Landstar System Q3 Profit Plunges, Yet Beats Estimates; Guides Q4 - Update

(RTTNews) - Landstar System Inc. (LSTR | Quote | Chart | News | PowerRating), a trucking company, Wednesday said its third quarter profit dropped sharply from a year ago, yet came in above estimates by a penny. The downward trend in profit reflects revenue declines, negatively impacted by weak demand amid meltdown in domestic and global economies. The company, however, said the worst is over and overall freight movement is gradually increasing. Looking ahead, Landstar said it expects fourth quarter earnings roughly in line, while expecting revenues below estimates.

For the third quarter, net income attributable to Landstar System and subsidiary plunged 38.8% to $20.08 million or $0.39 per share from $32.82 million or $0.62 per share in the same quarter a year ago.

On average, 17 analysts' polled by Thomson Reuters expected earnings of $0.38 per share for the quarter. Analysts' estimate typically excludes one-time items.

Landstar's revenue for the quarter dropped to $500.67 million from $732.75 million in the prior-year quarter. Analysts expected revenues of $511.02 million for the quarter.

The Jacksonville, Florida-based company noted that the declines in revenue continued to be generated from the US Department of Defense as well as with respect to substitute line haul service offering. Revenue generated from the automotive sector, however, began to improve for the first time in a couple of years.

Sequentially, in the second quarter, Landstar's profit declined to $18.00 million or $0.35 per share from $30.00 million or $0.56 per share in the year quarter. Revenues also declined, negatively impacted by the severe recession in the domestic and global economies. Revenues were $491.20 million for the quarter.

Amongst others in the industry, JB Hunt Transport Services Inc. (JBHT | Quote | Chart | News | PowerRating), reported a sharp decline in second-quarter profit of $24.0 million or $0.19 per share, as revenues decreased 21% from corresponding period a year ago, on weaker demand resulting from the continuing economic recession. Total operating revenues for the second quarter fell 21% to $770 million.

Based on third quarter results, Landstar President and Chief Executive Officer Henry Gerkens said, "I believe this is a clear indication that the decrease in demand that began during the latter part of the 2008 third quarter will provide for easing volume comparisons into the company's 2009 fourth quarter and continuing into 2010."

Landstar's net revenue margin, defined as revenue less purchased transportation and commissions to agents divided by revenue, was 17.7%, up from 14.8% in the 2008 third quarter.

Around 91% of the total revenue amounting to $455.9 million were hauled by third-party truck capacity providers, which includes $12.3 million of fuel surcharges invoiced to customers on revenue hauled by third-party truck brokerage carriers. In 2008, contribution from third-party truck brokerage carriers amounted to 88% of the total revenues.

"The number of loads hauled in the 2009 third quarter decreased only 11%, compared to the 2008 third quarter, an improvement from the 16% decline experienced in the 2009 second quarter compared to the 2008 second quarter," Gerkens said.

Landstar also invoiced customers $36.2 million of fuel surcharges that were passed 100% to third-party BCO Independent Contractors and excluded from revenue, while in 2008 third quarter, invoice amount was $92.5 million.

Revenue hauled by rail, air and ocean cargo carriers was $31.1 million or 6% of revenue, compared to $49.1 million or 7% of revenue in the 2008 third quarter.

The company, however, noted that revenue per load began to stabilize during the 2009 third quarter. On a sequential basis, average revenue per load with respect to the company's truck transportation services in the 2009 third quarter was approximately equal to the average revenue per load in the 2009 second quarter.

Landstar said it was able to generate an operating profit margin of 6.5 %, despite the very difficult operating environment, citing variable cost business model and other cost reduction actions taken in 2009. Operating income was $32.68 million, down from $54.69 million in the year-earlier quarter.

Total costs and expenses decreased to $468.27 million from $678.88 million in the year-earlier quarter.

The company declared a quarterly dividend of $0.045 per share, payable on November 27, 2009 to stockholders of record at the close of business on November 2, 2009.

For the nine-month period, net income attributable to Landstar System and subsidiary declined sharply to $51.83 million or $1.01 per share from $86.33 million or $1.62 per share in the prior-year period. Revenue for the period was $1.46 billion, down from $2.04 billion in the year-earlier period.

Referring to the current trends, Landstar said it expects fourth quarter revenue to be similar to the 2009 third quarter revenue and earnings to be within a range of $0.37 to $0.42 per share. The Street currently expect earnings of $0.40 per share, with revenues of $506.41 million for the quarter.

Gerkens continued, "I see a gradually improving overall freight environment, and I believe that the worst is over. I am cautiously optimistic as we close out 2009. The very difficult revenue comparisons to prior year experienced by Landstar throughout 2009 will continue to ease throughout the 2009 fourth quarter.

On October 1, 2009, brokerage Deutsche Securities, initiated a 'Hold' rating on Landstar System shares, with a mean target of $41.31.

LSTR closed Wednesday's regular trading at $38.72, up $1.24 or 3.31%, on a volume of $1.00 million shares. In after-hours, the stock further gained $0.92 or 2.45%, to trade at $38.40. In the last 52-week period, the stock traded in the range of $27.21 to $43.00, with a three-month average volume of 0.60 million shares.

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