Landstar System Inc (LSTR) 2008 Q1 法說會逐字稿

Good afternoon and welcome to Landstar System Inc. first-quarter 2008 earnings release conference call. (OPERATOR INSTRUCTIONS). Today's call is being recorded. If you have any objections, you may disconnect at this time.

Joining us today from Landstar are Henry Gerkens, President and Chief Executive Officer; Jim Gattoni, Vice President and Chief Financial Officer; Pat O'Mally, President Landstar Carrier Group; Jim Handoush, President Landstar Global Logistics.

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

Thanks, Terry. Good afternoon and welcome to the Landstar 2008 first-quarter earnings conference call.

A couple of housekeeping items before we start. First, I am going to limit today's call to no more than one hour. As such, my prepared comments will be a little shorter than usual.

Secondly, I urge each of you to limit your questions to no more than two questions each when the question-and-answer period begins.

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 2007 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.

As you can see from our earnings release, we have revised our segment disclosure by combining the Carrier Group and the Global Logistics group segments into a single segment called Transportation Logistics. This presentation is more representative to the structure and direction of the Company.

During our 2007 year-end conference call, I stated that I anticipated that revenue would increase in the first quarter of 2008 over the first quarter of 2007 in a mid single digit to high single digit range and that diluted earnings per share for the first quarter of 2008 would be in a range of $0.41 to $0.46 per share. I reiterated this guidance on our first-quarter 2008 mid-quarter update call.

Actual revenue for the 2008 first quarter increased approximately 6% over the first quarter of 2007 and was within our range of revenue guidance. Earnings per diluted share finished at $0.45 per share and was in the upper end of our range of diluted EPS guidance.

Once again, we had a very good quarter. The solid results were despite continued weakness in some of the same sectors that were weak all of last year. We continue to do things right and execute on our revenue producing strategies. New revenue brought in from productive agent additions, new customers, increased account penetration and increased revenue per load all contributed to our successful first-quarter results.

Revenue generated by our top 25 accounts represented 36% of the total consolidated revenue in 2008 versus 32% in 2007. Revenue generated by our top 100 accounts represented 52% of consolidated 2008 first-quarter revenue versus 50% in 2007. Revenue generated by our top 100 accounts in 2008 was approximately 16% greater than the revenue generated by these same accounts in 2007.

Included in our top 100 accounts in the 2008 first quarter were 33 Transportation and/or Logistics companies. Revenue at these accounts increased approximately 13% quarter-over-quarter, primarily due to increased substitute line haul revenue with certain carriers.

US government revenue was down over $3 million, entirely due to $3.4 million of FAA revenue included in the 2007 results and none in 2008. All automotive-related revenue, including revenue generated through 3PL's decreased 19% quarter-over-quarter. And despite that automotive shortfall, revenue increased approximately 6% quarter-over-quarter.

Revenue hauled by BCOs represented 53% of total consolidated revenue in the 2008 first quarter versus 56% in the 2007 first quarter. Revenue hauled by BCOs increased slightly quarter-over-quarter as a slight decrease in number of loads hauled was offset by a 3% increase in the average revenue per load.

Truck brokerage revenue represented 38% of consolidated revenue in 2008 versus 36% in the 2007 first quarter. Revenue haul by truck brokerage carriers increased 11% quarter-over-quarter as the number of loads hauled by truck brokerage carriers increased 3% and the revenue per load increased 8%. Revenue generated through rail, ocean and air cargo carriers represented 8% of consolidated revenue in the 2008 first quarter versus 7% in the 2007 first quarter. Revenue hauled by rail intermodal carriers increased 25% quarter-over-quarter, and revenue generated by ocean cargo carriers increased 41% quarter-over-quarter and more than offset a decline of $1 million in revenue hauled by air cargo carriers.

Gross warehouse billings was approximately $900,000, which represented $85,000 of revenue in the 2008 first quarter versus approximately $77,000 of gross billings in the 2007 first quarter, which represented approximately $8000 of reported revenue. However, Transportation revenue associated with the above warehousing billings was approximately $3.8 million in the 2008 first quarter versus only $17,000 in the 2007 quarter. We ended the 2008 first quarter with 1375 agent locations as compared to 1338 at the end of the 2007 first quarter.

There were 237 agent additions added in 2007 and 2008 that generated approximately $22 million of new revenue in the 2008 first quarter. There were 1138 agent locations opened in both the 2007 and 2008 first quarters. Revenue at these agencies increased 5% quarter-over-quarter.

I will now turn it over to Jim for his financial review.

Thanks, Henry. Revenue increased approximately 6% in the first quarter of 2008 to $609 million compared to $577 million in the 2007 first quarter. Revenue hauled by truck capacity, capacity provided by BCO independent contractors and truck brokerage carriers increased 5% over the 2007 first quarter, while revenue hauled by rail and ocean increased 25% and 41% respectively over the 2007 first quarter.

Investment income was approximately $1.1 million in the 2008 quarter compared to $1.7 million in the 2007 period. The $644,000 decrease in investment income was attributable to lower average investments held by the Insurance segment in the 2008 first quarter and a decrease in the rates of return on those investments.

Purchased transportation was 76.4% of revenue in the 2008 first quarter compared to 75.3% in the 2007 first quarter. The increase in purchased transportation as a percentage of revenue was primarily attributable to increased less than truckload substantive line haul revenue hauled by truck brokerage carriers and increased revenue hauled by rail and ocean carriers, which tend to have a higher cost of purchased transportation.

Commissions to agents were 7.7% of revenue in the 2008 quarter compared to 8.1% in the 2007 quarter. The decrease in commissions to agents as a percentage of revenue was primarily attributable to increased less than truckload substantive line haul revenue and increased revenue hauled by rail and ocean carriers, all of which have a lower commission rate resulting from a lower gross profit, representing revenue less the cost of purchased transportation.

Other operating costs were 1.1% of revenue in the 2008 quarter compared to 1% in the 2007 quarter. The increase in other operating costs as a percentage of revenue was primarily attributable to a favorable settlement in the 2007 first quarter of a disputed property tax position with one of the states in which the Company operates and $979,000 in gains on sales of trailing equipment in the 2007 first quarter.

Insurance and claims costs were 1.6% of revenue in the 2008 quarter compared to 3% in the 2007 quarter. The decrease in insurance and claims as a percent of revenue was primarily attributable to a $5 million charge for the estimated cost of the severe accident in the first quarter of 2007, plus decreased frequency and severity of accidents in the 2008 first quarter compared to the 2007 first quarter.

Selling, general and administrative costs were 5.9% of revenue in the 2008 quarter compared to 5.8% of revenue in the 2007 quarter. The increase in selling, general and administrative costs as a percent of revenue was primarily attributable to an increased provision for bonuses under the Company's incentive compensation plans, partially offset by increased revenue.

Depreciation and amortization was 0.8% of revenue in both the 2008 and 2007 first quarters. Interest and debt expense was approximately $2.1 million in the 2008 quarter compared to $1.6 million in the 2007 quarter. The increase in interest expense was primarily attributable to increased capital lease obligations for trailing equipment.

The effective income tax rate was 38.9% in the 2008 quarter compared to 38.8% in the 2007 quarter. The increase in the effective income tax rate was primarily attributable to an increase in state tax, primarily Texas and Michigan which beginning in 2008 initiated a gross receipts tax on revenue, which is significantly higher than the income tax historically charged to the Company by those two states.

Operating margins for the 2008 first quarter was 6.7% compared to 6.4% in the 2007 first quarter. Operating margin in the 2007 period was impacted by the estimated cost of one severe accident of $5 million, offset by $979,000 in gains on sales of trailing equipment, an $800,000 recovery of a previously disputed property tax issue with one of the states in which the Company operates, and $1 million of operating income from revenues generated for disaster relief service under the contract between Landstar Express America and the Federal Aviation Administration.

In addition, there was no provision for bonus under the Company's incentive compensation plans reported in the 2007 first quarter.

Net income in the 2008 first quarter was $23.7 million or $0.45 per diluted share compared to $21.6 million or $0.38 per diluted share in the 2007 quarter. As previously mentioned, operating income was impacted in the 2007 first quarter by several items, including the estimated cost of a severe accident, gains on trailer sales, a recovery of a disputed property tax position and operating income from disaster release services.

Also as previously mentioned, there were no bonus provisions for the bonuses in 2007 first quarter. Overall there was little impact resulting from these items on quarter-over-quarter diluted earnings per share comparisons.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $105 million. During the 2008 first quarter, Landstar reduced long-term debt by $17 million since the 2007 fiscal year-end. Cash flow from operations was $34 million during the 2008 first quarter. The Company has authorized to purchase 734,000 shares of common stock under its most recently authorized share purchase program. Shareholders equity represents 59% of total capitalization at the end of the 2008 first quarter, and 2008 trailing 12 months return on equity remains high at 53%.

Henry, back to you.

Thanks, Jim. I'm excited about the remainder of 2008. Our ability to execute on our revenue growth strategies should continue to generate increased revenue. It is all about execution and focus. Our agent pipeline remains full, and we will concentrate on adding new, productive agent locations. We will continue to bring on new customers and further penetrate our existing customer base by offering a full array of Transportation Logistics services.

Additionally we will seek to penetrate other markets. As we enter the 2008 second quarter, I see little change in freight demand. However, I do see a tightening capacity market and a stronger pricing environment. I anticipate the 2008 second quarter to be similar to that of the 2008 first quarter.

As such, I would anticipate revenue growth for the second quarter of 2008 over the second quarter of 2007 to be in a mid to upper single digit range and earnings per diluted share to be in a range of $0.51 to $0.57 per diluted share.

For comparative purposes it should be noted that the 2008 EPS guidance, that there is approximately $0.02 per diluted share of costs related to bonus accruals not in the 2007 second quarter. In addition, the 2007 second quarter included a total of approximately $0.02 per diluted share of income related to gains on sales of equipment and a legal fee recovery, none of which is contemplated in the 2008 quarter.

And with that, we will turn over for questions.

(OPERATOR INSTRUCTIONS). Ed Wolfe, Wolfe Research.

Jim was going pretty quick, so I'm sorry if he said it and I missed it, but can you talk about what the FAA FEMA revenue was in the quarter and what the operating income and also the year ago, and then talk about what you are expecting or what is in your guidance for second quarter and going forward?

Okay. It is about -- Jim, you can correct me -- it is about $3.4 million of revenue included in 2007 and nothing in 2008. That equates to about a $0.01 per share from on an EPS basis and again 0 in 2008. There is nothing factored in our forecast for FAA. That contract has not been awarded to anybody at this point in time. So there's nothing factored in for any of our EPS numbers or revenue numbers.

I would assume, God forbid there's a disaster, even though they have not reawarded it, that you're still a standing provider of those services. Is that how you're treating it or not?

Let's put it this way, I do not like to assume much, but I would -- if I were the government, yes, I would turn to Landstar.

You stopped breaking out the corporate overhead. Can you give us a sense of what that number was for the quarter and how it was apportioned between Transportation and Insurance?

There is no apportionment between Transportation and Insurance. It all goes to Transportation.

And what is the number for the quarter? It was 12.6 million a year ago, one quarter '07.

14.3.

14.3? Thanks, guys. I will get back in the queue.

Justin Yagerman, Wachovia Securities.

This is Rob Salmon on for Justin Yagerman. I guess you guys had mentioned a little bit toward the end of your remarks about kind of an expectation for a tightening of capacity out there. I was curious what you guys were seeing in terms of your interactions with some smaller carriers, what you're currently seeing in the marketplace on that front?

Well, a couple of things. We see even from our own BCO front as far as more difficult to bring people in because there is less people out there actually looking. People are exiting from our brokerage capacity aspect. It is hard to tell because again we do not know why people might be exiting. We have, as you can see from our report, have increased our total capacity and increased our total brokerage capacity, but when an insurance renewal comes up and it does not come on board, we don't know why that happened, though. So I don't want to make any assumptions. But as I read various publications and talk to various people, there is clearly an indication that capacity is tightening as people go out of business. Actually I'm surprised it is not worse at this point.

No, that is fair enough. On the OR front, you guys had kind of improved actually OR sequentially 30 basis points in a very challenging environment. I was kind of curious what cost buckets that are out there still in terms of trimming it. And if you could just speak to it a little bit in terms of just kind of your philosophy on that front.

Well, I think that one of the things that we do here at Landstar, we are constantly looking at trying to look for efficiencies in productivity. And, as you see, some of the things that we have done with the combining of the segments, which is more of a directional move on Landstar's part, it is really the way we are operating the business as we go forward. There will be more efficiency gains and more productivity gains as we go through that process.

I have said many times before that I would anticipate another full 1 percentage point of operating margin gain over a period of time. I cannot -- I'm not going to say it is going to occur in the second quarter or third quarter or fourth quarter, but I think when you look over continutive time, you will see Landstar improve its margin by 1 full percentage point. I think we have proven that over time.

So we constantly work quarter to quarter to try to improve that margin. Obviously we work on safety a lot, and safety has a huge impact on our margin. But that is how I would respond to that question.

Jon Langenfeld, Robert W. Baird.

Henry, if the environment does take another big turndown, what sort of levers do you have left to pull internally? Have you given thought to that?

Yes, I mean there's things we can do. We don't think, quite frankly, that -- a couple of things, John. If the economy goes down -- if the economy shrinks even further, although I don't think -- I believe personally we are close to turning it around. I mean when you look at our results, I have got six consecutive quarters now of increased -- not quarters -- but six consecutive months of revenue where revenue was increased. So I see a little bit of a turn.

The housing market is still depressed. The automotive, as I explained, is a big issue for Landstar. Had that been flat, we would have been a really robust quarter. We've got a lot of good things happening. We have a variable cost structure here. I am more concerned with concentrating on revenue. There is still freight being hauled. So our job is to go out and get the revenue, and the costs will take care of itself if that occurs.

But I think we have got the team focused right. It is that the economy is one thing, and we cannot control that, so let's just go out and get more business.

Okay, that is good. I mean I would agree with you in terms of being near the bottom. I was just curious on that front. And then my follow-up would be just as it relates to the intermodal side, you guys have continued to put up some very nice growth there. Can you give us some more color in terms of what you're seeing there or what types of products you are hauling and in what regions?

I will turn it over to Jim.

Yes, there has been good growth in the intermodal side in the last several quarters, and much of that pertains to from a major recruiting standpoint as I have discussed before. Some of the new agents we brought on. Some of these smaller IMCs who are looking to stay competitive in the marketplace have reached out to us, and we had one large conversion in Chicago late last year. And, as we bring on these new agents, they bring us into new product lines and new commodity groupings.

So for the intermodal front, it is very diverse in terms of the commodities we are hauling, and we will continue to see growth there as we continue to execute on our strategy of bringing in the agents and in expanding the opportunity that we have. And there is much initiative between the two operating companies that capitalize on customers in our existing portfolio and looking to add services, including intermodal to them.

Very good. Nice job on the quarter, guys.

Tom Wadewitz, JPMorgan.

Let's see, I have got a question to start with here on the pricing. You talked a bit about the market. When do you think -- how long do you think it takes given your view of some capacity being taken out for pricing to really start to improve?

I guess talking to shippers, you don't get any sense that they are looking at higher rates any time for quite awhile. But --

Well, when they can't source capacity, the rates will go up. Not to shortcut you, Tom, and clearly you can comment on the question, but what we have seen, if I could generalize from the flatbed arena, obviously our revenue per load, if you will, is probably up 5%. When I look at the van arena, it has basically held pretty flat. It has not declined. And I think that is a telling sign also.

Okay. So do you think it is third quarter, fourth quarter where you really see pricing start to pick up meaningfully? Is that kind of what you are -- I was looking for a little more sense of timing for when you think it might happen, or you are saying it is already happening now?

On the platform side, we are already seeing the (multiple speakers) pricing opportunities that we will be able to take. And I think you will see that through the balance of the year, frankly. I think what Henry said about the van side is right on the money. It has stabilized where we have seen kind of big declines and then little declines, and over the past year or so, it has stabilized. I do not want to make a similar predication on the van side, but certainly on the platform side, we are already seeing that.

Okay. Great. That is helpful. And I guess the second one in terms of you mentioned that your line hauled revenue with LTL had picked up quite a bit. And I don't recall if you had that in the fourth quarter or not. But what do you think is behind that?

Well, I think it is a couple of things. We have got some increased volumes with certain customers really is what it is. I have decided we're not going to identify the customers anymore for their request and what not. But it is literally due to a pick up in volume with certain customers.

Todd Fowler, KeyBanc Capital Markets.

Henry or maybe Jim, could you guys go over again begin the impact of the bonus here in the first quarter and then what you laid out for going forward for the rest of 2008?

I think Jim will talk about the first quarter, and I will give you what I think is needed for a proper comparison for the second quarter as it relates to our earnings forecast, if you will. But go ahead, Jim.

Basically if we hit targets for the year, your bonus is anywhere between 5 and $6 million.

For the full year?

Yes, and if you figure out quarterly, $1.5 million.

Okay. So maybe like a $0.01 or so here in the first quarter?

It rounds up to 2.

Okay. And then, Henry, for the guidance piece of that then?

Yes, and it ties in with what I had said at the close when I gave my $0.51 to $0.57 per diluted share estimate. We do have approximately $0.02 per share for bonus accruals. In addition, if you go back to the second quarter of last year, you will see in the 10-Q that we had gains related to sales of equipment, which we don't anticipate having this year and a legal fee recovery. All of that added to $0.02 of income in the quarter. So if you add those two together, you're looking at a $0.04 type of item, if you will, when you look at our guidance.

That is very helpful. And then for a follow-up, Henry, I was hoping you could talk a little bit about the profitability of the different Logistics offerings. And I think what I'm sensing is, is we see faster growth in some of the intermodal and the forwarding businesses that maybe those are slightly lower margin on an operating margin basis than the core trucking services. I wonder if you could talk a little bit directionally is that correct, and do you gain any efficiencies as those businesses continue to grow where you get some purchasing leverage and some expanding margins than as those businesses are bigger on a stand-alone basis?

Yes, I think when we have laid out the presentation, it is the way we're going to run our business. If I look at the business capacity owners, for example, and I look at something called net margin, the BCO business is about 21.5% in the 2007 first quarter versus 21.7 in the first quarter of this year. And if I go all the way down to the brokerage carriers, for example, that net margin was 7.2% in the first quarter of last year versus 6.6% this year, and that is all -- that decline, if you will, is all due to increased revenue in one particular part of the chart brokerage, which is the substitute line haul business, which the margin tends to be a lot smaller, and we had a pretty big pickup in there.

Rail intermodal, margin there 4.5%, 2.9% this year, and that really is due to just higher pricing that we're getting charged. And Jim, do you want to comment on that?

That is something we have seen over the last four to eight quarters as we have taken pricing increases most of the rail carriers. So that is passed on to customers and some is not based on some of the contractual obligations that we have. I don't think I mentioned the answer to that.

Yes, and to comment further on that, Todd, so when you look at that, again, the first reaction is always, well, your net margin is better on the BCO business, and in general, that is correct. But again, you can see as more of my business becomes more geared towards other than BCO business, I have less of an insurance exposure, if you well, and you can see that you have some pickups in the Insurance lines and some other lines, other operating costs, for example, that are not included in this net margin number.

So the bottom line that I have always looked at is the more revenue I can put on and pour over my relatively fixed SG&A line, which is what we look at, I'm going to drop more money to the bottom line and hope for -- hopefully get a better leverage on the SG&A line.

So the presentation I think is correct. It is how we're running our business, and those are the types of margins you're looking at, though.

David Campbell, Thompson Davis & Company.

Despite the fact that you said your operating margin should trend up over a period of time, it looks like in the second quarter your target of $0.51 to $0.57 is about the same operating income margin as you had in the first quarter, despite the fact there should be more revenue in the second quarter. Is there some unusual -- I meant is it just too difficult to say that every quarter that is going to be up?

Well, I think I have said many times, David, that I cannot predict an individual quarter as far as when you're going to see that and whether -- does it go up all the time. I think you will see sometimes where it goes one way, and it depends on revenue mix. I have explained in my comments that if you look at, for example, in the second quarter in '07, you had $0.02 per diluted share related to gains on sales of equipment and a legal fee recovery that is not going to be in 2008. So that obviously impacts that, and you're going to offset that.

Yes, it really depends on the revenue mix. Alright? But over a continuum of time, which is what I have always said, you will see improvement in our margin. In fact, if you go back and look at that over a continuum of time, the five years prior to 2007 we have picked up a 2 full percentage points on our margin.

So it just depends on where it falls. I mean that is a longer-term directional statement that I made.

Will you be providing restated P&Ls for last year in an 8-K or anything like that?

Well, the P&L, the consolidated statement of incomes remains the same. As far as the segment data, I mean the segment data really if you add the Logistics segment, the old Carrier Group segment, and the corporate piece, you get the numbers. I mean there is no magic to that, but Jim, you can add something.

The only information that is not available is the revenue per load and the number of loads by mode. Everything else you would just simply add the three columns together that we used to report. The Insurance segment remains unchanged. Everything else rolls into the Transportation segment.

Okay, thanks. Do you have any estimates for the whole year and any targeted earnings estimate for the whole year?

We only comment on that once a year. We did that at the beginning, and I think that is in our first quarter or our year-end press release.

Okay. So, as far as we know, that is unchanged?

We do not update year-end guidance.

Tom Albrecht, Stephens Inc.

A couple of things. In the Carrier Group -- well, the former Carrier Group, whatever you want to call it, BCOs -- I noticed you are no longer giving a rate per mile nor the length of haul. Is there a way to get that still?

That is not really what we use to run the business per se, and it was done because on a certain things -- I have that from the Carrier Group standpoint, and the length of haul really has not changed all that much. The revenue per mile from the Carrier Group standpoint, for example, the vans were virtually flat, and it would have been had I reported that $1.99 last year and $2.06 this year.

Okay. So that $2.06 is the consolidated that reflects the vans and the platform equipment.

Yes. If I broke between the two, it is 228 to 247 and then $1.82 to $1.80. So it is virtually flat on the van side.

Okay. And was there 0 bonus accrual in the second quarter of '07? I heard you say 0 for the first quarter of '07.

That is correct.

Okay. And then --

And that is why I gave those -- as far as trying to help people out as far as it relates to my guidance of $0.51 to $0.57, there is about $0.04 that actually impact that guidance when you think about the $0.02 approximately for bonus accruals. And then last year we had two items that normally you do not see with Landstar gains on sales of equipment, and we had a legal fee recovery, which also added the $0.02. So you had a $0.04 item there for comparative purposes.

Okay. And then last question -- it is really a two-parter.

That is cheating, Tom.

I know. One is a straightforward answer. What percentage of your business is auto now?

And then relative to the agents, I know you have been focusing maybe on just quality of the agent, but it is the second quarter in a row that sequentially the agents have come down. Can you update us on your thoughts there, and how much of that is the economy versus other efforts you have?

Well, I think it is a combination of a bunch of things. And I'm sorry --

The automotive, just the first part of that question, automotive is now about a little over 8%.

Okay, great.

And the second part of your question, Tom, you know when you look at last year and I think if you go back and look at the first quarter of 2007 as it related to 2006, you would see a slight drop-off in agent locations too as far as from the prior year. We have somewhere 23, 24 agent locations that have signed agreements that have not generated any revenue that we do not include in the numbers. And you're also partially correct in the fact that we're trying to make a concerted effort as far as to bring in some bigger hitters than we did before. So it is all timing, and I'm not concerned about that minor drop-off at all.

Jason Seidl, Credit Suisse.

This is [Allison Pyczak] in for Jason today. Just one quick question. What percentage of your agents are currently cross-selling services, Transportation and Logistics, and where do you expect that to trend?

I don't -- and I will turn to each of my operating company presidents, there is very few agents at the current time that are basically selling every mode of transportation.

Now of our -- let me talk to our 495 agent locations that did over $1 million last year, I think those are the guys that will -- or some of them -- that is where you will get the people very interested in wanting to take advantage of this cross-selling ability because those are your more successful agents.

So I have always looked at our -- when I look at my total agent base, that it would be like the 80/20 rule. You have 20% of them that want to basically grasp everything and do everything, and the other people might just be happy with what they do. Now we will try to convince more, but I don't know -- Pat or Jim, do you have any comments on that?

Yes, I think it is really hard to put a percentage on it. There's a lot of agents that work together that we don't even know about, but I can tell you just the activity level of opportunities that we do know of have accelerated over the course of the last 12 months and, of course, the last six months as both operating companies continue to kind of push that as an opportunity.

So I think you will see that generated more and more opportunities for us over the course of the year and the years. But it is very hard -- it is very difficult for us at this time to put a percentage on that at all.

Pat, do you have any comments on that?

Well, I think what you will see is what Jim said is right on the money. Progressively we're getting more and more agents interested in serving their customers' needs on every one of those modes, and we're doing some things internally to make sure that we can have our agents prepared and ready to do that from a sales standpoint and then from a fulfillment standpoint. So it's about selling and executing, and I think we're working on that.

The interest level from the agents is starting to increase. What Henry said is true. Are we going to have every agent selling every mode? I don't think so, but we will have a significant number of them doing it over time.

Fair enough. Thank you for your time.

Matt Grady, Stifel Nicolaus.

I am standing in for John Larkin today. The first one just has to do with the revenue per load growth in the Brokerage segment. Give me some sense for how that shakes out in terms of pure price versus what might be fuel and mix?

Jim, you got that?

Yes, it is -- the problem with trying to split that out and obviously there are some -- it does reflect some fuel pricing in there, is we don't always -- we don't necessarily follow on the brokerage side how much we're billing for fuel versus how much we are billing for rate per mile. Some of the shippers just want us to build it into the rate and others just tell us they want it separated out.

So unfortunately I cannot answer that question. But you can assume that there are some fuel surcharge -- fuel costs built into that rate per load. And if I were to guess, you would probably see a similar increase in rate per load similar to what the BCO rate per load increased would be what the brokerage would increase give or take a couple of points.

Okay, thanks. The second question, you mentioned earlier that safety can have a huge impact on the operating margin in any given quarter. It looked like it in the first quarter you had a great performance from the safety -- from a safety standpoint. Maybe if you could talk about how you were able to achieve that and whether -- how sustainable we should think about that being?

Well, last year's first quarter we had one accident that we estimated to cost $5 million.

I mean I guess even netting that out, does it seem like a great quarter?

Yes, it is sort of like safety -- the old line here is there's no finish line to safety. Just keep pushing safety. Today happened to be Safety Thursday where we had a nationwide conference call at 12:00.

But we continue to push safety. Obviously from just a pure revenue mix standpoint, the more revenue that is modes other than BCO, it just has a greater effect on that percentage also. But yes, it is a safety culture. I cannot point to one thing that we do that says, okay, safety is going to turn on on a dime in the next quarter. You just keep working at it, and it is built up over time.

Now you will have accidents, and sometimes those accidents cost a lot of dollars, which is what occurred last year. But I do not think our -- I mean our safety culture here at Landstar is top-notch, and I think that is why you see generally the great safety results.

Excellent. Thank you very much.

Todd Fowler, KeyBanc Capital Markets.

Henry, I was just curious if you could talk two things. I mean first about some of the trends that you saw during the quarter, and then maybe what you're seeing a little bit more current here in April.

And then the second piece is also if you could talk a little bit about any sort of kickback or any sort of rumblings that you're hearing from the BCOs and the impact on fuel on them as far as how satisfied they are with the relationship with Landstar and what fuel is doing to the individual BCO?

Well, let me just talk about it generally. I think, as I said before, for the last six months and then if I just looked at January, February and March, revenue was up about 6% in March. It was up about 4% in February, and it was up 6% in March. So January was 6%, February 4%, March 6%.

And the one thing about March is you had Good Friday and Easter related in this year's March where you had a sort of negative impact, if you will, because of that holiday thing. And even with that, we grew 6% and even with the automotive decline.

So we feel, as I said, the guidance of mid single digit to upper single digit, we feel pretty comfortable with at this point in time. I think we have got a lot of things going in the right direction.

As far as your question on fuel, as you can see from our press release, we passed back I think it was about 57, $58 million of fuel surcharges that we collected on behalf of -- from customers on behalf of our BCOs, and that was an increase from the prior first-year first quarter of about 66% which is large.

Our agents have done a very nice job of collecting fuel surcharges and passing it back to our capacity. The fact of the matter is, however, it is probably not enough, and we need to continue to go out to get those fuel surcharges. Because the cost of fuel is exorbitant, and it hurts our BCO without a doubt. So we will work very hard to continue to increase that number.

(OPERATOR INSTRUCTIONS). Adriano Almeida, DGHM.

I have a quick one here. Have you actually had any sort of explicit strategy to reduce the BCO count, or is that just something that is happening as a function of --?

We don't have any specific strategy. As a matter-of-fact, I want to increase our BCO count. I want to increase our brokerage count. I think what you're seeing is the effect of the economy. And, as people leave, it is very difficult to get more qualified drivers on board. I think that's the key to Landstar because our standards are a little bit above a lot of other companies out here, and it takes a real businessman to be successful in Landstar. And that is part of the rationale or part of the issue as far as bringing the people in.

Our turnover rate if I were to 52-week annualize that, it is running around 37, 38% as I recall. Pretty good but not where we were at an all-time low at 28% I believe back in '06. And I think that is all due to the economy.

Okay. And I think you gave this but I did not catch it, your $1 million agent count has gone up year-over-year?

Yes, it was 495 at the end of 2007, and in 2006 it was 490.

Okay. And just to get an idea here, it is related to these other two questions. Is there something in the mix as you do more brokerage that allows you to collect faster? Because one of the things that is striking here is your receivables turn keeps going up.

I mean you have not really had accounts receivable growth, even though you're growing revenues pretty nicely. And then this last quarter it actually stepped down. Is there's something that actually allows you -- that is different from, say BCO, versus brokerage and your ability to collect?

It really just has to do with who the shipper is; not who the carrier is. So historically our number of day sales outstanding runs between 45 and 50. So there's nothing specific in there.

John Barnes, BB&T Capital Markets.

Nice quarter. I have got two questions for you.

The first one is, in terms of Europe BCO count -- I think this is a bit of a follow-up -- but is there a number where you start to get a little bit nervous about critical mass? I know you are not anywhere near that right now, but if the numbers continue to shrink or something, is there a number you start to get a bit more nervous about?

I have not really -- generally I would tell you I don't focus on that. Obviously we want to increase our count. I think it is a very difficult recruiting environment right now, but I would not even begin to guess where an issue would be as far as the critical mass.

So you don't believe you are anywhere near that yet?

No.

Okay. The second question, in terms of -- if the economy were to get weaker and you guys had to be a little bit more brutal on the cost structure, could you give us an idea from a headcount standpoint or something like that? How much more headcount could you pull out of the business if you needed to? Or do you feel like -- you all have been a growth company, so you have obviously staffed to be a growth company. If this downturn was a bit more prolonged, is there 5% or 10% of headcount you could remove or would you?

In deference to employees who might be listening to this call, what we would probably do, the first step if something really got bad would be just go on an attrition type thing and not replace people as people leave. But we have never -- and I have been here, John, since, as you know, '88 and have seen a couple of different cycles here as far as downturns. But we have never had it go that far at all.

Alright. Very good. Again, nice quarter.

Donald Broughton, Avondale Partners.

Can you give me just a little bit more -- delve into your reasoning into the changing in the way you classified the breaking out of the business? I mean where are we going, Jim? What are you trying to accomplish?

Well, as you know, over the last three to five years, we have centralized a lot of the administrative and operational functions. If you look back to the late '90s and early 2000s, the operating segments pretty much -- the leaders of those segments ran the business all the way from revenue down to operating income.

As we have collapsed certain administrative functions within the entity and centralized those functions, we have basically -- the support staff now for both Carrier and Global are the same people.

So, as you get to there, the operating company presidents now spend more of their time managing revenue and agents than they do working -- managing to the bottom line. So we like to look at it from a mode standpoint and leave the cost basically to the administrative guys.

In addition to that, Donald, what you're seeing is, as this push to move into a direction where all our agents have the ability to sell all product modes, I mean it also ties into our direction.

So if I characterize it as you are changing your reporting to more clearly or more reflect the way you are internally looking at the business, is that a mischaracterization or --?

That is exactly correct, and it is also from a future directional basis as far as how we are going. So yes, it is all correct.

Right. So I understood the addition part of what you were talking about with David. Revenue per load, though, would be the only thing we could not back into historically. Is that right?

Yes. (multiple speakers)

And could you provide that for us maybe going back at least, say, eight quarters just for modeling purposes, that would be very helpful.

Alright. We can talk about that if you want to give me a buzz. We're working on it. If we go back -- we're thinking about just doing '07 and maybe putting something out.

The further you can go back, obviously the better. But any additional information would be helpful. Thank you, gentlemen.

Jon Langenfeld, Robert W. Baird.

Just to follow-up on the revenue trends, Henry, you were talking 6.4 and 6% April. What would be your read on that?

So far? I would think what I have seen so far would probably hang in -- this is two weeks now, Jon -- my guess is we're probably in the 6% to 7% range.

Okay. And do you have any -- if you think about the environment when it does improve, is there a part of your business you're going to look to as to be the leading indicator in terms of on the demand-side?

Yes, I think, well, Pat, go ahead. You answer it. Sometimes I tend to follow up all the answers.

What we would do is probably within the business capacity piece, the business capacity owner piece and the truck brokerage piece, I would look at what we would call the expedited division and to see if people are starting to ship more on an expedited basis. That usually is a pretty good indication as far as what is happening.

And based on what we can see, it is sort of like flat to the prior year, which actually is much better than it was when you look back a year ago.

So we think there is a little bit of a change. And, as I said, when I look at our overall growth rate over the last six months, we are seeing a change. As I said, we're pretty positive as far as looking for the back half of or the balance of 2008.

And when did the Express side flatten out? Was the third or fourth quarter?

I would probably say it was in the late fourth quarter.

Okay, good enough. Thank you.

David Campbell, Thompson Davis & Co.

Just one last one. That is the airfreight business, I see it was down in the quarter. Is that something we should expect will continue, or was there some unusual thing going on there?

I don't think you should expect that to continue. I think we had a couple of pieces of business that softened us and then one agent who is no longer with us as well. We're able to retain the business. But the overall marketplace is strong, so I do not anticipate that being a long-term trend.

So you do not see any particular weakness in airfreight in the industry in general?

Well, there is some -- I mean -- if I broke out airfreight on the domestic side versus the international side, I think the international side has a lot of growth in it. And obviously we're talking about a small base of our revenue as well. And as we continue to execute on the strategy that we're looking at, there is a lot of market share for us to take out there.

Right, I know. Okay.

[James Gray], Greenleaf Trust.

I guess the question I have is based on your incentive comp that you mentioned, is there any indication that that was not originally planned in your 2008 operating numbers that you indicated, or would this be an incremental incentive comp plan over your original plans?

No, there is no incremental. It always would be incentive comp plans are already predetermined at the beginning of the year.

So it was just not originally planned in your original estimate?

No, it was.

It was baked into the original estimates.

At this time we show no further questions. I would like to turn the call back over to you, sir, for closing remarks.

Thanks, Terry. My only closing remark is that I think Landstar is well positioned to take advantage of a lot of different things in the back half of the year or the remaining nine months of this year, and we are pretty positive as far as going into the second quarter and beyond.

Jim, do you have anything?

No.

Okay. Alright. Well, I look forward to talking to you all on May 16 for our second-quarter mid-quarter update call, and thanks for dialing in, and have a great afternoon.

Once again, thank you for joining the conference call. Have a good afternoon. Please disconnect your lines at this time.