Covenant Logistics sees gradual freight market recovery

Truckload carrier Covenant Logistics Group beat fourth-quarter expectations for profit and revenue, “despite the lingering weakness in the overall freight environment,” according to Tripp Grant, executive vice president.

Chattanooga, Tennessee-based Covenant (NASDAQ: CVLG) reported fourth-quarter earnings after the market closed Tuesday. Company officials held a conference call to discuss the results with analysts on Wednesday.

The transportation services provider reported adjusted earnings per share of $1.07 for the fourth quarter and total revenue of $273.9 million, beating Wall Street predictions of $1.03 and $214.5 million, respectively.

“As challenging as it was, 2023 was a pivotal year for Covenant. We were able to demonstrate the durability of our improved business model by achieving the second-best adjusted earnings per share in company history, while setting the stage for future growth and improvement through the creative acquisitions of Lew Thompson & Son Trucking and Sims Transport,” Grant said during the call.

In April 2023, Covenant acquired Huntsville, Arkansas-based poultry hauler Lew Thompson & Son Trucking, for $100 million. The business is part of Covenant’s dedicated segment, which saw revenue decline 6% year over year (y/y) to $78.6 million.

“The Lew Thompson & Son Trucking operation continues to perform well with near-term opportunities to meaningfully grow the business and the first quarter of 2024,” Grant said.

Covenant plans to add about 100 trucks to the Lew Thompson operation during the first quarter of 2024 as the company is seeing more customer movements in the segment, officials said. 

“We’re excited about the momentum we have with Lew Thompson, both the legacy Lew Thompson team and some of the team committed from legacy Covenant, to go out there and help grow that business in a manner that Lew Thompson has not done in the past,” Grant said. “He’s grown his business pretty much organically and in his region; we’re offering the capital and the people to help grow outside of that region.” 

The company operates four business segments: expedited, dedicated, warehousing and managed freight transportation.

Covenant posted total freight revenue of $240 million during the quarter, a 6% y/y decrease from the same period last year. 

Truckload revenue was $184 million in the fourth quarter, a 7.2% y/y decline, while averaging 77, or approximately 3.5%, fewer tractors compared to the same quarter of 2022.

Grant said the company sees the market recovering slowly over the next several quarters.

“Based on the conversations we’re having, and based on the data that we’re observing, I don’t think it’s going to be an immediate light switch type of thing,” Grant said. “I think it’s going to be … a market that gradually turns the lights on.”

Chairman and CEO David Parker said the freight market is bottoming out but he is hopeful the only place to go is up. 

“I think we are bouncing on the bottom and hopefully we’re about to bounce off the bottom,” Parker said. “When you are creating value for customers, there’s low-single-digit rate increases to be had. We’ve signed a good number of those, but then the folks that are in really commoditized environments are really still trying to squeeze the last amount of blood out of the turnip kind of deal. So it’s kind of a mix of what we’re seeing out there right now.”

During the fourth quarter, Covenant increased its quarterly dividend and repurchased approximately 5% of the company’s outstanding stock at a weighted average price of $34 per share.

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