Market Overview

Landstar Misses Mark In 2Q; Pandemic Bonus Payments The Culprit

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Landstar truck on highway

Landstar System Inc. (NASDAQ: LSTR) reported second-quarter earnings of 63 cents per share compared to $1.53 in the prior-year period, light of consensus estimates that ranged from 70 to 72 cents.

The result included $12.6 million, 25 cents per share, in pandemic-related incentive compensation to workers. Further, two separate charges of 5 cents per share related to asset impairments in its Mexico operations and higher third-party insurance premiums were part of the miss.

The company's May 1 insurance renewal resulted in a $14 million annual premium increase.

"Overall, the resiliency of Landstar's variable cost business model performed as expected given the unprecedented economic decline caused by the coronavirus (COVID-19) pandemic," stated Landstar President and CEO Jim Gattoni in the press release.

Revenue declined 21.2% year-over-year to $823.5 million as dry van loads fell 17.4%, with revenue per load declining 3.4%. Flatbed loads were off 18.6% and revenue per load was down 10.2%.

Landstar's key performance indicators

"As anticipated, demand for freight services slowed significantly and capacity became readily available during the Company's 2020 second quarter, especially in the spot market where the Company primarily operates," Gattoni continued.  

The company did see the year-over-year declines in demand improve as the quarter progressed. Brokered loads hauled by truck declined 21% year-over-year in both April and May but were only down 9% in June. Revenue per load was off by 6%, 9% and 6% year-over-year in April, May and June, respectively.

"The 2020 second quarter presented operating conditions and challenges unlike any other quarter in Landstar's history. Nevertheless, Landstar did not take any drastic cost reduction measures that could have disrupted our ability to service Landstar's customers, agents, BCOs or other third party capacity providers or slow the progress on our technology initiatives," Gattoni said.

The company's operating margin, defined as operating income as a percentage of gross profit, declined 2,280 basis points year-over-year to 28.4%. Landstar paid bonus payments of $50 to each agent dispatching a load and each BCO delivering a load during the months of April and May.

Landstar reinstated guidance. The company expects third-quarter 2020 revenue to be in the range of $885 million to $935 million and earnings to be in a range of $1.11 to $1.17 per share. The new EPS guidance range is 14% higher than the $1-per-share consensus estimate at the midpoint.

So far in July, loads and revenue per load moved by truck are down in the mid-single-digit range year-over-year. The company expects a similar decline for the entire third quarter, with pricing on truck loads improving slightly from the second quarter.

"Although the ultimate impact that the coronavirus pandemic will have on the freight transportation industry continues to be unpredictable, we believe Landstar remains in a solid operational and financial position as we enter the third quarter," Gattoni concluded.

The company generated $99.2 million in operating cash flow during the quarter. Landstar closed the period with $282 million in cash and short-term investments and undrawn revolving credit capacity of $216 million.

Landstar raised its quarterly dividend 13.5% to $0.21 per share.

The company will hold a conference call to discuss these results on Thursday at 8 a.m.

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