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Landstar (LSTR) Down 1.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Landstar System (LSTR). Shares have lost about 1.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Landstar due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Earnings Miss at Landstar in Q2

Landstar's earnings of $1.53 per share in second-quarter 2019 missed the Zacks Consensus Estimate of $1.54. Lower truck volumes and the resultant decline in truck revenues hampered results. However, the bottom line inched up 1.3% year over year on reduced costs.

Revenues of $1,045 million fell shy of the Zacks Consensus Estimate of $1,078 million. The top line also decreased 11.6% year over year, primarily due to soft truck pricing on account of weak freight demand.

Gross profit (revenues excluding the cost of purchased transportation and commissions to agents) came in at $158 million in the reported quarter compared with $171.4 million in the second quarter of 2018. Further, operating income dipped 3.1% to $80.85 million. However, total operating expenses decreased 12.2% to $965.47 million in the quarter under review.

Segmental Results

Total revenues in the truck transportation segment — accounting for bulk (92.6%) of the top line — were $968.2 million, down 12.4%. Rail intermodal revenues were $28.57 million, down 11.5%. Meanwhile, ocean and air cargo carriers generated revenues of $28.22 million, up marginally year over year. Other revenues augmented 17.3% to $20.04 million.

Total number of loads hauled by trucks slipped 1% year over year due to 3% decrease in the number of loads hauled via van equipment. Moreover, the number of loads hauled via railroads, ocean cargo carriers and air cargo carriers declined 8%.

Liquidity and Buyback

At the end of the second quarter, the company’s cash and cash equivalents were $250.21 million compared with $199.74 million at the end of December 2018. Additionally, long-term debt (excluding current maturities) totaled $65.57 million in the period compared with $84.86 million at the end of last December.

During the second quarter, Landstar bought back approximately 550,000 shares for $56.8 million. Under the current buyback program, the company is authorized to purchase approximately 1.33 million shares.

Dividend Hike

Landstar’s board has announced a dividend hike of 12% to 18.5 cents per share (74 cents annually). The amount is payable Aug 30, 2019 to shareholders of record as of Aug 12.

Q3 Outlook Bleak

With continued sluggishness in freight demand, total number of loads hauled via truck in the third quarter are expected to decline in low single-digit percentage range compared with that achieved in the year-ago period. The subdued truck pricing witnessed in the second quarter is anticipated to continue through the third quarter. As a result, truck revenue per load will slid in low double-digit percentage range year over year in the current quarter. Revenues for the period are predicted in the range of $1.01-$1.06 billion. Meanwhile, earnings are estimated in the $1.48-$1.54 per share band.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Landstar has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Landstar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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