Freight and logistics provider Covenant Logistics (NASDAQ: CVLG) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 5.3% year on year to $302.9 million. Its non-GAAP profit of $0.45 per share was 8.3% above analysts’ consensus estimates.

Is now the time to buy CVLG? Find out in our full research report (it’s free).

StockStory’s Take

Covenant Logistics delivered a Q2 that outperformed Wall Street’s expectations, prompting a positive market reaction. Management attributed the revenue gains to expansion in its dedicated fleet, new business wins in its Managed Freight segment, and the successful integration of a small acquisition. CEO David Parker cited receding impacts of adverse weather and avian influenza as additional tailwinds, but acknowledged that rising costs and claims expenses continued to compress margins, particularly in the company’s core asset-based truckload operations. Parker observed, “We see a path to improving fundamentals as the year develops.”

Looking ahead, management’s guidance is shaped by cautious optimism regarding a slowly improving freight market, further growth in dedicated and specialized services, and expectations of modest peak season demand. President Paul Bunn highlighted that additional start-ups in the Dedicated segment and new value-added service offerings are planned, while COO Dustin Koehl emphasized continued investment in operational efficiency. CFO James Grant noted that, although cost pressures remain, the company expects improved margins as business mix shifts toward higher-service, specialized contracts.

Key Insights from Management’s Remarks

Management credited year-over-year revenue growth to expansion in the Dedicated fleet and solid Managed Freight performance, while margin pressures stemmed from persistent cost inflation and soft volumes in key segments.

• Dedicated fleet expansion: The company grew its dedicated fleet by approximately 11.7% year-over-year, focusing on specialized and high-service niches, which drove much of the revenue growth in Q2. Management highlighted ongoing wins in areas such as poultry transport and value-added services for customers seeking more than standard trucking solutions.

• Managed Freight segment outperformance: The Managed Freight business exceeded internal expectations, benefiting from new contract awards and handling overflow freight from asset-based segments. Some of this strength was attributed to nonrecurring business, which management warned may not repeat in the next quarter, underscoring the segment’s inherent volatility.

• Margin compression in Truckload: Operating margins declined primarily due to increased insurance claims, higher inflationary costs, and a late-quarter spike in fuel prices. The Expedited and legacy Dedicated segments, which operate under more traditional truckload models, experienced the most acute margin pressures.

• Cost headwinds and business mix: CFO James Grant explained that changes in business mix, such as shifting fleet composition and a greater share of shorter-haul dedicated routes, distorted key operating metrics like revenue per mile. These mix shifts also contributed to margin variability, complicating direct year-over-year comparisons.

• Industry-wide trends and catalysts: Management pointed to broader industry factors—such as declining Class 8 truck orders, persistently high insurance costs, and the gradual exit of capacity—as shaping both the current margin environment and the potential for future market tightening. The team also noted early signs of increased demand related to AI server shipments and data center buildouts, suggesting emerging freight opportunities.

Drivers of Future Performance

Covenant Logistics expects the remainder of the year to be shaped by dedicated fleet growth, improving business mix, and ongoing cost management within a gradually strengthening freight market.

• Dedicated and specialized growth: Management intends to further expand the dedicated fleet, especially in high-service and specialized areas like poultry and value-added logistics. New account start-ups are planned for the back half of the year, with a focus on contracts that offer more stable returns and less exposure to commoditized markets.

• Margin recovery dependent on market: The outlook for improved margins is linked to a modest recovery in general freight demand and tighter industry capacity. Management sees leverage in their model if typical seasonal demand materializes, particularly in Expedited and Dedicated, but acknowledged that persistent inflationary pressures and insurance costs remain risks.

• Volatility in Managed Freight and warehousing: The Managed Freight segment, while performing well recently, is expected to face revenue normalization as some nonrecurring business rolls off. Warehouse profitability remains under pressure from facility-related costs and startup inefficiencies, but management anticipates gradual improvement as new contracts stabilize and rate negotiations progress.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the pace and profitability of dedicated fleet expansion in specialized niches, (2) evidence of margin stabilization or recovery in the Expedited and Managed Freight segments as market conditions evolve, and (3) progress in containing insurance and facility costs. We will also track signs of improved demand in AI-related freight and the impact of any macroeconomic shifts on contract wins and overall fleet utilization.

Covenant Logistics currently trades at $25.19, up from $24.40 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

Now Could Be The Perfect Time To Invest In These Stocks

When Trump unveiled his aggressive tariff plan in April 2024, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.