Covenant Logistics Group NYSE: CVLG executives told investors they are seeing early signs of a structural improvement in freight market conditions, even as first-quarter results were pressured by severe weather and higher fuel costs. Speaking on the company’s first quarter 2026 earnings call, CFO Tripp Grant said the quarter “included two of the worst and one of the best months we have experienced in the last three years,” but added that momentum improved in March and continued into April.
“The trajectory was positive and has continued into April, leaving us with conviction that the change in the market is structural, not seasonal,” Grant said, pointing to improving rates and volumes late in the quarter and into the second quarter. He also said the company’s pipeline for committed truckload capacity strengthened for both its Expedited and Dedicated fleets, and that revenue trends during the first three weeks of April remained strong across business units.
Quarter results: revenue up on acquisition, profitability pressured in expedited
Grant said consolidated freight revenue increased 15.9% year over year, up about $38.7 million to $281.9 million. The increase was “primarily as a result of the assets acquired in the fourth quarter of 2025 that are now being operated as Star Logistics Solutions.”
However, consolidated adjusted operating income declined 11.5% to $9.6 million. Grant attributed the decrease mainly to margin compression in the Expedited segment, which faced reduced utilization due to severe weather along with higher net fuel costs.
On the balance sheet, Grant said net indebtedness fell by about $51 million from the end of 2025 to $245.3 million as of March 31, producing an adjusted leverage ratio of about 1.8 times and a debt-to-capital ratio of 37.6%.
The deleveraging was driven by used equipment sales and limited new equipment purchases. Grant cautioned that leverage may rise modestly over the next couple of quarters depending on delivery timing and used-equipment pricing, but said the company expects improved cash flow and disciplined capital allocation to reduce leverage over time, excluding acquisitions and other strategic actions.
Grant also noted that the average age of tractors rose to 26 months at quarter end versus 20 months a year earlier, reflecting reductions in the high-mileage expedited fleet and growth in dedicated. Adjusted return on average invested capital was 5.0% for the trailing four quarters, down from 7.6% in the prior-year period.
Segment performance: dedicated improves; warehouse growth comes with startup costs
Grant said the Expedited segment posted an adjusted operating ratio (OR) of 99.1%, which he said “fell well short of our expectations.” He described Expedited as the most exposed to weather and fuel volatility because the linehaul model “requiring high utilization to cover the fixed costs for the operation.” Still, management said it has “line of sight to sequential improvement” through the year and reiterated a longer-term goal of a double-digit adjusted operating margin across the freight cycle.
Dedicated posted a 95.5 adjusted OR, improving from 98.1 a year earlier. While costs were elevated, Grant said headwinds were less severe than the prior year’s impacts tied to avian influenza. He said the company’s goal is to restore Dedicated’s adjusted operating margin to double digits, grow fleets serving high-service niches, and reduce exposure to more commoditized end markets where returns are “inadequate.”
Managed Freight grew both revenue and adjusted operating income year over year, though Grant said profit growth lagged revenue growth because the cost to secure quality brokerage capacity remained elevated versus the fourth quarter of 2025. He added that because the business is asset-light, “an adjusted operating margin in the mid-single digits generates an acceptable return on capital.”
In Warehousing, freight revenue increased 14.6% year over year due to organic growth tied to a new key customer added in the fourth quarter of 2025. Despite the revenue gain, adjusted operating income declined slightly due to startup costs and operational inefficiencies associated with the new customer. Grant said the company is focused on organic growth while working toward a high-single-digit adjusted operating margin target.
Grant said the company’s minority investment in TEL generated pre-tax net income of $3.7 million in the quarter, compared with $3.8 million a year earlier.
Outlook: “transition year” with sequential improvement expected
Management framed 2026 as a turning point. Grant said the company believes “2026 will be known as a transition year in the freight market,” and expects “sequential incremental financial improvement to occur each quarter.” He said rate and lane improvements were secured with existing customers during the first quarter, and that the company has built a “mature pipeline of new customers with attractive pricing on a level that has not occurred since 2022.”
Grant noted that bid activity takes time to show up in results because new rates and lanes typically begin a few weeks after negotiations. “It will take time for our 2026 efforts to be fully reflected in our financial results,” he said, adding that first-quarter market progress was more than offset by softness in January and February.
Q&A: dedicated pipeline, DoD trends, driver pay, and equipment costs
During the question-and-answer portion, executives highlighted momentum in dedicated opportunities and improvements in certain expedited subsegments. In response to TD Cowen analyst Jason Seidl, management said it is “really happy with our pipeline, poultry and non-poultry,” adding the company is leaning into specialized equipment and niche opportunities. Executives also said dedicated rate increases “are going pretty well.”
On Department of Defense freight, which management said rolls up into Expedited, they said the business improved sequentially: “pretty good in February, better in March, and better in April than it was in March,” adding that it is “rolling pretty good right now.”
Seidl also asked about early peak-season-like capacity discussions. Grant said the company is seeing some market-specific capacity constraints, and noted increased interest in dedicated team capacity discussions “than we've seen since 2021 or 2022,” with an emphasis on longer-term agreements.
On driver pay, management said tightening conditions are emerging. In response to Seidl, the company said that “for the first time in 40 months, drivers are starting to get tight out there,” and that targeted driver-pay actions are being discussed. Management suggested driver pay could rise in the mid-single digits, and “maybe high single digits if this thing gets really hot,” depending on business unit and account specifics.
Vertical Research Partners analyst Jeffrey Kauffman asked how rate increases might translate to margin gains given wage inflation and other costs. Grant said driver pay typically makes up around 30% of total cost (varying by operation), and that higher wages could consume “30%, 40%” of customer rate gains over the first six months. Over time, Grant said the company would expect “multiple rounds of rate increases” and suggested the company could net “60%-70%” of the benefit to the bottom line, excluding other inflation items.
Kauffman also asked about truck pricing and potential tariff impacts. Grant said the company has pricing visibility for next year and expects a $7,000 to $10,000 average cost increase across truck types. Management later clarified those increases were “not tariff-related” but instead “more price increases from the OEMs because of emissions.” Grant said the company is not leaning toward a pre-buy strategy and aims to purchase equipment smoothly through the year, after a light first quarter for buying. He added the company is seeing “bottoming” in the used equipment market and expects it to strengthen as the freight market improves, while new equipment costs continue to rise.
Washington focus: capacity enforcement and tort reform
Wolfe Research analyst Scott Group asked CEO David Parker about recent meetings in Washington and potential regulatory and legal developments. Parker described two primary focus areas: enforcement related to CDLs, CDL schools, ELD compliance, and insurance requirements; and a separate effort around tort reform.
Parker said the odds of tort reform have improved but remain uncertain, describing the probability as “25%,” up from “0% a year ago,” and said the company has begun engaging the Judiciary Committee. He also said the Department of Transportation is intensifying enforcement efforts and suggested this has already removed “two to three percent of capacity,” with the potential for more.
Asked about Dalilah’s Law, Parker said he believes it “will pass” and also argued that DOT is already implementing many related measures in practice, even before codification.
On demand, Parker said the company is seeing signs of improvement in LTL-related activity within expedited, tying it in part to purchasing managers’ index readings. He added that April has been stronger than March and said he expects May to be better than April, with continued sequential improvement into the third quarter.
The company closed the call by thanking investors and stating it looks forward to discussing second-quarter results.
About Covenant Logistics Group NYSE: CVLG
Covenant Logistics Group provides a comprehensive suite of transportation and logistics services across North America. The company's core offerings include less‐than‐truckload (LTL) and full truckload hauling, temperature‐controlled freight, intermodal transportation and freight brokerage. Covenant also delivers specialized solutions such as expedited “hot‐shot” deliveries, cross‐border shipping to Canada and Mexico, and dedicated contract carriage for time‐sensitive or high‐value shipments.
With a network of service centers, terminals and partner carriers strategically located throughout the United States, Covenant supports diverse industries including food and beverage, automotive, retail, energy and manufacturing.
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