Landstar System Inc (LSTR) 2011 Q1 法說會逐字稿

Good afternoon and welcome to Landstar System, Inc.'s first-quarter 2011 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, Chairman, President and CEO; Jim Gattoni, Vice President and Chief Financial Officer; Pat O'Malley, Chief Operating Officer; and Joe Beacom, Vice President and Chief Compliance, Security and Safety Officer.

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

Thanks, Barb, and good afternoon and welcome to the Landstar 2011 first-quarter earnings conference call. This conference call will be limited to no more than one hour. And in addition, and as usual, please limit your questions to no more than two questions each when the question-and-answer period begins.

But before we begin, let me read the following statements. 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 2010 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.

The 2011 first quarter was another very good quarter for Landstar and a great start to what appears to be an exciting year. Freight demand continues to be strong, and pricing continues to increase as a result of a tight capacity market.

In our 2011 first-quarter mid-quarter update call, I stated that I expected our operating margin for the 2011 first quarter would be approximately 35% and that I was comfortable with the range of analysts' earnings estimates per diluted share as reported by First Call of $0.38 to $0.45 per diluted share.

Actual first-quarter 2011 operating margin was 35.4%, up from 31.3% in the 2010 first quarter. And actual earnings per diluted share for the 2011 first quarter was 43% -- or was $0.43 per share, a 26% increase over the earnings per diluted share reported in the 2010 first quarter.

Consolidated revenue in the 2011 first quarter was approximately $572 million, up approximately 4% from the revenue generated in the 2010 first quarter.

It is important to note two factors when analyzing our consolidated revenue performance in the 2011 first quarter. First, the quarter-over-quarter revenue increase was net of a $57.8 million or 75% revenue decline in the low-margin substitute line-haul service offering. This decline had been well previewed on prior earnings conference calls.

Excluding this substitute line-haul revenue from both the 2011 and 2010 quarters, all other revenue increased approximately 17%.

Second, our revenue increase was despite the negative effect of some very adverse weather conditions in the 2011 first quarter.

Total truck transportation revenue represented 91% of consolidated revenue in the 2011 first quarter versus 92% in the prior-year quarter. Revenue haul by BCOs represented 54% of total revenue in 2011 versus 52% in 2010.

Total brokerage revenue was 37% of consolidated revenue in the 2011 quarter versus 40% of revenue in the 2010 quarter. This composition shift is reflective of the decline in substitute line-haul revenue.

Revenue generated through all broker-carriers, excluding substitute line-haul revenue, increased 36%, and revenue generated through BCOs increased 7%.

From a load volume and revenue per load standpoint, total loads hauled, excluding loads hauled in our substitute line-haul service offering, increased approximately 5%, while revenue per load -- again, excluding the revenue per load associated with our substitute line-haul service offering -- increased 12%.

In the 2011 first quarter versus the 2010 first quarter, total van revenue, excluding substitute line-haul revenue, increased 18%, with a little more than one-half of the increase due to rate. Total platform revenue increased 16%, entirely due to increased revenue per load, which is reflective of how tight flatbed capacity was in the 2011 first quarter. I might add that I expect the tight capacity environment to continue as we move further into 2011.

First-quarter 2011 over first-quarter 2010 revenue increases in all our other transportation modes were impressive, as rail intermodal revenue increased 11%, air and ocean cargo revenue increased 56%, and transportation management fee revenue increased approximately 18%.

From a price/volume standpoint, the rail intermodal increase was approximately 50% price and 50% volume, while the increase in air and ocean cargo revenue was more than half volume-related.

Our gross margin in the 2011 first quarter improved to 16.9%, up from 16.5% in the 2010 first quarter. The increase in Landstar's gross margin was driven by the replacement of the low-margin substitute line-haul revenue, which is an approximately 2% gross margin business with higher gross margin BCO and brokerage business. Jim will go into further detail on that improvement shortly.

From a new agent revenue standpoint, revenue generated from all new agent locations added over the past year amounted to $25.2 million in the 2011 first quarter. We continue to recruit quality, productive agent locations. Prospective agents continue to be attracted to Landstar because it is a 100% agent-based company whose operations are geared toward supporting its agent base. Our list of prospective new agents remains long.

From a profit and loss standpoint, operating income in the 2011 first quarter increased 20% over the 2010 first quarter. And as I said before, operating margin was 35.4% in the 2011 first quarter compared to 31.3% in the 2010 first quarter, a very healthy increase.

Jim, I will turn it over to you for the P&L analysis.

Thanks, Henry. Henry has already discussed certain information regarding the release. I will cover various other financial information included in the first-quarter report.

Gross profit, representing revenue less the cost of purchase transportation and commission to agents, was $96.4 million or 16.9% of revenue in the 2011 quarter compared to $90.5 million or 16.5% of revenue in the 2010 quarter. During the 2011 and 2010 first quarters, revenue hauled under contracts that generate a fixed profit margin contributed 68% and 76%, respectively, of total revenue. This compares with 70% in the 2010 fourth quarter.

In the 2011 first quarter, purchase transportation costs paid to truck brokerage carriers as a percent of revenue, excluding the revenue and cost of purchase transportation on the substitute line-haul service offering, increased 150 basis points over the 2010 first quarter.

Although the rate of purchase transportation, excluding the cost of purchase transportation on substitute line-haul revenue, increased over the prior-year quarter on revenue hauled by truck brokerage carriers, gross margin increased to 16.9% in the 2011 first quarter from 16.5% in the 2010 first quarter.

Although one would expect gross margin compression due to tighter capacity in the 2011 quarter, Landstar expanded gross margins over the 2010 first quarter by 40 basis points as a result of 68% of the Company's first-quarter 2011 revenue being generated on a fixed margin, plus a significant decrease in the Company's substitute line-haul service offering, which generates a 2% gross margin.

Overall, the cost of purchase transportation was 75.4% of revenue in the 2011 first quarter compared to 76.1% in the 2010 first quarter. This decrease was primarily due to the significant decrease in the Company's substitute line-haul revenue, which has a higher rate of purchase transportation, partially offset by an increased rate of purchase transportation paid for revenue hauled by truck brokerage carriers, as mentioned earlier.

Commissions to agents were 7.7% of revenue in the 2011 first quarter compared to 7.4% in the 2010 quarter. This increase was due to the significant decrease in the Company's less-than-truckload substitute line-haul revenue, which has a lower rate of agent commissions, partially offset by decreased commissions to agents on revenue hauled by truck brokerage carriers due to the increased rate of purchase transportation on revenue hauled by truck brokerage carriers.

Other operating costs were 8.2% of gross profit in the 2011 quarter compared to 8.3% in the 2010 quarter. This decrease was primarily attributable to the effect of increased gross profit, partially offset by increased maintenance costs on Company-owned trailer equipment.

Insurance and claims costs were 11.7% of gross profit in the 2011 quarter compared to 13.6% in the 2010 quarter. The decreased insurance and claims as a percent of gross profit was primarily due to decreased cost of cargo claims in the 2011 first quarter.

Selling, general and administrative costs were 38.6% of gross profit in the 2011 first quarter and 40.7% of gross profit in the 2010 first quarter. The decrease in selling, general and administrative costs as a percent of gross profit was primarily due to increased gross profit in the 2011 first quarter and the lower provision for bonuses under the Company's incentive compensation plan.

Depreciation and amortization was 6.6% of gross profit in the 2011 first quarter compared to 6.4% in the 2010 first quarter. This increase was primarily due to depreciation on trailer equipment acquired during 2010 to replace older, fully depreciated equipment, partially offset by the effect of increased gross profit.

Investment income was $528,000 in the 2011 quarter compared to $285,000 in the 2010 period. The increase in investment income was primarily due to an increased rate of return on investments held by the insurance segment.

The effective income tax rate was 38.2% in both the 2011 and 2010 first quarter.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $76 million. 2011 first-quarter cash flow from operations was $16.6 million. Cash CapEx was $2 million in the 2011 first quarter. Trailing 12-month return on average shareholders' equity was 33%, and trailing 12-month return on invested capital, representing net income divided by the sum of average equity plus average debt, was 23%.

At March 26, 2011, shareholders' equity represented 69% of total capitalization.

Henry, it's back to you.

Okay. Thanks, Jim. With capacity tight and the freight environment relatively strong, I expect a strong 2011 second quarter. I believe we are well positioned to take advantage of all the opportunities this marketplace presents, from new agent signings to further expansion into other transportation modes to the complete management of a customer's transportation requirements to what Landstar does best -- providing safe, reliable truckload transportation capacity, whether platform or van.

Landstar has now put together five consecutive solid quarters since the end of the 2009 year. I anticipate that trend will continue for many more to come.

The 2011 second-quarter revenue will again be negatively impacted by the loss of a significant amount of the low-margin substitute line-haul revenue. I anticipate 2011's second-quarter substitute line-haul revenue to be 70% to 80% lower than the 2010 second-quarter substitute line-haul revenue.

And like the 2011 first quarter, I expect that loss revenue should be more than offset by increased higher gross margin revenue. As such, I currently anticipate our operating margin to be about 42% in the 2011 second quarter, a significant sequential improvement from the 2011 first quarter of 35%.

I currently estimate earnings per diluted share to be in a range of $0.56 to $0.61 per share. One other note -- the lower end of the range of our second-quarter EPS estimate is equal to the highest second-quarter diluted earnings per share in Landstar history.

In closing, I believe Landstar is well on its way to achieving new heights in 2011. And with that, Barb, we can open it up for questions.

(Operator Instructions). Jon Langenfeld, Baird.

So, when you look at the volume on the trucking business, the BCO business specifically, my recollection is not a lot of the substitute line haul in there. But can you talk about the trends there and how it progressed through the quarter, but then more broadly about the recruiting efforts, Henry, that you've alluded to here over the last couple quarters and how that is going?

Yes, a couple things, and I will let Pat add on on the recruiting side. As we moved through the first and second months of the quarter and into the third month, the BCO number of loads hauled I believe had improved sequentially January to February to March.

One of the things that we probably had a little bit of a miscalculation as far as what we were looking at, we thought there was going to be more of a BCO mix. And that really has to do partly, to your second question, we underestimated where the BCO count was going to be in the first quarter.

Typically, in the first quarter, however, you do get a downplay on BCO count. And if you go back in history, I think you will see that. We have put a renewed emphasis on recruiting. Again, it is important for us to haul the customers' freight. We are revisiting what we're doing from the recruiting standpoint. And we've clearly put some more emphasis on that. And I'm really not worried about where that count is.

But, Pat, why don't you tell Jon what we're doing in that regard?

Jon, we have initiated several new programs to bring on BCOs. If you take a look at the first quarter, the turnover rate in the first quarter was the best it's been in the history of Landstar for the first quarter. So it's really --- it's a function of bringing more people in, getting the phone to ring, and again, we've got several initiatives that we have embarked on.

I think Henry said it best -- it's not something that we're worried about. We're certain that we can change the outcome. And we think we're well positioned. This is the best place for an owner-operator to be. We need to get that message out better than we have recently, and we have already embarked on that.

And if you kind of look at your peak owner-operator capacity in the first quarter, anyways, probably go back to maybe '07, you're 10% or 11% off that level. The factors I think about in terms of that decline, one is just the qualifications of some of these guys that have knocked themselves out; another, the general decline in the population out there; and the third maybe is more internal to Landstar in terms of the recruiting focus.

Is that a fair way to think about the factors impacting that decline from '07 till today?

Absolutely.

If you look at -- and my recollection is '09 is when we probably lost the most. And that was probably due to a lot of things tied to the recession. Pat, I think that is correct, right?

Yes.

Okay. And then the last, just a clarification. The numbers you were throwing out for volumes and revenue per load excluding the substitute line haul, was that overall Company volume or just trucking volumes?

Trucking.

Trucking. Thank you.

Alex Brand, SunTrust Robinson Humphrey.

I just want to tag on to John's question there on the load trends. Can you talk about as it accelerated how strong was March and what April's look like so far?

I think what I would categorize as far as the trend, if you go back to the first quarter of last year, the first quarter was -- again, you were looking over the prior quarter, it was weighted much more towards volume, whereas if you look at what's occurred this year, it is a lot of price.

I mean, demand is strong, and it's hard to -- when you look at the volume levels in the first quarter, you were impacted by a good eight to 10 days of some weather. And if you look at our daily load reports and where we expected load volumes to be and in relation also, then, to the prior year, you could literally tell which days were impacted by snow and adverse weather. And these are squishy numbers, but we would estimate that volume-related declines just due to weather were probably $10 million to $12 million in the first quarter.

So, volume has been pretty strong. Demand is there, but what is happening now is price is just moving north. And if I look sequentially so far in April from March, again, April price is much stronger than it was in March. So you continue to see that upward movement. And demand remains relatively strong.

So, that segues beautifully, Henry -- thank you for that -- to my net revenue margin question. It didn't impact you in the quarter, but did you get more pressure towards the end of the quarter? And is that something you expect going forward? Do you have enough business that's tied to some contractual rate that you promised that you can get hurt?

Are you talking about brokerage fees? Jim, do you want to answer that?

Yes, we've got a little more pressure coming into March. If you looked at the quarter over quarter sequentially, the fourth-quarter rate for truck brokerage -- excluding substitute line haul, obviously -- was the same as it was in the first quarter, but March was a little -- little more pressure in March than it was in January and February, maybe about 30 or 40 basis points from January to March.

Okay, great. Thanks for the color; appreciate the time.

Jason Seidl, Dahlman Rose.

Jason, how are you?

Hanging in there. I'm doing better than the Mets, Henry, unfortunately.

I wasn't going to talk about that, but go ahead.

I know. Let's talk about good things, your earnings. A couple quick questions. You know, when I look at the intermodal segment, this is the first time in a while that you guys have shown some nice growth. Can you talk a little bit about that double-digit growth? Do you expect that to pick up as the year progresses with tight capacity in the truckload sector?

Yes. I think one of the things that you have seen is, and we have tried to -- again, we had some difficult comps because of some of the -- the two agents that we had lost, if you will, one being terminated, one had left, that were very large intermodal agents, but we have continued to work at that. We've brought in some agents that -- replacement, if you will, to replace that volume. And things are moving up north.

And, Pat, if you want to add some color to that?

Jason, I think it's two things. I think it's what we've been able to do relative to bringing in agents that have a solid book of business on the intermodal side, coupled with our existing agents doing a much better job of going out and penetrating their customers and securing better buy rates, and how we what I call rationalize the system and take advantage of all of the movements, and not view each movement individually, but evaluate our intermodal business collectively. And I think we've done a nice job of that.

All right, great. Thanks for the color on that one. My other question, it's just regarding the revenue per load. I guess I was a little surprised to see a little bit of a sequential downtick. I guess that has to do with some of the mix in terms of your BCO in your truck brokerage carriers. Are you expecting that to level out, or --?

I think, Jason, I think if you actually analyze -- and, Jim, you can verify this -- I think if you go back fourth quarter compared to first quarter, in every year, there is typically all right -- sequentially a different kind of relationship. As I just explained, April's revenue per load is higher than March. And you're starting to see a pickup, but you can't sequentially compare the fourth quarter to the first quarter.

The first quarter is very -- is the one quarter that is pretty -- I don't call an oddball quarter, but it's got lower volume. You've got typically your lower margin. And you do have your lower, typically your lower rates. So it's really not an accurate comparison to try to compare fourth quarter to first quarter, from a lot of different metrics.

Yes, I understand. I just, if I looked at it from '99 to 2010, truck brokerage from 4Q '99 -- excuse me, 2009 to 1Q 2010, it actually went up a little bit, and we went down here. So I guess just especially with where fuel's at, I was a little bit surprised at that number.

There is a significant influence on how much substitute line haul is in there. Substitute line haul's average on truck brokerage is a little bit higher than the norm.

Okay, that's what I thought might be happening.

If you take that out, your average -- if you go and -- same factors you were just saying in '09 and stuff like that, we've been anywhere, from fourth quarter to first quarter anywhere from minus 1.2% to minus 14% going from fourth quarter to the first quarter. And this year, without the sub line haul, it's minus 1.7%. That is not really that unusual. Really, sub line haul has a lot of influence over that pricing because it is a little bit higher than your normal band.

Okay, fantastic. Guys, I appreciate the time as always. I'll get back in the queue if I want something else. Take care.

Justin Yagerman, Deutsche Bank.

Wanted to ask, I guess trying to get at exactly how strong the environment is right now and a sense of your confidence in the outlook, I look at my model, and right now, just without adjusting anything, I have got some modest revenue deceleration in terms of the growth rate going sequentially from Q1 to Q2. You guys have much more difficult comps as I look at Q2 '10 and Q3 '10 on a year-over-year basis for the next two quarters.

Do you think that with the backfill that you are getting because of the strength in the environment, replacing that lost substitution line-haul business that at current you could actually see some year-over-year revenue acceleration as we move sequentially through the year? Or do you think Q2 is going to be tough to see things better than we saw in Q1 here?

Well, I've think you've got a bigger impact on substitute line haul in the second quarter, if you're referring to that. All right. And that you're going to have in the second and third quarter. And again, that is that low-margin business. I believe, based on what we see, we will more than offset that decline in that substitute line-haul business with higher-paying freight, if you will, higher-margin freight. And that is what's going to get you that 42% margin. But I expect revenue to continue to -- if I take out the substitute line haul, I anticipate that revenue will continue to move north at about the same amount.

Okay. All right, that's fair.

The one thing that is a little more challenging for us, though, as you can see and we've shared it with everybody, is rates last May on the truckload started to spike on us. That's about when it started to climb.

So truckload rate, the rates, although they're pretty high today and our rates were a lot higher than they were in last year's first quarter, but you saw them starting to creep up in the May of 2010. So that is really a little bit of the tougher comp. But we still see that we're going to be -- we're still going to produce the growth rate that we thought we saw at about the first quarter, somewhere in that range, maybe a little less, but nothing significant at this point.

That ties in, I guess, to my next question vis-a-vis the potential for spikes. We had I guess what sounded like a pretty unseasonably weak Q1 on the West Coast, from talking to a few of your asset base competitors. And it sounds like things have picked up here in the first three weeks of April, but wanted to get a sense of, A., maybe what you guys think was driving that West Coast weakness, if you saw it at all, and B., what you guys are seeing and what your expectations are as we move through the quarter in terms of that picking up and maybe driving some of the price spikes that would be maybe expected around this time of year?

Justin, I can't agree with you on the West Coast weakness, frankly. I will say that the West Coast in April, late March and April, has been a strong area for us. But I would not characterize the first part of the year being weak out on the West Coast.

All right, great. Better for you guys. Appreciate it. Thanks.

Todd Fowler, KeyBanc Capital Markets.

Could you talk a little bit about the business at this point? How much of the truck business is contractual versus how much of it is spot? Does that mirror the revenue that you get on the BCO side versus the brokers, or is there a little bit of a different mix? And if you could also talk about what you're seeing with contractual pricing, that would be helpful.

Well, Todd, as we have said before, about 50% of our business is spot and about 50% of our business is contractual. We won't commit to a price and guarantee a truck, but we will guarantee a truck if we don't commit to a price. But about 50% of our business is contract and 50% is pricing.

As it relates to bids coming in the door, Joe, do you have an idea on that?

Bid volume is a little bit behind prior year. And I will kind of dovetail with what Pat said. We have about 50% of our customers under a contract, but there's a lot of business that is moving at a higher rate than previously that would have been in place, just because of the demand being where it is.

Does that conclude your question, Todd?

I'm sorry. I wasn't sure what happened there. So, Joe, I might have missed the last part of that. You said that it's roughly the same as what Pat was talking about, the 50-50 split. But you have got more freight, I'm sorry, moving at a higher rate?

What we have is, if you look at our customer base, about half of our customers we have under a contract. That doesn't necessarily mean that we have contracted rates that we are bound to. We move freight for those same customers at rates higher than they're negotiated as the environment dictates they be negotiated to move the customers product.

So while in one sense we have a contract with that customer, where in some cases we don't have a formal contract, the pricing that moves that business can be variable, depending upon the demand that the customer has.

Got it. That makes sense. And then, what are you seeing right now on contractual rates that are resetting? And what's kind of your expectation for the rest of the year?

They're continuing to increase. And I think you see a lot more customers trying to have committed capacity going forward to kind of alleviate some of their concerns, which again I think bodes well for the pricing environment as you look out through the balance of the year.

And is mid-single digits the right way to think about the increases, or is it something better or worse than that?

I think that is a tough one to predict right now. I would not be prepared to say double digit at this point.

Okay. The second part I had, Henry or Jim, I'm not sure if you gave the number of agent locations. And I think recently you've been talking about kind of a same-store sales number from the agents. If you had both of those, that would be helpful.

What I stated was that I believe the agent locations that we added were about $25 million of new revenue. And I think that is what we've disclosed. Is that correct, Jim?

Yes.

And that's all we've said, Todd.

Okay. So you didn't want to share a specific number of agent locations?

No, we don't have that on the -- I don't think we release that anymore, do we? No.

It's slightly over 1300. We're just not putting a specific number out.

Okay, fair enough. Thanks a lot, guys.

Donald Broughton.

EOBRs, how do you intend to assist your BCOs in what will eventually be the required adoption of this technology? And is it possible that once you have integrated them into your platform that the requirement of EOBRs could actually aid you in BCO recruiting, because you can say, well, we can still get you the miles even with an EOBR in your cab? Or is that a stretch?

Well, I will let Joe comment. We've got -- our current game plan at this point in time is that all new BCOs that we put on board, starting sometime in the fourth quarter, will be required to have an electronic onboard recorder.

Two, those BCOs that we find out that are violating or have some problems with their hours of service, we will mandate that they put electronic onboard recorders in.

As far as for the rest of the BCO population that basically does it right, we're not going to require them at this point to put them in. However, we would encourage early adoption if they want.

And Joe, do you want to add?

Yes. We are in the process of testing a couple of vendors right now with the intent of testing a couple more. I think what we have seen from some of the test units that we've got in the field and some of the feedback we've gotten from those guys when we bring them into our appreciation events is it can be viewed as a negative initially. But then when you look at the peace of mind and some of the administrative benefits that it comes with, it tends to be a little bit more palatable.

I think over time, what you will see and what we will be able to demonstrate is that the increased visibility, along with the ease of the administrative issues, makes it a pretty palatable addition to a BCO's business. And that is our goal. That is our plan.

But again, we're in the throes of implementation of some test units and then negotiating prices, because obviously price will be a part of that process as well.

Very good.

Tom Wadewitz, JPMorgan Chase.

Wanted to ask -- I think you were asked a little bit about the pricing trend, but I don't know if you gave their truck pricing trend in March and April. I don't know, are you willing to give the numbers, so price, I guess revenue per load growth year over year by month and let's say in BCO?

Jim is looking that up. I know from March to April, it is higher. I don't know (multiple speakers) revenue per load is what he's looking for, sequential.

Yes, I was looking for revenue per load in BCO.

I've got it in dollars, if you want it per load.

Do you have the year-over-year growth in that, or --?

Yes, hold on, I've got that. I've got the growth, that is better. (multiple speakers) 10%, 11% and 10% -- 10% in January, 11% in February, 10% in March.

And what does beginning of April look like?

Higher than what it was in March, which I'm going to guess it's similar to that type of rate.

Okay, so it's probably similar type of year over year.

Let's see, when we look at the BCO, you were asked about BCO recruiting and so forth and your BCO count earlier. If I just look at -- so BCOs were down a little bit, but your loads in BCO I think were down more than the BCO count. Why wouldn't we -- in a strong market like you're seeing, where pricing is going up a lot, why wouldn't you see some growth with the BCOs in terms of volumes? Are they already utilized at a high level, or --?

You got to remember one thing. We don't force-dispatch anything. Loads are out there, in all the -- and people can pull them down. It's not a matter of we push it towards one or the other.

The other impact, I think, our BCOs are normally a -- what I'm going to call a safer breed. And you had a good, as I said, 10 days at least of weather that was not good. Our BCOs more than likely are not going to pull a load down to do that. So I think that is part of the reason. When you take a look at the -- I think what you're trying to do is the correlation as far as the loads hauled versus the decline. That is what we would basically I think actually point to, if you will.

And I believe when you look through January or February or March, that percentage increased. And Pat?

Utilization improved as you went through the quarter. That utilization was really impacted negatively by the poor weather.

Okay. So if you assume that the BCO count doesn't change a lot, or maybe it's down a touch, then it would be reasonable to think if you don't have a weather impact in second quarter that maybe BCO loads could grow?

That's correct. And, yes, again, from the BCO standpoint, when we looked at the week-over-week small decline, numbers in and numbers out, as Pat alluded to before, it has been really been the recruits coming in, because we have actually -- there's less deletions. And that's why our turnover rate still maintains at around 30%. But the recruiting has been not so much, and it has been 5% this week, 5% the next week, and 10% and whatnot.

But I will tell you the last two weeks has been the first time in probably a while that we had positive, week of positive week increases in the last two weeks. And I think that is partly in part to some of the things we're doing as far as our refocus reemphasis on letting people know about Landstar.

Right, right, okay. Great, thank you.

Chris Ceraso, Credit Suisse.

A couple of quick questions. The expected -- your typical revenue growth from Q1 to Q2 is, I don't know, 10% or something like that. Do you think it will be better than that this quarter because weather was extra bad in Q1? Or is it going to be a little bit worse than that because substitute line haul is still declining?

Well, obviously it's going to be better because I don't anticipate any snow in the second quarter. And I don't anticipate any bad weather. Now, the substitute line-haul impact is going to be greater in the second quarter because I think that was -- Jim, correct me if I'm wrong -- it was like 13%, 14% of our total revenue last year. So it has probably the biggest impact in second quarter.

On the other hand, we've got a lot of good initiatives going on. And plus, as I said, the price -- revenue per load is moving north very nicely. So we anticipate the same type of growth, if you will, excluding substitute line haul that we've experienced in the first quarter, I think is the way to look at it.

Okay. But if I'm looking from Q1 to Q2, will that be your normal seasonal growth, or will it be better than normal seasonal growth?

Ex-substitute line haul, all right -- now, ex-substitute line haul, I believe it will be better only because I think the pricing environment is stronger.

What about with substitute line haul?

Well, that's what I was trying to explain before. With substitute line haul, it depends on where that is. It's a big number, and as I said, between 70% and 80% is what I anticipate losing. So my best way to gauge that would be in comparison to the prior year, unless, Jim, you've got a better answer than that?

Well, sub line haul in the second quarter was -- of 2010 was $70 million. In the first quarter last year, it was $77 million. And we are saying that it's going to be down the same percentage as the second quarter as the first quarter. You can probably figure that the effect of sub line haul. I just can't do it in my head.

But I gave you the numbers, you could probably work it yourself. But we're still saying that without that, we'll probably have it at or better than the historical trend that you see in first and second quarter.

Okay, and then just a question on automotive. Have you seen any kind of disruption related to downtime at the Japanese car companies or anything related to supply disruptions?

Nothing that is negligible.

Matt Brooklier, Piper Jaffray.

I just wanted to go back and clarify something that was said earlier regarding your BCOs and the associated volume. It's almost like the chicken-or-egg conundrum, if you will. And I think as I understand it, you indicated that you would -- the ability to grow BCO volumes is less dependent upon the number of owner-operators that you have in your network, or do you need to grow the BCO count in order for volumes to reaccelerate within that part of your business?

Well, first of all, you're looking at it all wrong. We basically, again, we don't push -- first of all, the overriding premise is satisfy the customer, whether it's on a brokerage truck or a BCO truck. You've got to understand that. So you've got to look at the revenue growth in total.

We want to grow both revenues of BCO and brokerage. But you've got to understand that as long as I move the customers' freight, that's all that matters.

The BCO numbers, when we started to look at that, we started to see that we were getting nicked five here, five there, week after week. And what it really was is that we weren't paying attention as well as we should to basically bringing on qualified BCOs, because there really is no better home for a qualified owner-operator than Landstar.

So we basically redirected some of our forces to basically try to bring that on board. But again, the overriding premise is that I want more BCOs because it allows us also to get into different accounts. And customers view that as a positive as opposed to just having all brokers.

So we're moving forward on both of that. But I don't think you should be looking at it as far as this business versus that business versus whatever. It's not really the proper way to view it. Again, I think our BCOs are the safest in the industry, and we're going to basically go out and bring them on board, because that is where they belong.

Well, I guess my question, more simply put, is, is your current BCO count impeding your ability to grow volume in that business?

In what business?

If I look at your BCO volumes and your BCO agents --.

(multiple speakers) business per se. If I have less BCOs, in theory, I can't put as many -- there is a limit as far as the capacity that people can put on it -- a BCO can haul.

Now, I will tell you that I think what happened in the first quarter is, if you looked at January, February, March, BCOs picked up as far as utilization per BCO, if we had that number. And that is just the function of, number one, weather, and they're clearly capable of hauling a lot more.

But, obviously, the more BCOs I have in the system, there's more likelihood that BCOs can haul freight. On the other hand, you look at the brokerage piece, we grew brokerage ex-substitute line haul 36% in the quarter. So, it's again, it's about satisfying the customer.

Okay. So we shouldn't be as focused on the BCO count and more focused on I guess the aggregate all-in ex-substitute line-haul revenue number. Okay.

(multiple speakers) all a matter of total revenue. And I think it's interesting, because -- last year, you had the substitute line haul in. This year, you've got it out. So you've got to talk about the numbers without the substitute line haul.

But I think when you look at that overall growth rate without the substitute line haul, we replaced substitute line haul with pretty profitable business, whether it be BCO or brokerage.

Right. I mean, your gross yields look good and picked up in the quarter. And you hit your net op margin line. So even with revenue a little bit light, still looking better from a profitability perspective.

My other question, your share repurchase authorization -- I guess what is left under the current plan? And how do you think about share buybacks going forward?

I believe it is 700-and-some-odd thousand shares. We didn't purchase anything back in the first quarter due to a lot of different reasons, some due to windows, others due to the price was consistently moving up. And as -- we try to pick our spots to try to buy basically when there is sort of a leveling off, if you will, we might step in.

But there is nothing that has changed in our philosophy as far as share buyback. And I would suspect we would complete that share buyback program and probably have another one at some point during the year.

We also, by the way, we did spend I think it was $8 million this year in the first quarter to buy out the remaining 25% interest in A3i. So it was a little bit different use of cash, but generally, our philosophy has not changed whatsoever as far as share buyback.

Okay, very good. Thanks for the time, guys.

Tom Albrecht, BB&T.

I'm going to ask the question I think in a little more straightforward manner. I guess first of all, on the LTL substitute line-haul business, is all of it or most of it in the brokerage business? I was thinking most of it.

Most of it is. And when I say most, I'm looking at 95% of it is.

Okay. So, just to make it easy, as we think about loads and growth, you did 135,740 loads in the first quarter at brokers, or brokerage. About how much of that would have been LTL line-haul substitute loads?

About 9500. First-quarter 2011, right?

Correct, yes. I'm just trying to get a feel for apples and oranges there. And so, what would it have been a year ago? I guess let me see, probably 40,000, maybe?

43,000.

Okay. All right. So I think what we are all trying to figure out is, in the second quarter, is it likely that there's load growth in the brokerage arena? Or maybe that's in the second half of the year? Clearly, you are growing and making up a --.

I'm going to repeat. I am anticipating the same type, ex-substitute line haul, we're anticipating the same type of total revenue growth. And I believe brokerage grew 36% in the first quarter.

Right now, with demand and pricing the way it is, it's going to be a strong quarter. We have substitute line haul in there that is going to come away. But if I looked at, and I haven't thrown out any revenue estimates, but when you look at what we did in the first quarter as far as -- I think it was 17% revenue growth without substitute line haul, we think we're somewhere in that range.

Okay, that's helpful. That allows me to be a little bit more granular. I know last quarter, too, you talked about potentially cleansing your proved and active carrier base in light of CSA. There was some decline sequentially. I can't tell if that was just an ebb and flow, or whether that reflected the greater scrutiny.

Whatever the -- go ahead, Jim.

Tom, we did put in place our CSA standards in the first quarter, and then we've kind of adjusted them. That's still a bit of a moving target with CSA. But we did put those in, and we did see a decline in the overall count from where we ended the year. But then we've kind of built that up pretty nicely here after that, in the balance of March.

So would you say you are essentially done, but it's like a balance sheet; it's only a snapshot on any given day?

Yes, we're essentially done. I think our standards -- we've tweaked them once -- are in place. It is really more now a function of how do the metrics, how do the CSA metrics begin to fall into place with all these carriers that are out there. That is really it.

If you look, we -- I thought we did a pretty nice job of moving the improve active number north year over year by more than 1000 carriers. So I think that is really part of our effort, too, is to do more business with the ones that we are very comfortable with and who seem to do a nice job for us, so further utilize the capacity that we know is going to be there long term.

And back to an earlier question about owner-operators --.

Let me get -- we're running out of time, and I've got other people that want to get on yet.

That's fine. Thank you.

(multiple speakers) line if you like.

Ed Wolfe, Wolfe Trahan.

So, substitute line haul it looks like year over year was $58 million difference relative to $46 million in the fourth quarter. Should we interpret that -- because you would think first quarter would be seasonably less than that -- that it's more than one customer now? There's other customers? Or how do we think about that?

No, that is one customer.

And what is left? You said there was $77 million a year ago first quarter. How much was there a year ago second quarter and third quarter, just so we can get these comps?

$71 million in the second quarter, $48 million in the third. (multiple speakers)

Thank you. That make sense. Jim, do you have cash from ops in the quarter?

$16.6 million, I think. That's it.

Okay. And was there any accrued incentive comp in first quarter?

Yes, we're accruing to the target.

Which is $7 million or $8 million a quarter?

Target would pay out $7 million on a yearly basis.

So, $7 million to $8 million annualized per quarter. Divide that by 4, in other words. Is that fair?

It's not a perfect science, but sort of.

Okay. And just understanding the terms of pricing, if pricing is going to go into a multiyear upswing, how do we think about this, Henry, in terms of -- refresh me. Is it roughly the BCOs takes on 67% to 75% of that and the agent another 7% or 8%, and you get the rest?

Yes. The way that works, Ed, is when you look at that -- loads hauled by BCO, they typically get about 75%. The agent typically gets about 8%. So what you're dealing with is 83% out the door, and the 17% basically falls outside of that.

Okay. I just wanted to make sure I was thinking about that. And final thing, revenue, adding everything together, including the substitute line-haul reduction, was 4.4 in the quarter. Can you talk about how that total revenue grew throughout the month and into April year over year?

Well, typically, if I'm understanding your question, you're talking about sequential month-over-month growth?

Yes, January over January, February over February, and March over March to take the seasonality out, and April over April.

Yes. Jim, you got that? I mean, I'm --.

5%, 4% and 4%. It's relatively consistent quarter over quarter.

So 5% in January, 4% in February, 4% in March?

Yes.

And how did April look?

I don't have anything close for April. We've got it on a weekly basis from a load report. Loads look fairly good. And this is on a month-over-prior-year month, because I don't have that. But I'll tell you, from a sequential standpoint, the pricing piece is much stronger than it was in March, as I said before.

Okay. Thanks for the time, guys. I appreciate it.

John Barnes, RBC Capital Markets.

I'll try to be quick here. You had given the number of broker loads for the first quarter of 43,000. Do you have the same data for the second and third quarter of 2010?

I think I do, actually.

Hey, Henry, while you're getting that, is there any concern with the DoD budget cuts to the business that you are doing for the US military?

John, I will tell you that we have attended several meetings. I think what you're going to see happen is we have to execute better against our strategies to enter into -- there are several other businesses that we've traditionally handled, just the FAK and the AA&E.

This year, we've pulled some revenue levers on the BRAC movements. And so there's a lot of other ways that we can get involved into the DoD. But they've made it clear they're going to cut back, and it's up to us to make certain that we execute against that, entering into different businesses within the government to kind of augment that revenue stream.

Okay.

All right, John, you've got 43,000 the first quarter.

Yes.

37,000, 26,000 and 12,000 -- 2010 by quarter.

Thank you so much, guys. I appreciate your time.

David Campbell, Thompson Davis & Company.

I got most of my questions answered. I just wanted to ask you, the purchase of the remaining interest in the first quarter was how much? And what was the CapEx for the year?

$8 million for the purchase of the remaining interest, and Jim, CapEx for the --.

As for the CapEx for the year, it will be $40 million, either between cash purchase or capital lease.

So some of that won't be in cash flow. Okay. And I think that's got me. Thank you very much.

Nate Brochmann, William Blair & Company.

Thanks for taking my call at the end. Just wanted to shift gears a little bit, Henry, in terms of I think we got the current environment pretty well as good as can be figured out. But when you're looking a little bit forward here and you're targeting the new agents, are you bringing them on in any particular areas with areas of expertise beyond just truckload or flatbed?

I think it's all areas, but Pat?

Yes, I think that if you look at some of the revenue growth, as we mentioned earlier, in intermodal that was a function of new agents that have that book of business. If you look at some of the growth on the international air and ocean side, that too is new agents that have that expertise.

But, Nate, we don't target agents that way. We target agents that we believe are a good fit for Landstar. And so they are across the landscape of the country and across the landscape of service offerings.

Fair enough. And a year ago, I was personally really impressed with the amount of, at your analyst day/the annual conference, with the amount of enthusiasm regarding the cross-selling opportunity. How is that now a year later in terms of is that enthusiasm still there, or as the economy is coming back, and individual agents see kind of their core bread-and-butter returning, are they kind of stepping away from the idea of the cross-selling opportunity?

Well, I think we remain focused on the cross-selling opportunities and presenting those to our agents. And regardless of the economy, you will get some folks that are very comfortable in selling what they want to sell and other folks that are excited about going in and penetrating their customer on all unique to those service offerings.

So I would characterize it, Nate, as a continuing work in process, or progress, I should say. And I think we're getting some traction along the air/ocean side in particular.

Great, thank you very much.

Matthew Young, Morningstar.

Just a segue real quick on Nate's question on the intermodal and air and ocean freight forwarding business. I just wanted to get a better sense of whether you guys think that growth going forward would be more from existing accounts or account penetration or from the new customers. Obviously, there would be probably some new customers when you bring on new agents.

And then, again, more specifically on that, over time do you expect most of your agents to handle that business, or would you think that would stay more specialized, particularly on the intermodal side?

Pat.

Matthew, we expect the growth in air/ocean to come from all three of those -- new customers, existing customers and new agents. And, frankly, that is part of our strategy. So we expect that.

Okay. And just one other quick one. Could you comment quickly on the status of your value-added warehousing business, perhaps recent trends there, any expectations, anything (multiple speakers)?

What we've done with warehousing, we've actually changed strategy a little bit on that. We have our network of WCOs. Rather than supplying a complete software solution to each WCO, each one of those have a various different system. So what we're going to be doing is literally just partnering up with those individual warehouses and move in that direction as opposed to a complete software package offering.

But really, other than that, there is no change in how we are approaching it.

Okay, great. That's all I have. Thanks.

Anthony Gallo, Wells Fargo Securities.

Sorry to do this to you. Congratulations on the quarter, by the way. Is there a margin difference between brokerage and BCO? And if so, how does that fluctuate? Or give us some parameters for that.

It's a couple of ways. Your brokerage business, as far as when you utilize a broker-carrier, it can be what I'm going to call a variable gross-profit revenue or what I'll call a retention revenue.

The retention revenue is where we take a percentage off the top. And if we know what it is all the time, because that can run anywhere from 8% to 12%, depending on a contract with the agent. And I think generally that runs about 8% or 9%, 10% of our business in total.

And then you've got the variable piece, which operates where you're in an environment where you have tight capacity market, and therefore it does tend to put some pressure on some margin. And then it's just a matter of how quickly you can get that price back. We usually split that margin depending on, again, the contract with the particular agent.

As far as how that relates to our BCO-driven revenue, as we said before, that is on a fixed gross margin basis. So you don't have any pressure as it relates to price. And therefore, when prices to the customer increase, obviously we have much more of an impact on that side of the business. And that ran about 68%, I believe, of the business in the first quarter and probably will be anywhere from 68% to 70-some-odd percent in the second quarter and beyond.

From a total operating income, you could look at from just the margin standpoint, yes, that there's more margin on the BCO business. But then again, you have the factor that you have insurance costs against that. You don't have the factor against the brokerage piece. And that could run anywhere -- let's call it 2% of total revenue.

You've also got a lot of fixed costs as it relates to bringing on -- well, not bringing on BCOs, but basically maintaining a BCO fleet, if you will, as it relates to compliance and things like that. We look at it as it becomes pretty close overall.

Okay. And part of it I guess depends on where we are in the cycle, too. I mean, one is not necessarily good or bad. It partly depends on where you are in the cycle.

No, absolutely correct. We like our mix. And that's why I said at the very beginning in response to I think it was Matt's question, it's not a matter of -- it's a matter of satisfying the customer. And I always have said, and I'm very consistent on this, I want to grow both groups. But as long as I'm hauling freight, and even though our BCO count was down in the first quarter, ex-substitute line haul, we grew brokerage 36%. That is pretty strong, which means we are satisfying the customer.

Now, that's no excuse for letting I think taking our eye off the ball a little bit on the BCO count, and that is easily fixed, because, as we believe, there is no better place for an owner-operator than Landstar.

So we've got some things that we're doing right now, and so far, two weeks doesn't make the whole year, but at least the trend now is positive over the past two weeks.

And that holds particularly true in a rising rate environment, right, because --?

Absolutely correct.

Okay. All right. That's all. Thank you very much.

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

Thanks, Barb. And, Jim, do you have anything you want to close off with?

No.

Pat?

No, thanks.

Joe?

I'm good.

I guess we ran over a little bit much, and I guess our team is a little bit tired out.

But anyway look, I think it was a very good first quarter. I think the second quarter looks even more promising, and we look forward to talking to you on our midquarter update call for the second quarter. Thanks.

And thank you for joining the conference call today. Have a good afternoon, and please disconnect your lines at this time.