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Dive Summary:
- Covenant Logistics disclosed $8.1 million charge related to acquisition of poultry hauler Lew Thompson & Son Trucking in its first-quarter earnings report on Wednesday.
- The $100 million deal came with a contingency fee based on the achievement of certain development goals, according to Covenant. The Arkansas-based subsidiary could earn up to $30 million during the first three years, depending on its results.
- The contingent consideration expense in the quarter and the sale of a terminal in Q1 2023 made Covenant’s truckload operating costs per total mile “difficult to compare on a year-over-year basis,” Paul Bunn, Covenant’s president and COO, said in the report.
Dive Insight:
The spend shows Lew Thompson hitting performance targets as it doubles the size of its fleet under the new parent company.
Covenant’s operating costs per total mile were comparable year-over-year in the 1st quarter due to increased equipment and insurance costs, offset by reductions in claims, operations and maintenance costs, the company said.
The first quarter featured a persistently gloomy commodity market in which the company reported $4.3 million in unadjusted operating income, up from $17.6 million in the first quarter of 2023.
The start of the 2nd quarter was not much better.
“While we believe commodity market fundamentals are slowly improving, the second quarter provided little evidence of a recovery in 2024,” Bunn said.
Incentives are among several costs that can drag down results in the short term after an M&A deal. Ryder System anticipates approximately $10 million in integration costs related to the acquisition of Cardinal Logistics.
But executives are taking the long view, turning investors’ attention to the expected gains the acquisitions will generate. Covenant’s plan for Lew Thompson ultimately calls for tripling the poultry carrier’s fleet and volumes as it expands the subsidiary’s operations.