Covenant Transportation (CVTI 31.61, +0.58, +1.87%) acquired Landair Holdings, a
leading dedicated and for-hire truckload carrier, as well as a supplier of 3PL
transportation, warehousing, and logistics inventory management services.
Covenant purchased 100% of Landair's outstanding stock in exchange for ~$83.0 mln in cash. At closing, Landair also had ~$15.5 mln of debt which CTG has refinanced.
The Landair acquisition is expected to be immediately accretive to CTG's earnings. Landair generated ~ $121 mln in total revenue for the year ended December 31, 2017. CTG's estimate of Landair's pro forma fiscal 2018 EBITDA is $18.5 to $19.0 mln. The transaction is expected to add $0.04 to $0.08 per diluted share to CTG's consolidated earnings for the second half of fiscal 2018, and $0.16 to $0.20 per diluted share to consolidated earnings for the full fiscal 2019 year. Cost reduction opportunities at Landair have been identified in equipment, fuel, workers' compensation, and casualty insurance, over the road services, and other areas.
Covenant CEO David Parker had the following comments regarding CTG's second quarter financial results: "Related to the acquisition of Landair, general supplies and expenses will include acquisition-related expenses of ~$1.2-$1.5 mln in the second quarter of 2018. The continued strength of the truckload freight environment through the month of June 2018 allowed us the ability to affirm our previous expectation to report consolidated earnings for the full second quarter of 2018 in a range of $0.45 to $0.53 per diluted share, even with the unfavorable impact of the acquisition-related expenses."
The freight market remains tight with strong demand. One month ago, Convenant announced the $0.45-0.53 range for second quarter EPS, which was 29% higher than consensus at the midpoint.
Parker added: "We believe the backing of CTG will provide additional resources to expand Landair's dedicated truckload operations to best meet the needs of its strong customer base, as well as improve profit margins through identified cost synergies. Additionally, Landair's existing managed freight business is expected to immediately improve CTG's collective managed freight service offering, adding experience, human capital and important additional systems capabilities."
Covenant is a small cap with a ~$580 mln market value that trades at ~15x EPS estimates. A group of trucking peers trade at ~18x EPS on average.
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