Landstar System Inc (LSTR) 2013 Q1 法說會逐字稿

Good afternoon, and welcome to Landstar System, Inc.'s first-quarter 2013 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 H. Gerkens, Chairman, President, and CEO; Jim Gattoni, Executive Vice President and CFO; Pat O'Malley, Vice President and Chief Commercial and Marketing Officer; and Joe Beacom, Vice President and Chief Safety and Operations Officer.

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

Thanks, Brad.

Good afternoon, and welcome to the 2013 first-quarter earnings conference call. This conference call will be limited to no more than one hour. In addition, please limit your questions to no more than two questions each 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 2012 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.

In our 2013 first-quarter mid-quarter update call, I stated that revenue for the 2013 first quarter would likely be a little shy of the 2012 first-quarter revenue and that diluted earnings per share could also be a little shy of the 2012 first-quarter diluted earnings per share amount. Overall, revenue for the first quarter of 2013, compared to the first quarter of 2012, declined a little more than 3%.

On a monthly basis, revenue for January 2013, versus January 2012, declined approximately 5%; revenue for February 2013, versus February 2012, declined almost 1%; and revenue for March 2013, versus March 2012, declined 3.5%. Revenue for March of 2013 did not accelerate as we had anticipated, and as such, was a bit disappointing. All that being said, the 2013 first-quarter revenue performance was the second-best first-quarter revenue performance in Landstar's 25-year history, second only to 2012 -- a tough comp.

Earnings per diluted share finished at $0.57 per diluted share for the 2013 [13-week] period, the same as the 2012 13-week period.

Let's talk a little bit more about revenue. Consolidated revenue in the 2013 first quarter was approximately $628 million, down approximately $21 million, or 3.2%, from revenue generated in the 2012 first quarter. But as I said, it was the second-best revenue performance in Landstar history. The decrease was driven by slower demand in Landstar's industrial-based accounts, and in particular, in the heavy-specialized truckload sector.

Landstar's 2013 first-quarter revenue that is classified in the machinery commodity group declined over $30.5 million, versus the 2012 first quarter, and more than accounted for the lower revenue, versus the 2012 first quarter. As an example, revenue from our largest wind energy shipper was down $15 million, or over 60%, quarter over quarter. Additionally, revenue generated from new agent additions represented 2.2% of total revenue in the 2013 first quarter, versus our historical new agent revenue run rate of between 3% and 6% of revenue. Pat O'Malley will talk a little bit more about this later.

From a service-offering standpoint, total revenue from truck transportation for the 2013 first quarter declined 4% from the 2012 first quarter. The decline was from an approximate 1% decrease in load volume and an approximate 3% decrease in revenue per load. The revenue generated through our platform equipment service offering in the 2013 first quarter declined 9%, compared to the 2012 first quarter, 4% due to lower load volume and 5% due to lower revenue per load.

Total revenue generated through our van equipment service offering was 2% lower in the 2013 first quarter, versus the 2012 first quarter, due to a 3% decrease in load volume, partially offset by a slight increase in revenue per load.

Revenue from our relatively new approach to our LTL service offering contributed a total of approximately $18 million to the 2013 first quarter, versus $15 million in the 2012 first quarter, an approximate 20% increase. And I might add, as a truck offering, the bulk of our agents are very comfortable selling this service, and I believe we will see continued growth in this offering. Pat is also going to talk about this service offering a little later.

Total revenue generated from rail intermodal service increased 4% in the 2013 first quarter, over the 2012 first quarter, while revenue generated through ocean cargo and air cargo providers increased 19% quarter over quarter, and although off a much smaller revenue base, it nonetheless reversed some of the negative trends experienced in recent quarters in these service offerings.

From a new agent revenue standpoint, revenue generated from all new agent locations added over the past year amounted to $14 million in the 2013 first quarter, lower than our recent historical run rate, but this is just due to timing of new agent additions, and I anticipate the amount to be much higher as we move into the back half of the year.

Before I leave revenue, a couple of thoughts as it relates to our first-quarter revenue performance and revenue for the balance of the year. Comps become easier in the back half of 2013. April load-volume trends have not accelerated; in fact, they have decelerated slightly. On the other hand, revenue-per-load trends in April have been slightly positive. Some of the wind power generation [business] should start to reaccelerate, starting late in the second quarter; and new agent revenue should be stronger, starting in the 2013 third quarter.

At this point, I am going to ask Pat O'Malley to talk about our LTL service offering and our new agent additions. Pat?

Thank you, Henry.

Although Landstar has historically participated to a small degree in the LTL market, beginning in August 2011, we increased our emphasis on this service offering by implementing an easy-to-use capacity procurement tool, establish standard rates with LTL carriers, and work with our agents to identify customer opportunities. As such, LTL volumes have increased over 20% in the first quarter of 2013, compared to the first quarter of the previous year. As Henry mentioned, most of our sales staff, and many agents, have a background in LTL and are comfortable selling the product.

From the perspective of the LTL carrier base, Landstar's business model, diverse agent population, and large customer base represents an attractive variable-cost sales channel. In addition, virtually every existing Landstar truckload customer has some LTL business. This gives Landstar, and our agents, an additional revenue stream inside our existing account base. Finally, having this service offering exposes Landstar to another group of potential agents.

Now, Henry had talked about our new agent revenue performance. As a reminder, the new agent in the 2013 first quarter represents an agent who had contracted with Landstar after January 1, 2012. As Henry stated, new agent revenue in the 2013 first quarter was 2.2% of revenue, below the historic range of 3% to 6%.

We continue to believe the challenges for small independent brokers are many and difficult to solve without outside support. Whether it's access to capital, cash flow, tight capacity, inferior systems, or the increase in the minimum surety bond requirement from $10,000 to $75,000, this segment of the population is fertile ground to recruit productive new agents. The Landstar agent recruiting department and field staff have done a good job of seeding our pipeline with quality new agent prospects.

Although the number of new agents added in the first quarter of 2013 declined slightly year over year, the average revenue per new agent, per week, nearly doubled to over $10,000, near an all-time high. We believe that our recruiting strategies, business environment, and systems will help us maintain the momentum in adding productive new agents through the balance of the year.

Henry?

Thanks, Pat.

Our gross margin in the 2013 first quarter was 16.3%, versus 16.3% in the 2012 first quarter. Our operating margin in the 2013 first quarter was 42.3%, versus 40.8% in the 2012 first quarter. Jim is going to talk more about our P&L in a few minutes.

As it relates to truck capacity, we ended the seasonally slower 2013 first quarter with a total capacity base of 39,622, compared to 36,153 capacity providers at the end of the 2012 first quarter, and 39,555 capacity providers at the end of the fiscal 2012 year. As an update, over 1,800 electronic on-board recorders have either been ordered by, or installed on, our BCO capacity.

With that, I am going to turn it over to Jim for his review of the P&L.

Thanks, Henry.

Henry has already discussed certain information in our 2013 first-quarter release. I will cover various other detailed financial information included in that release.

Gross profit, representing revenue less the cost of purchased transportation and commissions to agents, was $102.6 million, or 16.3% of revenue, in the 2013 first quarter, compared to $105.9 million, or 16.3% of revenue, in the 2012 first quarter. The decrease in gross profit was generally due to lower revenue hauled on unsided/platform equipment in the 2013 first quarter, compared to the 2012 first quarter. The cost of purchased transportation was 75.9% of revenue in both the 2013 and 2012 first quarters.

Revenue contributed by truck brokerage carriers, which has a higher rate of purchase transportation, was 43% of revenue in the 2013 first quarter and 42% of revenue in the 2012 first quarter. The rate of purchased transportation paid to truck brokerage carriers in the 2013 first quarter was 10 basis points lower than the rate paid in both the 2012 fourth quarter and the 2012 first quarter.

Commissions to agents was 7.8% of revenue in the 2013 first quarter, compared to 7.7% of revenue in the 2012 first quarter. The increase in the rate of commissions paid to agents was primarily due to a change in revenue mix, as BCO revenue, which has a lower rate of commissions to agents as compared with other modes of transportation, was 48% of revenue in the 2013 first quarter, compared to 51% of revenue in the 2012 first quarter.

Other operating costs were 5.2% of gross profit in the 2013 quarter, compared to 6.1% in the 2012 quarter. This decrease was due to gains on sales of trailing equipment of $600,000 in the 2013 first quarter, compared to $200,000 in the 2012 first quarter, and lower maintenance costs on company-owned trailing equipment, compared to the 2012 first quarter.

Insurance and claim costs were 11.5% of gross profit in the 2013 quarter, compared to 10.5% in the 2012 quarter. The increase in insurance and claims, as a percent of gross profit, was primarily attributable to unfavorable development of prior-year claims of $2.4 million, that was primarily attributable to one claim in the 2013 first quarter, compared to $750,000 unfavorable development of prior claims in the 2012 first quarter. Also, insurance and claims expense was 3.9% of BCO revenue in the 2013 first quarter, compared to 3.4% of BCO revenue in the 2012 first quarter, both higher than the average insurance and claims expense of 3.3% experienced over the previous five years.

Selling, general and administrative costs were 34.3% of gross profit in the 2013 first quarter, and 36.6% of gross profit in the 2012 first quarter. The decrease in selling, general and administrative costs, as a percent of gross profit, was primarily attributable to the costs associated with the Company's annual agent meeting, which was held during the second quarter of 2013, but held in the first quarter of 2012, and a decreased provision for bonuses under the Company's incentive compensation program in the 2013 first quarter, partially offset by increased wages in the 2013 first quarter.

Depreciation and amortization was 7% of gross profit in the 2013 first quarter, compared to 6.4% in the 2012 first quarter. This increase was due to the effective lower gross profit in the 2013 first quarter, and increased depreciation of trailing equipment, as we replaced older fully depreciated equipment with new equipment.

Investment income was $374,000 in the 2013 quarter, compared to $387,000 in the 2012 period.

The effective income tax rate was 37.3% in the 2013 first quarter, compared to 36.7% in the 2012 first quarter. The effective income tax rate in both quarters was reduced by tax benefits recognized by the Company on the exercise of incentive stock options of $375,000 in the 2013 first quarter, compared to $630,000 in the 2012 first quarter. In general, the Company's effective income tax rate was 38.2% in both periods before the tax benefits recognized on the exercise of incentive stock options.

Operating income was $43 million in both the 2013 and 2012 first quarters. Operating margin, representing operating income over gross profit, increased to 42.3% in the 2013 first quarter, from 40.8% in the 2012 first quarter. Excluding the impact of the timing of the annual agent meeting from the 2012 first quarter, 2012 first-quarter operating margin would have been similar to the 2013 first-quarter operating margin. Although gross profit was 3% lower in the 2013 first quarter, compared to the 2012 first quarter, the Company was able to maintain its operating margin, generally due to the variable nature of its incentive compensation programs.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $140 million. 2013 first-quarter cash flow from operations was $53 million. Cash capital expenditures was $1.7 million in the 2013 first quarter.

Trailing 12-month return on average shareholder's equity was 35%, and trailing 12-month return on invested capital, representing net income divided by the sum of average equity plus average debt, was 27%. At March 30, 2013, shareholder's equity represented 80% of total capitalization.

Back to you, Henry.

Thanks, Jim.

Through the first several weeks of the 2013 second quarter, there has been no real meaningful change in revenue trends. Load volumes from truck transportation continued to be lower compared to the load volumes in the same period in 2012 and, as I said before, has deteriorated a bit from what Landstar experienced towards the end of the first quarter of 2013. Revenue-per-load trends, however, are slightly positive.

Right now, based only on a continuation of our current revenue trends, I see the second quarter of 2013, when compared to the second quarter of 2012, playing out very similar to how the 2013 first quarter compared to the 2012 first quarter. As such, I anticipate 2013 second-quarter consolidated revenue to be slightly lower than the 2012 second-quarter revenue, say in a 2% to 4% range. And, I anticipate 2013 second-quarter diluted earnings per share to be in a range of $0.68 to $0.73.

It should be noted that the previously mentioned range of diluted earnings per share estimates for the 2013 second quarter reflect the negative impact from the approximate $0.03 per diluted share charge relating to our annual agent convention, which normally is a first-quarter event, and a normalized run rate of insurance claims expense.

I am going to turn it back to Jim for a little bit just to review the forecast or the estimates.

Just to highlight a few items from our second-quarter projection, as it relates to the 2012 second-quarter actual, we reported gains on sales of trailing equipment in the 2012 second quarter of $1.8 million. We are currently projecting gains of only $400,000 in the 2013 second quarter.

Also, insurance and claims costs was 2.5% of BCO revenue in the 2012 second quarter, well below the previous five-year average of 3.3%. We have included a normalized insurance and claims expense in our 2013 projection, an amount more representative of the five-year average. And, the annual agent convention was held in the 2013 second quarter, resulting in an unfavorable comparison to the 2012 second quarter of approximately $2 million.

Thanks, Jim.

In summary, I still believe there exists weakness within certain sectors of the economy, especially with the manufacturing and industrial-based shippers. Landstar's annual revenue goal of $3 billion in 2013 remains our goal. However, the achievement of such goal depends, in large part, on a recovery in our industrial-based accounts in the back half of the year.

With that, Brad, we'll open it up for questions.

Thank you very much, sir. At this time, we will begin the question-and-answer session. (Operator Instructions) Scott Group, Wolfe Trahan.

Why don't you just start, Henry, with the BCO count that fell a little bit sequentially and was pretty flat year over year? What do you think is driving that pressure? Is it the rollout of EOBRs? Is it something else? What are you doing to start growing the BCO count a little bit more?

Joe, you want to?

Sure. Scott, as we have said before, in the first quarter, we typically do see a decline. We saw a decline starting in the fourth quarter of 2012. We thought that was, in part, due to the initiation of our on-board recorder program, and that still could be having some impact; but typically, in the first quarter we see a decline.

And so far, through the first three weeks of April, we have already seen that turned to a positive, which we typically do, but all the same advertising programs and different on-boarding programs that we have are intact and mature, and we believe that they'll continue to be successful in a pretty tough recruiting environment.

Okay. Henry, to get to $3 billion revenue for the year, we will need at least [double-digit] growth in the third and fourth quarter. How do we get there? How do you think about the mix of volume and pricing to get there in the back half of the year?

I gave you the one commodity group that was down significantly in the first quarter, and we see that continuing through much of the second quarter, which is our machinery commodity group. We need that to rebound. We need a rebound in our industrial-based accounts. As everybody knows, we are 35% flatbed heavy-haul combination, and that needs to recover, and that's, again, what I said in my closing comments. If we don't start to see a recovery in that, in the back half of the year, that $3 billion goal is in jeopardy.

On the other hand, if that recovers, and it recovers nicely, I think it's clearly attainable, and that remains our goal is to try to be at that $3 billion mark at the end of the year. But again, I caution, to achieve that I've got to have a recovery in our industrial manufacturing-based accounts; and right now, as I said, we went through the first quarter, we have seen through the first couple of weeks of the second quarter, haven't really seen much change.

Now, we do know, from a progression standpoint, based on what our largest wind energy customers told us, we expect the trend in 2013 to start to move up, now. We'll see what happens in the back half of the year.

Okay. Just last one, and then I'll pass it off. Can you talk about the brokerage gross yields, and what you saw in first quarter, and what you're seeing so far in the second quarter?

Jim?

Give me a second --

I can pass back to someone, and whenever you have that, Jim --

(multiple speakers) as soon as he gets the numbers.

Let's go to the next question, Brad.

All right. Thanks, guys.

William Greene, Morgan Stanley.

Henry, I hear you on the economy, so I was thinking about two other things here, and I was trying to think about -- what are avenues of growth you could pursue that perhaps you haven't thought about before or haven't spent the time to invest in? And, I was thinking about two areas. One, I was thinking about could the Landstar model work in other markets? So, could it work in Europe or in Asia, do you ever think about that?

And then, the second part of that question then is -- could you use the Landstar model to get into parts of the market, or is it only driven by the agents? In other words, we hear so much about shale plays, and in the past you've said -- we don't really play there that much. But, it would seem there may be a lot of growth there, that maybe that's a way to direct the business to tap into secular growth and be less dependent, then, on macro. How do you think about that?

It's interesting because a lot of our stuff is -- let me deal with the first question.

Yes, we have thought about Asia. We have thought about Europe. In fact, we've done some investigation, and we've made the determination that, at this point, we were going to concentrate on, basically, North America, if you will, as that's a very large market. And again, our model is extremely -- it's different.

We do have a couple of agencies that are satellite offices of agents that we currently have with us. So we are, let's say, testing Europe. We've got an office, or a satellite, in London, I believe, and in Denmark, and -- is that it, Pat, at this point? So, we are looking at that.

Everybody talks about China. I have got to be perfectly frank -- I just am a little bit leery about doing business in a communist country, so I think we have sort of backed away from that, and we will see where we go with that.

As far as attacking different markets, one of the things that -- service offerings, for example, and our agents are actually the linchpin to our model. So, a lot of things we do, we've got to get our agents involved. What we've tried to do is expand our service offerings -- I think Pat mentioned our LTL service offering.

Clearly, our agent family understands truck, and a lot of those guys have backgrounds in LTL to begin with, so we think that's -- and we haven't talked about that before because -- we talk about a lot of things, but some things don't take off, so we basically left this one a little bit to see how it was going to progress. It actually is progressing pretty nicely, at this point in time, when you think about the amount of revenue we generated there. It's probably, next to truckload, it's our second-largest offering at this point in time.

But, as far as getting into specific markets -- Pat, you've got some ideas on that, I know that, and you've done some things.

Bill, I think there's some opportunity, if you look at all the stuff that's coming back to near shoring, if you will, we think there's some opportunities down south of the border. We are exploring some things there that I don't really want to get into detail on the call about.

There are some other product lines that we have looked at. They're not worth talking about in specifics, right here, but we look at it as anything that's real high-touch required sophistication, those kinds of products, those kinds of product lines, and those industries really serve Landstar well because the agent model and their ability to execute.

Lastly, I would tell you that some of the procurement tools that came with the acquisitions have been used to secure additional shipments from industries we're currently serving. So, I think those are three things that we look at to extend into different markets.

Okay, very helpful. Thank you for the time.

Chris Ceraso, Credit Suisse.

I wanted to visit the long-term operating margin target of 50% over the next three to five years. Do you still think that you'll make progress toward that this year? You're down a little bit in Q1, if you adjust for the timing of the meeting, based on the guidance, it looks like you'll be down year to year on that measure again in Q2. Can you improve versus the [45.8%]?

Look, our objective is to improve continually; and as I said, you can't take one, two, or even three quarters, and say -- okay, that's what it is. Our objective is to be at 50% in the three- to five-year timeframe, and I state that with all confidence that we will be there in that timeframe. That is our objective, and that's what we're going to move towards.

Again, I think the falloff in certain accounts that we had obviously drove a lot of that falloff in the first quarter, and you're going to see some of that in the second quarter. You start to rebound back in the third and fourth quarter. But again, I wouldn't cherry pick one quarter versus another quarter, as far as what our longer-term objective is, because you're going to have ups and downs. I can't manage quarter to quarter; I try to manage longer term.

Okay. And then, maybe another long-term question as well -- as your brokerage business grows faster than your BCO business over the next few years, will you take on some more of the characteristics of the pure-play brokerage name, such as more volatility in gross margin, general compression in most margin -- things that your model has allowed you to sidestep for the past several years?

Yes, and we've talked about that. As my percentage of brokerage grows, as it relates to the total revenue, of course, you're going to be subject to the market conditions, whether it's tight capacity or not, but the one difference is that all of our brokerage is split with an agent. So, whatever that up or down might be, it's split with an agent. So whatever happens, it wouldn't be on the upside, not as much; on the downside, it wouldn't be as much.

Okay. Thanks, Henry.

Just to follow back on the yield question that came in from Scott on the brokerage revenue per load, by month -- January, it was 2% below prior year; February, it was 1% below prior year; and March was 7% below prior year. But things you need to consider in there is, remember, it's not necessarily that it's a pricing mechanism -- it is partly price, but it also has a little bit to do with mix, whether flat -- in there is flats, vans, and LTL. So, it's a little bit impacted -- the negative trend that we've seen is a little bit negatively impacted by the LTL growth, which has a lower revenue per load.

In addition, you have the higher revenue per load is really the wind energy, which was down dramatically, remember I mentioned that $30 million decline in machinery. And, I mentioned one customer, our largest wind energy, and that was over half of that decline, which is the largest revenue per load. So, that's what drives that comparison.

Go ahead, next question.

Justin Yagerman, Deutsche Bank.

The wind energy -- that is a very profitable business for you guys. Do you have line of sight to that picking back up? Or I mean with --

Yes.

-- (multiple speakers) and all the rest, do you think that may continue to falter a little bit here?

From a trend line, it's going to pick up. Last year was very strong, so the differential you've got going on in the first quarter, second quarter is pretty big. You're going to eat into that differential as you move throughout the year. You'll still have some decline, but it will be a positive as you move through the third and fourth quarter, from a trend line, compared to the first and second quarter. I think, actually in maybe November, December, I think it actually is positive, from a comparative standpoint. But from a trend standpoint, clearly it's going to improve.

Okay. And then, this LTL business, I just want to make sure I understand it properly. This is you using existing LTL carriers in a broker-carrier type of capacity. This isn't you doing Road Runner type of business, where you're doing a virtual LTL type of setting, is it?

Justin, correct the first time. Right, we are using LTL carriers as brokerage capacity.

Got it. Have you given any thought to looking at that model, like what Road Runner does, where they have their agents and they have their pickup and delivery network, and it's kind of a complement to what you guys are doing, from a capability standpoint; but obviously, not exactly what you're doing?

It's something that we haven't looked at up to this point, Justin.

Okay. And then, just last quick question here -- do you own intermodal containers? Do you think about having to own them? That seems to be one -- I know you own some trailing equipment in the specialized segment, and incentivize your agents to cross-selling to intermodal -- is that something you'd consider?

We don't own intermodal containers. One of the issues we have with that is really the tracking of those containers, and we don't. We've looked at that a number of times, as far as whether we should do that or not, and we've moved away from that.

Our road trailers, Justin, are spec'd to be able to go on the railroad; but as you know, it's moving more to container, and we do not own any containers, correct.

Okay. All right, that's it. Thanks.

Jack Atkins, Stephens.

I guess, first off here, to go back to, Pat, your comments earlier about the regulatory environment as it relates to the increase in cash bonding -- just curious, is that the primary driver, when you think about agent count picking up in the second half of the year? Is that the main driver behind that, or are there other things also feeding into it? I would be curious to hear you talk some more about that.

And also, do you think that, as the regulatory environment is driving guys to look to affiliate with Landstar, do you think that's going to help increase the amount of average revenue per new agent that you're bringing in here?

The regulatory environment, Jack, is just another piece on top of all the other things that we've talked about that are compelling people to move from being a small broker to seek refuge with someone like Landstar, okay? So, I think that's just part and parcel of it. Clearly, we receive calls -- and we use that as part of our advertising to agent prospects. We talk about what happens when the surety bond increases.

Do we believe that will lead to a higher quality of agent, therefore, lead to a higher revenue per agent, per week? Yes. Clearly, we are focused on bringing on productive agent locations. To do otherwise is kind of folly when there's so many, we believe, opportunities out there that have existing agents that are looking for a good place to go.

Okay, great. That makes a lot of sense.

Jim, just going back to the commentary on the insurance headwind in the second quarter. If I look back at 2012, you guys seem to have fairly low insurance rates as a percentage if -- not insurance rate -- insurance expense, as a percentage of gross revenue and net revenue, for most of the year. Just sort of curious if this is going to be a headwind that you're going to face, you think, in the third and fourth quarter, as well? Or, is this just confined to the second quarter?

Let me make one comment before Jim responds. First thing, if you take a look at the first quarter, all right, the weather, clearly, was a lot worse in the first quarter of this year than it was last year. So therefore, that impacted, as far as the frequency, if you will, and some of the severity.

When you go into the second quarter, I think Jim alluded to it pretty nicely -- what we factored into our forecast, all right, is the normalized run rate, which is based on a percentage of BCO revenue, which is the way you should always forecast it. We have a very safe second quarter, that number will be lower.

But when you look at -- when I look at insurance, I think you have got to forecast -- which is what we do, the five-year average, and that's what is included in that range of EPS. Now, can that be better? Yes. Can be it worse? Yes. Depends on the frequency and severity of the accidents we have.

But, that is the way we would have to look the insurance on a go-forward basis, and the way we look at it every quarter, as far as when we look at what the numbers might be. And, we happened to be very safe, last year, in the second and third and fourth quarters, and therefore, the numbers were lower.

On the other hand, now, we are in 2013, so we are going to throw our forecast at, basically, the average of the last five years. I think that answered it --

Sure, absolutely.

Todd Fowler, KeyBanc Capital Markets.

Can you give, in order of magnitude, how much was wind energy revenue in the second quarter of '12, and then, also in third and fourth quarter of last year?

I don't have the second and third quarters of last year. Our largest account, which is the predominant account, was -- I want to say it was down $15 million, let me just see what the -- I don't have the second and third, offhand with me, but the -- bear with me one second.

2012 -- round figures, we had $21 million of revenue in the first quarter. We had $6 million, basically, in the first quarter of this year. That's the sort of magnitude we're talking about. Then, when I talked about the $30 million decline in equipment, $15 million of it was that one customer, and that's the bulk of our wind energy business.

Okay. I guess -- so Henry, it would be safe -- to me it felt like the wind energy business would have slowed down in the third and fourth quarter of last year. So, maybe a $20 million number, from a comparison standpoint, give or take, in the second quarter of '12, but then that number -- the comparisons would become easier in the third and fourth quarter?

Comparisons become easier all throughout the year; however, it was pretty strong up until you got to the fourth quarter, it became a little bit weak. But that customer tried to basically shove a lot of things through. What we do know is that the orders have picked up, and we do know that the trend line is clearly positive as you moved forward on a comparison of the current-year quarters.

To that planning, does it seem like that would get back up to, let's call it, a $20 million run rate, in the third and fourth quarter, or would it be something less than that?

Pat, you're going to have to answer that question. I don't have those numbers.

We don't have it by quarter, and the first quarter, obviously, was slower this year than it was last year. We did about $60 million, $65 million last year, and we're projecting about half of that for the remainder of the year.

Okay (multiple speakers). Yes, that definitely helps.

The second one I had is just when I look at the BCO productivity in the quarter -- so the number of BCO loads divided by the BCO count, it was down somewhere in the mid-single digit type range. Is some of that related to the electronic on-board recorders, or is most of that the machinery movements? And I guess, if you have any color or commentary around the BCO productivity, that would be helpful? Thanks for the time.

I think you can look at a couple things. I think, they had a pretty decent 2012, and I think our BCOs -- the platform BCOs, clearly, were probably a little bit less busy in the first quarter than they would have been a year ago.

I also think you factor in a little bit of the weather. Our guys, typically one truck at a time, own their own equipment, they're pretty cautious when it comes to operating in bad weather. So, I think you've probably got to factor in a little bit of that, as well, in the first quarter.

Okay. All that makes sense. Thank you very much.

Scott Schneeberger, Oppenheimer.

Could you speak at all to weather in the quarter, and any impact, as well as the number of days -- any read through on those two factors?

I tell you the weather caused a lot of business to be choppy. I believe there was two less working days. Is that right -- there was two?

Two full working days in the first quarter, here. To try to quantify revenue, as it relates to that, I wouldn't want to throw a number out, but clearly, it impacted. Two days always would impact, and obviously, the weather, I think, has some impact because it literally -- the weather was bad in the first quarter. But, for me to place a number on that, it's kind of hard to do.

All right, thanks. Outside of the wind vertical, just if we look at industrial, ex-that, could you give us a taste of what the business environment is? Thanks.

Yes, no problem. How many guys heard Caterpillar's report? Caterpillar is in that equipment, or machinery, I think, is our second-largest customer, so that was down. John Deere was down.

So, you've got -- again, those customers that dealing with flatbed-type stuff, and that was impacted. And as I said, that one commodity group was all, basically more than all, of the total revenue decline. It was over $30 million, so I tried to point that out. That's literally where it was.

Thom Albrecht, BB&T.

Two other questions -- on the LTL brokerage effort, you gave some growth rates, but what's the approximate size of that, either in the quarter, or if you took the quarter and annualized that run rate?

For the quarter, it was 9% of the truck volume, so -- the BCO brokerage, and it's all sitting in brokerage, so that's what the LTL was for the quarter -- of loadings, not revenue.

Yes. And then, appliances -- how did that category do, Henry? We're all trying to figure that out, some of that could be housing, some of it could be just catch-up old appliances. I think it's 12% to 15% of your revenues a lot of years.

Appliances and furniture were 15%. Yes, I got that right -- no, that's 2012. Sorry, I got the wrong one. You got that number?

Appliances and furniture was up 3%, compared to last year, during the quarter.

Okay. All right --

Relatively flat -- it wasn't (inaudible).

It's a positive number, right?

It was positive -- plus 3%.

Okay, thank you.

Jim considers anything below 10% flat (laughter).

Anthony Gallo, Wells Fargo.

Jim, I wanted to go back to the insurance number, if I could. I thought I heard you say there was $2.4 million -- was it unusual or prior-year claim that hit the first quarter?

It's an adjustment to a prior-year claim due to change in facts. So, we are aware of the claim. We had put something up a little bit on the claim, and it turned unfavorable on us during the quarter. So, most of that $2.4 million came from once specific incident.

Perfect. Then, that same category in the first quarter of 2012 was -- did you say $700,000 or $750,000?

$750,000.

Okay. Were there any other prior-year bumps in 2012? And if so, what were they during the quarters?

If you look in the critical accounting areas in our 10-Qs -- each number is specifically disclosed, so you can actually pull that data out.

Fantastic. I think that's all I have. Thank you.

Ryan Bouchard, Avondale Partners.

You have said that the BCO count is trending back up in the second quarter. Can you give us an idea of how much you've seen come back, or what the increase is so far?

Through the first three weeks, we're positive by a pretty small number, but it's positive. January, February and March were all negative, and that's pretty normal. Through the first three weeks of April, it's a little bit better than breakeven; but that's, again, a good sign and typical of prior years.

Okay. And then, I apologize if you covered this before, I wasn't able to catch everything you said about the wind power customers. I know, in the past, you have said that you expected them to come back on in May. Is any of that factored into your EPS estimate for the coming quarter, or have --?

It is. I think the bulk of the trend increase that we see the first quarter, second quarter, third quarter, again the bulk of that improvement, if you will, is going to be in the third and fourth quarter. But yes, it is factored into the second-quarter estimates.

Okay. Thank you. That's all I had.

David Campbell, Thompson Davis & Company.

I know you don't report agent locations, but can you say whether they were up or down in the first quarter? And, what you may happen in the second quarter on agent locations?

As you said, we don't report agent locations. I think what Pat had alluded to is that, from a productive quality agent recruiting standpoint, the number of agents recruited in the first quarter of this year was slightly lower than what we had last year. But from a productivity standpoint, I think the number Pat quoted was $10,000 per week, per agent added, which is -- is that correct, Pat?

Yes, for us, David, it's really not about the number of agents, although it's important that each agent you bring on is productive. So, we don't look at the number of agents as much as we look at how productive those agents are. What Henry said is correct -- we were slightly below the previous year of the number, but the productivity of those agents has almost doubled what we had in the first quarter of 2013 -- or excuse me, 2012, I apologize.

That's really the thing, David, that you're looking at because what you want to do is drive revenue. It's not a location count -- it is the revenue piece.

You expect that same sort of trend to happen in the second quarter?

We are -- we believe that trend will continue for the balance of the year, correct.

Thank you.

David Tamberrino, Stifel.

Taking a look at the balance sheet, it looks like you guys are back to a net-debt positive, so you have a pretty large cash balance, and you haven't necessarily been ramping your share purchase activity. I just wanted to know what your plans were the rest of the year -- taking a look at where you've worked your debt balance to, and where cash is? And then, in relation to your second-quarter '13 guidance, how much share repurchase activity you're assuming.

I didn't project any -- not that we wouldn't do it, but I didn't project any share purchases into the second quarter. Yes, we had not been in the market for a little bit of time, and really, we're just being opportunistic. It wasn't purposeful, but I would expect that you'd see us act like we have in the past, historically, and not based on the recent activity you have seen -- that we didn't buy anything in the first quarter, but we are not unwilling to ride the revolver up in the event we see opportunity.

Okay. And then, one of the things I kind of took away from the agent convention earlier this year -- obviously, Landstar has had a pretty long and impressive history, but the thought crossed my mind as to the average age of your different agents and your agent locations, and if you track how old the owners of those businesses have grown and what the average age of your agents are?

David, it's interesting you say that because as you were there, we brought back some of the older people, sort of like an old-timers day, if you will, as far as bringing back some of the people who basically brought this Company together, and I got a thank you note from the first CEO, here John Barron, who basically said, and I'm going to quote -- it was also gratifying to see the second and third generations of the agent family now participating in the business. And, I think that's key because that what is we do, and that is what our agents do.

It's basically moving the business to the younger group, and I can cite a number of agents that have done that -- we've got one of our big agents in Pittsburgh. I just had a call from the guy who is operating it now, but on the other hand, the guy who built that business is sort of semi-retired. Got two guys in Hagerstown, their kids run the business now, and we've got story, upon story, upon story like that. The model stays, and I think we have transitioned the business, and obviously, John had recognized that, right away, as far as when he was down at that convention.

Okay. Thank you very much, Henry.

Matt Brooklier, Longbow Research.

Wanted to get a feel for what you're seeing within your building products category. I think it's roughly maybe 9% to 10% of your book of business, and I think half of that is flatbed, and just curious to see if we're seeing improving trends there.

Go ahead, Jim.

Yes, we are showing 11% growth there.

Okay.

But, we added two rather sizable new customers in that category, too. So, it's not just growth from our existing customer base, there's growth coming in from two new customers in there. I can do the math on that and tell you that without those two new customers -- we are 6% or 7%.

Okay, still a pretty healthy number. Do you know what that number was in the fourth quarter of '12?

What the growth was?

Yes, what the year-over-year growth was in the fourth quarter of '12?

I've got to go somewhere else, but if you got another question, I'll answer that --

He's saying, here, he's got to go to another book --

Okay. I'm not sure if we touched on it, but have you guys provided an update, in terms of your CapEx spend for '13?

Cash CapEx -- $5 million to $7 million. But, we're going to -- we're replacing trailing equipment during the year of, maybe, $45 million on top of that. That goes through capital leases, and not cash, we borrowed on that.

Right. Okay, that sounds like it's unchanged.

Yes, it's pretty typical.

Got you. Okay, thank you for the time.

Tom Wadewitz, JPMC.

It's actually Alex on for Tom.

I'm sorry if I missed this earlier in the call, you were providing a lot of excellent detail -- trying to get it all down. But, to pick out another, I guess, end market, I was wondering, in terms of government, did you talk about your, I guess, mix of your business with the government? And specific to that, any portion of the business that would be subject to sequester, and whether you've seen any impact from that yet?

We haven't flown yet, so we don't know (laughter). No -- that was a joke.

Joe's comment on, I think, it was the business -- it was down 6% -- I'm sorry, [up 6%] -- pretty consistent with what it was first quarter over first quarter. Fourth quarter over fourth quarter was also up 6%.

Okay, and is there much of the business that you think would be subject to sequester that you haven't seen yet, or there isn't much of an issue around that?

No, I don't think so. And, the numbers you just gave were for building products --?

Building products -- that was building products.

The government business -- Jim, I've got (inaudible) hold on a second.

Government, I think, was just down slightly -- about 2% -- $2 million. About $2 million, it was down.

$2 million year over year?

Yes, we do see a little -- is that right, year over year, $2 million? And [DTC] now, as far as some of the flatbed business from -- has been eliminated from the DTC contract, correct?

Yes, the contracting through DTCI has -- some of that business is now back in the Transportation Officer's hands. If you think about what Landstar does from a DoD perspective, we are typically hauling cargo that is needed for the war fighter and/or our security efforts, so they're really not subject to the sequestration. There is some business, Alex, that is. But by and large, what we do is not subject to that. The slowdown we see in government is really because the wind down of the war.

Okay, that's very helpful.

Then, one last question, I guess, in terms of furthering our understanding of the LTL business that you're doing. Is there -- can you help us understand is there significant concentration of the business with certain agents with certain shippers and which carriers are you using? Can you provide any additional information around that?

I think just like the model itself, it's widely diversified, from the customer base, from the account penetration, from the number of agents, and from the capacity providers' perspective. So, I think it's pretty broad based. There are some customers that we have that we do all of their LTL business, but I think Henry mentioned in his comments, and I reiterated, that this product line is a product line that our agents and field people and salespeople are very familiar with, or many of them are familiar with it, so it's a much easier sell for them.

Right. Okay, thank you very much for the time this afternoon.

Matt Young, Morningstar.

I know the underlying demand is softer in some of these end markets, but I was just wondering if there are opportunities for you guys to continue to gain market share beyond the underlying market growth in flatbed/heavy haul, or any end market in particular that you'd point out -- perhaps from smaller brokers, or from other asset-based carriers, and so forth?

I think you hit one right on the head. Pat went through a little bit of color on new agents, and obviously, every time we bring on a new agent, that's taking on market share. And, I think with the increase in the surety bond requirement and what we're doing, that's where we're going to take and gain into that market share. Jim mentioned a couple new accounts that we had in our -- was it building? Building products commodity code. So, we're constantly working on that.

I think the biggest issue we had in the first quarter, however, was that on our very larger accounts -- larger machinery equipment type accounts, which we alluded to basically three out of the top five, I believe, were down pretty significantly, and that sometimes is tough to overcome. I think it's a testament to our business model, as far as how well we perform despite that large decline.

And, what's encouraging, as you move through to the back half of the year, we know the comps get easier, and if that starts to change as far as that business starts to pick up, I think we're sitting in pretty good shape. But again, as I said before, it all depends on if that stuff recovers. But -- although we're disappointed in the overall results, we're encouraged as far as the fact that based on the one commodity code that declines so significantly, we're able to basically maintain an operating margin because of our variable-cost business model and moving forward.

I think we've got things moving in the right direction. We just need a little kick from the manufacturing base. Again, the only thing I'll add to this, is it's no different than -- it's a little bit slower than we anticipated, but I've said, as we moved into 2013, that the first half was going to be slower, and the second half, we anticipate pick up. Now, hopefully that occurs, and we'll see what happens.

There needs to be business to get, right --?

Look, we are always going to go after new business.

Quick question on the [cab] leases real quick -- you said $45 million this year. That looks like it's sort of near a peak. Does that tail off a little bit over the next few years -- for the trailing equipment?

We have about 8,000 van trailers, and we're probably going to do -- swap out 1,200 to 1,400 over the next two or three years. So, you'll probably see that consistent over the next two or three years, and then I expect it might slide off.

Okay, great. Thanks, guys.

All right, it is 3.00, so we're going to basically call the conference call to a close, and I'm going to go around the horn, here, to see if there's any closing comments. Joe?

Nothing here, Henry.

Pat?

No, Henry.

Jim?

No.

Okay. I basically gave my summation in response to Matt's last question.

We look forward to the back half of the year -- the second quarter and the back half of the year. We hope that things from the manufacturing base will start to improve. I think from that standpoint, if it does, I think we're in pretty good shape.

With that, going to wish everybody a good afternoon and look forward to talking to you again on our mid-quarter update call. Thanks, again.

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