Landstar (LSTR)

Freight delivery company Landstar (NASDAQ:LSTR) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales fell by 1.9% year on year to $1.15 billion. Its GAAP profit of $0.85 per share was 5.7% below analysts’ consensus estimates.

Company Overview

Covering billions of miles throughout North America, Landstar (NASDAQ:LSTR) is a transportation company specializing in freight and last-mile delivery services.

The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Competitors offering similar products include J.B. Hunt (NASDAQ:JBHT), Old Dominion (NASDAQ:ODFL), and Knight-Swift Transportation (NYSE:SWFT).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Landstar’s 3.8% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Landstar’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 16.5% annually. Landstar isn’t alone in its struggles as the Ground Transportation industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

Landstar also breaks out the revenue for its most important segments, Van Equipment and Platform Equipment, which are 51.6% and 29.5% of revenue. Over the last two years, Landstar’s Van Equipment revenue (full truckload van transportation) averaged 16.8% year-on-year declines while its Platform Equipment revenue (full truckload trailer transportation) averaged 7.8% declines.

This quarter, Landstar’s revenue fell by 1.9% year on year to $1.15 billion but beat Wall Street’s estimates by 1%.

Looking ahead, sell-side analysts expect revenue to grow 5.1% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Landstar has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 20% gross margin over the last five years. Said differently, Landstar had to pay a chunky $80.01 to its suppliers for every $100 in revenue.

Landstar produced a 8.5% gross profit margin in Q1, down 12.1 percentage points year on year. Landstar’s full-year margin has also been trending down over the past 12 months, decreasing by 3.8 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Landstar was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.7% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Landstar’s operating margin decreased by 2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Landstar’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Landstar generated an operating profit margin of 3.4%, down 1.7 percentage points year on year. Since Landstar’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Landstar’s flat EPS over the last five years was below its 3.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Landstar’s earnings can give us a better understanding of its performance. As we mentioned earlier, Landstar’s operating margin declined by 2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Landstar, its two-year annual EPS declines of 30.9% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.

In Q1, Landstar reported EPS at $0.85, down from $1.32 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Landstar’s full-year EPS of $5.05 to grow 15.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Landstar has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.7%, subpar for an industrials business.

Taking a step back, an encouraging sign is that Landstar’s margin expanded by 2 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Landstar hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 42.3%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Landstar’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Landstar is a well-capitalized company with $473.4 million of cash and $93.97 million of debt on its balance sheet. This $379.5 million net cash position is 7.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Landstar narrowly top analysts’ revenue expectations this quarter. We were also glad its Van Equipment revenue topped Wall Street’s estimates. On the other hand, its EBITDA missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 2.9% to $139.59 immediately after reporting.

Updated: May 22, 2025 at 11:20 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We see the value of companies helping their customers, but in the case of Landstar, we’re out. For starters, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

Landstar’s P/E ratio based on the next 12 months is 23.6x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $142.95 on the company (compared to the current share price of $135.66).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.