Covenant Logistics grows revenue 19% as managed freight surges 68%

Covenant Logistics booked $353.9 million in third-quarter revenue, up 19.2% year over year, with its Managed Freight brokerage arm doing most of the heavy lifting — revenue there jumped 68.4% to $121.6 million from $72.2 million.

The Chattanooga-based carrier (NYSE: CVLG) earned net income of $10.7 million, or 40 cents per diluted share, against $9.1 million, or 35 cents, a year earlier. On an adjusted basis it made 50 cents, up 13.6% from 44 cents. Chairman and CEO David R. Parker called the results notable: it's the first quarter since Q2 2022 that adjusted EPS rose both sequentially and year over year.

"We were pleased with our third-quarter earnings of $0.40 per diluted share, or $0.50 per diluted share on a non-GAAP adjusted basis," Parker said in the earnings release.

Companywide, freight revenue excluding fuel surcharges rose 17.2% to $315.1 million from $268.8 million. Operating income climbed to $12.5 million from $7.9 million, though the adjusted operating ratio slipped to 95% from 94.4% on cost pressure. Analysts get their turn on the conference call at 10 a.m. Friday.

What drove the managed freight surge?

Managed Freight adjusted operating income more than doubled to $7.1 million from $3.0 million, with the segment's adjusted operating ratio improving to 94.2% from 95.8%. Covenant credits the brokerage operations acquired in Q4 2025 — Parker said they delivered their strongest quarter since joining the company — plus customer rate increases and cheaper purchased transportation.

The legacy brokerage also picked up carrier capacity to handle overflow expedited freight. The caveat: sourcing qualified carriers below contractual rates is getting harder as trucking capacity exits the market, and rising insurance and claims expenses threaten the segment's margins.

How does a smaller fleet earn more per truck?

Truckload total revenue rose 2.5% to $204.6 million, but freight revenue excluding fuel fell 3.4% to $166 million. The reason is arithmetic: the average fleet shrank 8.9% to 2,186 tractors from 2,400.

Pricing more than compensated. Revenue per total mile climbed 19.8% to $3.03, and revenue per tractor per week rose 6.1% to $5,778. Average miles per tractor dropped 11.4% to 25,081. President Paul Bunn said better rates and freight mix offset the smaller fleet, but inflation and repositioning costs bit into profit. Truckload adjusted operating income fell to $7.9 million from $10 million, with the adjusted operating ratio worsening to 95.3% from 94.2%.

Bunn put a number on the squeeze: adjusted truckload operating expenses rose roughly 20.8% year over year, slightly outpacing the 19.7% increase in revenue per mile. Wages, benefits, depreciation, maintenance and technology costs all climbed, alongside temporary start-up expenses on new customer contracts.

Where is the expedited business heading?

Expedited freight revenue excluding fuel fell 12% to $70.6 million, and adjusted operating income dropped 19% to $4.2 million. The fleet contracted 21.4% to 677 tractors, yet revenue per tractor per week rose 12% to $7,934.

The story here is contract conversion. By end of September, about 58% of Expedited tractors ran under committed capacity agreements, up from roughly 40% at the end of Q2. Dedicated freight revenue excluding fuel grew 4.2% to $95.4 million, with revenue per tractor per week up 6.2% to $4,810, helped by agricultural protein business expansion and exits from underperforming contracts.

Across the entire asset-based fleet, roughly 80% of tractors now sit under long-term contracts. Parker said the goal is to move substantially all asset-based business onto dedicated or committed freight by the end of the current freight market upcycle. Warehousing told a softer tale: revenue up 7.8% to $26.7 million, but adjusted operating income fell to $888,000 from about $2 million on start-up inefficiencies and labor inflation.

What changes for the fourth quarter?

Covenant expects a modest sequential EPS increase as equipment shifts into higher-margin committed contracts and repositioning costs ease. Its 49% stake in Transport Enterprise Leasing contributed $5.7 million pretax, up from $3.6 million, though a lower contribution is expected in Q4. Net debt stood at $283.9 million, down $12.4 million from year-end 2025, with $75.2 million available under the ABL facility and $35–40 million in net capex planned for the rest of 2026. Parker's warning on driver capacity — recruiting and retention costs "increasing significantly" — suggests rate gains will keep racing costs, not cruising past them.