Landstar System, Inc. — Q2 2021 Form 10-Q
Reporting period: Thirteen weeks ended June 26, 2021; comparable quarter ended June 27, 2020. Year-to-date figures cover 26 weeks. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Business context and results
Landstar is an asset-light transportation management provider that arranges freight through independent sales agents and third-party capacity providers. It reports transportation logistics and insurance segments. The filing notes that interim results are not necessarily indicative of full-year results.
| Metric | Q2 2021 | Q2 2020 | 26 weeks 2021 | 26 weeks 2020 |
|---|---|---|---|---|
| Revenue | $1,570.7 | $823.5 | $2,858.3 | $1,751.1 |
| Operating income | $122.2 | $32.2 | $225.5 | $86.2 |
| Net income | $92.3 | $24.3 | $169.5 | $65.1 |
| Diluted EPS | $2.40 | $0.63 | $4.41 | $1.68 |
| Gross profit margin | 14.1% | 13.7% | 14.3% | 14.6% |
| Operating income / gross profit | 55.4% | 28.4% | 55.0% | 33.7% |
Financial position, cash flow and liquidity
- First-half operating cash flow was $137.2 million, down from $198.4 million a year earlier. Management attributed the decline principally to higher net receivables associated with revenue growth.
- First-half investing cash outflow was $58.7 million; financing cash outflow was $142.5 million. Cash and cash equivalents were $186.4 million at June 26, 2021, down from $249.4 million at year-end 2020.
- Current assets were $1,233.3 million and current liabilities $720.2 million; working capital was $513.1 million and the current ratio 1.7:1.
- Long-term debt, consisting of finance lease obligations, totaled $81.6 million, including $30.5 million current. No revolver borrowings were outstanding. The $250 million revolving facility had $216.4 million available after $33.6 million of letters of credit; the company reported compliance with covenants.
- Shareholders’ equity was $830.2 million. First-half dividends declared and paid were $0.42 per share; the company also repurchased 150,000 shares for $23.8 million.
Changes versus comparable periods
- Q2 revenue increased 91% year over year, with transportation revenue up 92%; loads increased about 39% and revenue per load about 38%. First-half revenue grew 63%, with loads up about 25% and revenue per load up about 31%.
- Management attributed growth to strong demand for durable goods, building products and e-commerce, a tight truck-capacity market, and comparison with 2020 periods sharply affected by COVID-19 disruption. Q2 truck transportation revenue per load rose particularly strongly across van, platform and less-than-truckload services.
- Gross profit margin rose in Q2 but declined for the first half. Purchased transportation rose as a share of revenue in both comparisons, reflecting a higher contribution from truck brokerage carriers and higher purchased-transportation rates; agent commissions as a share of revenue declined.
- Insurance and claims expense increased in dollars year over year in Q2 and the first half, but fell as a share of gross profit. Selling, general and administrative expense also increased in dollars, including higher incentive and stock-based compensation, while declining as a share of gross profit.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management expected approximately $102 million of operating-property acquisitions during the remainder of fiscal 2021, primarily trailers and information-technology equipment, and said operating cash flow plus borrowing capacity should meet expected needs.
- Management cited tight truck capacity and strong freight demand, while cautioning that results depend on economic conditions, agent-generated business, capacity availability and cost control. The filing identifies COVID-19, competition, cyber and system risks, regulation, and dependence on agents and third-party capacity providers among forward-looking risks.
- Insurance exposure is a significant risk: excess commercial trucking coverage has become less available and more expensive. Premiums for coverage above $10 million increased about $3 million, or 19%, for the policy year beginning May 1, 2021; the company also increased its financial exposure through self-insurance and other arrangements. Severe or adverse claim development could materially affect results.
- Prior-year self-insured claims estimates adversely affected first-half 2021 operating income by $1.0 million, versus $5.0 million in the prior-year period. The 2020 comparison also included a $2.6 million noncash impairment charge and $12.6 million of COVID-related incentive payments to contractors and agents. These items affect year-over-year comparability.
- Ordinary-course claims and litigation are provided for where probable; management did not expect them to materially affect financial condition, but noted they could materially affect results in an individual period. The filing says disclosure controls were effective and reports no material second-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether elevated freight demand and tight capacity persist, and how volumes, rates and capacity-provider mix evolve.
- Whether insurance premiums, retained claim exposure and unfavorable claims development put pressure on margins.
- Whether receivables and working-capital needs continue to constrain operating cash flow despite earnings growth.
- Execution and funding of the planned remaining-year capital expenditures, alongside dividends and authorized share repurchases.
- How much of year-over-year growth reflects recovery from the unusually weak COVID-affected 2020 comparison versus sustainable underlying growth.