Freight broker Landstar System (NASDAQ: LSTR) reported record quarterly revenue and net income for the 2021 second quarter Wednesday after the market close.
“Currently, revenue per load and the number of loads hauled via truck are at historical high levels,” Jim Gattoni, president and CEO, told analysts on a call Thursday. “We believe there is seasonal stability at these elevated price and volume levels.”
The Jacksonville, Florida-based company posted $2.40 per share, exceeding its recently raised guidance, which called for earnings to be “slightly above” an initial range of $2.20 to $2.30 per share.
Total revenue increased 90.7% year-over-year to $1.57 billion. The company recently abandoned comparisons to 2020 given the decimating impact COVID had on last year’s second quarter. Compared to the record-breaking first quarter of 2021, revenue was up 22%.
Dry van loads increased by 10.9% sequentially in the second quarter with revenue per load up by 5.9% at $2,373. Flatbed loads were up 18.4% from the first quarter with revenue per load increasing 10.1% to $2,972. Less-than-truckload volumes grew by 9.1% sequentially with revenue per load up 3.7%.
“This outperformance was particularly impressive considering we were following an already record-setting first quarter,” Gattoni stated in the press release. “We attribute this strong demand to an ongoing, broad-based economic recovery, with particular strength in consumer spending, that has been a big driver of freight activity.”
Total dry van revenue doubled on a year-over-year comparison and was up 60% from the second quarter of 2019, which was a more typical freight year. Flatbed revenue was 31% higher than the 2019 period.
“Consumer demand for durable goods, building products, and e-commerce, which were strong in the first quarter of 2021, continued to drive record quarterly van revenue, while revenue generated via unsided/platform equipment benefited from growth in the U.S. metals and machinery sectors,” Gattoni added.
The higher revenue profile resulted in a 55.4% operating margin, defined as operating income divided by gross profit, nearly double the year-ago result and 80 basis points higher than the first quarter. This was the second consecutive quarter the margin was significantly ahead of the company’s long-term target of 50%.
During the quarter, trucks provided by business capacity owners increased 2.6% from the first quarter and total truck capacity on the platform was up 6.6% sequentially to nearly 89,000 units.
‘I’m not sure there’s going to be enough trailing equipment in the market’
For the third quarter, Landstar expects revenue to be in a range of $1.55 billion to $1.6 billion and EPS of $2.20 to $2.30. Truck revenue per load is expected to be slightly higher than the second quarter with loads hauled by truck coming in slightly lower sequentially. On a year-over-year comparison, truck revenue per load is forecasted to increase in the low-20% range with loads hauled via truck up by mid-teen percentages.
Management said June revenue per load was the highest ever recorded for any June in company history. The result was slightly below historical sequential changes during the month but management attributed that to an abnormal yield surge during May. Normal sequential seasonal trends are expected in the third quarter.
Gross profit margin is expected to hold largely steady at 13.9 to 14%.
While Landstar’s second and third quarters of each year are fairly similar, the anticipated step down in EPS is due to an increase in insurance and claims expense as premiums increase and the number of claims has already stepped higher thus far in the quarter.
Analysts’ current estimates for Landstar’s third quarter range from $2.26 to $2.31. The new revenue guidance is 9% above consensus.
Addressing consensus expectations for EPS to decline in the mid- to high-single-digit range in 2022, Gattoni said he sees “some softness sometime in the first half,” but he’s “comfortable that we’ll maintain a 50% [operating] margin next year with a little softness in gross profit.”
On the peak season, Gattoni said it’s hard to forecast peak but capacity is still very tight. “If demand creeps up, I think you’re going to see seasonal or better than seasonal. Demand for trailing equipment is still very strong. I’m not sure there’s going to be enough trailing equipment in the market to satisfy all the demand coming across.”
He qualified the statement by saying he’s a pessimist and that he doesn’t see that scenario playing out. He expects to finish the year with the second, third and fourth quarters all roughly the same.
Landstar generated $137 million in cash flow from operations in the first half of 2021, ending the period with $157 million in net cash and a debt-to-capital ratio of 9% (400 bps lower year-over-year).
Landstar raised its regular dividend by 19% to 25 cents per share. This was the largest increase to the quarterly dividend in company history.
The company repurchased 150,000 shares in the quarter as management took advantage of a 10% pullback in the share price to buy opportunistically. “I think we’re in a buying opportunity situation now,” Gattoni said. Landstar will look to do something similar in the third quarter, which isn’t overly meaningful as the company has 38.4 million shares outstanding.
Importantly, Gattoni said that share buybacks wouldn’t take the chance of a one-time special dividend off the table. Landstar has paid special dividends annually, as high as $2 per share, in six of the last 10 years.