Landstar System, Inc. — Q1 2013 Form 10-Q
Reporting period: Thirteen weeks ended March 30, 2013; unaudited. Landstar is a non-asset-based freight transportation and supply-chain services provider, operating through transportation logistics and insurance segments. The quarter’s results are not necessarily indicative of full-year results.
Key financial results
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $628.3 million | $649.0 million | Down 3% |
| Operating income | $43.5 million | $43.2 million | Up 1% |
| Net income | $26.8 million | $26.8 million | Essentially unchanged |
| Diluted EPS | $0.57 | $0.57 | Unchanged |
| Operating cash flow | $52.8 million | $19.9 million | Up $32.9 million |
Gross profit margin was 16.3%, unchanged from the prior-year quarter. Operating margin, defined by Landstar as operating income divided by gross profit, increased to 42.3% from 40.8%. The effective tax rate was approximately 37.3%, versus 36.7%.
Financial position and liquidity
- At March 30, 2013, cash and cash equivalents were $90.8 million and short-term investments were $49.0 million. Working capital was $262.5 million; the current ratio was 1.8 to 1.
- Total debt, including current maturities, was $103.1 million, down $11.0 million from year-end 2012. Shareholders’ equity was $407.8 million, or 80% of total capitalization.
- The $225 million revolving credit facility had $25.0 million drawn and $167.2 million available for future borrowings after outstanding letters of credit. The company reported compliance with its debt covenants.
- Operating cash flow benefited primarily from the timing of trade-receivable collections. Investing cash use was $10.2 million; financing cash use was $25.9 million, including $19.9 million of principal payments on debt and capital leases.
Changes and operating drivers
- Revenue declined $20.7 million, mainly from lower transportation logistics revenue. Management attributed the segment decline primarily to 2% fewer loads and approximately 2% lower revenue per load.
- Revenue hauled by third-party truck capacity providers fell 4.3%; loads declined 1.5% and revenue per load fell 2.8%. Management cited weaker demand for un-sided/platform equipment, including heavy/specialized services, and mix shifts.
- Multimode revenue increased 12%, as revenue per load rose 13% despite a 1% decline in loads. Insurance segment revenue rose to $9.0 million from $8.8 million.
- Lower other operating and selling, general and administrative costs helped offset the revenue decline. Insurance and claims costs rose as a share of gross profit, reflecting $2.4 million of unfavorable prior-year claims development, compared with $0.8 million in Q1 2012.
- Quarter-end cash increased to $90.8 million from $74.3 million at December 29, 2012. Operating cash flow was substantially higher year over year, but management attributed the increase principally to collection timing.
Outlook, risks, and other notable items
- No specific revenue or earnings guidance was provided. Landstar anticipated approximately $54 million of operating-property acquisitions during the remainder of fiscal 2013, primarily replacement trailing equipment and information-technology equipment, through purchases or leases.
- Management believed operating cash flow and available borrowing capacity would be adequate for debt service, growth, share repurchases, and working-capital needs. The first quarter is typically seasonally weaker than the June, September, and December quarters.
- The company said it did not expect quarterly-results-related dividends for the four quarters of fiscal 2013 and first three quarters of fiscal 2014, following a separately announced $0.50-per-share dividend. No cash dividends were paid in Q1 2013. Up to 1,991,877 shares remained authorized for repurchase; none were bought during the quarter.
- Key risks include accident and insurance-claim frequency or severity, unfavorable development of existing claims, dependence on independent sales agents and third-party capacity providers, transportation demand, competition, systems or vendor disruptions, and regulatory changes. Claims or litigation could materially affect results in a particular quarter or year, though management did not expect a material adverse effect on financial condition after provisions.
- Interest-rate sensitivity was described as limited: a 100-basis-point rate increase on the $25 million drawn under the credit facility was estimated to add $250,000 of annualized interest expense. Management reported effective disclosure controls and no significant changes in internal controls during the quarter.
Important facts for investors to verify
- Whether lower truck volumes and revenue per load persist, and whether multimode growth can offset weakness in truck transportation.
- Subsequent development of self-insured claims, given the higher unfavorable prior-year claims adjustment in Q1.
- Whether operating cash flow remains strong after the benefit from receivable-collection timing normalizes.
- Actual fiscal 2013 capital spending and lease commitments compared with the approximately $54 million remainder-of-year estimate.
- Debt-facility availability, covenant compliance, and the timing and amount of any future dividends or share repurchases.