Landstar System's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Landstar System (LSTR)

Q4 2011 Earnings Call

February 02, 2012 2:00 pm ET

Executives

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Henry H. Gerkens - Chairman of the Board, Chief Executive Officer, President, Member of Strategic Planning Committee, Member of Safety & Risk Committee, Chief Executive Officer of Landstar System Holdings Inc, President of Landstar System Holdings Inc and Director of Landstar System Holdings Inc

Jim B. Gattoni - Chief Financial Officer, Principal Accounting Officer and Vice President

Pat O'Malley - President-Landstar Carrier Group

Joseph Beacom - Chief Safety and Operations Officer and Vice President

Analysts

Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

Robert H. Salmon - Deutsche Bank AG, Research Division

H. Peter Nesvold - Jefferies & Company, Inc., Research Division

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Nathan Brochmann - William Blair & Company L.L.C., Research Division

Scott H. Group - Wolfe Trahan & Co.

Alexander V. Brand - SunTrust Robinson Humphrey, Inc., Research Division

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

John L. Barnes - RBC Capital Markets, LLC, Research Division

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

David P. Campbell - Thompson, Davis & Company

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Good afternoon, and welcome to the Landstar System Inc.'s Year End 2011 Earnings Release Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are Henry Gerkens, Chairman, President and CEO; Jim Gattoni, Vice President and Chief Financial Officer; Pat O'Malley, Vice President and Chief Commercial and Marketing Officer; Joe Beacom, Vice President and Chief Safety and Operations Officer. Now I would like to turn the call over to Mr. Henry Gerkens. Sir, you may begin.

Henry H. Gerkens

Thanks, Terry, and good afternoon, and welcome to the Landstar 2011 Fourth Quarter and Year End Earnings Conference Call. This conference call will be limited to no more than 1 hour, and please limit your questions to no more than 2 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 and 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 team, 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 2010 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.

I stated on the 2010 fourth quarter earnings conference call that I believe 2011 could be a breakout year for Landstar. Well, not only was 2011 a breakout year for Landstar, it was a record-setting year. 2011 was truly an outstanding year as the organizational changes, strategies and action plans created, developed and implemented in 2009 and 2010 continued to drive increased revenue and create new opportunities. Revenue for the 2011 full year increased to over $2.6 billion, the highest annual revenue in Landstar history.

Operating income for the 2011 full year increased 31% over 2010 to $183 million, and 2011 earnings per diluted share increased 34% over 2010 to $2.38 from $1.77 in 2010. It was a very strong year.

Let me talk a little bit about the 2011 fourth quarter results. Revenue for the 2011 fourth quarter was approximately $718 million, a 22% increase over the revenue generated in the 2010 fourth quarter. And as you know, the 2011 fiscal fourth quarter included an extra week. Our estimate that excluding the extra week from the 2011 fourth quarter, revenue increased approximately 17% over the 2010 fourth quarter, a strong revenue performance by any measure. Truckload volumes in the 2011 fourth quarter increased 14% over the 2010 fourth quarter and revenue per load continued to show strength as revenue per load increased 8% in the 2011 fourth quarter over the 2010 fourth quarter.

Total truck brokerage revenue increased approximately 42% in the 2011 fourth quarter versus the 2010 fourth quarter and represented approximately 43% of consolidated revenue in the 2011 quarter versus 36% in the 2010 quarter. Revenue hauled by BCOs for the 2011 fourth quarter versus the 2010 fourth quarter increased approximately 9% and was approximately 49% of consolidated revenue in the 2011 quarter versus 55% in the 2010 quarter. This change in mix also had a favorable impact on insurance and claims expense as a percent of revenue. Jim will talk about that later.

On a 2011 fourth quarter versus 2010 fourth quarter comparison basis, rail intermodal revenue increased 19%. Revenue generated through air cargo carriers increased 30%. Revenue generated through ocean cargo carriers increased 7% and all other revenue increased 7%. Revenue generated with a fixed gross profit margin represented 65% of total consolidated 2011 fourth quarter revenue versus 70% in the 2010 fourth quarter, while revenue generated with a variable gross profit margin represented 35% of 2011 fourth quarter revenue versus 30% in the 2010 fourth quarter.

The change in mix is primarily a result of the continued strong growth in brokerage revenue. Gross profit dollars in the 2011 fourth quarter increased approximately 15% over the 2010 fourth quarter. Total operating income for the 2011 fourth quarter was approximately $51 million and increased approximately 42% over 2010 fourth quarter operating income. The operating margin was at 45% versus 36% in the 2010 fourth quarter. Earnings per diluted share for the 2011 fourth quarter was $0.70 per diluted share and increased 40% over the 2010 fourth quarter. Jim will elaborate further on the outstanding financial results shortly.

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