Landstar says 2 more quarters before recovery

Truckload capacity has been slow to leave the industry. Trucks provided by Landstar’s business capacity owners (BCOs), which are owner-operators who haul almost exclusively for the company, were down 13% y/y and 4% lower sequentially. Management said 20% of the BCOs terminated cited an inability to pay for repairs as the reason for not running currently.

The company said the recently departed BCOs, which normally can hold on longer during downturns, will return once rates improve.

“I don’t think it’s anything that’s systemic going forward,” said Joe Beacom, chief safety and operations officer, on a Thursday call with analysts. “Small carriers across the landscape are leaving the market in rapid fashion. We’re not immune to that.”

Asked if brokerage spreads need to improve to keep more BCOs in the network, outgoing President and CEO Jim Gattoni said, “I’ve been here for 27 years and the pricing on truck generally catches up to the cost inflation in a year or two.”

He said the spreads with carriers were the widest they had ever been on the platform a year ago, indicating the market was loose and carriers were taking what they could get. That gap has been closing since and carriers are now pressuring Landstar for more rate, which Gattoni said indicates some market tightening.

Landstar expects revenue for the first quarter to be in a range of $1.1 billion to $1.15 billion, a 22% y/y decline at the midpoint. Loads hauled by truck are expected to decline between 14% and 16% with revenue per load down by 8% to 10%. The company is calling for first-quarter EPS of $1.25 to $1.35, well short of the $1.63 estimate at the time of the print.

A reset of the variable compensation program and expenses tied to the CEO transition will be a 12-cent drag on the first quarter. The company said a modest revenue mix shift away from BCOs could be a margin headwind in the period as well. Insurance costs have surged too. Landstar’s annual renewal for liability coverage has increased to more than $30 million from approximately $8 million in 2019.

Variable contribution, or revenue less purchased transportation and commissions, fell 24% y/y to $178 million. The contribution margin improved 80 basis points to 14.8% as purchased transportation expenses as a percentage of revenue declined modestly and BCOs accounted for a larger portion of the revenue mix.

The company generated $394 million in cash flow from operations in 2023, a 37% y/y decline.

Gattoni is retiring from Landstar on Thursday. His successor, Frank Lonegro, CFO at Beacon (NASDAQ: BECN), will take the helm on Friday.

Shares of LSTR were down 0.9% Thursday at 3:03 p.m. EST compared to the S&P 500, which was up 1.1%.

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