Landstar Reports Significant Third Quarter Earnings Miss

Landstar System, Inc. LSTR reported third quarter earnings per share (EPS) of $1.35, coming in significantly below analyst estimates. The consensus EPS forecast for this quarter put the company at $1.44, according to Zacks Investment Research. 

The company reported EPS of $1.63 during the same quarter in 2018, a $0.28 plunge year-over-year. Revenue followed suit, coming in at $1.01 billion in 2019 compared to $1.2 billion during the same quarter in 2018. Analyst estimates put third quarter 2019 revenue at $1.03 billion.

Gross profit followed the same trend, coming in at $152.6 million for the third quarter of 2019, down from $171.3 million last year, according to the company's earnings release. Operating margin, representing operating income divided by gross profit, was 46.3 percent in the third quarter of 2019.

Chart: Landstar

In September, the asset-light transportation solutions provider lowered its third quarter guidance due to a "tragic vehicular accident" and generally unfavorable market conditions. At the time, Landstar President and Chief Executive Officer Jim Gattoni said he expected the company to hit the low end of its previously issued revenue guidance and miss the low end of its prior EPS range this quarter.

In its second quarter 2019 earnings release, Landstar issued third quarter 2019 guidance calling for revenue of $1.01 to $1.06 billion and EPS of $1.48 to $1.54.

At the time of the September announcement, analyst estimates for the company's third quarter EPS rested around $1.55. These estimated were revised down to $1.44 ahead of the company's third quarter earnings announcement. 

Truck transportation revenue hauled by independent business capacity owners (BCOs) and truck brokerage carriers fell from $1.118 billion to $932.2 million year-over-year. This segment made up just slightly less of the company's revenue this year, moving from 93% to 92%.

Chart: Landstar

Truckload transportation revenue hauled via van equipment and truckload transportation revenue hauled via unsided/platform equipment both suffered during the third quarter, according to the company's media release. Revenue from van equipment fell from $717 million in the third quarter of 2018 to $575 million this quarter. Revenue from platform equipment fell from $375.7 million to $331.8 million.

Revenue hauled by rail, air and ocean cargo carriers was $59.3 million, or 6% of revenue, in the 2019 third quarter compared to $65.7 million, or 5% of revenue, in the 2018 third quarter. This means every major segment of the company's business suffered in the third quarter. 

Gattoni attributed the company's poor performance to the economic environment and the state of the market as a whole.

"The current macroeconomic environment made for challenging comparisons against our record 2018 third quarter performance," Gattoni said. "Softer demand, driven by slowing production in the U.S. manufacturing sector, and more readily available capacity drove Landstar's truck rates and volumes below prior year levels in the 2019 third quarter. While truck revenue per load has been below prior year levels throughout 2019, truck load volumes have more recently slowed with softening demand. Truck load volumes in the 2019 third quarter fell 5% as compared to the 2018 third quarter, a larger decrease than the low single digit decrease anticipated in the company's third quarter earnings guidance."

Gattoni said he expects year-over-year comparisons to ease somewhat during the fourth quarter of 2019, as long as current macroeconomic issues hold up, thanks to the softening experienced during the fourth quarter of 2018. Still, he expects to see a sizeable gap between 2018 and 2019.

"I expect 2019 fourth quarter truck revenue per load to be lower than the 2018 fourth quarter in a high single-digit percentage range. I anticipate revenue for the 2019 fourth quarter to be in a range of $970 million to $1.02 billion," Gattoni said." I would anticipate 2019 fourth quarter diluted earnings per share to be in a range of $1.40 to $1.46 per share."

Landstar reported its third quarter earnings after market close on Wednesday, October 23. The company's stock was down $0.83 at market close. 

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