Landstar Meets Expectations

Landstar System Inc. (LSTR - Snapshot Report) reported third-quarter results after the closing bell yesterday. The company’s net income declined 38.7% to $20.1 million, compared to $32.8 million in the year-ago quarter. Earnings per share of 39 cents was well below the year-ago result of 62 cents per share, though it matched the Zacks Consensus Estimate.

Landstar is a non-asset based provider of integrated supply chain solutions. The company offers specialized transportation, warehousing and logistics services through a worldwide network of more than 1,000 independent sales agents, 8,000 business capacity owners and 25,000 contract carriers and warehouse capacity owners.

The company’s quarterly revenues plunged 31.7% to $500.7 million, compared to $732.8 million in the year-ago period as performance was adversely affected by sluggish freight demand amid the global economic downturn. Revenues from third-party truck capacity providers, which contributed 91% to total revenues, decreased 29.5% year over year to $455.9 million. Revenue from rail, air and ocean cargo carriers slumped 36.7% to $31.1 million.

Landstar said it witnessed significant declines in its business with the U.S. Department of Defense (down 44%), the machinery sector (down 43%) and in substitute line-haul services (down 36%). However, the company saw improvement in revenues from the automotive sector for the first time in 2 years.

Gross margin, which is revenues less purchased transportation and commissions to agents, grew 290 basis points year-over-year to 17.7%. The improvement was primarily caused by lower rates in purchased transportation paid to third-party truck brokerage carriers due to excess truck capacity and lower fuel prices.

Landstar’s operating income declined 40.2% year over year to $32.7 million, while operating margin dipped by 90 basis points (bps) to 6.5%. The reduced margin was primarily the result of higher other operating costs and selling, general and administrative expenses related to acquisitions.
 
At the beginning of the quarter, the company acquired 2 companies, Premier Logistics Inc. and A3 Integration LLC (A3i). Premier Logistics, which operates through subsidiaries National Logistics Management (NLM) and Interactive Capacity Gateway LLC, offers freight management services through web-based proprietary software. A3i offers web-based transportation and supply chain management technologies to optimize the complete order-to-cash process.

Landstar ended the quarter with cash and equivalents of $69 million, compared to $77.6 million in the year-ago period. The company’s long-term debt (including current maturities) stood at $75 million at the end of the quarter, a reduction of $61 million from the beginning of the year.

Moreover, Landstar bought back 516,000 shares in the quarter for a total cost of $17.9 million, taking the total to 959,700 shares repurchased from the beginning of the year for $31.7 million. The company still has a total of 2.04 million shares left under its common stock buy-back program.

Moving forward, management expects the fourth quarter to witness demand stabilization in the freight industry with no further weakening in price. The company anticipates earnings per share to range between 37 cents and 42 cents during the quarter, which is in-line with the Zacks Consensus Estimate of 39 cents per share derived from 12 covering analysts.

Meanwhile, the Zacks Consensus Estimate on the company’s full-year earnings is currently pegged at $1.42 per share, which has moved down by 5 cents over the past 2 months. However, the most accurate estimate is slightly bullish at $1.43 per share.

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