Landstar's quarterly earnings jump; but CEO comment spooks investors

| Tuesday, October 22, 2002

For the independent truckers who lease their trucks to Landstar System Inc., this year's earnings have been dismal. Rising fuel prices and other factors have created a harsh landscape for decent returns. Landstar System Inc., however, remains the the No. 4 U.S. trucker, and on Thursday posted record third quarterly profits, saying business is actually very good.

"I am pleased with Landstar's 2002 third quarter performance," said CEO Jeff Crowe. "Consolidated revenue increased by more than 8 percent to the highest third quarter revenue in Landstar history. Brokerage revenue at the Carrier Group increased almost 15 percent as we continued to expand our utilization of broker carrier capacity. Truck capacity provided by business capacity owners on the other hand decreased to 8,380, which reflected a difficult recruiting environment."

Landstar's statement regarding retention of leased owner-operator truckers set off immediate alarm bells on Wall Street. Shares dropped Friday, closing at $45.20, down $7.43, or 14 percent, on the Nasdaq Stock Market.

Landstar's transportation network uses small business truckers, transport agents and shippers, to move freight in a wide range of capacities. The success of Landstar is dependent on these truckers, called business capacity owners (BCOs), who supply more than 8,000 power units to Landstar's giant system. The Jacksonville, FL-based group itself owns very little equipment.

According to published news reports, A. G. Edwards & Sons analyst Donald Broughton, now rates the stock at "hold," saying "They may have run out of new people."

Deutsche Bank Securities analyst John Barnes reported to the Associated Press that he cut his 2002 earnings expectations to $2.92 a share from $3.03, and his views for 2003 to $3.24 a share from $3.38. He also reduced his rating on the stock to "hold" from "buy."

Another news source, Reuters, reported today that BB&T Capital Markets analyst Thom Albrecht brought Landstar's rating down two notches to a "hold" from a "strong buy." Albrecht was quoted as saying there is potential for a slowdown at the company in the second half of next year, if not earlier, unless losses of business capacity owners are reversed.

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