Landstar System Inc. Reports Operating Results (10-Q)
LANDSTAR SYSTEM INC. through its operating subsidiaries provides a wide range of transportation services that operates the third largest truckload carrier in North America. Landstar System Inc. has a market cap of $1.82 billion; its shares were traded at around $35.38 with a P/E ratio of 18.5 and P/S ratio of 0.7. The dividend yield of Landstar System Inc. stocks is 0.5%. Landstar System Inc. had an annual average earning growth of 19.2% over the past 10 years. GuruFocus rated Landstar System Inc. the business predictability rank of 5-star. Highlight of Business Operations: The transportation logistics segment provides a wide range of transportation and logistics services including truckload transportation, rail intermodal, air cargo and ocean cargo services, the arrangement of multimodal (ground, air, ocean and rail) moves and warehousing to a variety of industries including 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. The transportation logistics segment also provides dedicated contract and logistics solutions, including freight optimization and less-than-truckload freight consolidations, expedited ground and air delivery of time-critical freight and the movement of containers via ocean. This segment markets its services primarily through independent commission sales agents who enter into contractual arrangements with Landstar and are responsible for locating freight, making that freight available to Landstars capacity providers and coordinating the transportation of the freight with customers and capacity providers. The Companys third party capacity providers consist of independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the BCO Independent Contractors), trucking companies who provide truck capacity to the Company under non-exclusive contractual arrangements (the Truck Brokerage Carriers), air cargo carriers, ocean cargo carriers, railroads and independent warehouse capacity providers (Warehouse Capacity Owners). As of March 28, 2009, Landstar had approximately 120 Warehouse Capacity Owners under contract. The Company has contracts with all of the Class 1 domestic railroads and certain Canadian railroads and contracts with domestic and international airlines and ocean lines. Each of the independent commission sales agents has the opportunity to market all of the services provided by the transportation logistics segment. During the thirteen weeks ended March 28, 2009, revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal, air cargo carriers and ocean cargo carriers represented 57%, 36%, 4%, 1%, and 2%, respectively, of the Companys transportation logistics segment revenue.
Revenue for the 2009 thirteen-week period was $469,247,000, a decrease of $139,581,000, or 22.9%, compared to the 2008 thirteen-week period. Revenue decreased $139,666,000, or 23.3%, at the transportation logistics segment. The decrease in revenue at the transportation logistics segment was primarily attributable to decreases in revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers and rail intermodal carriers of 19%, 28% and 43%, respectively, partially offset by increases in revenue hauled by air cargo carriers and ocean cargo carriers of 50% and 5%, respectively. The number of loads in the 2009 period hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and ocean cargo carriers decreased 16%, 17%, 36% and 1%, respectively, compared to the 2008 period, while the number of loads hauled by air cargo carriers increased 64% over the same period. Revenue per load for loads hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and air cargo carriers decreased approximately 4%, 13%, 11% and 8%, respectively, compared to the 2008 period, while revenue per load for loads hauled by ocean cargo carriers increased 6% over the same period. The decrease in revenue per load hauled by Truck Brokerage Carriers and rail intermodal and air cargo carriers was primarily attributable to lower demand due to the overall weak economic conditions which caused increased pressure on price. In addition, the decrease in revenue per load on Truck Brokerage Carrier revenue was partly attributable to decreased fuel surcharges identified separately in billings to customers in the 2009 period compared to the 2008 period. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $9,776,000 and $27,865,000 in the 2009 and 2008 periods, respectively. Fuel surcharges billed to customers on revenue hauled by BCO Independent Contractors are excluded from revenue.
Purchased transportation was 74.9% and 76.4% of revenue in the 2009 and 2008 thirteen-week periods, respectively. The decrease in purchased transportation as a percentage of revenue was primarily attributable to a decrease in the percentage of revenue hauled by Truck Brokerage Carriers, which tends to have a higher cost of purchased transportation, a decrease in the rate of purchased transportation paid to Truck Brokerage Carriers, and an increase in the percentage of revenue hauled by BCO Independent Contractors, which tends to have a lower cost of purchased transportation. Commissions to agents were 8.1% of revenue in the 2009 period and 7.7% of revenue in the 2008 period. The increase in commissions to agents as a percentage of revenue was primarily attributable to increased gross profit, defined as revenue less the cost of purchased transportation, paid to Truck Brokerage Carriers. Other operating costs were 1.6% and 1.1% of revenue in the 2009 and 2008 periods, respectively. The increase in other operating costs as a percentage of revenue was primarily attributable to increased trailing equipment maintenance costs. Insurance and claims were 1.9% of revenue in the 2009 period and 1.6% of revenue in the 2008 period. The increase in insurance and claims as a percentage of revenue was primarily due to favorable development of prior year claims reported in the first quarter of 2008, partially offset by decreased frequency and severity of accidents in the 2009 period compared to the 2008 period. Selling, general and administrative costs were 7.3% of revenue in the 2009 period and 5.9% of revenue in the 2008 period. The increase in selling, general and administrative costs as a percentage of revenue was primarily attributable to the effect of decreased revenue and an increase in the provision for customer bad debt. In addition, there was no provision for bonuses reported in the 2009 first quarter as management does not currently anticipate achieving bonus targets, whereas the 2008 first quarter included a provision for bonuses. Depreciation and amortization was 1.2% of revenue in the 2009 period, compared with 0.8% in the 2008 period. The increase in depreciation and amortization as a percentage of revenue was primarily due to the effect of decreased revenue and an increase in Company-owned trailing equipment.
The provisions for income taxes for the 2009 and 2008 thirteen-week periods were based on an estimated full year combined effective income tax rate of approximately 38.4% and 38.9%, respectively, which were higher than the statutory federal income tax rate primarily as a result of state taxes, the meals and entertainment exclusion and non-deductible stock compensation expense. The decrease in the effective income tax rate was primarily attributable to state income tax planning strategies.
Shareholders equity was $254,926,000, or 68% of total capitalization (defined as total debt plus equity), at March 28, 2009, compared to $253,136,000, or 65% of total capitalization, at December 27, 2008. The increase in shareholders equity was primarily a result of net income and the effect of the exercises of stock options during the period, partially offset by the purchase of 391,018 shares of the Companys common stock at a total cost of $11,958,000 and dividends paid. The Company paid $0.04 per share, or $2,068,000, in cash dividends during the thirteen-week period ended March 28, 2009. It is the intention of the Board of Directors to continue to pay a quarterly dividend. As of March 28, 2009, the Company may purchase up to an additional 2,608,982 shares of its common stock under its authorized stock purchase programs. Long-term debt, including current maturities, was $117,490,000 at March 28, 2009, $18,955,000 lower than at December 27, 2008.
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