LSTR Landstar System Inc

Landstar System, Inc. (NASDAQ: LSTR) (“Landstar” or the “Company”) reported basic and diluted earnings per share (“EPS”) of $1.71 in the 2023 third quarter on revenue of $1.289 billion. Landstar reported EPS of $2.76 on revenue of $1.816 billion in the 2022 third quarter.

Gross profit in the 2023 third quarter was $128.1 million and variable contribution (defined as revenue less the cost of purchased transportation and commissions to agents) in the 2023 third quarter was $187.4 million. Gross profit in the 2022 third quarter was $185.7 million and variable contribution in the 2022 third quarter was $245.7 million. Reconciliations of gross profit to variable contribution and gross profit margin to variable contribution margin for the 2023 and 2022 third quarters and year-to-date periods are provided in the Company’s accompanying financial disclosures.

Trailing twelve month return on average shareholders’ equity was 32% and return on invested capital, representing net income divided by the sum of average equity plus average debt, was 29%. The Company is currently authorized to purchase up to 2,910,339 shares of the Company’s common stock under its previously announced share purchase programs. Landstar announced today that its Board of Directors has declared a quarterly dividend of $0.33 per share payable on December 1, 2023, to stockholders of record as of the close of business on November 7, 2023. It is currently the intention of the Board to pay dividends on a quarterly basis going forward.

Truck transportation revenue hauled by independent business capacity owners (“BCOs”) and truck brokerage carriers in the 2023 third quarter was $1,173.8 million, or 91% of revenue, compared to $1,598.8 million, or 88% of revenue, in the 2022 third quarter. Truckload transportation revenue hauled via van equipment in the 2023 third quarter was $665.6 million, compared to $914.2 million in the 2022 third quarter. Truckload transportation revenue hauled via unsided/platform equipment in the 2023 third quarter was $378.1 million, compared to $453.9 million in the 2022 third quarter. Revenue from other truck transportation, which is largely related to power-only services, in the 2023 third quarter was $102.0 million, compared to $195.3 million in the 2022 third quarter. Revenue hauled by rail, air and ocean cargo carriers was $88.9 million, or 7% of revenue, in the 2023 third quarter, compared to $191.9 million, or 11% of revenue, in the 2022 third quarter.

“The soft freight market fundamentals experienced during the 2023 second quarter continued throughout the 2023 third quarter and made for challenging comparisons against our record 2022 third quarter performance,” said Landstar President and Chief Executive Officer Jim Gattoni. “Lackluster demand, driven by continued weakness in the U.S. manufacturing sector and the ongoing impact of an inflation-challenged consumer goods sector, plus the continuation of a loose truck capacity market drove Landstar’s truck revenue per load and volumes in the 2023 third quarter below prior year levels. The number of loads hauled via truck declined 16% as compared to the 2022 third quarter, at the high end of the Company’s guidance included as part of the Company’s 2023 second quarter earnings release on July 26, 2023, while truck revenue per load declined 12% as compared to the 2022 third quarter, at the low end of the Company’s previously issued guidance.” Gattoni continued, “The Company’s balance sheet continues to be very strong, with cash and short term investments of approximately $497 million as of September 30, 2023. Cash flow from operations was $304 million through the first three quarters of fiscal year 2023.”

Gattoni further commented, “Through the first several weeks of October, the number of loads hauled via truck has trended below historical, pre-pandemic end of third quarter to the beginning of fourth quarter sequential patterns, while truck revenue per load has thus far trended reasonably in-line with these historical, pre-pandemic sequential patterns. As a reminder, the 2022 fourth quarter included 14 weeks of operations while the 2023 fourth quarter will include 13 weeks. Taking that extra week in 2022 into consideration and assuming a continuation of the October trends coupled with our expectation of a muted peak season, I expect revenue per load on loads hauled via truck to be in a range of 6% to 8% below the 2022 fourth quarter and the number of loads hauled via truck to be in a range of 20% to 22% below the 2022 fourth quarter. As such, I anticipate revenue for the 2023 fourth quarter to be in a range of $1.225 billion to $1.275 billion.”

Gattoni concluded, “Based on the range of revenue estimated for the 2023 fourth quarter, I would anticipate EPS to be in a range of $1.60 to $1.70. The anticipated range of EPS for the 2023 fourth quarter includes estimated insurance and claims costs of approximately 5.5% of BCO revenue. These costs were 5.6% of BCO revenue over the first nine months of 2023. The anticipated range of EPS for the 2023 fourth quarter also reflects an estimated effective income tax rate of 24.5%.”

Landstar will provide a live webcast of its quarterly earnings conference call tomorrow morning at 8:00 a.m. ET. To access the webcast, visit the Company’s website at www.landstar.com; click on “Investor Relations” and “Webcasts,” then click on “Landstar’s Third Quarter 2023 Earnings Release Conference Call.”

About Landstar:Landstar System, Inc., a Fortune 500 company, is a worldwide, technology-enabled, asset-light provider of integrated transportation management solutions delivering safe, specialized transportation services to a broad range of customers utilizing a network of agents, third-party capacity providers and employees. Landstar transportation services companies are certified to ISO 9001:2015 quality management system standards and RC14001:2015 environmental, health, safety and security management system standards. Landstar System, Inc. is headquartered in Jacksonville, Florida. Its common stock trades on The NASDAQ Stock Market® under the symbol LSTR.

Non-GAAP Financial Measures:In this earnings release and accompanying financial disclosures, the Company provides the following information that may be deemed a non-GAAP financial measure: variable contribution and variable contribution margin. The Company believes variable contribution and variable contribution margin are useful measures of the variable costs that we incur at a shipment-by-shipment level attributable to our transportation network of third-party capacity providers and independent agents in order to provide services to our customers. The Company also believes that it is appropriate to present each of the financial measures that may be deemed a non-GAAP financial measure, as referred to above, for the following reasons: (1) disclosure of these matters will allow investors to better understand the underlying trends in the Company’s financial condition and results of operations; (2) this information will facilitate comparisons by investors of the Company’s results as compared to the results of peer companies; and (3) management considers this financial information in its decision making.

Forward Looking Statements Disclaimer:The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995. Statements contained in this press release that are not based on historical facts are “forward-looking statements”. This press release contains forward-looking statements, such as statements which relate to Landstar’s business objectives, plans, strategies and expectations. Terms such as “anticipates,” “believes,” “estimates,” “intention,” “expects,” “plans,” “predicts,” “may,” “should,” “could,” “will,” the negative thereof and similar expressions are intended to identify forward-looking statements. Such statements are by nature subject to uncertainties and risks, including but not limited to: the impact of the Russian conflict with Ukraine on the operations of certain independent commission sales agents, including the Company’s largest such agent by revenue in the 2022 fiscal year; the impact of the coronavirus (COVID-19) pandemic; an increase in the frequency or severity of accidents or other claims; unfavorable development of existing accident claims; dependence on third party insurance companies; dependence on independent commission sales agents; dependence on third party capacity providers; decreased demand for transportation services; U.S. trade relationships; substantial industry competition; disruptions or failures in the Company’s computer systems; cyber and other information security incidents; dependence on key vendors; potential changes in taxes; status of independent contractors; regulatory and legislative changes; regulations focused on diesel emissions and other air quality matters; intellectual property; and other operational, financial or legal risks or uncertainties detailed in Landstar’s Form 10-K for the 2022 fiscal year, described in Item 1A Risk Factors, Landstar’s Form 10-Q for the 2023 first fiscal quarter, described in Item 1A Risk Factors, and in 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 the Company undertakes no obligation to publicly update or revise any forward-looking statements.

Landstar System, Inc. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
			Thirty-Nine Weeks Ended								Thirteen Weeks Ended
			September 30,				September 24,				September 30,				September 24,
			2023				2022				2023				2022
Revenue			$	4,098,877			$	5,761,795			$	1,289,345			$	1,816,132
Investment income				6,874				2,023				3,022				716
Costs and expenses:
	Purchased transportation			3,141,234				4,512,341				986,743				1,416,323
	Commissions to agents			363,397				465,759				115,244				154,125
	Other operating costs, net of gains on asset sales/dispositions			40,998				34,878				15,158				13,356
	Insurance and claims			86,971				96,265				29,540				31,445
	Selling, general and administrative			159,071				165,199				50,975				53,519
	Depreciation and amortization			44,498				42,627				14,359				14,582
		Total costs and expenses		3,836,169				5,317,069				1,212,019				1,683,350
Operating income				269,582				446,749				80,348				133,498
Interest and debt (income) expense				(2,079	)			3,275				(1,046	)			1,047
Income before income taxes				271,661				443,474				81,394				132,451
Income taxes				65,254				105,862				19,741				32,233
Net income			$	206,407			$	337,612			$	61,653			$	100,218
Basic and diluted earnings per share			$	5.74			$	9.15			$	1.71			$	2.76
Average basic and diluted shares outstanding				35,958,000				36,886,000				35,951,000				36,334,000
Dividends per common share			$	0.93			$	0.80			$	0.33			$	0.30

Landstar System, Inc. and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
(Unaudited)
				September 30,				December 31,
				2023				2022
ASSETS
Current assets:
	Cash and cash equivalents			$	439,661			$	339,581
	Short-term investments				57,099				53,955
	Trade accounts receivable, less allowance
		of $12,054 and $12,121			810,801				967,793
	Other receivables, including advances to independent
		contractors, less allowance of $14,405 and $10,579			57,063				56,235
	Other current assets				30,918				21,826
		Total current assets			1,395,542				1,439,390
Operating property, less accumulated depreciation
			and amortization of $426,984 and $393,274		284,081				314,990
Goodwill					41,934				41,220
Other assets					130,970				136,279
Total assets				$	1,852,527			$	1,931,879
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Cash overdraft			$	48,067			$	92,953
	Accounts payable				464,720				527,372
	Current maturities of long-term debt				29,210				36,175
	Insurance claims				45,518				50,836
	Dividends payable				-				71,854
	Other current liabilities				82,550				98,945
		Total current liabilities			670,065				878,135
Long-term debt, excluding current maturities					46,173				67,225
Insurance claims					56,776				58,268
Deferred income taxes and other non-current liabilities					36,359				41,030
Shareholders' equity:
	Common stock, $0.01 par value, authorized 160,000,000
		shares, issued 68,497,324 and 68,382,310			685				684
	Additional paid-in capital				254,630				258,487
	Retained earnings				2,808,919				2,635,960
	Cost of 32,550,980 and 32,455,300 shares of common
		stock in treasury			(2,009,351	)			(1,992,886	)
	Accumulated other comprehensive loss				(11,729	)			(15,024	)
		Total shareholders' equity			1,043,154				887,221
Total liabilities and shareholders' equity				$	1,852,527			$	1,931,879

Landstar System, Inc. and Subsidiary
Supplemental Information
(Unaudited)
					Thirty-Nine Weeks Ended								Thirteen Weeks Ended
					September 30,				September 24,				September 30,				September 24,
					2023				2022				2023				2022
Revenue generated through (in thousands):
	Truck transportation
		Truckload:
			Van equipment		$	2,123,693			$	3,022,297			$	665,569			$	914,154
			Unsided/platform equipment			1,150,483				1,336,956				378,147				453,924
		Less-than-truckload				90,770				105,994				28,097				35,343
		Other truck transportation (1)				379,471				632,001				101,951				195,345
			Total truck transportation			3,744,417				5,097,248				1,173,764				1,598,766
	Rail intermodal					73,953				113,762				23,064				27,652
	Ocean and air cargo carriers					202,358				475,156				65,824				164,252
	Other (2)					78,149				75,629				26,693				25,462
					$	4,098,877			$	5,761,795			$	1,289,345			$	1,816,132
	Revenue on loads hauled via BCO Independent Contractors (3)
		included in total truck transportation			$	1,543,634			$	2,043,772			$	508,753			$	627,809
Number of loads:
	Truck transportation
		Truckload:
			Van equipment			966,867				1,130,263				311,831				366,513
			Unsided/platform equipment			389,471				420,436				126,286				141,091
		Less-than-truckload				134,580				142,740				41,514				45,912
		Other truck transportation (1)				157,112				243,341				46,739				76,594
			Total truck transportation			1,648,030				1,936,780				526,370				630,110
	Rail intermodal					22,150				31,940				6,760				7,720
	Ocean and air cargo carriers					25,380				34,410				8,630				11,520
						1,695,560				2,003,130				541,760				649,350
	Loads hauled via BCO Independent Contractors (3)
		included in total truck transportation				689,260				777,250				225,350				249,420
Revenue per load:
	Truck transportation
		Truckload:
			Van equipment		$	2,196			$	2,674			$	2,134			$	2,494
			Unsided/platform equipment			2,954				3,180				2,994				3,217
		Less-than-truckload				674				743				677				770
		Other truck transportation (1)				2,415				2,597				2,181				2,550
			Total truck transportation			2,272				2,632				2,230				2,537
	Rail intermodal					3,339				3,562				3,412				3,582
	Ocean and air cargo carriers					7,973				13,809				7,627				14,258
	Revenue per load on loads hauled via BCO Independent Contractors (3)				$	2,240			$	2,629			$	2,258			$	2,517
Revenue by capacity type (as a % of total revenue):
	Truck capacity providers:
		BCO Independent Contractors (3)				38	%			35	%			39	%			35	%
		Truck Brokerage Carriers				54	%			53	%			52	%			53	%
	Rail intermodal					2	%			2	%			2	%			2	%
	Ocean and air cargo carriers					5	%			8	%			5	%			9	%
	Other					2	%			1	%			2	%			1	%
													September 30,				September 24,
													2023				2022
Truck Capacity Providers
	BCO Independent Contractors (3)													9,455				10,742
	Truck Brokerage Carriers:
		Approved and active (4)												51,717				71,207
		Other approved												27,925				30,222
														79,642				101,429
	Total available truck capacity providers													89,097				112,171
	Trucks provided by BCO Independent Contractors (3)													10,253				11,644
(1) Includes power-only, expedited, straight truck, cargo van, and miscellaneous other truck transportation revenue generated by the transportation logistics segment. Power-only refers to shipments where the Company furnishes a power unit and an operator but not trailing equipment, which is typically provided by the shipper or consignee.
(2) Includes primarily reinsurance premium revenue generated by the insurance segment and intra-Mexico transportation services revenue generated by Landstar Metro.
(3) BCO Independent Contractors are independent contractors who provide truck capacity to the Company under exclusive lease arrangements.
(4) Active refers to Truck Brokerage Carriers who moved at least one load in the 180 days immediately preceding the fiscal quarter end.

Landstar System, Inc. and Subsidiary
Reconciliation of Gross Profit to Variable Contribution
(Dollars in thousands)
(Unaudited)
			Thirty-Nine Weeks Ended								Thirteen Weeks Ended
			September 30,				September 24,				September 30,				September 24,
			2023				2022				2023				2022
Revenue			$	4,098,877			$	5,761,795			$	1,289,345			$	1,816,132
Costs of revenue:
		Purchased transportation		3,141,234				4,512,341				986,743				1,416,323
		Commissions to agents		363,397				465,759				115,244				154,125
	Variable costs of revenue			3,504,631				4,978,100				1,101,987				1,570,448
		Trailing equipment depreciation		24,240				27,760				7,721				9,397
		Information technology costs (1)		19,791				13,868				6,298				4,829
		Insurance-related costs (2)		88,484				98,821				30,102				32,380
		Other operating costs		40,998				34,878				15,158				13,356
	Other costs of revenue			173,513				175,327				59,279				59,962
	Total costs of revenue			3,678,144				5,153,427				1,161,266				1,630,410
Gross profit			$	420,733			$	608,368			$	128,079			$	185,722
Gross profit margin				10.3	%			10.6	%			9.9	%			10.2	%
	Plus: other costs of revenue			173,513				175,327				59,279				59,962
Variable contribution			$	594,246			$	783,695			$	187,358			$	245,684
Variable contribution margin				14.5	%			13.6	%			14.5	%			13.5	%
(1)  Includes costs of revenue incurred related to internally developed software including ASC 350-40 amortization, implementation costs, hosting costs and other support costs utilized to support the Company’s independent commission sales agents, third party capacity providers, and customers, included as a portion of depreciation and amortization and of selling, general and administrative in the Company's Consolidated Statements of Income.
(2)  Primarily includes (i) insurance premiums paid for commercial auto liability, general liability, cargo and other lines of coverage related to the transportation of freight; (ii) the related cost of claims incurred under those programs; and (iii) brokerage commissions and other fees incurred relating to the administration of insurance programs available to BCO Independent Contractors that are reinsured by the Company, which are included in selling, general and administrative in the Company’s Consolidated Statements of Income.

Contact: Jim Todd (CFO)
Landstar System, Inc.
www.landstar.com
904-398-9400