Freight and logistics provider Covenant Logistics (NASDAQ:CVLG) missed Wall Street’s revenue expectations in Q4 CY2024 as sales only rose 1.2% year on year to $277.3 million. Its non-GAAP profit of $0.49 per share was in line with analysts’ consensus estimates.
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Covenant Logistics (CVLG) Q4 CY2024 Highlights:
- CEO called out "challenging general freight environment"
- Revenue: $277.3 million vs analyst estimates of $283.1 million (1.2% year-on-year growth, 2% miss)
- Adjusted EPS: $0.49 vs analyst estimates of $0.49 (in line)
- Operating Margin: 3.1%, down from 5.2% in the same quarter last year
- Market Capitalization: $744.1 million
Chairman and Chief Executive Officer, David R. Parker, commented: “We are pleased to report fourth quarter earnings of $0.24 per diluted share and non-GAAP adjusted earnings of $0.49 per diluted share, on 27.9 million weighted average diluted shares outstanding after giving effect to our recent 2-for-1 stock split. These results mark the end of another successful year despite a challenging general freight environment, and I could not be happier with how our team has planned and adjusted throughout the year.
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.
Ground Transportation
The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Covenant Logistics grew its sales at a tepid 5% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Covenant Logistics’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.6% annually. Covenant Logistics isn’t alone in its struggles as the Ground Transportation industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time. 
We can better understand the company’s revenue dynamics by analyzing its most important segment, Freight. Over the last two years, Covenant Logistics’s Freight revenue (moving cargo) averaged 1.4% year-on-year declines. This segment has outperformed its total sales during the same period, lifting the company’s performance.
This quarter, Covenant Logistics’s revenue grew by 1.2% year on year to $277.3 million, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 5.4% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.
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Operating Margin
Covenant Logistics was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.2% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
On the plus side, Covenant Logistics’s operating margin rose by 5.6 percentage points over the last five years.
This quarter, Covenant Logistics generated an operating profit margin of 3.1%, down 2.1 percentage points year on year. Conversely, its revenue and gross margin actually rose, so we can assume it was recently less efficient because its operating expenses like marketing, R&D, and administrative overhead grew faster than its revenue.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Covenant Logistics’s EPS grew at an astounding 47% compounded annual growth rate over the last five years, higher than its 5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Diving into the nuances of Covenant Logistics’s earnings can give us a better understanding of its performance. As we mentioned earlier, Covenant Logistics’s operating margin declined this quarter but expanded by 5.6 percentage points over the last five years. Its share count also shrank by 25.3%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Covenant Logistics, its two-year annual EPS declines of 17.8% mark a reversal from its (seemingly) healthy five-year trend. We hope Covenant Logistics can return to earnings growth in the future.
In Q4, Covenant Logistics reported EPS at $0.49, down from $0.54 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 $1.98 to grow 20.6%.
Key Takeaways from Covenant Logistics’s Q4 Results
We struggled to find many resounding positives in these results. Its revenue missed significantly and its Freight revenue fell short of Wall Street’s estimates. The company's CEO called out a "challenging general freight environment" and added that in the Dedicated segment, "profitability fell short of our expectations due to greater-than-anticipated temporary customer shutdowns and volume reductions, as well as higher costs related to guaranteed driver pay and a large current period casualty claim expense". Overall, this quarter could have been better. The stock traded down 3.4% to $27.98 immediately after reporting.
Covenant Logistics’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
