Landstar Systems, Inc. (NASDAQ:LSTR)
Q4 2008 Mid-Quarter Call
December 5, 2008 2:00 pm ET
Henry Gerkens – President & CEO
James Gattoni – VP & CFO
Good afternoon and welcome to Landstar System Inc. fourth quarter mid-quarter 2008 conference call. (Operator Instructions) Joining us today from Landstar are Henry Gerkens, President and Chief Executive Officer; and Jim Gattoni, Vice President and Chief Financial Officer. Now I would like to turn the call over to Mr. Henry Gerkens; sir, you may begin.
Good afternoon and welcome to the Landstar 2008 fourth quarter mid-quarter update conference call. As a reminder let me review how our mid-quarter update call works. There is no question-and-answer period during this call.
The purpose of this call is to provide a brief update on how management sees the current quarter shaping up as it relates to business levels and earnings projections. The call will last about five minutes.
Before we start, let me read the following statement. The following is a Safe Harbor Statement under the Private Securities and Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements.
During this conference call I may make certain statements containing forward-looking statements such as statements which relate to Landstar’s business objectives, plans, strategies, and expectations.
Such statements are by nature subject to uncertainties and risks including but not limited to the operational, financial, and legal risks detailed in Landstar’s Form 10-K for the 2007 fiscal year described in the section Risk Factors and other SEC filings from time to time.
These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking statements and Landstar undertakes no obligation to publically update or revise any forward-looking statements.
I am going to divide today’s comments into three areas. First a brief recap of 2008 through the third quarter, second the current environment and our fourth quarter outlook, and finally what we anticipate seeing in 2009.
Through the first three quarters of 2008, Landstar’s consolidated revenue increased 10.6% over the consolidated revenue of 2007 and 9% excluding bus evacuation services. At the beginning of the year the market had excess capacity, there was low freight demand, downward pressure on price, and escalating fuel prices.
As a result many small carriers and single owner/operators went out of business and many large carriers permanently reduced the scope of their company fleet. Demand started to improve in the second quarter and pricing seemed to have stabilized.
Fuel prices continued to escalate. In the third quarter the freight environment began to reverse itself yet again. Towards the end of the third quarter demand slowed. There was again downward pressure on price, capacity began to loosen, and fuel prices began to dramatically decline.
Looking at Landstar’s quarter-to-quarter performance revenue increased 6% in the 2008 first quarter over the 2007 first quarter, revenue increased 10% in the second quarter of 2008 over the 2007 second quarter, and increased 15% in the third quarter of 2008 over the 2007 third quarter, and 11% was at the [bus] revenue.
Landstar was able to achieve this growth despite dramatic declines in the automotive freight it hauled which was down over 20% year-to-date through the third quarter and declines in certain other accounts.
As I indicated in our third quarter earnings conference call we began to see a slowdown in the rate of growth in late August into September. The slowdown in the final weeks of September was greater then we anticipated.
As a result our revenue guidance for the fourth quarter of 2008 over the fourth quarter of 2007 was stated in terms of a lower rate of growth then we had seen year-to-date through the third quarter. As we entered the 2008 fourth quarter economic conditions continued to worsen and the economic weakness had spilled over to just about all aspects of the economy.
The ISM index in October [inaudible] to 38.6%, the worst decline in 26 years and fell yet again in November. Housing trends continued to be soft and housing starts fell to its lowest level in 50 years in the fourth quarter.
October truck tonnage as measured by the ATA sank 1.8% from a year earlier to its lowest level since 2003. Unemployment continues to increase as companies lay off workers. The US big three automotive makers are on the verge of bankruptcy.
The economy is very weak and the current freight environment is one of the weakest I have seen. There is excess capacity, downward pressure on price, and very weak demand. Despite the very negative operating environment, Landstar was able to increase its revenue in October of 2008 over October of 2007, by 5%.
November, 2008 revenue was approximately break-even with revenue in November of 2007 as market conditions continue to deteriorate and at a rapid pace. We estimate that market conditions will continue to worsen in December.
As such we are currently estimating that consolidated revenue for the 2008 fourth quarter will be slightly lower then the revenue in the 2007 fourth quarter and diluted earnings per share will be in a range of $0.45 to $0.50 per diluted share.
As we move into 2009 I see much more capacity exiting the marketplace. I also believe you could potentially see some very big trucking companies go into bankruptcy.
As customers cut back their number of shipments due to economic conditions they are also becoming increasingly concerned over the financial stability of their carriers and are turning to those transport companies with strong balance sheets to take on additional lanes.
We have already had shippers call us about increased loading opportunities. Landstar’s strong balance sheet and its strong cash flow in addition to its diversified business and customer base is a major plus in this environment.
In the fourth quarter we have seen a record number of owner/operator enquiries about becoming a Landstar BCO. Our agent pipeline is robust. We anticipate many new agent signings in the December through March of 2009 timeframe.
No one is recession proof but Landstar’s business model is somewhat self-protecting. Although we anticipate a difficult economic environment and visibility into the future is limited, it is a time where Landstar should increase its BCO capacity, its agent count, its customer base, and take market share.
I am confident in Landstar’s ability to successfully perform in this environment. Thank you for your time and we look forward to talking to you again on our fourth quarter conference call on January 28, 2009. Have a great afternoon and Happy Holidays.
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