

Covenant managed to keep its costs essentially flat from the first quarter of last year, in particular salaries, wages and related expenses. Even with higher labor costs all around through the trucking market, Covenant’s costs in that area were up just a bit more than $100,000. However, purchased transportation, as part of a budget line that also includes equipment rentals, rose to $57.2 million from $46 million. 

Overall, total operating expenses dropped to $210.3 million from $212.2 million. That was helped along by a big drop in insurance and claims, down to $7.8 million from $15.6 million.

Covenant’s earnings call with analysts will be Tuesday at 11 a.m. EDT.

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