By William Trent, CFA of Stock Market Beat
When we wrote our earnings preview this week we said: Small Cap Watch List and Mid Cap Watch List member Landstar (LSTR – Annual Report) – Consensus expects $0.40 on $590 million this quarter and $0.54 on $656 million next. We think they will beat. Today they reported and it is a little difficult to tell whether they really did.
Landstar System, Inc. (LSTR – Annual Report) reported net income for the thirteen-week period ended March 31, 2007 of $21.6 million, or $0.38 per diluted share, which included a $5.0 million charge for the estimated cost of one severe accident that occurred during the first quarter of 2007. This charge, net of related income tax benefits, reduced 2007 first quarter net income by $3.1 million, or $0.05 per diluted share. Revenue for the first quarter of 2007 was $577 million, which included $3.4 million of revenue attributable to transportation services provided primarily under a contract between Landstar Express America and the United States Department of Transportation/Federal Aviation Administration (the “FAA”).
On the earnings side, excluding the accident they came in at the high end of their prior guidance of $0.37-$0.43. However, the estimates had started out at $0.43 90 days ago and have been ratcheted down to $0.40 since. It is possible a portion of the estimates already reflected the charge for the accident, or analysts could simply have reduced estimates to comply more closely to the guided range. And the revenue number is clearly less than analysts were hoping for, which could be more evidence of a general slowdown in trucking.
Commenting on Landstar’s 2007 first quarter performance, Landstar President and CEO Henry Gerkens said, “As anticipated, revenue for the quarter was slightly lower than the prior year quarter due to the lower revenue derived under the FAA contract and the continuation of softer demand in the domestic freight transportation industry. Once again however, our non-asset based variable cost business model achieved high financial returns as it adapted to the slower 2007 first quarter economy.”
The disaster relief contract with the FAA has now all but dried up, which is a good thing for several reasons:
- There haven’t been any disasters. While Landstar would earn more if there had been, let’s still call that a good thing.
- Year/year comparisons for Landstar will show the true underlying operational strength.
- If there is another disaster there could be substantial upside to current estimates.
However, the guidance from the company was disappointing:
Gerkens continued, “During the first month and a half of the 2007 first quarter, there was downward pressure on price caused by lower volumes and more available capacity. However, as we moved into the second half of the quarter pricing began to stabilize and volume levels improved. In fact, as it relates to pricing, revenue per load in March of 2007 was higher than in March 2006. This is an encouraging trend as we move into the 2007 second quarter. I anticipate the 2007 second quarter to be another challenging quarter due to uncertain economic conditions. In addition, the 2006 second quarter results included $20.8 million of revenue generated under the FAA contract. We are not forecasting any such revenue in the 2007 second quarter even though the contract has been extended through June 30, 2007 and the FAA has the option to extend the contract for the balance of the year. Given the comments above, I anticipate revenue growth for the second quarter of 2007 to be in a mid single digit range over the revenue generated in the second quarter of 2006, and I anticipate Landstar’s earnings per diluted share to be within a range of $0.49 to $0.54 for the 2007 second quarter.”
Once again, the analysts are already at the top of the range. Estimate trimming is likely act as a headwind on the shares for the next few weeks.
Disclosure: Author has a short position in Landstar put options at the time of publication.
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