Landstar cuts profit forecast

By William Tret, CFA of Stock Market Beat

We have written several times about asset-light trucking company Landstar (LSTR.) Today, Landstar lowered its profit forecast.
Landstar cuts profit forecast, cites weak economy |

Trucking company Landstar System Inc. (LSTR.O: Quote, Profile , Research) lowered its fourth-quarter earnings forecast on Monday, citing signs of a slowing U.S. economy and the absence of the usual surge in business at this time of year.In a conference call with investors, Landstar lowered its forecast for the fourth quarter to a range of 44 cents to 49 cents a share, down from a forecast of 47 cents to 53 cents issued Oct. 19.

In the second half of October and the first half of November in particular, “we saw abnormally lower demand than we have historically experienced in this time frame,” Chief Executive Officer Henry Gerkens told investors.

However, demand has recently shown signs of recovering, he added.Gerkens attributed the lower demand to a slowdown in the construction and automotive sectors and, to a lesser extent, in the manufacturing sector.

As we said in other posts, the reason we like Landstar is that trucks are expensive. When they sit idle, the owner still has to make payments on it (even if only in the form of non-cash depreciation expense.) Maintenance costs also don’t entirely go away, though they are reduced some. When revenue slows down or drops, the fixed portion of maintaining a vehicle fleet weighs on earnings.

For the non-asset based transportation providers like Landstar or CH Robinson, these expenses fall to the independent contractors. So while there may be less profit due to less revenue it will still be more profit than there would have been if they had to maintain a fleet.

Today’s news doesn’t change our opinion much. Although Landstar will earn less it is unlikely they will report a loss. The same cannot be said for other trucking companies that own large fleets. Those are the names we would worry about.

Disclosure: We bought put options on FedEx (FDX).

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: FedEx (FDX) put options; Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion’s Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Ceradyne (CRDN) put options; Lion’s Gate (LGF) call options; Dell (DELL) put options; Plantronics (PLT) put options