Landstar System (NasdaqGS:LSTR) Q3 2025 Earnings Call October 28, 2025 04:30 PM ET Company ParticipantsJim Todd - CFO and VPFrank Lonegro - CEO and PresidentMatt Dannegger - CFSOConference Call ParticipantsScott Group - AnalystJizong Chan - AnalystReed Seay - AnalystNone - AnalystElliot Alper - AnalystJonathan Chappell - AnalystBrandon Oglenski - AnalystStephanie Moore - AnalystOperatorGood afternoon and welcome to Landstar System, Incorporated's third quarter earnings release conference call. All lines wil ...

Landstar System (NasdaqGS:LSTR) Q3 2025 Earnings Call October 28, 2025 04:30 PM ET Company ParticipantsJim Todd - CFO and VPFrank Lonegro - CEO and PresidentMatt Dannegger - CFSOConference Call ParticipantsScott Group - AnalystJizong Chan - AnalystReed Seay - AnalystNone - AnalystElliot Alper - AnalystJonathan Chappell - AnalystBrandon Oglenski - AnalystStephanie Moore - AnalystOperatorGood afternoon and welcome to Landstar System, Incorporated's third quarter earnings release conference call. All lines wil ...

Landstar System (NasdaqGS:LSTR) Q3 2025 Earnings Call October 28, 2025 04:30 PM ET Speaker6Good afternoon and welcome to Landstar System, Inc.'s third quarter earnings release conference call. All lines will be in listen only mode until a formal question and answer session. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us from Landstar are Frank Lonegro, President and CEO, Jim Applegate, Vice President, Chief Corporate Sales Strategy and Specialized Fli ...

Financial Data and Key Metrics Changes - Overall revenue decreased by 1% year over year, while truck revenue increased year over year for the first time since 2022 [7][10] - Truck revenue per load increased by 2.6% compared to the same quarter last year, with a sequential increase of 3.2% from the first quarter of 2025 [15][10] - Gross profit was $109.3 million compared to $120 million in the same quarter last year, with a gross profit margin of 9% [23][24] Business Line Data and Key Metrics Changes - Heavy haul revenue increased by 9% year over year, driven by a 5% increase in revenue per load and a 4% increase in volume [8][17] - Non-truck transportation service revenue decreased by 22% or $21 million compared to the same quarter last year, primarily due to a 20% decrease in ocean revenue per shipment [18][19] - Transportation Logistics segment revenue was down 1% year over year, with a 2% decrease in loadings [19] Market Data and Key Metrics Changes - The freight environment was characterized by soft demand, with truck capacity readily available and market conditions favoring shippers [9][10] - U.S.-Mexico and U.S.-Canada cross-border businesses underperformed compared to domestic revenue performance [19] - Revenue hauled on behalf of other truck transportation companies was 19% below the same quarter last year, indicating accessible capacity in the marketplace [22] Company Strategy and Development Direction - The company remains focused on accelerating its business model and executing strategic growth initiatives despite ongoing challenges [6][10] - Continuous investment in technology solutions and fleet refreshment is prioritized to support independent business owners [11][27] - The company aims to leverage its strong balance sheet and cash generation capabilities to return capital to shareholders through buybacks and dividends [27] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing challenges from volatile federal trade policy and inflation concerns, but expressed optimism about the heavy haul service performance [6][8] - The company will provide revenue commentary for the third quarter instead of formal guidance due to the uncertain economic environment [28] - Management expects to see similar trends in the third quarter, with automotive and construction sectors remaining sluggish [45][46] Other Important Information - The accident frequency rate was reported at 0.67 DOT reportable accidents per million miles, below the national average [12] - The company experienced a decrease in BCO truck count by approximately 6% year over year, but the sequential count was flat, indicating stability [13][14] - Insurance and claims costs increased to $30.4 million in the second quarter, attributed to higher severity of trucking accidents [25][99] Q&A Session Summary Question: Clarification on SG&A outlook for Q3 - Management confirmed that the $3 million decline in SG&A would be off the reported $55.7 million, accounting for the reclassification impact [33][35] Question: Insights on end market performance - Management indicated that automotive remains sluggish, while sectors like data centers and heavy haul are performing positively [45][46] Question: Trends in heavy haul segment - Management expressed optimism about the heavy haul segment, noting broad-based demand across various industries [82][85] Question: Impact of ELP regulations on capacity - Management does not foresee significant exposure to ELP regulations, emphasizing a disciplined approach to recruiting and retaining BCOs [90][91] Question: Trends in insurance costs and claims - Management noted a slight increase in insurance costs due to higher accident severity, but achieved a flat renewal on insurance premiums [99][100]

Financial Data and Key Metrics Changes - Overall revenue decreased by 1% year over year, while truck revenue increased year over year for the first time since 2022 [6][9] - Truck revenue per load increased by 2.6% compared to the second quarter of 2024, with a sequential increase of 3.2% from the first quarter of 2025 [15][27] - Gross profit was $109.3 million compared to $120 million in the second quarter of 2024, with a gross profit margin of 9% [23][27] Business Line Data and Key Metrics Changes - Heavy haul revenue increased by 9% year over year, driven by a 5% increase in revenue per heavy haul load and a 4% increase in heavy haul volume [7][17] - Non-truck transportation service revenue decreased by 22% or $21 million compared to the second quarter of 2024, primarily due to a 20% decrease in ocean revenue per shipment [18][19] - Transportation Logistics segment revenue was down 1% year over year on a 2% decrease in loadings, partially offset by a 1% increase in revenue per load [19] Market Data and Key Metrics Changes - The freight environment in the second quarter of 2025 was characterized by soft demand, with truck capacity readily available and market conditions favoring shippers [8][9] - Revenue hauled on behalf of other truck transportation companies was 19% below the second quarter of 2024, indicating accessible capacity in the marketplace [21] - The U.S.-Mexico and U.S.-Canada cross-border businesses underperformed compared to domestic revenue performance [19] Company Strategy and Development Direction - The company remains focused on accelerating its business model and executing strategic growth initiatives despite ongoing challenges in the freight environment [6][9] - Continuous improvement in service and support for customers, agents, BCOs, and carriers is a priority [8] - The company is committed to investing in technology solutions and refreshing its fleet of trailing equipment [10][27] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing challenges from volatile federal trade policy and inflation concerns but highlighted positive developments in heavy haul services [6][7] - The company will provide revenue commentary for the third quarter instead of formal guidance due to the uncertain economic environment [28] - Management expressed optimism about the performance of heavy haul services and the potential for recovery in the freight market [6][9] Other Important Information - The company reported an accident frequency rate of 0.67 DOT reportable accidents per million miles, below the national average [11] - Cash flow from operations for the first half of 2025 was $63 million, with significant capital returned to stockholders through dividends and share repurchases [27] Q&A Session Summary Question: Clarification on SG&A outlook for Q3 - Management confirmed that the SG&A outlook for Q3 should be adjusted based on the reclassification impact and the expected decline from the agent convention [33][34] Question: Insights on end market performance - Management indicated that automotive demand remains sluggish, while sectors like data centers and heavy haul are performing well [45][46] Question: Trends in insurance and claims costs - Management noted an increase in insurance and claims costs due to higher severity of trucking accidents and strategic cargo theft [25][92] Question: Heavy haul segment outlook - Management expressed confidence in the heavy haul segment's performance, noting broad-based demand across various industries [82][84] Question: Impact of new regulations on capacity - Management stated that they do not foresee unique exposure to new regulations affecting their BCO fleet, maintaining a disciplined approach to recruitment and retention [87][88] Question: Overall freight market trends - Management acknowledged the challenges in sustaining revenue per load increases, attributing fluctuations to unique circumstances in Q2 and tariff uncertainties [62][64] Question: Substitute line haul performance - Management indicated that demand for substitute line haul services is less diversified and influenced by a few key shippers, with expectations for a flat peak season [71][73] Question: Future of non-truck transportation services - Management noted a significant drop in non-truck transportation revenue, primarily due to tariff-related issues, with no immediate improvement expected [74]

Financial Data and Key Metrics Changes - The actual number of loads hauled via truck in Q1 2025 was 1.2% below Q1 2024, slightly above the high end of guidance range [12] - Actual revenue per truckload in Q1 2025 was 0.6% below the prior year quarter, comfortably within the lower half of the guidance range [12] - Earnings per share (EPS) came in below the low end of guidance primarily due to a $4.8 million pretax charge related to a supply chain fraud matter and elevated insurance and claims costs [12][13] - Gross profit was $98.3 million in Q1 2025 compared to $113.9 million in Q1 2024, with a gross profit margin of 8.5% [28] - Variable contribution margin was 14% of revenue in Q1 2025 compared to 14.4% in the same period last year [29] Business Line Data and Key Metrics Changes - Heavy haul revenue increased by approximately $113 million in Q1 2025, a 6% increase year-over-year, driven by a 3% increase in heavy haul revenue per load and volume [10][24] - Non-truck transportation service revenue in Q1 2025 was 8% or $6 million above Q1 2024, primarily due to a 14% increase in ocean revenue per shipment [24] - Transportation Logistics segment revenue was down 1% year-over-year on a 1% decrease in loadings, while revenue per load was approximately flat compared to Q1 2024 [25] Market Data and Key Metrics Changes - U.S.-Mexico cross-border revenue was approximately 11% of consolidated revenue during the 2024 fiscal year, while U.S.-Canada cross-border revenue was approximately 4% [8] - The freight environment in Q1 2025 was characterized by soft demand, weather impacts, and readily available truck capacity [11] - The number of loads hauled via truck in April 2025 was approximately 2% below April 2024, while revenue per load in April was approximately 1% above April 2024 [35] Company Strategy and Development Direction - The company continues to focus on accelerating its business model and executing on strategic growth initiatives despite macroeconomic challenges [9] - Investments in technology solutions and fleet refreshing are ongoing to benefit the network of independent business owners [15] - The company is committed to continuous improvement in safety, service, and support for customers, agents, and carriers [10] Management's Comments on Operating Environment and Future Outlook - Management noted that the freight transportation backdrop is highly fluid amid political and macroeconomic uncertainty, impacting trade and tariffs [6][34] - The company expects below-normal sequential movements in loads from April to May, with specific weaknesses noted in the automotive sector due to tariff impacts [85] - Management indicated that while the supply chain fraud matter has been addressed, the company does not expect significant additional charges in Q2 2025 [36] Other Important Information - The company deployed approximately $61 million of capital toward buybacks and repurchased approximately 386,000 shares during Q1 2025 [15] - The effective income tax rate was 24.7% in Q1 2025 compared to 23.5% in Q1 2024 [32] - The company ended the quarter with cash and short-term investments of $473 million [33] Q&A Session Summary Question: Can you elaborate on the insurance developments and expected future trends? - Management indicated that the year-over-year difference in prior year development was significant, with about $11 million unfavorable development in Q1 2025, primarily from cargo programs [41][42] - The normal run rate for insurance and claims is just below 5% of BCO revenue, but the current environment suggests this may be low [48] Question: What are the trends in heavy haul and which end markets are performing well? - Heavy haul has been a bright spot, with growth across machinery, electrical, building products, and the energy industry [58] Question: How will the new English proficiency requirements for CDL operators impact the driver supply market? - Management does not expect an impact on the BCO fleet due to high qualification standards, but it may affect overall industry capacity positively [61] Question: What is the current state of capacity in the market? - Management noted an uptick in third-party capacity but expects this to decrease as they become more selective with carriers [72] Question: Can you provide insights on the near-term outlook and areas of strength or weakness? - Management highlighted that automotive and U.S.-Mexico cross-border business were weak, while heavy haul and platform business showed strength [87]

Financial Data and Key Metrics Changes - The first quarter of 2025 saw earnings per share (EPS) come in below the low end of guidance due to a $4.8 million pretax charge related to a supply chain fraud matter and elevated insurance and claims costs [12][13][30] - Gross profit decreased to $98.3 million from $113.9 million year-over-year, with a gross profit margin of 8.5% compared to 9.7% in the previous year [28] - Variable contribution margin was 14% of revenue in the first quarter of 2025, down from 14.4% in the same period last year [29] Business Line Data and Key Metrics Changes - Heavy haul revenue increased by 6% year-over-year, driven by a 3% increase in both heavy haul revenue per load and heavy haul volume [10][25] - Overall truck revenue per load decreased by 0.6% year-over-year, primarily due to a 2.1% decrease in revenue per load on loads hauled by truck brokerage carriers [21] - Non-truck transportation service revenue was up 8% or $6 million compared to the first quarter of 2024, mainly due to a 14% increase in ocean revenue per shipment [25] Market Data and Key Metrics Changes - U.S.-Mexico cross-border revenue accounted for approximately 11% of consolidated revenue during the 2024 fiscal year, while U.S.-Canada cross-border revenue was about 4% [7] - The number of loads hauled via truck in April 2025 was approximately 2% below April 2024, while revenue per load was about 1% above April 2024 [34] - The overall revenue performance in the first quarter was within the top half of the guidance range, despite a relatively soft demand environment [11] Company Strategy and Development Direction - The company is focused on accelerating its business model and executing strategic growth initiatives amidst macroeconomic challenges [9] - Investments in technology solutions and fleet refreshment are ongoing to support independent business owners [16] - The company aims to improve safety performance, with a reported accident frequency rate of 0.69 DOT reportable accidents per million miles, below the national average [17] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing challenges in the freight environment, including soft demand and inflation impacting truckload freight generation [11] - The company is not providing formal guidance for the second quarter but is monitoring business activity closely [33] - Management expressed optimism about the heavy haul business and other strategic areas, despite challenges in the automotive sector due to tariffs [86] Other Important Information - The company repurchased approximately $61 million worth of shares during the first quarter and increased its quarterly dividend by 11% [16] - The balance sheet remains strong, with cash and short-term investments totaling $473 million at the end of the quarter [32] - The company identified a supply chain fraud issue that does not involve its core North American truckload services, with investigations ongoing [12][13] Q&A Session Summary Question: Can you elaborate on the insurance developments and their impact? - Management indicated that the year-over-year difference in prior year claims development was significant, with about $7 million of the $11 million unfavorable development coming from cargo programs [38][40] - The normal run rate for insurance and claims is just below 5% of BCO revenue, but the current environment suggests this may be low [47] Question: What are the trends in heavy haul and end markets? - Heavy haul has been a bright spot, with growth across various sectors including machinery, electrical, and energy [56][58] Question: How will the new English proficiency requirements for CDL operators impact driver supply? - Management does not expect a significant impact on their BCO fleet due to high qualification standards, but it may affect overall industry capacity positively [60][62] Question: What is the outlook for capacity and the broader industry landscape? - Management noted an uptick in third-party capacity but expects to become more selective with carriers, which may lead to a decrease in capacity in the coming quarters [70][72]