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Landstar System Inc. Reports Operating Results (10-Q)

October 29, 2010 | About:
10qk

10qk

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Landstar System Inc. (LSTR) filed Quarterly Report for the period ended 2010-09-25.

Landstar System Inc. has a market cap of $1.85 billion; its shares were traded at around $37.41 with a P/E ratio of 22 and P/S ratio of 0.9. The dividend yield of Landstar System Inc. stocks is 0.5%. Landstar System Inc. had an annual average earning growth of 11.8% over the past 10 years.LSTR is in the portfolios of Chuck Royce of Royce& Associates, Ron Baron of Baron Funds, RS Investment Management, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

In the Companys 2009 fiscal third quarter, the Company completed the acquisitions of (i) National Logistics Management Co. (together with a limited liability company and certain corporate subsidiaries and affiliates, NLM) and (ii) A3 Integration LLC (A3i) through A3i Acquisition LLC, an entity of which the Company owns 100% of the non-voting, preferred interests and 75% of the voting, common equity interests. A3i is a wholly-owned subsidiary of A3i Acquisition. These two acquisitions are referred to herein collectively as the Recent Acquisitions. NLM and A3i offer customers technology-based supply chain solutions and other value-added services on a fee-for-service basis. NLM and A3i are herein referred to as the Acquired Entities. The results of operations from NLM and A3i are presented as part of the Companys transportation logistics segment.

The transportation logistics segment provides a wide range of transportation services and supply chain solutions. Transportation services offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, project cargo and customs brokerage. Supply chain solutions are based on advanced technology solutions offered by the Company and include integrated multi-modal solutions, outsourced logistics, supply chain engineering and warehousing. Also, supply chain solutions can be delivered through a software-as-a-service model. Industries serviced by the transportation logistics segment include automotive products, paper, lumber and building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics, ammunition and explosives and military hardware. In addition, the transportation logistics segment provides transportation services to other transportation companies, including logistics and less-than-truckload service providers. Each of the independent commission sales agents has the opportunity to market all of the services provided by the transportation logistics segment. Freight transportation services are typically charged to customers on a per shipment basis for the physical transportation of freight. Supply chain solution customers are generally charged fees for the services provided. Revenue recognized by the transportation logistics segment when providing capacity to customers to haul their freight is referred to herein as transportation services revenue and revenue for freight management services recognized on a fee-for-service basis is referred to herein as transportation management fees. During the thirty nine weeks ended September 25, 2010, transportation services revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal, ocean cargo carriers and air cargo carriers represented 54%, 39%, 3%, 2%, and 1%, respectively, of the Companys transportation logistics segment revenue. Transportation management fees represented 1% of the Companys transportation logistics segment revenue in the thirty-nine-week period ended September 25, 2010.

Revenue for the 2010 thirty-nine-week period was $1,812,635,000, an increase of $351,554,000, or 24.1%, compared to the 2009 thirty-nine-week period. Revenue increased $353,295,000, or 24.6%, at the transportation logistics segment. The increase in revenue at the transportation logistics segment was primarily attributable to a 16% increase in the number of loads hauled and a higher revenue per load of approximately 7%. The increase in the number of loads hauled was generally attributable to improved industrial production in the U.S.

during 2010 and the impact of market share gains from agents recruited during 2010 and 2009. The increase in revenue per load was generally attributable to increased demand and tightening capacity. Revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers, air cargo carriers and ocean cargo carriers increased 15%, 42%, 35% and 34%, respectively, while revenue hauled by rail intermodal carriers decreased 9%. Included in the 2010 and 2009 thirty-nine-week periods was $15,592,000 and $4,764,000, respectively, of transportation management fees related to NLM. The number of loads in the 2010 period hauled by BCO Independent Contractors, Truck Brokerage Carriers and ocean cargo carriers increased 11%, 26% and 26%, respectively, compared to the 2009 period, while the number of loads hauled by rail intermodal carriers and air cargo carriers decreased 19% and 24%, respectively, over the same period. Revenue per load for loads hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers, air cargo carriers and ocean cargo carriers increased approximately 3%, 13%, 12%, 79% and 6%, respectively, compared to the 2009 period.

Purchased transportation was 76.3% and 74.6% of revenue in the 2010 and 2009 thirty-nine-week periods, respectively. The increase in purchased transportation as a percentage of revenue was primarily attributable to increased revenue hauled by Truck Brokerage Carriers, which tends to have a higher cost of purchased transportation, and increased rates of purchased transportation paid to Truck Brokerage Carriers. Commissions to agents were 7.4% of revenue in the 2010 period and 8.1% of revenue in the 2009 period. The decrease in commissions to agents as a percentage of revenue was primarily attributable to decreased gross profit on revenue hauled by Truck Brokerage Carriers. Other operating costs were 1.2% and 1.5% of revenue in the 2010 and 2009 periods, respectively. The decrease in other operating costs as a percentage of revenue was primarily attributable to the effect of increased revenue in the 2010 period, partly offset by an increase of $954,000 in other operating costs attributable to the Acquired Entities in the 2010 period compared to the 2009 period. The increase in other operating costs of the Acquired Entities was primarily due to the results of the Acquired Entities being included in the Companys results for the complete thirty-nine-week period of 2010 compared to only thirteen weeks in 2009. Insurance and claims were 2.1% of revenue in the 2010 period and 2.0% of revenue in the 2009 period. The increase in insurance and claims as a percentage of revenue was primarily due to favorable development of prior year claims reported in 2009. Selling, general and administrative costs were 6.4% of revenue in the 2010 period and 6.8% of revenue in the 2009 period. The decrease in selling, general and administrative costs as a percentage of revenue was primarily attributable to the effect of increased revenue and a decreased provision for customer bad debt, partially offset by a $10,193,000 provision for bonuses under the Companys incentive compensation programs in the 2010 period compared to no provision in the 2009 period and an increase of $12,454,000 of selling, general and administrative costs attributable to the Acquired Entities in the 2010 period compared to the 2009 period. The increase in selling, general and administrative costs of the Acquired Entities was primarily due to the results of the Acquired Entities being included in the Companys results for the complete thirty-nine-week period of 2010 compared to only thirteen weeks in 2009. Under the terms of the purchase agreement by which the Company acquired NLM in July 2009, Landstar agreed to pay additional purchase price contingent upon the achievement by NLM of certain levels of earnings through 2014. Landstar recently agreed with the prior owner of NLM to buy-out the Companys contingent payment obligations for a total payment of $3,800,000. This one-time charge is included in selling, general and administrative costs in the thirty-nine-week period ended September 25, 2010. Included in selling, general and administrative costs in the 2009 period was $2,005,000 of one-time costs related to the acquisitions of the Acquired Entities. Depreciation and amortization was 1.0% of revenue in the 2010 period compared with 1.2% in the 2009 period. The decrease in depreciation and amortization as a percentage of revenue was primarily due to the effect of increased revenue, partially offset by amortization of intangible assets attributable to the Acquired Entities.

Interest and debt expense was 0.1% of revenue in the 2010 thirty-nine-week period, compared to 0.2% in the 2009 period. The decrease in interest and debt expense as a percentage of revenue was primarily attributable to the effect of increased revenue and lower average capital lease obligations.

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