Covenant Logistics Q4 Profit Slides on Helene, Higher Costs

Chattanooga, Tenn.-based Covenant saw revenues in the most recent quarter total $277.3 million, up 1.2% from $274 million in the year-ago period. (Covenant Logistics Group)

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Margin erosion, Hurricane Helene and higher costs took a significant toll on profits at Covenant Logistics Group in the fourth quarter of 2024, the company said.

Covenant reported a profit of $6.7 million or earnings per diluted share of 24 cents in Q4, just over half the $12.8 million or 47 cents per diluted share profit posted in Q4 2023.

Chattanooga, Tenn.-based Covenant saw revenues in the most recent quarter total $277.3 million, up 1.2% from $274 million in the year-ago period.

However, the company’s expenses totaled $268.7 million in the quarter that ended Dec. 31, up 3.4% from $259.8 million in the same period 12 months earlier, it said Jan. 23.

“We experienced both year-over-year and sequential margin erosion as a result of prolonged customer shutdowns and volume reductions due to internal operating issues, Hurricane Helene in the Southeast and the impact of midweek holidays,” Chief Financial Officer Tripp Grant said during a Jan. 24 conference call.

“Costs were also headwinds for the quarter, with higher-than-normal driver wages and salaries, claims expense and operations and maintenance expense,” Grant said.

Company CEO David Parker added in comments alongside the results that a large current period casualty claim expense in particular bumped up Covenant’s costs.

Covenant posted an operating ratio of 96.9 in the three months that ended Dec. 31, compared with 94.8 in Q4 2023.

Operating ratio provides insight on how well a company is balancing its costs and revenue generation. The lower the ratio, the better a company’s performance.

“On a segment basis, in general, dedicated performed below expectations and expedited was on target, while managed freight and warehousing exceeded our profitability expectations,” Grant noted.

The company’s truckload unit reported $190.4 million in revenue for the most recent quarter, up 3.5% from $184 million in the year-ago period. The division posted an OR of 98.8 in Q4, compared with 94.2 a year earlier. It reported an average freight revenue per total mile of $2.48, compared with $2.31 in the 2023 period.

“The increase in total revenue consisted of $14.1 million more freight revenue, partially offset by $7.7 million less fuel surcharge revenue,” company President Paul Bunn said.

“The increase in freight revenue primarily related to operating 158 or 7.4% more average tractors combined with an increase in freight revenue per total mile, partially offset by a reduction in utilization compared to the prior year,” Bunn said.

The company’s expedited unit posted $98.7 million in revenue in Q4, down 6.4% from $105.4 million in the year-ago period. However, the division’s OR improved to 93.8 in Q4 from 94.1, and average freight revenue per total mile climbed to $2.13 from $2.09.

And Covenant’s dedicated operations posted $91.8 million in revenue in Q4, up 16.8% from $78.6 million in the year-ago period, but the OR weakened to 104.1 from 94.5.

Overall in 2024, Covenant reported a profit of $35.9 million, down 35% compared with $55.2 million in 2023. As with its Q4 figures, Covenant’s full-year revenue rose, totaling $1.131 billion, up 2.4% from $1.104 billion in 2023. Covenant reported an OR of 96 for 2024 compared with 94.7 in 2023.

Covenant ranks No. 40 on the Transport Topics Top 100 list of the largest for-hire carriers in North America, and No. 26 among truckload carriers.

Looking forward, Grant told analysts during the call that the coming year will see an improvement in the company’s contracts.

“The fundamentals of the general freight industry have improved to a level that is now allowing us to negotiate pricing from a better posture than the last two years,” Grant said.

“Assuming the trend continues, we expect to achieve improved pricing year-over-year under certain expedited, nonspecialized dedicated and managed freight contracts. The level of increase is expected to build throughout the year as contracts renew,” he said.

“The specialized dedicated business is expected to yield new contracts and revenue growth as we are evaluating several expansion opportunities. However, startup costs associated with new contracts and a lackluster poultry production forecast for 2025 may weigh on margins in this segment during the near term,” Grant added.

Analysts expect contract rates to improve this year, although the buoyancy of those forecasts sagged somewhat of late.

FTR Transportation Intelligence, for instance, expects contract truckload rates to increase 2.2% on a full-year basis in 2025, Vice President of Trucking Avery Vise said during a Jan. 9 webinar, adding that by the end of the year, contract rates will be rising 5% year on year.

“The general freight market appears to be incrementally improving as capacity and demand are better balanced than they have been for approximately two years,” Parker noted, “and customers are acknowledging this during rate and volume allocation discussions.”