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

October 30, 2009 | About:
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10qk

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Landstar System Inc. (LSTR) filed Quarterly Report for the period ended 2009-09-26.

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 $1.84 billion; its shares were traded at around $35.78 with a P/E ratio of 23.8 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, supply chain solutions services and warehousing. 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. 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). 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. Revenue recognized by the transportation logistics segment when providing capacity to customers to haul their freight is herein referred to 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 26, 2009, transportation services revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal, ocean cargo carriers and air cargo carriers represented 59%, 34%, 4%, 2%, and 1%, respectively, of the Companys transportation logistics segment revenue.

Revenue for the 2009 thirty-nine-week period was $1,461,081,000, a decrease of $578,151,000, or 28.4%, compared to the 2008 thirty-nine-week period. Revenue decreased $577,954,000, or 28.7%, 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 22%, 35%, 47% and 13%, respectively, partially offset by increased revenue hauled by air cargo carriers of 1%. Included in the 2009 thirty-nine-week period was $3,664,000 of transportation management fees. Included in the 2008 thirty-nine-week period was $27,638,000 of Bus Revenue. The number of loads in the 2009 period hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and ocean cargo carriers decreased 12%, 17%, 37% and 2%, respectively, compared to the 2008 period, while the number of loads hauled by air cargo carriers increased 17% over the same period. 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 11%, 22%, 15%, 12% and 13%, 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 $31,315,000 and $109,601,000 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 74.6% and 77.1% of revenue in the 2009 and 2008 thirty-nine-week periods, respectively. The decrease in purchased transportation as a percentage of revenue was primarily attributable to decreased rates of purchased transportation paid to Truck Brokerage Carriers, due to lower fuel prices and excess truck capacity industry wide, 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 7.5% 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, on revenue hauled by Truck Brokerage Carriers. Other operating costs were 1.5% and 1.0% of revenue in the 2009 and 2008 periods, respectively. The increase in other operating costs as a percentage of revenue was primarily attributable to the effect of decreased revenue, $870,000 of other operating costs from the Acquired Entities, increased trailing equipment maintenance costs and an increased provision for contractor bad debt, partially offset by decreased trailing equipment rental costs. Insurance and claims were 2.0% of revenue in the 2009 period and 1.3% of revenue in the 2008 period. The increase in insurance and claims as a percentage of revenue was primarily due to increased favorable development of prior year claims reported in the 2008 period. Selling, general and administrative costs were 6.8% of revenue in the 2009 period and 5.2% 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, $2,005,000 of one-time acquisition related costs, $3,300,000 of selling, general and administrative costs from the Acquired Entities and an increased provision for customer bad debt. In addition, there was no provision for bonuses reported in the 2009 period as management does not currently anticipate achieving bonus targets, whereas the 2008 period 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

Revenue for the 2009 thirteen-week period was $500,670,000, a decrease of $232,083,000, or 31.7%, compared to the 2008 thirteen-week period. Revenue decreased $231,755,000, or 32.0%, 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 ocean cargo carriers of 22%, 40%, 42% and 29%, respectively, partially offset by increased revenue hauled by air cargo carriers of 2%. Included in the 2009 thirteen-week period was $3,664,000 of transportation management fees. Included in the 2008 thirteen-week period was $27,638,000 of Bus Revenue. The number of loads in the 2009 period hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and ocean and air cargo carriers decreased 6%, 16%, 29%, 5% and 19%, respectively, compared to the 2008 period. Revenue per load for loads hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and ocean cargo carriers decreased approximately 17%, 28%, 18%, and 25%, respectively, compared to the 2008 period, while revenue per load for loads hauled by air cargo carriers increased 26% over the same period. The decrease in revenue per load hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal 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 $12,329,000 and $41,853,000 in the 2009 and 2008 periods, respectively.

Purchased transportation was 74.4% and 77.8% 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 rate of purchased transportation paid to Truck Brokerage Carriers, due to lower fuel prices and excess truck capacity industry wide, and an increase in the percentage of revenue hauled by BCO Independent Contractors, which tends to have a lower cost of purchased transportation. Additionally, the 2008 period included Bus Revenue, which had a higher cost of purchased transportation. CommRead the The complete ReportLSTR is in the portfolios of Ron Baron of Baron Funds.

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