Covenant Logistics Group, Inc.

What they do

Founded in 1986 as an expedited freight carrier using two-person driver teams in transcontinental lanes, Covenant now offers truckload transportation, dedicated contract carriage, freight brokerage, and warehousing and transportation management services. Growth has come through acquisitions including Landair (2018), AAT (2022), LTST and Sims (2023), and a 2025 asset purchase operated as Star Logistics Solutions. The company holds a 49% equity method investment in Transport Enterprise Leasing (TEL).

Revenue drivers

• Dedicated — Largest segment at $403.2 million of 2025 revenue, up from $364.4 million in 2024, driven by an approximately 11.5% increase in average tractors despite an 8.0% utilization decline.
• Expedited — Second largest at $373.3 million of 2025 revenue, down from $416.5 million in 2024, on an approximately 4.7% reduction in average tractors partly offset by a 3.7% utilization increase.
• Managed Freight — Generated $286.8 million in 2025, up from $248.9 million in 2024, boosted by the fourth-quarter Star acquisition, which offset the July 2025 loss of a key customer.
• Warehousing — Contributed $100.6 million of 2025 revenue, roughly flat versus $101.7 million in 2024, with operating income declining on startup costs for a significant new customer onboarded in Q4 2025.

Recent performance

Second quarter 2026 total revenue was $332.9 million versus $302.9 million in the 2025 quarter, with freight revenue of $294.7 million. Operating income was $8.8 million and diluted EPS was $0.32, or $0.42 on a non-GAAP adjusted basis. The operating ratio was 97.3%. Combined Truckload average freight revenue per tractor per week rose 5.9%, consisting of a 15.1% increase in freight revenue per total mile offset by an 8.0% decrease in average miles per unit.

Strategy

Management is pursuing durable margin improvement during the current freight market upcycle through committed contracts that phase in over the next several quarters. During Q2 2026 the company moved approximately 15% of its Expedited fleet from uncommitted freight to committed contracts, expanded dedicated protein supply chain exposure, reduced general commodity freight, and pushed rate increases with underperforming customers. The stated goal is to have substantially all asset-based business under long-term dedicated or other committed contracts by the end of the freight market upcycle.

Risks

• Cyclical freight demand — The truckload industry is highly cyclical and excess capacity relative to shipping demand can pressure rates and asset utilization.
• Cost inflation — Q2 2026 margins failed to expand on pressure from equipment and maintenance, insurance and claims, driver expense, and overhead that has not reduced as quickly as the tractor count.
• Leverage — Leverage ratio was 2.89 at December 31, 2025 versus 1.65 a year earlier, with total indebtedness net of cash up $76.7 million to $296.3 million.
• Customer concentration and loss — The July 2025 loss of a key Managed Freight customer required the Star acquisition to help offset the revenue impact.

Outlook

Management expects to exit unprofitable business relationships and moderately reduce its total truckload fleet in the first half of 2026 while growing the most profitable committed business. Fleet size was down 3.3% sequentially in Q2 2026 and is expected to hold approximately steady into a stronger market. Elevated maintenance and insurance claims costs are not expected to continue at Q2 levels, and the company is positioning for an expected improvement in freight fundamentals.