Landstar System, Inc. — Q1 2012 Form 10-Q
Reporting period: Thirteen weeks ended March 31, 2012; comparison is the thirteen weeks ended March 26, 2011. Unaudited interim results; management cautions that first-quarter results are not necessarily indicative of the full year.
Business context
Landstar is a non-asset-based freight transportation and supply-chain services provider, relying on independent commission sales agents and third-party capacity providers. Its reportable segments are transportation logistics and insurance. Transportation logistics generated $640.3 million of Q1 revenue; insurance generated $8.8 million.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $649.0 million | $572.0 million | +13% |
| Operating income | $43.2 million | $34.1 million | +27% |
| Net income attributable to Landstar | $26.8 million | $20.6 million | +30% |
| Diluted EPS | $0.57 | $0.43 | +33% |
| Operating cash flow | $19.9 million | $16.6 million | +$3.3 million |
- Gross profit margin was 16.3%, versus 16.9%. Operating margin, as Landstar defines it (operating income divided by gross profit), rose to 40.8% from 35.4%. Net income was approximately 4.1% of revenue, versus 3.6%.
- Revenue growth reflected a 9% increase in loads and approximately 5% higher revenue per load in transportation logistics. Third-party truck-provider revenue rose 15%; multimode carrier revenue declined 7%.
- Purchased transportation increased to 75.9% of revenue from 75.4%, mainly because a larger share of revenue came from Truck Brokerage Carriers. Commissions remained 7.7% of revenue.
- Cash from operations was $19.9 million; investing activities used $17.3 million and financing activities used $30.1 million. Ending cash was $53.6 million, down from $80.9 million at year-end. Operating cash flow improved mainly due to timing of receivable collections.
- At March 31, working capital was $216.7 million and the current ratio was 1.7:1. Cash plus short-term investments totaled $85.2 million.
- Total debt, including current maturities, was $115.2 million, down $17.1 million from December 31. The company had $60 million drawn on its $225 million revolving facility, $33.6 million of facility letters of credit, and $131.4 million available for borrowing. It reported compliance with debt covenants; the facility expires June 27, 2013.
Changes, outlook, and notable items
- Truck-provider load volume increased 9%; truck revenue per load increased 6%, with management citing equipment mix and tighter truck capacity. Overall, management attributed higher demand primarily to truckload services using unsided/platform equipment.
- Lower other operating costs, insurance and claims costs, and SG&A as a share of gross profit helped operating leverage. The insurance and claims ratio benefited from a greater contribution from brokerage revenue, which management said has a lower claims-risk profile.
- The effective tax rate was approximately 36.7%, compared with 38.2%, partly reflecting tax benefits from employee stock-option disqualifying dispositions. Q1 included $754,000 of unfavorable adjustments to prior-year claims estimates, versus $722,000 a year earlier.
- Landstar paid a $0.055-per-share dividend and stated the board intended to continue quarterly dividends. No shares were repurchased in Q1; 516,551 shares remained authorized for repurchase.
- Landstar acquired $8.9 million of trailing equipment through capital leases and purchased $1.0 million of operating property. It anticipated approximately $47 million of operating-property acquisitions for the remainder of fiscal 2012, primarily replacement trailers and IT equipment. Management said operating cash flow and borrowing capacity should be adequate for debt service, growth, dividends, share purchases, and working capital.
- No specific earnings or revenue guidance was provided. Management noted that March-quarter results are typically lower than those in the June, September, and December quarters.
Risks and contingencies
Key disclosed risks include accident frequency or severity and adverse claims development; reliance on independent agents and third-party capacity providers; weaker transportation demand and industry competition; customer receivable collectability; and operational, regulatory, technology, and vendor risks. The company retains specified per-occurrence exposure for trucking, general liability, workers’ compensation, and cargo claims. Management said adequate provisions had been made for probable litigation losses and that material losses beyond recorded amounts were remote; there were no material developments in previously disclosed proceedings. Interest-rate sensitivity analysis estimated that a 100-basis-point increase on $60 million of borrowings would add about $0.6 million in annualized interest expense.
Important facts for investors to verify
- Whether truck capacity remains tight and revenue-per-load gains can offset higher purchased-transportation costs and any change in carrier mix.
- Whether receivable collection timing and operating cash flow remain supportive of liquidity and planned capital spending.
- Developments in self-insured claims, prior-year reserve adjustments, and the severity or frequency of accidents.
- Progress on the $47 million planned remaining-2012 equipment and IT acquisitions, including capital-lease commitments.
- Facility availability, covenant compliance, and refinancing or renewal plans ahead of the June 2013 credit-agreement expiration.
- Future demand, seasonal trends, and any formal guidance; this filing provides no specific earnings forecast.