Freight and logistics provider Covenant Logistics (NASDAQ: CVLG) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 3.1% year on year to $296.9 million. Its non-GAAP profit of $0.44 per share was in line with analysts’ consensus estimates.

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Chairman and Chief Executive Officer, David R. Parker, commented: “Our third quarter results of $0.35 per diluted share, or $0.44 per diluted share on a non-GAAP adjusted basis, reflect essentially flat year-over-year performance in our asset-light business units and lower performance in our Truckload business units, mainly attributable to higher costs and under-utilized equipment. It was a busy quarter internally as we continued to invest in the future while managing costs during a prolonged period of overcapacity and muted demand.

Company Overview

Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ: CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Covenant Logistics’s sales grew at a mediocre 6.3% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Covenant Logistics’s recent performance shows its demand has slowed as its revenue was flat over the last two years. We also note many other Ground Transportation businesses have faced declining sales because of cyclical headwinds. While Covenant Logistics’s growth wasn’t the best, it did do better than its peers.

Covenant Logistics also breaks out the revenue for its most important segment, Freight. Over the last two years, Covenant Logistics’s Freight revenue (moving cargo) averaged 2.8% year-on-year growth. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, Covenant Logistics grew its revenue by 3.1% year on year, and its $296.9 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Covenant Logistics was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.9% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Covenant Logistics’s operating margin decreased by 2.9 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. We’ve noticed many Ground Transportation companies also saw their margins fall (along with revenue, as mentioned above) because the cycle turned in the wrong direction, but Covenant Logistics’s performance was poor no matter how you look at it. It shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Covenant Logistics generated an operating margin profit margin of 2.7%, down 3 percentage points year on year. Since Covenant Logistics’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Covenant Logistics’s EPS grew at an astounding 41.5% compounded annual growth rate over the last five years, higher than its 6.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Covenant Logistics’s earnings to better understand the drivers of its performance. A five-year view shows that Covenant Logistics has repurchased its stock, shrinking its share count by 23.8%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Covenant Logistics, its two-year annual EPS declines of 13.1% mark a reversal from its (seemingly) healthy five-year trend. We hope Covenant Logistics can return to earnings growth in the future.

In Q3, Covenant Logistics reported adjusted EPS of $0.44, down from $0.55 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Covenant Logistics’s full-year EPS of $1.70 to grow 20.1%.

Key Takeaways from Covenant Logistics’s Q3 Results

Revenue and EPS both met Wall Street’s estimates. Zooming out, this was a quarter without many surprises, good or bad. The stock remained flat at $21.88 immediately following the results.

So should you invest in Covenant Logistics right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.