Landstar Says Profit Drops, But Freight Is Improving

This story appears in the Oct. 19 print edition of Transport Topics.

Landstar System Inc., the fifth-largest truckload carrier, last week reported a 39% drop in net income to $20.1 million from the same quarter of 2008.

On a per-share basis, net income was 39 cents for July through September, compared with 62 cents a share a year earlier.

However, the results were an improvement from the second quarter, when Landstar posted net income of $17.9 million.

Third-quarter revenue fell 32% to $500.7 million from the year earlier period, but was $9 million more than the prior three months.

Despite the year-to-year decline, CEO Henry Gerkens highlighted recent positive trends.

“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,” he said in a statement. He also noted a 1% gain in loads from the second quarter to the third quarter this year.

Landstar’s revenue per load was nearly the same in the third and second quarters, he said.

“I see a gradually improving overall freight environment, and I believe that the worst is over,” Gerkens said in a fourth-quarter forecast of 37 cents to 42 cents a share.

The company ranks No. 13 on Transport Topics 100 list of the largest for-hire carriers in the United States and Canada.

“Some sequential volume improvement has been seen recently in most customer segments,” freight analyst John Larkin wrote in a report from Stifel, Nicolaus & Co. Inc. “Management also noted that pricing has stabilized, a comment that we view as positive, given the deteriorating pricing environment that occurred for most of the year.”

Landstar was the only publicly traded truckload operator to report earnings last week.

Reports are expected this week from Werner Enterprises, J.B. Hunt Transport Services, Marten Transport and Forward Air. As was the case with Landstar, each is forecast to report earnings that trailed the third quarter of 2008 but exceeded the second quarter of 2009, based on a Bloomberg News survey of analysts.

“[Truckload] carriers will likely highlight some of the recent positive trends in inventories, demand, and spot pricing, but we also expect an acknowledgment that the overall truckload environment remains extremely difficult,” analyst William Greene wrote in a report from Morgan Stanley.

“There are some positive signs in truckload, but the substantial supply overhang could push off a large recovery in truckload pricing until 2011, even with demand recovering,” he wrote.

UBS analyst Rick Paterson surveyed fleets and found that 38% believe pricing already has stabilized, with 17% more saying that would happen in three months and an additional 22% seeing a stabilization within six months.

Larkin also focused his Stifel, Nicolaus report on the treacherous truckload pricing market, saying that rates were being offered as much as 9% below the incumbent carrier when fleets submitted bids to enter new markets.

“To complicate matters, all of the rebidding continues to wreak havoc with lane balance and overall network fluidity,” Larkin wrote. “Empty miles increase, and equipment utilization suffers as formerly balanced networks have been in and out of a disruptive state of flux during 2009. Larkin said.

Landstar’s revenue per load on a year-to-year basis for owners that provide business capacity through exclusive lease agreements fell 17% to $1,472, and brokerage revenue per load slipped 28% to $1,351. Volume from business capacity owners fell 6%, a better performance than the 16% decline in brokered business.

Paterson’s Oct. 9 survey said 80% of fleets reported business conditions were worse than last year, though that was better than the 90% in his second-quarter survey. All but 7% said they expected holiday demand in 2009 will be worse than or equal to last year.