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

August 01, 2009 | About:

Landstar System Inc. (LSTR) filed Quarterly Report for the period ended 2009-06-27.

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 $1.88 billion; its shares were traded at around $36.68 with a P/E ratio of 21.3 and P/S ratio of 0.7. The dividend yield of Landstar System Inc. stocks is 0.4%. 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:

While customer demand, which is subject to overall economic conditions, ultimately drives increases or decreases in revenue, the Company primarily relies on its independent commission sales agents to establish customer relationships and generate revenue opportunities. Management’s primary focus with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue (“Million Dollar Agents”). Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents and increasing the revenue opportunities generated by existing independent commission sales agents. During the 2008 fiscal year, 484 independent commission sales agents generated $1 million or more of Landstar’s revenue and thus qualified as Million Dollar Agents. During the 2008 fiscal year, the average revenue generated by a Million Dollar Agent was $4,907,000 and revenue generated by Million Dollar Agents in the aggregate represented 90% of consolidated Landstar revenue. The Company had 1,436 and 1,409 agent locations at June 27, 2009 and June 28, 2008, respectively.

Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. Landstar’s retained liability for individual commercial trucking claims varies depending on when such claims are incurred. For commercial trucking claims, Landstar retains liability up to $5,000,000 per occurrence. The Company also retains liability for each general liability claim up to $1,000,000, $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, rail intermodal capacity providers and air cargo and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which they maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo claims or workers’ compensation claims or the unfavorable development of existing claims could be expected to materially adversely affect Landstar’s results of operations.

Revenue for the 2009 twenty-six-week period was $960,411,000, a decrease of $346,068,000, or 26.5%, compared to the 2008 twenty-six-week period. Revenue decreased $346,199,000, or 26.9%, at the transportation logistics segment. The decrease in revenue at the transportation logistics segment was primarily attributable to decreased revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and ocean cargo carriers of 21%, 33%, 49% and 4%, respectively, partially offset by increased revenue hauled by air cargo carriers of 1%. The number of loads in the 2009 period hauled by BCO Independent

Contractors, Truck Brokerage Carriers and rail intermodal carriers decreased 15%, 17% and 41%, respectively, compared to the 2008 period. The number of loads hauled by air cargo carriers increased 32% over the 2008 period, while the number of loads hauled by ocean cargo carriers remained flat. Revenue per load for loads hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers, ocean cargo carriers and air cargo carriers decreased approximately 8%, 19%, 13%, 4% and 24%, respectively, compared to the 2008 period. The decrease in revenue per load hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal and air and ocean 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 $18,986,000 and $67,748,000 in the 2009 and 2008 periods, respectively. Fuel surcharges billed to customers on revenue hauled by BCO Independent Contractors are excluded from revenue.

Net income was $31,751,000, or $0.62 per common share ($0.61 per diluted share), in the 2009 twenty-six-week period. Included in the 2009 twenty-six-week period was $2,005,000 of one-time costs related to the acquisition of two supply chain transportation integration companies completed in the first week of the 2009 third quarter. Net of related income tax benefits, these costs reduced net income for the twenty-six-week period ended June 27, 2009 by $1,243,000, or $0.02 per common share ($0.02 per diluted share). Net income was $53,508,000, or $1.01 per common share ($1.01 per diluted share), in the 2008 twenty-six-week period.

Revenue for the 2009 thirteen-week period was $491,164,000, a decrease of $206,487,000, or 29.6%, compared to the 2008 thirteen-week period. Revenue decreased $206,533,000, or 30.0%, at the transportation logistics segment. The decrease in revenue at the transportation logistics segment was primarily attributable to decreased revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and air and ocean cargo carriers of 23%, 37% , 54%, 11% and 45% respectively. The number of loads in the 2009 period hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and air cargo carriers decreased 14%, 17%, 46% and 2%, respectively, compared to the 2008 period, while the number of loads hauled by

Read the The complete ReportLSTR is in the portfolios of Ron Baron of Baron Funds.

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