Landstar's In-Line Earnings a Disappointment, As Is Its Soft Guidance

Small Cap and Mid Cap Watch List member Landstar System, Inc. (LSTR) reported net income for the thirteen-week period ended June 30, 2007 of $29.7 million, or $0.53 per diluted share, compared to net income of $29.5 million, or $0.50 per diluted share, for the 2006 second quarter. Revenue for the second quarter of 2007 was $633 million compared to $643 million for the 2006 second quarter. Excluding emergency services work from both period, sales increased by 5%.

The results were exactly in line with the published consensus estimates, which will most likely be viewed as disappointing given Landstar’s history of beating estimates. Worse still was the guidance for next quarter:

The third quarter of 2006 included $30 million in revenue generated under the FAA contract. We estimate in the 2007 third quarter approximately $1.0 million of such revenue. Based upon current business levels, no change in the current freight environment, and excluding FAA revenue from both the 2007 and 2006 third quarter, I anticipate revenue to increase in a mid single digit range quarter over quarter. Diluted earnings per share in the 2006 third quarter was $0.53, which included $0.05 per diluted share from the revenue recognized under the FAA contract. Based upon our current revenue forecast, I anticipate diluted earnings per share for the third quarter of 2007 to be within a range of $0.50 to $0.55 per diluted share.

Analysts were expecting the company to earn $0.60 next quarter. When I previewed the earnings report I said “This is one of my favorite companies. They are trading a touch higher than I would like, though.” In all likelihood, they will trade lower on this news. Still, given the awful trucking environment I consider the results fairly impressive.

Landstar also increased its dividend and added a board member:

Landstar System, Inc. also announced that its Board of Directors appointed Mr. Michael A. Henning as a new member of the Board of Directors. Mr. Henning spent most of his career at the accounting firm of Ernst & Young in various capacities, including as Chief Executive Officer at Ernst & Young International and Deputy Chairman of the Firm.

Henning deepens the board’s financial expertise, and should not pose governance concerns since the firm’s auditor is KPMG.

LSTR 1-yr chart:

Investment Jungle has a nice Rule#1 analysis of Landstar today.