Landstar System, Inc. Q2 2010 Earnings Call Transcript

Landstar System, Inc. Q2 2010 Earnings Call Transcript
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Landstar System, Inc. (LSTR)

Q2 2010 Earnings Call Transcript

July 14, 2010 5:00 pm ET

Executives

Henry Gerkens – Chairman, President and CEO

Jim Gattoni – VP and CFO

Pat O'Malley – Co-COO

Jim Handoush – Co-COO

Joe Beacom – VP and Chief Compliance, Security & Safety Officer

Analysts

Chris Ceraso – Credit Suisse

Justin Yagerman – Deutsche Bank

Tom Wadewitz – JP Morgan

Jon Langenfeld – Robert W. Baird & Co.

Ed Wolfe – Wolfe Trahan

Todd Fowler – Keybanc Capital Markets

Nate Brochmann – William Blair & Company

Sterling Adlakha – Stephens

Anthony Gallo – Wells Fargo

Matt Brooklier – Piper Jaffray

Tom Albrecht – BB&T

David Mack – Jay Goldman

Chaz Jones – Morgan Keegan

Presentation

Operator

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» Landstar System, Inc. Q1 2010 Earnings Call Transcript
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Good afternoon and welcome to the Landstar System, Inc.'s second quarter 2010 earnings release conference call. All lines will be in a listen-only mode until the formal question-and-answer session. Today's call is being recorded. (Operator Instructions)

Joining us today from Landstar are Henry Gerkens, Chairman, President and CEO; Jim Gattoni, Vice President and Chief Financial Officer; Pat O'Malley, Co-Chief Operating Officer; Jim Handoush, Co-Chief Operating Officer, and, Joe Beacom, VP and Chief Compliance, Security & Safety Officer.

Now, I would like to turn the call over to Mr. Henry Gerkens. Sir, you may begin.

Henry Gerkens

Thanks Doric. Good afternoon and welcome to the Landstar 2010 second quarter earnings conference call. This conference call will be limited to no more than one hour. In addition, please limit your questions to no more than two questions each when the question-and-answer period begins.

Before we begin, let me read the following statement. The following is a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements.

During this conference call, I and other members of Landstar's management may make certain statements containing forward-looking statements, such as statements which relate to Landstar's business objectives, plans, strategies, and expectations. Such statements are by nature subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2009 fiscal year described in the section Risk Factors and other SEC filings from time to time.

These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking statements and Landstar undertakes no obligation to publicly update or revise any forward-looking statements.

Landstar's results for the 2010 second quarter were outstanding. Overall, revenue for the 2010 second quarter increased 31% over the 2009 second quarter. Revenue hauled by business capacity owners increased 20% in the 2010 second quarter versus the 2009 second quarter.

Revenue hauled by all truck brokerage carriers increased 49% in the 2010 second quarter versus the 2009 second quarter. Revenue hauled by rail, air, and ocean carriers collectively increased 24% in the 2010 second quarter versus the 2009 second quarter.

In addition, transportation management fee revenue generated by the supply chain solutions companies amounted to $6.1 million in the 2010 second quarter. In the 2010 second quarter, 74% of Landstar's total revenue was generated at basically a fixed net margin percentage. Net margin percentage being defined as revenue less the cost of purchased transportation and agent commissions divided by revenue. This compares to 76% in the 2009 second and 2010 first quarters.

There has been a lot of noise surrounding an increase in the cost of purchased transportation as it relates to Landstar's operating model. Let me briefly refresh everyone on Landstar's business model.

First, if a load is hauled by a business capacity owner, the BCO and the agent are paid on a percentage of revenue basis. 54% of the 2010 second quarter consolidated revenue was hauled by business capacity owners versus 59% in the 2009 second quarter and 52% in the 2010 first quarter.

Second, certain agent brokerage agreements contain a fixed Landstar retention percentage before the purchase transportation or agent is paid. This accounted for 7% of the 2010 second quarter consolidated revenue versus 8% in the 2009 second and 2010 first quarters.

Thirdly, our substitute line haul brokerage business runs at a consistent 2% net margin percentage for customer contract.

This is always been Landstar's lowest net margin business. This accounted for 11% of the 2010 second quarter consolidated revenue versus 7% in the 2009 second quarter and 14% in the 2010 first quarter.

Finally, there is no purchased transportation associated with our transportation management fee revenue. Only 26% of Landstar's 2010 second quarter revenue and 24% of Landstar's 2009 second quarter and 2010 first quarter revenue was impacted by changes in third-party transportation costs.

Additionally, Landstar and its agents, share in the impact of these purchased transportation changes pursuant to contractual agreements commonly referred to as margin splits.

Back to the quarterly revenue, not only did revenue for the 2010 second quarter increased over 2009 second quarter in every mode of transportation Landstar offers its customers, but revenue also increased in just about every commodity grouping.

The largest 2010 second quarter over 2009 second quarter revenue increase was in our substitute line haul business, which almost doubled, and as I said before, accounted for 11% of total consolidated revenue in the 2010 second quarter versus 7% in the 2009 second quarter. As a future note, I continue to believe that our substitute line haul business, as a percentage of consolidated revenue, will trend down throughout the year. In the month of June of 2010 alone, it represented 9% of consolidated revenue.

Some of the other 2010 quarter-over-quarter revenue increases were in the automotive sector, which increased 67%, in the chemical sector which was up 25% and in the metals sector, which increased 34% to name a few.

Revenue per load continued to improve throughout the 2010 second quarter. Truck transportation revenue per load in April 2010 versus April 2009 increased 4%. In May 2010 versus May 2009, it increased 9% and in June 2010 versus June 2009, it increased 11%.

For the full 2010 second quarter, revenue per load for all truck transportation increased 8% over the 2009 second quarter and sequentially increased 6% over the 2010 first quarter. For the second quarter, truck transportation current year month over prior year month load volume increases were as follows

April 2010 over April 2009, 24%, May 2010 over May 2009, 20%, June 2010 over June 2009, 19%.

Total loads hauled for all truck transportation increased 21% in the 2010 second quarter versus the 2009 second quarter. It was the highest quarterly load volume any quarter in Landstar history which is a pretty good indication that we have taken some market share.

Our agent location count at the end of the 2010 second quarter was 1,343 compared to 1,372 end of the 2010 first quarter. Additionally, during the 2010 second quarter, we added six agents who had a prior run rate of at least $1 million bringing the total for the first six months of 2010 to 10.

Agent revenue from all new agent locations added over the past year amounted to approximately $39 million in the 2010 second quarter. This gets to the point that it's not so much the quantity of agent locations, but it's the quality meeting productivity that counts.

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