The Basch Report: Landstar’s record 2018 will be tough act to follow

Jacksonville-based trucking firm says “demand is softer.”

  • By Mark Basch
  • | 5:00 a.m. February 7, 2019
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Landstar System Inc. recorded a record year for revenue and profits in 2018, but the Jacksonville-based trucking company will have a tough act to follow this year.

“It will be difficult to expect the overall environment in 2019 to be as robust as we experienced during 2018 at its exceptional highs,” CEO Jim Gattoni said in Landstar’s quarterly conference call with analysts last week.

Landstar reported fourth-quarter earnings of $1.68 a share, above its forecast of $1.56 to $1.62.

Revenue rose 12 percent to $1.18 billion in the quarter.

Gattoni said “2018 demonstrated that Landstar’s light asset-based business model generates significant cash flow and outstanding returns in most economic environments.”

In the light asset model, Landstar does not own trucks but contracts with drivers who own their own vehicles to haul freight.

“The overall environment for Landstar continues to be strong by historical standards,” Gattoni said, but industry conditions are changing.

“Clearly, demand is softer than it was,” he said.

“We’re very diverse, so it’s hard to point to a specific industry or a specific customer that drives our decelerating growth rate,” he said. “So, I don’t really have anything real specific on what’s driving the slowdown other than overall economic trends.”

Landstar forecast first-quarter revenue of $1.025 billion to $1.075 billion, which is below the consensus forecast of analysts of $1.11 billion, according to Zacks Investment Research.

Landstar’s first-quarter earnings forecast of $1.51 to $1.57 a share, up from $1.37 last year, is higher than the Zacks’ consensus forecast of $1.44.

Patriot impacted by hurricane

Jacksonville’s other publicly traded trucking company, Patriot Transportation Holding Inc., reported lower quarterly earnings last week.

Patriot reported earnings of 27 cents a share in its first quarter ended Dec. 31, which included 19 cents in gains from real estate sales.

In the previous year, Patriot recorded earnings of $1.09 a share but that included 92 cents in gains from the new federal tax law passed at the end of 2017.

In Patriot’s conference call, CEO Rob Sandlin said its business also was impacted by Hurricane Michael.

“On October 10, the eye of Hurricane Michael passed over our Panama City terminal creating significant damage to our terminal buildings,” he said.

“We have nearly completed the repairs to get our staff back into the office and we’ll continue the repairs for the rest of our facility while working with our insurance company to determine the insured value applicable to the losses,” he said.

The damage to the building is not expected to have a “material-negative financial impact,” Sandlin said.

“We certainly lost some profit during the first quarter due to the hurricane, but we are back to our normal operation in this market,” he said.

Fidelity deal to buy Stewart snagged

Fidelity National Financial Inc.’s $1.2 billion deal to buy Stewart Information Services Corp. hit a snag last week.

The New York State Department of Financial Services disapproved Fidelity’s application to buy Stewart’s New York title insurance subsidiary, Fidelity said in a Securities and Exchange Commission filing Monday.

How that impacts the entire acquisition is unclear. Fidelity said in the filing it is “evaluating the appropriate course of action” which may include discussions with the New York regulator “to better understand its concerns.”

Fidelity announced the deal in March 2018 and expected a long regulatory process because the deal would increase Jacksonville-based Fidelity’s dominant share of the U.S. title insurance market from 32 percent to 42 percent. Fidelity likely will have to divest some business to get all of the necessary regulatory approvals.

Fidelity said in the SEC filing it has received 28 state regulatory approvals for the deal and it is continuing to work with the U.S. Federal Trade Commission, which is reviewing the deal.

Merger rumors at Deutsche Bank

Merger rumors surrounding Deutsche Bank heated up again last week even as the Germany-based bank reported its first annual profit in four years.

Deutsche Bank on Friday reported net income of 341 million euros (about $390 million) for 2018. However, a Bloomberg News story before the earnings report said the German government may force a merger with another German bank, Commerzbank, if first-quarter earnings are not up to par.

Deutsche Bank employs more than 2,000 people in Jacksonville in its second-largest U.S. operation, behind New York. A Bloomberg story last month – which was not confirmed by the company – said the bank was moving 60 accounting jobs from Jacksonville to Mumbai, India.

Deutsche Bank is cutting employment worldwide as it works to improve its finances.

The company last week said it had 91,700 full-time employees at the end of 2018, down from 97,535 a year earlier and meeting its target for the year of getting below 93,000. 

Deutsche Bank wants to reduce employment below 90,000 by the end of this year.

“Our return to profitability shows that Deutsche Bank is on the right track,” CEO Christian Sewing said in a news release.

“Now, our priority is to take the next step. In 2019 we aim not only to save costs but also to make focused investments in growth,” he said.

Analyst upgrades JinkoSolar

As JinkoSolar Holding Co. Ltd. closes in on full production of solar panels at its Jacksonville plant, one analyst thinks the China-based company’s financial outlook is more promising.

Roth Capital Partners analyst Philip Shen upgraded his rating on JinkoSolar from “neutral” to “buy” Monday as part of an overall positive outlook for the solar panel industry.

“We started to get positive on the sector in November and December and continue to believe we’re in the early stages of an upcycle of improving fundamentals,” Shen said in a research report.

JinkoSolar’s stock was depressed in mid-2018 when China announced it was cutting subsidiaries for solar projects. However, Shen said in his report China will “likely” be reintroducing those subsidies.

Meanwhile, demand for solar panels is increasing throughout the world, he said.

“The new China subsidy policy will likely serve as another catalyst on top of the strong fundamental demand that is coming from Latin America, Europe, the U.S. and other pockets of the world,” he said.

The Jacksonville location at Cecil Commerce Center is JinkoSolar’s first U.S. plant. The plant began pilot production in November and the company said it expects the plant to be at full capacity, with 200 employees, early this year.

The timing seems to be right, according to Shen.

“Simply put, module supply is tight, and JinkoSolar and other module suppliers will be direct beneficiaries,” he said.

Anheuser-Busch, Teamsters union approves contract

The Teamsters union last week announced approval of a new five-year contract with workers at 12 Anheuser-Busch breweries, including Jacksonville.

The union said the new contract increases wages by $2.50 an hour and also provides improvements to retirement security and a $4,000 bonus.

The agreement covers more than 4,400 workers at the 12 breweries. It was approved by 88 percent of members voting, the Teamsters said.



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