Landstar System Inc (LSTR) 2009 Q1 法說會逐字稿

Good afternoon and welcome to the Landstar System Inc.'s first quarter 2009 earnings release conference call. All lines will be in a listen-only mode until the formal question-and-answer session. 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'Malley, President, Landstar Carrier Group; Jim Handoush, President, Landstar Global Logistics. Now I would like to turn the call over to Mr. Henry Gerkens.

Good afternoon and welcome to the Landstar 2009 first quarter earnings conference call. This call will be limited to no more than one hour. Again, please limit your questions to no more than two questions each when asked, 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 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 2008 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.

During our 2009 first quarter mid-quarter update call, I stated that if the revenue decline for the first quarter of 2009, over the first quarter of 2008, was 20%, then I would have anticipated diluted earnings per share for the first quarter of 2009 to be in a range of $0.25 to $0.30 per share. Although I gave no specific guidance, I did provide an indication of how our variable cost model would react, given a negative quarter-over-quarter revenue assumption.

Actual revenue for the 2009 first quarter was approximately 23% below the revenue in the 2008 first quarter. Actual 2009 first quarter diluted earnings per share was $0.27 per share.

The 2009 first quarter was a challenging quarter, to say the least. It is the worst freight environment I have seen in my 20-plus years at Landstar. The effects of the recession are being felt in just about every sector Landstar serves, including government traffic, which was down over 20% quarter over quarter.

Big three automotive company loadings at the carrier group were down almost 42% quarter over quarter, and all automotive-related revenue, including revenue generated through 3PLs, was down approximately 30%.

Substitute line haul revenue was down approximately 46% quarter over quarter.

A couple of points to keep in mind from a Big Three automotive loadings perspective and our substitute line haul revenue. First quarter of 2008 was the largest quarter in the 2008 year as it relates to Big Three automotive loadings. After the 2009 second quarter, quarter-over-quarter revenue comparisons should become somewhat easier.

The same holds true for our substitute line haul business. Quarter-over-quarter revenue comparisons should become easier in the latter half of the 2009 third quarter.

Also impacting the first-quarter revenue amounts was truck brokerage, rail, air, and ocean fuel surcharge revenue, which amounted to approximately $11 million in the 2009 first quarter, versus $35 million in the 2008 first quarter. It should be noted, however, that the shortfall in fuel surcharge revenue had a positive impact from a gross margin percentage perspective because generally, we have all always paid a substantial portion of the fuel surcharge back to the carrier.

Revenue haul by BCOs was down 19%. Revenue haul by broker carriers was down 28%, which includes a decline in the brokerage fuel surcharge revenue. And revenue hauled through rail intermodal carriers was down 43%, while revenue generated through ocean and air carriers was up 18%.

The large decrease in revenue haul by intermodal carriers was primarily due to the decline in substitute line haul service revenue.

Let me talk about some of the revenue trends in the 2009 first quarter. Revenue for the months of January, February, and March of 2009 were all down from the prior-year's months. January 2009 versus January 2008 was down 22%. February 2009 versus February 2008 was down 19%, and March 2009 versus March 2008 was down 26%.

Truck transportation load volumes were down 19% in January of 2009 versus January of 2008, 15% in February 2009 versus February 2008, and 16% in March 2009 versus March 2008. Overall, truck transportation revenue per load declined 5% in January 2009 versus 2008, 5% in February 2009 versus February 2008, and 11% in March 2009 versus March of 2008.

Generally, the load volume decline stabilized towards the back half of the quarter. But pricing deteriorated in the latter half of the quarter because of excess capacity and a very weak demand. Increasingly, customers are looking for price concessions from their transportation providers.

Also, in an effort to increase capacity utilization and cut their losses, many of the larger company -- iron companies have drastically undercut price. The pricing actions by some company -- iron companies can only be characterized as a desperate measure.

Despite the current environment, we continue to see much opportunity to attract new agents to our system. Our agent location account at the end of the 2009 first quarter was 1,445, compared to 1,375 at the end of the 2008 first quarter and 1,428 at the beginning of the year.

Additionally, during the 2009 first quarter, we added nine agents who had a prior revenue run rate of at least $1 million. Since the beginning of the 2008 fourth quarter, we have now added 27 of such new agents.

Agent revenue from all new agent locations added over the past year amounted to 17.9 -- $17.8 million in the 2009 first quarter.

Our number one strategy in this environment is to add quality, productive agents. I can't overemphasize how strong our pipeline of prospective new agents is.

In addition, we are making good progress on our universal agent and business unit specialist initiatives.

We continue to look past the next couple of quarters and lay the foundation for future growth.

From a profit-and-loss standpoint, it is all about our business model. Our variable cost business model yielded an operating margin of 5.1%. SG&A expenses were $1.5 million lower, despite an unanticipated $1.4 million increase in the provision for trade accounts receivable.

From a gross margin perspective, gross margin was 17% in the 2009 first quarter, up from 15.9% in the prior-year first quarter.

Our balance sheet remains strong. We ended the quarter with $154 million in cash and marketable securities, an increase of approximately $32 million from the end of the 2008 fourth quarter.

In addition, we reduced long-term debt, including current maturities, by $19 million from the end of the 2008 fourth quarter.

In short, Landstar's financial position remains very, very strong.

As we move into the 2009 second quarter, I see little change in the overall operating environment. Although there are some encouraging signs, there remains much too much capacity in the marketplace. Demand continues to be weak and pressure on price remains.

As it relates to Landstar, I expect the second quarter of 2009 to remain challenging -- as automotive, substitute line haul, and a slowdown in projected power generation equipment moves all present some headwinds.

However, those headwinds should start to dissipate to some degree in the third quarter. Additionally, the decline in load volumes generally appear to have leveled off.

As credit markets begin to loosen, as stimulus geared towards infrastructure rebuilding takes effect, and as the economy slowly improves in the latter half of 2009 and into 2010, I believe Landstar should be very well positioned.

As it relates specifically to the second quarter, I am not comfortable giving revenue or earnings guidance at this time. However, assuming the same rate of revenue decline in the 2009 second quarter that occurred in the 2009 first quarter, the resulting diluted earnings-per-share amount for the 2009 second quarter should be in a range of $0.40 to $0.45.

Again, this should not be considered guidance, but it does demonstrate how our variable cost business model would react, given such a revenue decline.

I'm going to turn it over to Jim for his financial review.

Henry has already discussed the revenue for the 2009 first quarter. I will cover various other financial information included in our first quarter release.

Investment income was $425,000 in the 2009 quarter, compared to $1.1 million in the 2008 period. The $671,000 decrease in investment income was attributable to a decrease in the rate of return on investments held by the insurance segment in the 2009 first quarter.

Purchased transportation was 74.9% of revenue in the 2009 quarter, compared to 76.4% in the 2008 first quarter. The decrease in purchased transportation as a percent of revenue was attributable to a decrease in rates of purchased transportation paid to truck brokerage carriers, which was partly attributable to lower fuel surcharge revenue; a decrease in truck brokerage revenue hauled on behalf of less-than-truckload carriers, which tend to have a higher cost of purchased transportation; and an increase in the percentage of revenue hauled by BCO independent contractors, which tend to have a lower cost of purchased transportation.

Commissions to agents were 8.2% of revenue in the 2009 quarter, compared to 7.7% in the 2008 quarter. The increase in commissions to agents as a percent of revenue was primarily due to increased gross profit representing revenue less the cost of purchased transportation on revenue hauled by truck brokerage carriers.

Other operating costs were 1.6% of revenue in the 2009 quarter, compared to 1.1% in the 2008 quarter. The increase in other operating costs as a percentage of revenue was primarily attributable to an increase in trailing equipment maintenance costs in the 2009 period.

Insurance and claim costs were 1.9% of revenue in the 2009 quarter, compared to 1.6% in the 2008 quarter. The increase in insurance and claims as a percentage of revenue was attributable to favorable [development] of prior-year claims reported in the 2008 first quarter, partially offset by decreased frequency and severity of accidents in the 2009 first quarter, compared to the 2008 first quarter.

Selling, general, and administrative costs were 7.3% of revenue in the 2009 quarter, compared to 5.9% of revenue in the 2008 quarter. The increase in selling, general, and administrative costs as a percentage of revenue was primarily due to the effect of decreased revenue.

Customer bad debt was $1.4 million higher in the 2009 first quarter, compared to the 2008 first quarter, primarily due to one customer.

There was no provision for bonuses included in the 2009 first quarter, as management does not currently anticipate achieving bonus targets.

Excluding the impact of customer bad debt and bonus provisions from the 2009 and 2008 first quarters, selling, general, and administrative costs in the 2009 first quarter were approximately $1.3 million lower than the 2008 first quarter. The decrease was primarily due from certain cost-saving initiatives implemented during the 2009 first quarter.

Depreciation and amortization was 1.2% of revenue in the 2009 first quarter, compared to 0.8% in the 2008 first quarter. The increase in depreciation and amortization as a percent of revenue was primarily due to the effect of decreased revenue and an increase in Company-owned trailing equipment.

Interest and debt expense was approximately $1.2 million in the 2009 quarter, compared to $2.1 million in the 2008 quarter. The decrease in interest expense was due to lower interest rates and lower outstanding borrowings under the Company's senior credit facility.

The effect of income tax -- the effective income tax rate was 38.4% in the 2009 quarter, compared to 38.9% in the 2008 quarter. The decrease in the effective income tax rate was primarily attributable to certain state income tax planning strategies implemented in the 2009 period.

Net margin, representing revenue less the cost of purchased transportation agent commissions divided by revenue, was 17% in the 2009 quarter, compared to 15.9% in the 2008 first quarter. The improvement in net margin was primarily due to the factors previously discussed regarding the cost of purchased transportation agent commissions.

Operating margin was 5.1% in the 2009 first quarter, compared to 6.7% in the 2008 first quarter. The decrease in operating margin was primarily due to the decrease in revenue, partially offset by the improvement in net margin during the period.

In addition, SG&A, excluding the impact of any provision for bonuses in the first quarter of any year, is typically higher than any other quarter during the year, and first-quarter revenue is typically the lowest of any other quarter during the year. Therefore, a significant decrease in first-quarter revenue results in increased pressure on operating margin in the first quarter as compared to other quarters of the year.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $154 million. During the 2000 first quarter, Landstar reduced long-term debt by $19 million since 2000 fiscal year end.

Cash flow from operations was $81 million during the 2009 first quarter, compared to $34 million in the 2008 first quarter.

During the 2009 first quarter, Landstar purchased 391,000 shares of its common stock at a total cost of $12 million. The Company is authorized to purchase 2.6 million shares of common stock under its authorized share purchase programs. Shareholders' equity represents 68% of total capitalization at the end of the 2009 first quarter. 2000 trailing 12-month return on equity remains high at 41%.

Thanks, Jim. Terry, we can open it up for questions at this point.

(Operator Instructions). Chris Ceraso, Credit Suisse.

Good afternoon. Just a couple of questions. I don't know if you have given this before, but can you give us a breakdown at the gross margin level between the business carried and the BCO segment versus the brokerage business?

BCO runs anywhere in the 19% to 20%, whereas the brokerage is 9% to 11%.

Did that widen out quite a bit versus a year ago because of what happened with fuel and the cost to purchase (multiple speakers)

On the brokerage side, yes, definitely, we saw improvement in that net yield. So in a tight capacity -- and high fuel costs, you'd probably see a 9% margin, whereas when things loosen up and fuel goes down, you probably have more toward the 11%.

Okay. And then, what's your outlook for pricing as we roll into Q2? Does it continue to worsen or do people start to go out of business in this type of market?

You can't run a loss for too -- there's only so much losses you can run up, and at a certain point in time, when I think of capacity, it's not -- capacity has not come out of the marketplace at the rate that I thought it needed to come out. And people are hanging in there.

On the other hand, with some of the pricing things that we've been seeing here, as I said in my prepared comments, pretty desperate pricing measures. In fact, they are still losing money on those moves. We don't participate in that type of stuff.

So I would anticipate that, at some point in time, there's got to be some exodus in the marketplace. It's just that people can't make money at some of the pricing that we have seen. Pat, do you have anything -- you want to add anything to that? No? Okay.

Thank you very much.

Tom Wadewitz, JPMorgan.

You talked about the -- your non-guidance comments that your revenue -- if the decline in revenue at the second quarter was similar to first quarter, you would be in a certain range, $0.40 to $0.45. What's your view on revenue growth in the second quarter? Do you think that it's going to deteriorate a lot relative to first quarter on a year-over-year basis, or what kind of visibility do you have to that?

Because it sounds like March for your business was a fair bit weaker than the first two months of the quarter. (multiple speakers)

Yes, March was weaker, and I think I'd said on the mid-quarter, when February was a little bit better, that I don't -- I can't take anything by any trend at all in this environment. Other than I think we have seen some stabilization in volume, and actually in some of the pricing at this point, it's sort of stabilized to some degree also.

But the big issue right now is the pressure on pricing. Didn't give guidance because of that fact. 20 -- between 20% and 25% -- I think that's where -- the assumption is if you assumed what we did in the first quarter at 23%, those would be the numbers. I think the variable cost model shakes out in that fashion. (multiple speakers)

You're not expecting a big change in the revenue performance year over year in second quarter from first quarter.

No.

Okay. Let's see -- what about the -- I guess you talked a little bit about -- you didn't see the capacity reductions. What about the pricing change? A lot of your business is spot, but if you said I think contract rates or truckload rates, as we see them over the next quarter or two, how much do you think they are down on a year-over-year basis? Is it 5% or do you think it's a lot more than that?

Pat, Jim, you want to answer that?

Pricing -- again, I think what Henry highlighted in his opening comments is we've seen deterioration in prices as we've gone through the quarter. But the silver lining in any dark cloud is that if you think about from our brokerage margin perspective and our PT in capturing outside capacity, it kind of gives us an insight as to what kind of pricing they are demanding to move the truck.

So there are some silver linings to that dark cloud, if you will. I think Jim has the number specifically on pricing.

When you think of rate per load for us, it's kind of in the mix. You got heavy haul in the flatbed side, and you got -- on the van side, and -- [like a] haul, which for us hasn't changed in the last -- it's been about 800 this year's quarter and last year's quarter.

But if you just look at try and carving out a [pure] rate per mile, which is about as clean as you can get it, and on the BCOs, which would exclude fuel, you're talking a rate per mile that's off about five -- 3% to 5%.

And that's the level you think it probably stays at for a little while, down kind of 3% to 5%.

Correct.

Great. Thank you for the time.

Justin Yagerman, Wachovia.

Good afternoon, guys. I wanted to see if I could dig into operating income by division. You guys typically give that out. I didn't see that in the release. Is there any way you could give that breakout?

Division meaning -- by what? Because we changed our reporting structure (multiple speakers)

Carrier group versus insurance segment.

That's not required but I have done that specifically, so I can avoid some questions that are not relevant to how this works. You should look at insurance really from the P&L standpoint as a percentage of revenue, because that's really how you drive it. That stuff will be disclosed in the 10-Q, but Jim, if you want to give that, that's okay.

Operating income, $15.106 million transportation logistics. $8.612 million at insurance.

$8 million (multiple speakers)

Hopefully, that adds to what you got as operating income.

Okay. No, because we have $23.7 million for the quarter as operating income.

Yes, $23.718 million?

Yes.

Yes, I said $15.106 million --

15, I thought you said five-oh. I guess I was little hopeful.

$15.106 million.

$15.106 million. Okay, thanks. And then, I was trying to get a sense in April of how some of those trends continued on. You guys gave through March. Pricing down 11% in March, did that get worse as we moved into April? Henry, you said that things looked like they were starting to stabilize on the (multiple speakers)

I wouldn't say pricing got worse in April, it -- albeit it's only two weeks going in. It's pretty consistent with where we were in March.

Thanks, guys. Appreciate it.

Jon Langenfeld, Robert W. Baird & Company Inc..

Good afternoon, guys. Henry, when you talked about the revenue per loads stat deteriorating in March, minus 11%, how much of that do you think was fuel? I know fuel was running up all quarter, in the first quarter of last year, versus pure price aggression.

Jim?

It's a little less than half. If we are down 13% on a rate per load on a brokerage, it's probably a little less than half of that is due to fuel. So maybe 6% of that 13%. Half of the 13%.

But the increment -- it seems like you are minus 5 in the first two months, then minus 11 in March. A steep drop-off. That incremental drop-off -- should we look at it the same way? Kind of half was fuel, half was the environment?

A little less impact of fuel in March, but not a big difference for what the quarter looked like.

So the big delta, then, between February and March trend is really pricing, is what you are saying.

Less fuel. It was (multiple speakers). It's a little bit less impact from fuel. It's not a significant change from February to March, but it is a little different.

Because the revenue per load was significantly different, it sounds like.

Yes, 13% would fuel in and 7% would fuel out.

But the number -- I'm sorry, the number you provided in the prepared remarks, about the minus 5% in February, minus 11% in March, that referred to overall company, correct?

That's correct. (multiple speakers) Hold it, no, that's transportation -- that was the truck transportation.

Just truck, okay. And then, within that number, just looking at that relative degradation between March to February, the minus 5% to minus 11%, I guess my question is is the majority of that degradation fuel or sheer pricing?

That's a mix -- the truck transportation, that's a mix between BCO, which doesn't have fuel, and brokerage, which has fuel. You can isolate that just to the brokerage piece. That's kind of what I was leaning on, is the rate per load on truck brokerage, which is disclosed in the release (multiple speakers).

That, for the quarter, that was off 13%. And with -- if you take the fuel out, it was off 7%. [Problem] look at it by month, in March it was up 18% with fuel and 11% without fuel. And that's truck brokerage.

That gives me what I need, right there. And then, does Easter have much of an impact on you, you guys? I mean, with Easter being in March last year, does that have a positive benefit or not really?

Yes, I mean wherever Easter is going to fall, it will be favorable one time and unfavorable the next time. Yes, any time you've got that holiday in one quarter versus the other, it's going to have a slight impact.

And the last thing, on the trailer maintenance, is that something we should expect to continue, or was there more stepped up in the first quarter for one reason or another?

I wouldn't expect it to continue to the degree it was in the first quarter. Last year was unusually low, too. It's really more of a comp issue compared to last year. Last year's maintenance was somewhat lower than we have seen historically.

So I'd expect it to be a little lower going forward compared to the first quarter of '09. But I wouldn't say it's drastically lower.

Thank you.

Ed Wolfe, Wolfe Research.

Good afternoon, Henry. I just want to clarify, I'm sorry because now there's so many numbers. This is going back and forth. But what I heard Jim say was for brokerage in March, just brokerage, minus 18% gross of fuel, minus 11% net of fuel?

That's true.

Can you give those same numbers for February and January?

10% with fuel, 5% without for January. February is 11% with fuel and 5% without.

Thank you, that's helpful. Henry, I'm just trying to understand -- the non-guidance comment that if volume stays where we are, $0.27 will move to $0.40 to $0.45. When it feels like pricing is getting worse through the quarter. You must have some confidence on something on the cost side, I'm guessing. Can you (multiple speakers)

I think you needed to understand what I was saying at the very beginning. I think -- in general, if I assume the same type of revenue decline, and the environment is difficult to predict. So what I am saying is let's assume the same revenue decline, and given the same revenue decline, my earnings per share are going to be much higher in the second quarter and the third quarter and the fourth quarter, because of what Jim described in his closing, as far as the effect of normally a smaller revenue piece in the first quarter, and the fact that we typically have higher expense in the first quarter.

I explained that on our mid-quarter update call also, that just, for example, a 23% revenue decline in the first quarter yielded $0.27. A 23% decline in the second quarter is going to give me a range of $0.40 to $0.45. Big difference because of SG&A.

That's what I'm trying to understand. So can you talk about what those SG&A differences are in the second versus the first?

I think it's historical. All you got to do is go back and look quarter to quarter. If you strip out the bonus payments in each quarter, first, second, third, and fourth, of every single year we have, typically the first quarter is higher, and a large portion of that expense is due to our annual event that we have, vis-à-vis our agent convention, which I think a lot of the analysts that were on -- have been to over the past -- every other year. And that occurs in March.

Can we go through that? What was the bonus payments in first quarter of '08 and in second quarter of '08?

We can do all this stuff on the phone with Jim, if you're going to go through specifics like that. Because all you got to -- all I'm trying to say is -- and we've tried to explain this, over and over, is that the second and third and fourth quarter, the SG&A numbers are typically lower than the first quarter and therefore you typically have always seen a higher margin in the bottom -- in the back quarter.

So, but as far as dissecting the specifics as far as the bonus stuff, Jim, we had bonuses last year of how much in there?

[Three per year, seven something.]

For first quarter, I think he was

1.6.

1.6, and we had nothing this year. And we also had one point -- I don't want to reiterate everything we say.

One of the other things -- but the biggest factor I think you are missing is a 23% revenue decline in the second quarter still means on a consecutive quarter basis, first quarter to second quarter, it means we're growing revenue 15%, but you're not growing the fixed costs.

That's where you're getting the leverage off of the second quarter compared to the first quarter.

I understand the revenue side, the seasonality. That makes sense. I'm just (multiple speakers)

I would anticipate G&A to be, if we ran $34 million now, you run what, $32 million maybe in the second quarter?

Which is typical.

Yes, that's really what we are trying to tell you.

So 34 becomes 32 kind of a thing.

Somewhere in that range.

(multiple speakers) But that's historical is what we are trying to say. There's a difference between first quarter and the remaining three quarters.

That's helpful. That's what I was looking for. The second question I would have -- if you think about volume, and you think about pricing in your business model, is a point of pricing worth how many points of volume?

In other words, if it feels like volume is stabilized but pricing was going down each month, is there a bigger issue with a point of pricing then there is a point of volume? I would think there would be. How do you think about that?

I haven't calculated that in those terms. And I would have to think about that as far as putting it in those terms.

As we've said before, we think there's a lot of things that are occurring that make it kind of difficult to predict, although generally what we have seen, the March pricing, as I look to the first two weeks in April as far as what we are running on a revenue-per-load basis, it really hasn't deteriorated at all. That's been fairly stable.

And if the volumes continue to be stable is where we are starting to look at and see some what I refer to as positive signs.

When you say stable, that's stable with March or stable with the year-over-year April?

Stable as in there is no decline. It's not year-over-year April. No further decline.

So when I look at -- think about that year-over-year, are we still talking about minus 11% revenue per load kind of number? I guess I'm saying what's the comp look like?

What I am saying is I am not getting any of the guidance. What I'm saying is that -- what we are saying -- as I said, I've given no revenue guidance, I've given no earnings guidance. I'm saying that if you assume the same type of aggregate revenue decline, these would be our numbers.

So you just need to accept we are not giving the revenue guidance. What I have said is that we've started to see some stabilization, and I am not saying it's a bottom, so don't misquote me, but we have started to see some signs of stabilization from a -- both from a volume standpoint and in a -- and a pricing standpoint.

I also said that I anticipate the second quarter to be -- to have some headwinds because of continued automotive pressure, pricing pressure, substitute line haul pressure. But clearly, when you get out of the second quarter, things start to alleviate themselves to a great degree as far as from a comparative basis.

One last one, on the positive side of things, the cash flow was terrific. Again, when you think about share repurchases going forward, are you more aggressive given current price, less aggressive, or kind of just normal as you look at (multiple speakers)

Would've been a little bit -- probably a little bit more aggressive. You got Windows involved in the first quarter. That actually was very tight, and other considerations that actually prevented us from actually going into the market probably, maybe more aggressively.

But we've historically acted on our share purchase program, so I don't see any reason why we wouldn't go back in. We are pretty confident on where we are.

Thanks a lot for the time. I appreciate it.

John Mims, BB&T Capital Markets.

On -- the talk of the stimulus spending, have you all seen anything concrete out there? I mean I know it's a big thing that seems to be hanging out -- at some point, stimulus-related spending is going to draw volume. But have you seen anything concrete (multiple speakers)

No. I can honestly say no. That's why I said, [given] my comments, as we start to see some of this. But we really haven't seen much of any of that.

Okay. And looking at the truck brokerage, the revenue seems -- the declines in Q1 kind of contradicts what J.B. Hunt put up earlier this week and what we've heard from some of our private guys. Most of those people are working from a smaller base than you, but can you give some color there? Is there anything (multiple speakers)

What's in contradiction to what they said?

They just -- Hunt put up a revenue gain in the -- year-over-year gain in brokerage revenue. So I didn't know if there was anything in your mix that had -- that would make you more -- more variable?

It's hard for me to evaluate -- I don't know what their numbers are, whether -- I posted an 18% gain in ocean and air. And that's because it's a small number. I'd be curious to see what their other truck operation was, probably down.

So I wouldn't look at it -- and I don't look at it as two operations. It's my transportation thing. But I could -- as I highlighted, I've got a high number in ocean and air, 18% growth because it's a small number. So I don't think the numbers are comparable, quite frankly. I think it's apples and oranges.

Right. That makes sense. And just one little housekeeping thing. Would you mind repeating the share buybacks from the quarter? I just missed that.

391,000.

Great. Thanks for the time, guys.

Todd Fowler, KeyBanc Capital Markets.

Good afternoon, everybody. Just a couple of questions here on the volume trends during the quarter. Specifically on the truck side, it sounds like January was down 19% and February was down 15%. I think you said that March was down 16%.

But looking at March, how did that feel from a seasonal standpoint? Was March as seasonally strong as it should have been for the quarter, even though the volume decline was in line with February? Did you see any sort of ramp-up in acceleration as the quarter ended?

No. I think March was -- March was lackluster, how's that? Normally, March is a pretty robust month. It wasn't -- you didn't feel that. The only thing that gave us, and makes me feel good about what I am seeing, is that things seem to have leveled off.

In addition, we know where the volume shortfalls were and we do know in the back half of this year those comparative numbers become easier. So it leads me to be a little bit more confident, and the key, as we have been talking here, is pricing, and even pricing in the first two months of April has again seemed to have leveled off.

Now I don't want to make a lot about this, and that's why I'm not giving any guidance, because I think it's just a very volatile environment and I don't want to make any judgment calls at this point in time. But we are starting to feel a tiny bit better.

Thank you. I guess to follow up on that, looking at -- you talked about some of the weakness in substitute line haul as well as automotive. Thinking about the exposure that you guys have to machinery and equipment, and I think in your prepared remarks you commented about -- and I want to make sure I understand this correctly.

Are you anticipating that there's going to be a slowdown in power generation moves or are you already seeing that slowdown? And then, how do you feel about what you are seeing within the machinery and equipment movements right now as well as maybe some expectations as the year progresses?

I think, look -- we have felt the effects of recession on all our segments. So we felt it there. The reason I made that comment on power generation, certain customers that we deal with, their, basically, production is not going to come back until the third quarter.

That's not to say our total alternate energy business is -- because we got all the pieces of that that will play, but there is a section of that that we know they are just going to be -- second quarter is going to be a little bit lighter than normal. And that's the reason that comment was made.

As it relates to machinery and equipment, Jim, I don't know if you've got any -- in general, I don't know where those numbers were, quarter over quarter?

The machinery and equipment was off about 20%, and it's mostly in the power generation, non-wind necessarily, but other alternative energy like gas and electric turbine type stuff.

Plus some heavy equipment moves -- the heavy haul flatbed type stuff.

Okay. That's helpful. Where [were] there then in the fourth quarter? Down 20% here in the first quarter, is that better or worse than where you were in the fourth quarter?

Just going to have to give me a minute.

Probably similar to December. My guess is it's probably similar to December. I don't know if I can -- as I recall of the fourth quarter, October was actually positive, then we went slightly negative in November, and then we had a big falloff in December. Is that accurate?

Yes. I think it's in wind generation falls off. (multiple speakers)

It was slightly up, actually, in the fourth quarter. But wind generation dried up -- not dried up, but slowed down in December, through the first quarter.

So, and total machinery was actually up slightly in the fourth quarter, now down about 20% here in the first quarter?

Yes.

Got you. One question here on the non-guidance. Thinking about the revenue trends, if you do see pricing continue to decelerate, I'm assuming that that's probably some risk to -- as you think about where earnings could shake out for the year, maybe pricing continues to deteriorate.

But are you able to -- if pricing comes down more, do you pick up most of that in a reduction to your purchased transportation costs, or is it not a complete off [siming]? Does deceleration in pricing really hurt you more than being able to benefit on the PT line?

The pricing is just -- you kind of get the offset in purchased transportation.

You've got to look at our model. Again, with the -- capacity at 75% from a BCO standpoint, agent at 8%. Again, it's the whole variable cost model that yields the kind of numbers that we are talking about.

Look, some of the pricing we've just walked away from. That's what -- my comment about pricing is -- our BCOs or sometimes, in the fall, certain loads, and we've already talked about I think how we treat our carrier -- broker carriers to a large degree as far as -- even from the fuel standpoint, when that was going down, we'd basically give a lot of that away.

But we are not going to be competitive in lanes that are just not making any sense, because some of the pricing we have seen is just irrational.

My last one here, can you talk a little bit about the agent pipeline? I know you said it's still strong. Do you expect to see the same sort of agent conversion here in the second quarter as what you saw in the first quarter?

And then, if you could give a little bit of color behind -- what are you hearing from the agents as far as the motivation right now to move into your network versus where they are at right now, or continue to be independent? What's really the driver behind the shift that you're seeing? (multiple speakers)

More and more, agents that are within systems, we are hearing stories that these companies are having issues as far as paying their commissions. Delaying their commissions, and I can't think of a better stimulus for agents to come over to the Landstar system.

That's the basis for all of that. We've got a number of great agent possibilities that we hope to bring on in the second quarter, and as I look at my two guys here, I fully anticipate and expect that we will bring in the same amount.

I didn't mean to put pressure on anybody, but thanks a lot for the time.

Thank you for that question, though.

Dan Moore, [Scopen].

A lot of questions have been asked and I'm not going to belabor the points too much here. But I did want to at least address the cost side of the equation a little bit more. And some of this may be minutiae, and stop me if it is.

Just looking at some of the cost line items, obviously SG&A you discussed that a little bit and the fact that you've got a conference -- I guess it happens biannually, did I hear that -- every two years?

Once a year. What you heard was that we try to conduct -- every other year, we have been inviting the analysts (multiple speakers)

So that would be in the costs from last year.

And it occurs in March, and typically it's about a $2 million-plus spend, and again, if you were to look at the SG&A line, and trying to make it apples to apples, because again in 2007, no bonuses. 2008, you had bonuses, and 2009, first quarter [yet], you had bonus.

But if you took out the bonus from all quarters on those things, you would see that typically the January quarter has a higher SG&A, because of the convention. Now the convention used to be in May about a couple years ago, and therefore you had a higher SG&A number in the second quarter. But that is where the higher cost comes from.

In addition to that, we -- I think Jim mentioned we had an expected charge -- due to an increase in provisions for doubtful accounts of about a -- 1.3 million? $1.4 million. We undertook some cost-cutting measures that sort of offset some things, also.

So overall, if you look it apples to apples, as Jim said, we were about $1.4 million, was that about right? (multiple speakers) better than the prior year.

And the one thing I want to understand here, as I look at SG&A, it's down about 3.9% year over year, yet volumes are down 17%. How much opportunity is there to continue to manage that item down over the next quarter or two, leverage that item a little bit more? Because it looks like, optically, it should be down a lot more than it is. With volumes off 17%.

The margin came in at, what, 5.1%, Jim? Yes. We can take some other cost actions as we move forward to the end of the year, but again, I got to be very careful as far as how we move through this particular year. And we will take action when we think we need to take some action.

But I'm not going to take action that's going to cost us revenue down the road. And -- we, at this point, we think we are in pretty good position as far as developing for the future. And if you start to just totally take out your whole -- start tearing apart some of your infrastructure, it doesn't make sense.

Other operating costs, I think you had mentioned that that was up around 13%, 14% because of some maintenance-related items? Is that kind of a -- something we should expect moving forward?

In the prior year, maintenance was real low. So -- that's really what's driving most of it. That cost there is generally a fixed cost. It has to do with -- we're going to always pay our certain amount to maintain the trailers we have out there. It might fluctuate a little bit but you're not going to see a lot coming out.

We can manage the trailer fleet somewhat and get some trailers out of the system to save costs as volumes are down. That's really what we look at. We are monitoring how many trailers we have in the system and how many we can get rid of.

Fair enough. Guys, thanks.

Donald Broughton, Avondale Partners.

Since most of the good questions have been asked, I'll ask more of a minutiae question. Good afternoon, guys. Normally, in periods such as we are experiencing right now, when things are just damn tough out there, you tend to actually pick up a few BCOs. Certainly you did at the agent level. But we were down a few this -- at least sequentially, this quarter. Can you cast any color on that? Is it a trend I should expect to see bleed off a little bit, or are we going to see it pick up as the year goes on?

Typically, and if I analyze the adds and the deletes, we added more in the first quarter this year than we added in the first quarter last year. But what you've got, you've got to remember also that March is licensing season, so typically in the first quarter, you tend to lose more BCOs than in any other quarter.

So that's the effect you're seeing. But yes, from an absolute add standpoint, we put more on. Now you've got to take into consideration you're moving into the first quarter, which people don't re-up sometimes.

So you certainly added, it was just a [large] churn rate, and as the year goes on, I should expect to see that number grow sequentially slightly.

Pat, and maybe you've got -- do you have the numbers exactly with you?

If you look at -- we added [part] and we deleted fewer. Last year, the net number was 138 fewer in the first quarter net net, and in this quarter, it was 26. So if you think about our retention, our retention was superior in the first quarter of 2009 versus (multiple speakers)

It really is just the uniqueness to the first quarter again, because people re-up [for] their [plights].*

Fair enough. Thanks, gentlemen.

David Campbell, Thompson Davis & Company.

Hi, everybody. Most of my questions have been asked. I just wanted to make sure that in the cost reductions that you cite in the press release, you pretty much covered them all in your comments, especially with regard to the SG&A. Are there any other cost reduction measures that -- in other parts of the P&L that you haven't mentioned?

No. I think, as you all know, when you look at our P&L, because it's -- if I don't have $1 of revenue, I don't have 83% of the cost, meaning the purchased transportation and the agent commissions. And then, when you look down the rest of the P&L, obviously if we are safe, that impacts that.

But really, the area that you can attack is the SG&A number. There's some minor things we could do with other operating costs, but that is a small number. It's really in the SG&A thing where we would be taking additional action if we saw fit.

Okay. The second and last question, is the decrease in railroad intermodal revenues you cited primarily due to the line haul substitute business going down?

That's correct. Some of the stuff that we did for certain customers, we didn't move it on truck. We moved it on rail. And that business dried up. And with 42% decrease, that tied into the rail intermodal decline.

With regard to rail intermodal, would we expect any improvement in that in the second quarter?

I think if you stripped out the -- I'll let Jim Handoush answer that question. I know if you strip out -- we did see some movement from rail to truck within our customer base. But Jim, do you want to --

As Henry mentioned, most of the decline came on the [f field sub] light haul side. But there's also quite a few customers on -- in the building industry that we saw a decline on and within our top 20 accounts.

Then, again, last year we saw a significant amount of our customer base move from truck to rail -- as an alternative service. And because of the fact that truck capacity is so plentiful now, they are shifting back to trucks because of the price [decisions] that are out there.

Thank you very much.

Tom Albrecht, Stephens Inc..

I'm doing pretty well, thank you. Usually every quarter you are able to give a little bit of a sample for the actual rate per mile in van and flatbed. I know you alluded to that earlier, but I'm just kind of curious. The flatbed platform's like 220 and van is like 175 or something. But kind of where are we in the latest snapshot?

Are you looking rate per mile?

Correct.

On the van side, you're looking for the quarter about $1.69. And on the flat side, you're looking at about $2.32.

Now, those rates do not include the substitute line haul brokerage piece. That's really the true truckload brokerage and BCO business without the substitute line haul business.

Do you have the year-ago numbers to give us some perspective?

[Verse] $1.80 for the van and $2.46 on the flats.

Okay. And then, I just want to clarify something. In the beginning, when you were giving lots of numbers, and you went through January, February, March revenue, then loads, and revenue per load, all of that stuff was just the truck transportation side. That did not (multiple speakers)

That's correct.

And I guess, sort of the last question, I think you essentially answered it, but I want to just hear your words again. There's a lot of discussion about a bottom and pick-ups here and there, but it's -- sounds to me like the best you can say is that the level of your volume declines has sort of flattened out, but you are not necessarily ready to call anything any sort of positive recovery signs yet.

That's correct. I think there are signs, and I think that's a positive sign that volumes appear to have leveled off. Same thing -- I can say the same thing as we move the first two weeks into April from a rate standpoint. But it's just too volatile a climate for anybody to step out and say, hey. That could change tomorrow.

Right. Your brokerage is a little bit of a window into the potential consolidation going on at any time, and you've alluded to the fact that it's been slower to happen. But are you seeing any differences between flatbed carriers going under versus van carriers, or is it not even that clear?

Pat, have you got any --

No, it's not clear. I wouldn't want to comment here that it's a flatbed or a van phenomenon. I think what Henry said in the beginning is -- it holds true. I thought at this time there would have been a lot more capacity exiting the market, but from a flatbed or a van standpoint, I couldn't answer that.

Okay, thank you.

[Anand Allah], [Voyant] Advisors.

Good afternoon. Thanks for taking my question. This one specifically relates to the allowance for doubtful accounts. It looks like it's at one of the highest levels right now. I was just trying to get some color on the write-off that you took this year. Specifically, could you give us some color on the industry and do you expect additional write-offs to come (multiple speakers)

Considering the environment we're in, I think one would anticipate that the allowance for doubtful accounts in any balance sheet you look at should be higher. And there is -- that one particular account that I talked about was in -- what industry, Jim? The building products industry.

So -- but it is -- I don't know how to put any more color on it than if people aren't seeing an increase in the allowance for doubtful accounts, I've got questions -- I question the balance sheet.

And the second question is, with the non-guidance, essentially in the Q4 call you mentioned that there is 1.3 million shares baked into that guidance.

I think it was 1 million shares. (multiple speakers)

It's 1 million? In terms of the 0.4 -- the $0.40 to $0.45 range for Q2, do you have a buyback -- a change in the buyback (multiple speakers)

I don't have a number factored into that. To that number.

Okay. Great. Thank you.

David Max, Decade Capital Management LLC.

I just wanted to ask you a few questions. On military and government, is there any reason or -- hope that with the build-up in Afghanistan we might be able to see higher than historical volumes on that front?

Look, it really -- Pat, you can answer that question. Why don't you answer that question?

If you think about it, they are moving a lot of the materials that are currently in the Persian Gulf up to the theater in Afghanistan. So we are not going to see a lot of domestic movements.

And as the war in Iraq winds down, you're going to see some deterioration in government shipments as well. It's very tied to the military actions around the globe. And so, as you see some of that slow down in Iraq, and those materials that are currently in theater are moving north to Afghanistan. They are not coming from the States over to the theater.

Some guys were also asking about the bottoming. You're saying you think volume has stopped getting worse. What my question was was Easter, the Easter shift made March conceivably look better. You did more operating days. So is the bottom off of that 16%, or is it on like a per-day basis --

We look at load volumes on a per-day basis. And actually, we also look at the revenue per load on a per-day basis and what we are seeing is that things seem to have leveled off.

And you've got to understand what I said. If I really -- if I thought that that was a definite, that things wouldn't change, I'd be giving more -- I would be giving guidance. But at this point in time, the market's just too volatile for me to make any determination or prediction with any conviction.

The only thing I'm trying to tell you is that if -- how our model works, and I think when you look at the numbers that a 23% revenue decline generates in the second quarter, which is anywhere from $0.40 to $0.45 a share, I don't think a lot of other companies can take that sort of a revenue decline and still generate that type of profit.

It is all about our business model, and -- look. Although the recession has hit just about every sector we deal in, I've highlighted where we're really taking it in the shorts, so to speak. And that's in the automotive sector, the substitute line haul sector, and a little bit of decline -- not decline, in government, also.

And we expect the -- certain sections of the alternate energy thing to be a little bit off in the second quarter because of lack of production. But we know that's coming back in the third quarter, and we know that the comparisons are better in the back half of the year also. So that gives us a lot of encouragement also.

But on a per-day basis, were loads down more than 16% in March, or were they down less, or right at that level?

When I look at what is occurring in April, and I looked at the decline versus the prior-year number versus what occurred in March versus March, I'm saying, again, that it looks like the volume declines have leveled off. And I'm not sure how else I can explain it.

I want to beat another dead horse. So I hope you bear with me a second here. Some people have been asking you about how does the margin -- what exactly is happening from first quarter to second quarter, and if I -- frame the question a different way. Sequentially, from first quarter to second quarter, the OR in the last few years has gotten better by around 50 basis points.

In order to kind of hit that kind of rough number that you're kind of -- we're using it as some bookends, you need to have about 150 basis points of margin improvement from the first quarter to the second. So maybe that's partly why some people are asking some margin questions. (multiple speakers)

You got to understand, also, that going into this year we took additional cost-cutting actions that are going to affect (multiple speakers)

Those are cost-cutting actions that didn't really show up in the first quarter but that are going to show up in the second?

No, they probably partly would have occurred in the first quarter, but you got items that occur in the second quarter that we have either scaled down or eliminated. In other words, not everything is spread equally, if you will. It's based on when events occur.

Certain things occurred in the second quarter of last year that we have eliminated. I think -- I'd have to dig deeper into the numbers, but the -- at that type -- it sort of ties to what we said at the very beginning of the year when I gave a full year non-guidance guidance, if you want to call it that, which encompassed a 20% reduction in revenue.

If we had a 20% reduction in revenue, I think I said that would yield approximately about $1.65. I also said in that same conference that the first quarter would be $0.25 to $0.30. So that, by itself, implies that the second, third, and fourth quarter (multiple speakers) -- all right?

And that's only because of the way the costs fall and what was eliminated in the back half or the back three quarters of the year. So, yes, we anticipate -- if the number was 23%, what we would anticipate is a $0.40 to $0.45 EPS number. That's just the way that the model works.

Okay. All right. That's about it. I appreciate the time.

Justin Yagerman, Wachovia.

Asked and answered, guys. Thanks for your time.

Anyone else?

No, currently, at this time, there are no further questions. I'd like to turn it back over to you, sir, for closing comments.

I think the -- it's a challenging environment, but the model holds up well in this kind of environment and I think it holds up as expected. And we've just got to push forward and keep charging on and recruiting agents and working with our existing agents to cross-sell and get additional opportunities. Thanks for listening in, and I'll pass it back to you, Henry.

Again, I think the second quarter is going to be an interesting quarter. As I said, I think as we move into the third and fourth quarter, a lot of those headwinds that we faced in the first quarter, then that we would face in the second quarter will start to alleviate.

In closing, I really want to reiterate how confident I am in our business model and the results it generates. We can't control the economy. However if we continue to execute on these core strategies in this environment, Landstar is going to emerge from this environment with more agents and more market shares and really laying the groundwork for future revenue growth.

And that really is what we are trying to do. We can't control what's occurring now, but we can try to create more opportunities.

With that, I want to thank you and look forward to talking to everybody again on our second quarter mid-quarter update, which is scheduled for May 13. With that, I guess it's good evening. Thanks.

Thank you for joining the conference call today. Have a good afternoon. Please disconnect your lines at this time.