Covenant Raises Long-Term Contract Coverage for Its Fleet to About 80% in Third Quarter
Key Facts
Covenant Logistics reported diluted earnings of $0.40 per share in the third quarter of 2026, or $0.50 on an adjusted, non-GAAP basis, and said adjusted earnings per share increased sequentially and year over year for the first time since the second quarter of 2022. The results came as the company continued moving more of its assets into long-term contracts and committed-capacity agreements. At quarter-end, about 80% of its total fleet assets were operating under long-term contracts. In expedited, the share of tractors operating under committed-capacity agreements rose to about 58% as of September 30, compared with about 40% three months earlier. The company said its goal is to place most of its asset-based business under long-term contracts or other committed agreements by the end of the current freight market cycle.
The shift to contracts did not prevent freight revenue in the expedited segment from declining by $9.6 million, or 12.0%, from the same period a year earlier. The segment's average number of tractors in service fell 21.4% to 677 from 861, while average weekly freight revenue per tractor rose 12.0%. Covenant said asset transfers and the start of new contracts disrupted fleet utilization and increased truck fleet costs during the quarter. It also cited tight driver capacity and higher costs to recruit, retain and compensate drivers, while compensation, recruiting and training costs weighed on expedited segment performance. The company expects asset repositioning and contract startup costs as a share of revenue to ease as the share of committed capacity grows.
Across truckload operations, revenue rose 2.5% to $204.6 million, despite a $5.8 million decline in freight revenue. The company attributed most of the freight revenue decline to an 8.9% reduction in average fleet size, and said improved pricing and freight mix offset some of the impact. In the dedicated segment, freight revenue increased by $3.8 million, or 4.2%, despite a 1.9% decline in the average number of tractors to 1,509 from 1,539 a year earlier. Average weekly freight revenue per tractor in the segment rose 6.2%. In managed freight, freight revenue grew 68.4% year over year, driven primarily by the integration of assets acquired in the fourth quarter of 2025. Covenant said higher customer rates and a sequential decline in capacity costs contributed to improved operating ratios in the segment.
At the market level, Covenant described freight demand as adequate in most sectors and strong in certain sectors linked to U.S. economic growth. But it said cost inflation affected wages, benefits, equipment and technology, and that cost increases largely offset pricing gains. It added that improved margins reflected customer rate increases implemented in the first half of 2026, along with lower purchased transportation costs as spot freight rates declined during the quarter. This followed three consecutive quarters of margin contraction. In September, the Cass truckload linehaul index, excluding fuel and accessorial charges, rose 10.1% year over year and 0.6% from August, reaching its highest absolute reading in four years, according to FreightWaves. FreightWaves also reported that truckload contract rates reached $2.72 per mile plus fuel on October 9, their highest level in 52 weeks and an 18% increase from a year earlier.
The company's investment in Transport Enterprise Leasing, known as TEL, provided additional support for quarterly results. Covenant owns a 49% stake in the company, which contributed $5.7 million in pretax income, or $0.16 per share, compared with $3.6 million, or $0.10 per share, in the third quarter of 2025. Management said TEL exceeded its expectations for the second consecutive quarter, benefiting from growth in equipment leasing and increased gains on its sale. But the company expects TEL income to decline in the fourth quarter, reflecting seasonal weakness in used equipment sales volumes and an expected settlement of bad debt, according to management during the October 30 earnings call. At the company level, Covenant expects a modest sequential increase in earnings per share in the fourth quarter of 2026, with improved margins in asset-based operations offset by lower TEL income. It also expects growth in the dedicated fleet and a stable expedited fleet, while directing a larger share of its capacity to dedicated contracts or committed-capacity agreements.
The company said operating performance could improve further in the fourth quarter as a larger share of the fleet operates under committed arrangements and repositioning costs decline. The earnings call to discuss third-quarter results was scheduled for 10:00 a.m. Eastern Time on October 30, 2026. In EL7's daily data, Covenant Logistics shares, trading under the ticker CVLG, closed at $28.82 on October 29. FreightWaves reported that the national tender rejection rate was near 13.9% in its October 17 report, while accepted tender volume fell by more than 4% over the previous four weeks to 9,518 points. A year earlier, the rejection rate was below 6% and accepted tender volume was about 2% above its current level. These figures place the company's expectations for an increase in committed contracts in the context of a market combining improved contract rates, cost pressures and shifting freight volumes.