Landstar System, Inc. (NASDAQ:LSTR)
Second Mid-quarter 2013 Update Conference
May 28, 2013 2:00 pm ET
Henry H. Gerkens - Chairman, Chief Executive Officer, President, Member of Strategic Planning Committee and Member of Safety & Risk Committee
Good afternoon, and welcome to Landstar System, Inc. Second Mid-quarter 2013 Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.
Joining us today from Landstar, Henry Gerkens, Chairman, President and CEO. Now I would like to turn the call over to Mr. Henry Gerkens. Sir, you may begin.
Henry H. Gerkens
Thanks, Derick. Good afternoon, and welcome to the Landstar 2013 second quarter mid-quarter update conference call. As a reminder, let me review how our mid-quarter update call works. There is no question-and-answer period during this call. The purpose of the call is to provide a brief update on how management sees the current quarter shaping up as it relates to business levels and earnings projections. The call will be very brief and last only several minutes.
Before we start, 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 call, I 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.
During our first quarter 2013 earnings conference call, I stated that I anticipated that revenue for the 2013 second quarter would finish approximately 2% to 4% below the 2012 second quarter, and that the 2013 second quarter earnings per diluted share was estimated to be in a range of $0.68 to $0.73 per diluted share.
Landstar has now completed the first 8 weeks of the 2013 second quarter. Revenue generated in the first 8 weeks of the 2013 second quarter continues to fall below revenue generated in the first 8 weeks of the 2012 second quarter. In fact, we have seen an increase in the rate of revenue deceleration from that which was experienced in the 2013 first quarter compared to the revenue generated in the 2012 first quarter. Both total truckload volume and revenue per load are weaker.
This further deceleration in revenue trends continues to be largely driven by the increased weakness in our industrial-based flatbed business that is classified in our machinery commodity grouping, and to a lesser extent, a shortfall in certain other specific accounts. Although we still anticipate some of the heavy haul specialized business to start to reaccelerate in late June, specifically some of our wind power business, there is no evidence at this point that there will be any pickup in our other industrial-based business through the end of the 2013 second quarter. This overall market segment remains very soft.
Assuming a continuation of current revenue trends for the remaining 5 weeks of the 2013 second quarter, I now anticipate revenue for the 2013 second quarter to be in a range of $660 million to $700 million. Despite the anticipated revenue shortfall compared to the 2012 second quarter, I would estimate our gross profit margin to remain in a 16% to 16.2% range, better than the 15.9% gross profit margin in the 2012 second quarter.
Additionally, I anticipate our operating margin to be a healthy 44% to 46% -- in the 44% to 46% range. Embedded in the operating profit margin assumptions is an estimated amount for insurance and claims expense, calculated using a historical 5-year average of insurance and claims expense as a percentage of BCO revenue. Based on those previous assumptions, I would now project 2013 second quarter diluted earnings per share to be in a range of $0.63 to $0.68 per share.
All that being said, current economic forecasts indicate industrial production will increase in the back half of the year, which should benefit our flatbed industrial-based business. At this point, however, I don't believe our full year revenue goal of $3 billion is attainable in 2013, unless there is a dramatic turnaround in current economic conditions surrounding our industrial-based business.
There are a number of positive points that one should keep in mind as we look to the back half of 2013. One, the manufacturing industrial-based cyclical business should improve at some point, and it is estimated it should begin in the back half of the year. Two, when this business improves, it should also have a positive impact on pricing. As such, I believe Landstar is well positioned to capitalize on those improving conditions. Three, the Landstar variable cost business model is performing very well despite this temporary slowdown, as evidenced by our projected gross profit and operating income margins. Four, beginning in the 2013 third quarter, revenue generated through new agent additions should be back in our 3% to 6% historical range of revenue. And five, most truckload companies who own power equipment and employ company drivers have cited that the change in the hours of service rules scheduled to take place on July 1 will have a negative impact on their productivity and utilization in a range of anywhere from 1% to 6%.
Because of our business model, I believe the change in the hours of service rules should have little to no impact on Landstar's existing business. However, it potentially could create additional loading opportunities for Landstar. As carriers cannot fully service their customers' loading requirements because of driver availability, it logically should create additional spot market or overflow freight opportunities, which is right in Landstar's sweet spot. In any event, overall, I believe the new rules should create additional pricing power.
That is my brief update. One final note, so far during the 2013 second quarter, Landstar has purchased 305,252 shares of its common stock at an aggregate cost of approximately $16,443,000. Thank you for dialing in, and I look forward to talking to you again on our July 25 second quarter earnings conference call.
Thank you for joining the conference call today. Have a good afternoon. Please disconnect your lines at this time.
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