Apr 17, 2009
Executives
Henry H. Gerkens – President, Chief Executive Officer & Director James B.
Gattoni – Chief Financial Officer & Vice President Patrick J. O’Malley – President – Landstar Carrier Group Jim M.
Handoush – President Landstar Global Logistics and Landstar Express [Ted] – Unidentified Executive
Analysts
Christopher Ceraso – Credit Suisse Thomas Wadewitz – JP Morgan Justin Yagerman – Wachovia Capital Markets, LLC Jon Langenfeld – Robert W. Baird & Co., Inc.
Edward Wolfe – Wolfe Research LLC John Mims – BB&T Capital Markets Todd Fowler – Keybanc Capital Markets [Dan Moore – Scopic] Donald Broughton – Avondale Partners, LLC David Campbell – Thompson, Davis & Co. Thomas Albrecht – Stephens, Inc.
[Anab Aawa] – Voyant Advisors [David Mack – [Inaudible] Capital]
Operator
Welcome to the Landstar System Inc first quarter 2009 earnings release conference call. All lines will be in a listen only mode until the former question and answer session.
Today’s call is being recorded. If you have any objections you may disconnect at this time.
Joining us today from Landstar are Henry Gerkens, President and Chief Executive Officer; Jim Gattoni, Vice President and Chief Financial Officer; Pat O’Malley, President Landstar Carrier Group; Jim Handoush, President Landstar Global Logistics. Now, I would like to turn the call over to Mr.
Henry Gerkens.
Henry H. Gerkens
Welcome to the Landstar 2009 first quarter earnings conference call. This call will be limited to no more than one hour and again, please limit your questions to no more than two questions each when asked when the question and answer period begins.
Before we begin 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 conference call I and other members of Landstar’s management 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 risk including but not limited to the operational, financial and legal risks detailed in Landstar’s Form 10K for the 2008 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 publically update or revise any forward-looking statements. During our 2009 first quarter mid quarter update call I stated that if the revenue decline for the first quarter of 2009 over the first quarter of 2008 was 20% then I would have anticipated diluted earnings per share for the first quarter of 2009 to be in a range of $0.25 to $0.30 per share.
Although, I gave no specific guidance I did provide an indication of how our variable cost model would react give a negative quarter-over-quarter revenue assumption. Actual revenue for the 2009 first quarter was approximately 23% below the revenue in the 2008 first quarter.
Actual 2009 first quarter diluted earnings per share was $0.27 per share. The 2009 first quarter was a challenging quarter to say the least.
It is the worst freight environment I have seen in my 20 plus years at Landstar. The effects of the recession are being felt in just about every sector Landstar serves including government traffic which was down over 20% quarter-over-quarter.
Big three automotive company loadings at the carrier group were down almost 42% quarter-over-quarter and all automotive related revenue included revenue generated through [3pls] was down approximately 30%. Substitute line haul revenue was down approximately 46% quarter-over-quarter.
A couple of points to keep in mind from a big three automotive loadings perspective and our substitute line haul revenue, first quarter of 2008 was the largest quarter in the 2008 year as it relates to big three automotive loadings. After the 2009 second quarter, quarter-over-quarter revenue comparisons should become somewhat easier.
The same holds true for our substitute line haul business, quarter-over-quarter comparisons should become easier in the later have of the 2009 third quarter. Also impacting the first quarter revenue amounts was truck brokerage, rail, air and ocean fuel surcharge revenue which amounted to approximately $11 million in the 2009 first quarter versus $35 million in the 2008 first quarter.
It should be noted however that the short fall in fuel surcharge revenue had a positive impact from a gross margin percentage perspective because generally we have always paid a substantial portion of the fuel surcharge back to the carrier. Revenue haul by BCOs was down 19%.
Revenue haul by broker carriers was down 28% which includes a decline in the brokerage fuel surcharge revenue and revenue haul through rail intermodal carriers was down 43% while revenue generated through ocean and air carriers was up 18%. The large decrease in revenue hauled by intermodal carriers was primarily due to the decline in substitute line haul service revenue.
Let me talk about some of the revenue trends in the 2009 first quarter. Revenue for the months of January, February and March of 2009 were all down from the prior year’s months.
January 2009 versus January 2008 was down 22%, February 2009 versus February 2008 was down 19% and March 2009 versus March 2008 was down 26%. Truck transportation load volumes were down 19% in January 2009 versus January of 2008, 15% in February 2009 versus February 2008 and 16% in March 2009 versus March 2008.
Overall, truck transportation revenue per load declined 5% in January 2009 versus 2008, 5% in February 2009 versus February 2008 and 11% in March 2009 versus March 2008. Generally, the load volume declines stabilized towards the back half of the quarter but pricing deteriorated in the latter half of the quarter because of excess capacity and a very weak demand.
Increasingly, customers are looking for price concessions from their transportation providers. Also, in an effort to increase capacity utilization and cut their losses, many of the large iron companies have drastically undercut price.
The pricing actions by some iron companies can only been characterized as a desperate measure. Despite the current environment, we continue to see much opportunity to attract new agents to our system.
Our agent location count at the end of the 2009 first quarter was 1,445 compared to 1,375 at the end of the 2008 first quarter and 1,428 at the beginning of the year. Additionally, during the 2009 first quarter we added nine agents who had a prior revenue run rate of at least $1 million.
Since the beginning of the 2008 fourth quarter we have now added 27 of such new agents. Agent revenue from all new agent locations added over the past year amounted to $17.8 million in the 2009 first quarter.
Our number one strategy in this environment is to add quality productive agents. I can’t over emphasize how strong our pipeline of perspective new agents is.
In addition, we are making good progress on our universal agent and business unit specialist initiatives. We continue to look past the next couple of quarters and lay the foundation for future growth.
From a profit and loss standpoint it is all about our business model. Our variable cost business model yielded and operating margin of 5.1%.
SG&A expenses were $1.5 million lower despite an unanticipated $1.4 million increase in the provision for trade accounts receivable. From a gross margin perspective, gross margin was 17% in the 2009 first quarter up from 15.9% in the prior year first quarter.
Our balance sheet remains strong. We ended the quarter with $154 million in cash and marketable securities, an increase of approximately $32 million from the end of the 2008 fourth quarter.
In addition, we reduced long term debt including current maturities by $19 million from the end of the 2008 fourth quarter. In short, Landstar’s financial position remains very, very strong.
As we move in to the 2009 second quarter, I see little change in the overall operating environment. Although there are some encouraging signs, there remains much too much capacity in the market place.
Demand continues to be weak and pressure on price remains. As it relates to Landstar, I expect the second quarter of 2009 to remain challenging as automotive substitute line haul and a slowdown in projected power generation equipment moves all present some headwinds.
However, those headwinds should start to dissipate to some degree in the third quarter. Additionally, the decline in load volumes generally appear to have level off.
As credit markets begin to loosen as stimulus geared towards infrastructure rebuilding takes effect and as the economy slowly improves in the latter half of 2009 and in to 2010 I believe Landstar to be very well positioned. As it relates specifically to the second quarter, I am not comfortable giving revenue or earnings guidance at this time.
However, assuming the same rate of revenue decline in the 2009 second quarter that occurred in the 2009 first quarter, the resulting diluted earnings per share amount for the 2009 second quarter should be in a range of $0.40 to $0.45. Again, this should not be considered guidance but it does demonstrate how our variable cost business model would react given such a revenue decline.
I’m going to turn it over to Jim for his financial review.
James B. Gattoni
Henry has already discussed the revenue for the 2009 first quarter and I will cover various other financial information included in our first quarter release. Investment income was $425,000 in the 2009 quarter compared to $1.1 million in the 2008 period.
The $671,000 decrease in investment income was attributable to a decrease in the rate of return on investments held by the insurance segments in the 2009 first quarter. Purchase transportation was 74.9% of revenue in the 2009 quarter compared to 76.4% in the 2008 first quarter.
The decrease in purchase transportation as a percent of revenue was attributable to a decrease of rates of purchase transportation paid to truck brokerage carriers which party attributable to lower fuel surcharge revenue, a decrease in truck brokerage revenue hauled on behalf of [inaudible] truck load carriers which tend to have a higher cost of purchase transportation and the increase of revenue hauled by BCO independent contractors which tend to have a lower cost purchase transportation. Commissions to agents were 8.2% of revenue in the 2009 quarter compared to 7.7% in the 2008 quarter.
The increase in commissions to agents as a percent of revenue was primarily due to increased gross profit representing revenue less the cost of purchase transportation on revenue haul by truck brokerage carriers. Other operating costs were 1.6% of revenue in the 2009 quarter compared to 1.1% in the 2008 quarter.
The increase in other operating costs as a percentage of revenue was primarily attributable to an increase in [trucking] equipment maintenance cost in the 2009 period. Insurance and claim costs were 1.9% of revenue in the 2009 quarter compared to 1.6% in the 2008 quarter.
The increase in the insurance and claims as a percent of revenue was attributable to favorable development prior year claims reported in the 2008 first quarter partially offset by decreased frequency and severity of accidents in the 2009 first quarter compared to the 2008 first quarter. Selling, general and administrative costs were 7.3% of revenue in the 2009 quarter compared to 5.9% of revenue in the 2008 quarter.
The increase in selling, general and administrative costs as a percentage of revenue is primarily due to the effect of decreased revenue. Customer bad debt was $1.4 million higher in the 2009 first quarter compared to the 2008 first quarter primarily due to one customer.
There was no provision for bonuses included in the 2009 first quarter as management does not currently anticipate achieving bonus targets. Excluding the impact of customer bad debt and bonus provisions from the 2009 and 2008 first quarters, selling, general and administrative costs in the 2009 first quarter were approximately $1.3 million lower than the 2008 first quarter.
The decrease was primarily due from certain cost saving initiatives implemented during the 2009 first quarter. Depreciation and amortization was 1.25 of revenue in the 2009 first quarter compared to .8% in the 2008 first quarter.
The increase in depreciation and amortization as a percentage of revenue was primarily due to the effect of decreased revenue and an increase in company owned trailing equipment. Interest and debt expense was approximately $1.2 million in the 2009 quarter compared to $2.1 million in the 2008 quarter.
The decrease in interest expense was due to lower interests rates and lower outstanding borrowings under the company’s senior credit facility. The effective income tax rate was 38.4% in the 2009 quarter compared to 38.9% in the 2008 quarter.
The decrease in the effective income tax rate was primarily attributable to certain state income tax planning strategies implemented in the 2009 period. Net margin representing revenue less the cost of purchase transportation and agent commissions divided by revenue was 17% in the 2009 quarter compared to 15.9% in the 2008 first quarter.
The improvement in net margin was primarily due to the factors previously discussed regarding the cost of purchase transportation commissions. Operating margin was 5.1% in the 2009 first quarter compared to 6.7% in the 2008 first quarter.
The decrease in operating margin was primarily due to the decrease in revenue partially offset by the improvement in net margin during the period. In addition, SG&A excluding the impact of any provision for bonuses in the first quarter of any year is typically higher than any other quarter during the year and first quarter revenue is typically the lowest of any other quarter during year.
Therefore, a significant decrease in first quarter revenue results in increased pressure on operating margin in the first quarter as compared to other quarters in the year. Looking at our balance sheet, we ended the quarter with cash and short term investments of $154 million.
During the 2009 first quarter Landstar reduced long term debt by $19 million since 2008 fiscal year end. Cash flow from operations was $81 million during the 2009 first quarter compared to $34 million in the 2008 first quarter.
During the 2009 first quarter Landstar purchased 391,000 shares of its common stock at a total cost of $12 million. The company is authorized to purchase 2.6 million shares of common stock under its authorized share repurchase programs.
Shareholders’ equity represents 68% of total capitalization at the end of 2009 first quarter. [Inaudible] trailing 12 month return on equity remains high at 41%.
Henry H. Gerkens
Operator, we can open it up for questions at this point.
Operator
(Operator Instructions) Your first question comes from Christopher Ceraso – Credit Suisse.
Christopher Ceraso – Credit Suisse
Just a couple of questions, I don’t know if you’ve given this before but can you give us a breakdown at the gross margin level between the business carried and the BCO segment versus the brokerage business?
James B. Gattoni
BCO runs anywhere 19% to 20% whereas the brokerages 9% to 11%.
Christopher Ceraso – Credit Suisse
Did that widen out quite a bit versus a year ago because of what happened with fuel and the cost of purchase [inaudible].
James B. Gattoni
On the brokerage side, yeah definitely we saw improvement in that net yield so in a tight capacity in high fuel cost you’d probably see a 9% margin whereas when things loosen up and fuel goes down you probably have more towards the 11%.
Christopher Ceraso – Credit Suisse
Then what’s your outlook for pricing as we roll in to Q2? Does it continue to worsen or do people start to go out of business in this type of market?
Henry H. Gerkens
You can’t run a lose for too long, there’s only so many losses that you can run up. At a certain point in time when I think of capacity, capacity hasn’t come out of the market place at the rate that I thought it needed to come out and people are hanging in there.
On the other hand, with some of the pricing things that we’ve been seeing here, as I said in my prepared comments, pretty desperate pricing measures and the fact that they’re still losing money on those moves, we don’t participate in that type of stuff. I would anticipate that at some point in time there’s got to be some exits in the marketplace.
People can’t make money at some of the pricing that we’ve seen. Pat, do you have anything you want to add to that?
Patrick J. O’Malley
No.
Operator
Your next question comes from Thomas Wadewitz – JP Morgan.
Thomas Wadewitz – JP Morgan
You talked about your non-guidance comments that if the decline in revenue in second quarter is similar to first quarter you’d be in a certain range $0.40 to $0.45. What’s your view on revenue growth in the second quarter?
Do you think that it’s going to deteriorate a lot relative to first quarter on a year-over-year basis or what kind of visibility do you have to that? Because, it sounds like March for your business was a fair bit weaker than the first two months of the quarter.
Henry H. Gerkens
March was weaker and I think I had said on the mid quarter when February was a little bit better that I can’t take anything by any trend at all in this environment other than I think we’ve seen some stabilization in volume and actually in some of the pricing at this point it’s sort of stabilized to some degree also. But, the big issue right now is the pressure on pricing.
I didn’t give guidance because of that fact. Between 20% and 25%, I mean I think that where the assumption is if you assume what we did in the first quarter, at 23% those would be the numbers and I think the variable cost model shakes out in that fashion.
Thomas Wadewitz – JP Morgan
You’re not expecting a big change in the revenue performance year-over-year in second quarter from first quarter?
Henry H. Gerkens
No.
Thomas Wadewitz – JP Morgan
What about I guess you talked a little bit about you didn’t see the capacity reduction, what about the pricing change? I know a lot of your businesses saw it but if you said, “Well I think contract rates or truck load rates as we see them over the next quarter or two,” how much do you think they’re down on a year-over-year basis?
Is it 5% or do you think it’s a lot more than that?
Patrick J. O’Malley
Pricing again, I think what Henry highlighted in his opening comments is we’ve seen deterioration in price as we’ve gone through the quarter. But, the silver lining in any dark cloud is that if you think about it from our brokerage margin perspective and our PT in capturing outside capacity it kind of gives us an insight in to what kind of pricing they’re demanding to move the truck.
So, there’s some silver lining to that dark cloud if you will. I think Jim has the numbers specifically on the pricing.
James B. Gattoni
Yes, when you think about rate per load for us, it’s kind of the in the mix you’ve got heavy haul and the flat bed side and you’ve got on the van side and [inaudible] haul which for us hasn’t changed for us. It’s been about 800 this year’s quarter and last year’s quarter.
But, if you just look at trying to carve it out of pure rate per mile which is as about as clean as you can get it and on the BCOs which would exclude fuel, you’re talking a rate per mile that’s off about 3% to 5%.
Thomas Wadewitz – JP Morgan
That’s a level you’re thinking it probably stays at for a little while, kind of down 3% to 5%.
Henry H. Gerkens
Correct.
Operator
Your next question comes from Justin Yagerman – Wachovia Capital Markets, LLC.
Justin Yagerman – Wachovia Capital Markets, LLC
I wanted to see if I could dig in to operating income by division? You guys typically give that but I didn’t see that in the release, is there any way you could give that breakout?
Henry H. Gerkens
Division meaning by what because we changed our reporting structure.
Justin Yagerman – Wachovia Capital Markets, LLC
Carrier group versus insurance segment?
Henry H. Gerkens
Oh, that’s not required. I’ve done that specifically so I can avoid some questions that are not relevant to how this works.
You should look at insurance really from the P&L standpoint as a percentage of revenue because that’s really how you drive it. That stuff will be disclosed in the 10Q but Jim, if you want to give that, that’s okay.
James B. Gattoni
Operating income $15,106,000, transportation logistics $8,612,000 at insurance. Hopefully that adds to what you’ve got as operating income.
Justin Yagerman – Wachovia Capital Markets, LLC
I was trying to get a sense in April of how some of those trends continued on, you guys gave through March. Pricing down 11% in March, did that get worse as we moved in to April?
Henry you said that things looked like they were starting to stabilize on the price.
Henry H. Gerkens
I wouldn’t say that pricing got worse in April, albeit it’s only two weeks in, it’s pretty consistent with where we were in March.
Operator
Your next question comes from Jon Langenfeld – Robert W. Baird & Co., Inc.
Jon Langenfeld – Robert W. Baird & Co., Inc.
Henry, when you talked about the revenue per load stat deteriorating in March minus 11%, how much of that do you think was fuel? I know that fuel was running up all quarter in the first quarter last year versus pure price aggression?
James B. Gattoni
John, it’s a little less than half. If we’re down 13% on a rate per load on brokerage, it’s probably a little less than half of that is due to fuel so maybe 6% of that 13%, half of the 13%.
Jon Langenfeld – Robert W. Baird & Co., Inc.
But the increment, it seemed like you were -5% in the first two months and then -11% in March. I mean a steep drop off, that incremental drop off should we look at it the same way kind of half was fuel, half was the environment.
James B. Gattoni
A little less impact of fuel in March but not a big difference for what the quarter looked like.
Jon Langenfeld – Robert W. Baird & Co., Inc.
So the big dealt then between February and March trend is really pricing is what you’re saying?
James B. Gattoni
Less fuel. It was a little bit less impact from fuel.
It’s not a significant change from February to March but it is a little bit different.
Jon Langenfeld – Robert W. Baird & Co., Inc.
Because the revenue per load was significantly different it sounds like?
James B. Gattoni
Yes, 13% with fuel in and 7% with fuel out.
Jon Langenfeld – Robert W. Baird & Co., Inc.
I’m sorry but the number you provided Henry in the prepared remarks about the -5% in February and -11% in March, that referred to overall company, correct?
Henry H. Gerkens
That was the truck transportation.
Jon Langenfeld – Robert W. Baird & Co., Inc.
Just truck, okay. Then within that number just looking at that relative degradation between March to February the -5% to -11% I guess my question is, is the majority of that degradation fuel or pure pricing?
James B. Gattoni
Jon, the truck transportation that’s a mix between BCO which doesn’t have fuel and brokerage that has fuel. You can isolate that just through the brokerage piece, that’s kind of what I was leaning on is the rate per load on truck brokerage which is disclosed in the release, that for the quarter was up 13% and if you take the fuel out it was off 7%.
You want to look at it by month, in March it was off 18% with fuel and 11% on fuel and that’s truck brokerage.
Jon Langenfeld – Robert W. Baird & Co., Inc.
Does Easter have much of an impact on you guys? I mean with Easter being in March last year, does that have a positive benefit or not really?
Henry H. Gerkens
Where Easter is going to fall it will be favorable one time and unfavorable next time. Any time you’ve got the holiday in one quarter versus the other it’s going to have a slight impact.
Jon Langenfeld – Robert W. Baird & Co., Inc.
Then last thing, on the trailer maintenance is that something we should expect to continue or was there more stepped up in the first quarter for one reason or another?
James B. Gattoni
I wouldn’t expect it to continue to the degree it was in the first quarter. Last year was unusually low too.
I mean it’s really more of a comp issue compared to last year. Last year maintenance was somewhat lower than we’ve seen historically so I’d expect it to be a little lower going forward compared to the first quarter of ’09 but I wouldn’t say it’s drastically lower.
Operator
Your next question comes from Edward Wolfe – Wolfe Research LLC.
Edward Wolfe – Wolfe Research LLC
I just want to clarify, I’m sorry because now there’s so many numbers, this is going back and forth but what I heard Jim say was for brokerage in March, just brokerage, -18% gross of fuel, -11% net of fuel?
James B. Gattoni
That’s true.
Edward Wolfe – Wolfe Research LLC
Can you give those same numbers for February and January?
James B. Gattoni
10% with fuel, 5% without for January, February was 11% with fuel and 5% without.
Edward Wolfe – Wolfe Research LLC
Henry, I’m just trying to understand the non-guidance comment that if volumes stays where we are $0.27 will move to $0.40 or $0.45 when it feels like pricing is getting worse through the quarter. You must have some confidence on something on the cost side I’m guessing.
Henry H. Gerkens
I think you needed to understand what I was saying at the very beginning. I think in general if I assume the same type of revenue decline and the environment is difficult to predict so what I’m saying is let’s assume the same revenue decline and given the same revenue decline my earnings per share are going to be much higher in the second quarter and the third quarter and fourth quarter because of what Jim described in this closing as far as the effect of normally a smaller revenue piece in the first quarter and the fact that we typically have higher expense in the first quarter.
I explained that on our mid quarter update call also that just for example a 23% revenue decline in the first quarter yielded $0.27. A 23% decline in the second quarter is going to give me a range of $0.40 to $0.45.
A big difference because of SG&A.
Edward Wolfe – Wolfe Research LLC
That’s what I’m trying to understand. Can you talk about what those SG&A differences are in the second versus the first?
Henry H. Gerkens
Well, I think it is historical, all you’ve got to do is go back and look quarter-to-quarter. If you strip out the bonus payments in each quarter, first, second, third and fourth of every single year we have, typically the first quarter is higher and a large portion of that expense is due to our annual event that we have vis-à-vis our agent convention which I think a lot of the analyst that are on have been to over the past every other year.
That occurs in March.
Edward Wolfe – Wolfe Research LLC
So can we go through that? What were the bonus payments in first quarter of ’08 and second quarter of ’08?
Henry H. Gerkens
We can do all this stuff on the phone with Jim if you’re going to go through specifics like that. All I’m trying to say and we’ve tried to explain this over and over is that the second and third and fourth quarter, the SG&A numbers are typically lower than the first quarter and therefore you typically you’ve always seen a higher margin in the back quarter.
But, as far as dissecting the specifics as far as the bonus stuff, Jim we had bonuses last year of how much in there?
James B. Gattoni
$1.6.
Henry H. Gerkens
$1.6 and we had nothing this year and we also had – I don’t want to reiterate everything we said.
James B. Gattoni
One of the other things but the biggest factor that I think you are missing is a 23% revenue decline in the second quarter still means on a consecutive quarter basis first quarter to second quarter, we’re growing revenue 15% but you’re not growing the fixed costs. That’s where you’re getting the leverage off of the second quarter compared to the first quarter.
Edward Wolfe – Wolfe Research LLC
I understand the revenue side, the seasonality, that makes sense.
James B. Gattoni
I would anticipate G&A to be if we ran $34 million now, you run what $32 million maybe in the second quarter.
Henry H. Gerkens
Which is typical.
James B. Gattoni
Yes, that’s really what we’re trying to tell you.
Edward Wolfe – Wolfe Research LLC
So $34 becomes a $32 kind of a thing?
James B. Gattoni
Right.
Henry H. Gerkens
But that’s historical is what we’re trying to say. The difference between first quarter and the remaining three quarters.
Edward Wolfe – Wolfe Research LLC
Then the second quarter I would have is if you think about volume and you think about pricing in your business model is a point of pricing worth how many points of volume? In other words if it feels like volume stabilized but pricing was going down each month is there a bigger issue with a point of pricing than there is a point of volume?
I would think there would be, how do you think about that?
Henry H. Gerkens
I haven’t calculated that in those terms. I’d have to think about that as far as putting it in those terms Ed.
As we’ve said before we think there are a lot of things that are recurring that make it kind of difficult to predict although generally what we’ve seen, the March pricing as I look to the first two weeks in April as far as what we’re running on a revenue per load basis, it really hasn’t deteriorated at all. That’s been fairly stable and if the volumes continue to be stable is where we’re starting to look at and see what I referred to as positive signs.
Edward Wolfe – Wolfe Research LLC
When you say stable, stable with March or stable with year-over-year April?
Henry H. Gerkens
Stable that there’s no decline, not year-over-year April, no further decline.
Edward Wolfe – Wolfe Research LLC
So when I think about that year-over-year are we still talking about -11% revenue per load kind of number?
Henry H. Gerkens
What I’m saying is I’m not giving any of the guidance, what I’m saying as I said is I’ve given no revenue guidance, I’ve given no earnings guidance, I’m saying that if you assume the same type of aggregate revenue decline these would be our numbers. You just need to accept that we’re not giving the revenue guidance.
What I have said is we’ve started to see some stabilization and I’m not saying it’s a bottom so don’t misquote me but we’ve started to see some signs of stabilization both from a volume standpoint and a pricing standpoint. I also said that I anticipate the second quarter to have some headwinds because of continued automotive pressure, pricing pressure, substitute line haul pressure but clearly when you get out of the second quarter things start to alleviate themselves to a great degree as far as a comparative basis.
Edward Wolfe – Wolfe Research LLC
One last one on the positive side of things, the cash flow is terrific again. When you think about share repurchases going forward, are you more aggressive given current price, less aggressive or kind of just normal as you look at it?
Henry H. Gerkens
We’re going to be probably a little more aggressive. We’ve got windows involved in the first quarter that were actually very tight and other considerations that actually prevented us from actually going in to the market probably maybe more aggressively.
But, we’ve historically acted on our share repurchase program so I don’t see any reason why we wouldn’t go back in. We’re pretty confident on where we are.
Operator
Your next question comes from John Mims – BB&T Capital Markets.
John Mims – BB&T Capital Markets
On the talk of the stimulus spending have you all seen anything concrete out there? I know that it’s a big thing that seems to be hanging out at some point stimulus created spending is going to drive volume but have you seen anything concrete to let’s say when?
Henry H. Gerkens
No. I can honestly say no.
That’s why I said to you in my comments as we start to see some of this but we really haven’t seen much of any of that.
John Mims – BB&T Capital Markets
Looking at the truck brokerage, the declines in Q1 kind of contradicts what JB Hunt put up earlier this week and what we’ve heard from some of our private guys. I know most of those people are working from a smaller base than you but can you give some color there?
Henry H. Gerkens
What’s in contradiction to what they said?
John Mims – BB&T Capital Markets
Well, Hunt put up a revenue gain, a year-over-year gain in brokerage revenue so I didn’t know if there was anything in your mix that would make you more vulnerable?
Henry H. Gerkens
It’s hard for me to evaluate, I don’t know what their numbers are. I posted an 18% gain in ocean and air and that’s because it’s a small number.
I’d be curious to see what their other truck operation was, probably down. So, I wouldn’t look at it and I don’t look at it as two operations I mean it’s my transportation.
But, as I highlight it I got a high number in ocean and air, 18% growth because it’s a small number. So, I don’t think the numbers are comparable quite frankly I think it’s apples and oranges.
John Mims – BB&T Capital Markets
Just one little housekeeping thing, would you mind repeating the share buybacks from the quarter, I just missed that?
James B. Gattoni
391,000.
Operator
Your next question comes from Todd Fowler – Keybanc Capital Markets.
Todd Fowler – Keybanc Capital Markets
Henry, just a couple of questions here on the volume trends during the quarter, specifically on the truck side it sounds like January was down 19% and February was down 15%. I think you said that March was down 16%.
But, looking at March, how did that feel from a seasonal standpoint? Was March as seasonally strong as it should have been for the quarter even though the volume decline was in line with February?
Did you see any sort of ramp up and acceleration as the quarter ended?
Henry H. Gerkens
No. I think March was lackluster.
How’s that? Normally March is a pretty robust month, you didn’t feel that.
The only thing that gave us and makes me feel good about what I am seeing is that things seemed to have leveled off. In addition, we know where the volume short falls were and we do know in the back half of this year those comparative numbers become easier.
So, it leads me to be a little more confident. They as we have been talking here is pricing and even pricing in the first two months of April has again, seemed to level off.
Now, I don’t want to make a lot about this and that’s why I’m not giving any guidance because I just think it’s a very volatile environment and I don’t want to make any judgment calls at this point in time but we are starting to feel a tiny bit better.
Todd Fowler – Keybanc Capital Markets
Then I guess a follow up on that looking at you talked about some of the weakness in substitute line haul as well as automotive, thinking about the exposure that you guys have to machinery and equipment and I think in your prepared remarks you commented about, and I want to make sure I understand this correctly, are you anticipating that there’s going to be a slowdown in power generation moves or are you already seeing that slowdown? Then, how do you feel about what you’re seeing within the machinery and equipment movements right now as well as maybe some expectations as the year progresses?
Henry H. Gerkens
Look, I think we’ve felt the effects of the recession on all our segments so yes, we felt it there. The reason I made that comment on power generation is certain customers that we deal with their basis production is not going to come back until the third quarter.
That’s not to say our total alternate energy business, because we’ve got other pieces of that, that will play but there’s a section of that that we know that second quarter is going to be a little bit lighter than normal and that’s the reason that comment was made. As it relates to machinery and equipment Jim, I don’t know if you’ve got any in general – I don’t know what those numbers were quarter-over-quarter?
James B. Gattoni
The machinery and equipment was off about 20% and it’s mostly in the power generation not wind necessarily but other alternative energy like gas and electric turbine type stuff plus some heavy equipment moves, the heavy haul flatbed type of stuff.
Todd Fowler – Keybanc Capital Markets
Where were they in the fourth quarter, down 20% here in the first quarter is that better or worse than where you were in the fourth quarter?
Henry H. Gerkens
It’s probably similar to December. My guess is it’s probably similar to December.
As I recall fourth quarter October was actually positive and then we went slightly negative in November and then we had a big fall off in December, is that accurate Jim?
James B. Gattoni
It was slightly up actually in the fourth quarter but wind generation dried up, well not dried up but slowed down in December through the first quarter.
Todd Fowler – Keybanc Capital Markets
So in total machinery was actually up slightly in the fourth quarter and now down about 20% here in the first quarter?
James B. Gattoni
Yes.
Todd Fowler – Keybanc Capital Markets
One question on the non-guidance, thinking about the revenue trends if you do see pricing continuing to accelerate I’m assuming that’s probably some risk to as you think about where earnings could shake out for the year maybe if pricing continues to deteriorate but are you able to if pricing comes down more do you pick up most of that in the reduction of your purchase transportation costs or is it not a complete offset? Does deceleration in pricing really hurt you more than being able to benefit on the PT line?
James B. Gattoni
The pricing is just – you kind of get the offset in purchase transportation.
Henry H. Gerkens
You’ve got to look at our model. Again, with capacity at 75% from a BCO standpoint, agent at 8% again, it’s the whole variable cost model that yields the kind of numbers that we’re talking about.
Look, some of the pricing we’ve just walked away from. My comment about pricing is our BCOs are sometimes when we haul certain loads and we’ve already talked about I think how we treat our broker carriers through [inaudible] in fact even from the fuel standpoint when that was going down we basically give a lot of that away but we’re not going to be competitive in lanes that are just not making any sense.
Because, some of the pricing that we’ve seen is just irrational.
Todd Fowler – Keybanc Capital Markets
Then just my last one here, Henry can you talk a little bit about the agent pipeline? I know you said that it’s still strong, do you expect to see the same sort of agent conversion here in the second quarter as what you saw in the first quarter?
Then if you could, give a little bit of color behind what are you hearing from the agents right now as far as the motivation to move in to your networks versus where they’re at right now or continuing to be independent, what’s really the driver behind the shift that you are seeing?
Henry H. Gerkens
More and more agents that are within systems we are hearing stories that these companies are having issues as far as paying their commissions, delaying their commissions and I can’t think of a better stimulus for agents to come over to the Landstar System. That’s the basis for all of that and we’ve got a number of great agent possibilities that we hope to bring on in the second quarter and as I look at my two guys here I fully anticipate and expect that we will bring in the same amount.
Operator
Your next question comes from [Dan Moore – Scopic].
[Dan Moore – Scopic]
A lot of question have been asked and I’m not going to belabor the points too much here but, I did want to at least address the cost side of the equation a little bit more and some of this may be minutia and stop me if it is. Just looking at some of the cost line items obviously, SG&A you discussed that a little bit and the fact that you’ve got a conference I guess it happens bi-annually, every two years?
Henry H. Gerkens
Once a year. What you heard was that we try to conduct every other year we’ve been inviting the analyst.
[Dan Moore – Scopic]
So that would be in the cost from last year?
Henry H. Gerkens
Yes. It occurs in March and typically it’s about a $2 million plus spend.
Again, if you were to look at the SG&A line and trying to make it apples-to-apples because again, in 2007 no bonuses, 2008 you had bonuses, 2009 first quarter you had no bonuses. But, if you took out the bonus from all quarters on those things you’d see that typically the January quarter has a higher SG&A because of the convention.
Now, the convention use to be in May about a couple of years ago and therefore you had a higher SG&A number in the second quarter but that is where the higher cost comes from. In addition to that I think Jim mentioned we had an unexpected charge due to an increase in the provision for doubtful accounts of about $1.4.
We undertook some cost cutting measures that sort of offset some things also. So, overall if you look at it apples-to-apples as Jim said we were about $1.4 better than the prior year.
[Dan Moore – Scopic]
The one thing I want to understand here is as I look at SG&A it is down about 3.9% year-over-year yet volumes are down 17%. How much opportunity is there to continue to manage that item down over the next quarter or two, leverage that item a little bit more?
Because, it looks like optimally it should be down a lot more than it is with volumes off 17%.
Henry H. Gerkens
The margin came in at what 5.1% Jim. We can take some other cost actions as we move forward to the end of the year but again, I’ve got to be very careful as far as how we move through this particular year and we will take action when we think we need to take some action but I’m not going to take action that’s going to cost us revenue down the road.
We at this point we think we’re in pretty good position as far as developing for the future and if you start to just totally take out your whole – start tearing apart some of your infrastructure it doesn’t make sense.
[Dan Moore – Scopic]
Other operating costs I think you had mentioned that was up 13% to 14% because of some maintenance related items, so is that kind of something we should expect moving forward?
James B. Gattoni
In the prior year maintenance was really low so that’s really what’s driving most of it. That cost there is generally a fixed cost.
It has to do with we’re always going to pay a certain amount to maintain the trailers we have out there. It might fluctuate a little bit but you’re not going to see a lot coming out.
We can manage the trailer fleet somewhat and get some trailers out of the system to save costs as volumes are down, that’s really what we look at. We’re monitoring how many trailers we have in the system and how many we can get rid of.
Operator
Your next question comes from Donald Broughton – Avondale Partners, LLC.
Donald Broughton – Avondale Partners, LLC
Since most of the good question have been asked I’ll ask one more of a minutia question. Normally, in periods such as we’re experiencing right now when things are just damn tough out there you tend to actually pick up a few BCOs, certainly you did at the agent level but we were down a few at least sequentially this quarter.
Can you cast any color on that? Is it a trend I should expect to see bleed off a little bit or are we going to see it pick up as the year goes on?
Henry H. Gerkens
Typically and if I analyze the adds and deletes Donald, we added more in the first quarter this year than we added in the first quarter last year. But, what you’ve got is you’ve got to remember also that March is licensing season so typically in the first quarter you tend to lose more BCOs than in any other quarters.
That’s the effect that you’re seeing. But, yes from an absolute add standpoint we put more on but now you’ve got to take in to consideration you’re moving in to the first quarter where people don’t reup sometimes.
Donald Broughton – Avondale Partners, LLC
So you certainly added it was just a large churn rate and as the year goes on I should expect to see that number grow sequentially slightly.
Henry H. Gerkens
Pat do you have the numbers exactly with you?
Patrick J. O’Malley
If you look at we added more and we deleted fewer. Last year the net number was 138 fewer in the first quarter net-net and in this quarter it was 26.
So, if you think about our retention our retention was superior in the first quarter 2009 versus 2008.
Henry H. Gerkens
It really is just the uniqueness of the first quarter again because people reup for their place.
Operator
Your next question comes from David Campbell – Thompson, Davis & Co.
David Campbell – Thompson, Davis & Co.
Most of my question have been asked, I just wanted to make sure that in the cost reductions that you cite in the press release you pretty much covered them all in your comments especially in regards to SG&A. Are there any other cost reduction measures in other parts of the P&L that you haven’t mentioned?
Henry H. Gerkens
No, I think David as you well know when you look at our P&L because if I don’t have a dollar of revenue I don’t have 83% of the costs meaning the purchase transportation and the agent commissions. Then, when you look down the rest of the P&L obviously if we’re safe, that impacts that but really the area that you can attack is the SG&A number.
There’s some minor things we can do with other operating costs but that is a small number, it’s really in the SG&A thing that we would be taking additional action if we saw fit.
David Campbell – Thompson, Davis & Co.
The second and last question, a decrease in railroad intermodal revenues you cited primarily due to the line haul substitute business going down?
Henry H. Gerkens
That’s correct. Some of the stuff that we did for certain customers we didn’t move it on truck we moved it on rail and that business dried up.
With a 42% decrease that’s tied in to the rail intermodal decline.
David Campbell – Thompson, Davis & Co.
So with regard to rail intermodal would we expect any improvement in that in the second quarter?
Henry H. Gerkens
I think if you striped out, I’ll let Jim Handoush answer that question but I know if you strip out – we did see some movement from rail to truck, it was in our customer base.
Jim M. Handoush
As Henry mentioned most of the decline came on the [inaudible] sub line haul side but there’s also quite a few customers in the building industry that we saw decline on and within our top 20 accounts. Then again last year, we saw a significant amount of our customer base move from truck to rail as an alternative service because of the fact that truck capacity is so [clinical] now they’re shifting back to trucks because of the price concessions that are out there.
Operator
Your next question comes from Thomas Albrecht – Stephens, Inc.
Thomas Albrecht – Stephens, Inc.
Usually every quarter you’re able to give a little bit of a sample for the actual rate per mile in van and flatbed. I know you alluded to that earlier but I’m just kind of curious the flatbed platform is like 220 and van is like 175 or something but kind of where are we in the latest snapshot?
James B. Gattoni
You’re just looking rate per mile?
Thomas Albrecht – Stephens, Inc.
Correct.
James B. Gattoni
On the van side, you’re looking for the quarter about $1.69 and on the flat side you’re looking at about $2.32. Now, those rates do not include the substitute line haul brokerage fees.
That’s really the true truck load brokerage and BCO business without the substitute line haul business.
Thomas Albrecht – Stephens, Inc.
Do you have the year ago numbers to give us some perspective?
James B. Gattoni
It was $1.80 for the van and $2.46 on the flatbed.
Thomas Albrecht – Stephens, Inc.
Then I just want to clarify something, in the beginning when you were giving lots of numbers and you went through January, February and March revenue then loads and revenue per load, all of that stuff was just the truck transportation side?
Henry H. Gerkens
That’s correct.
Thomas Albrecht – Stephens, Inc.
I guess sort of the last question, I think you’ve essentially answered it but I just want to hear your words again, there’s a lot of discussion about a bottom and pickups here and there but it sounds to me like the best you can say is that the level of your volume declines has sort of flattened out but that you’re not necessarily ready to call anything any sort of positive recovery signs yet?
Henry H. Gerkens
That’s correct. I think there are signs and I think that’s a positive sign that volumes appear to have leveled off.
I could say the same thing as we did with the first two weeks in to April from a rate standpoint but it’s just too volatile a climate for anybody to step out and say hey – that could change tomorrow.
Thomas Albrecht – Stephens, Inc.
Your brokerage is a little bit of a window in to the potential consolidation going on at any time and you’ve alluded to the fact that it’s been slower to happen but, are you seeing any differences between flatbed carriers going under versus van carriers or is it not even that clear?
Patrick J. O’Malley
It’s not clear. I wouldn’t want to comment here that it’s a flatbed or a van phenomenon.
I think what Henry said in the beginning holds true, I thought at this time there would have been a lot more capacity exiting the market but from a flatbed or a van standpoint I couldn’t answer.
Operator
Your next question comes from [Anab Aawa] – Voyant Advisors.
[Anab Aawa] – Voyant Advisors
This one specifically relates to the allowance for doubtful accounts and it looks like it is at one of the highest levels now and I was just trying to get some color on the write off that you took this year, specifically could you give us some color on the industry and do you expect additional write offs to come?
Henry H. Gerkens
Considering the environment we are in I think one would anticipate that the allowance for doubtful accounts in any balance sheet that you look at should be higher. There’s that one particular account that I talk about was in the building products industry.
But, I don’t know how to put any more color in it than if people aren’t seeing an increase for an allowance for doubtful accounts I’d question the balance sheet.
[Anab Aawa] – Voyant Advisors
The second question is with the non-guidance, essentially in the Q4 call you mentioned that there’s 1.3 million shares baked in to that guidance.
Henry H. Gerkens
I think it was 1 million shares.
[Anab Aawa] – Voyant Advisors
In terms of the $0.40 to $0.45 range for Q2 do you have a change in the buyback?
Henry H. Gerkens
I don’t have a number factored in to that number.
Operator
Your next question comes from [David Mack – [Inaudible] Capital].
[David Mack – [Inaudible] Capital]
I just wanted to ask you a few questions, on military and government is there any reason, I hope with the build up in Afghanistan we might be able to see higher than historical volumes on that front?
Henry H. Gerkens
Ted why don’t you answer that question.
[Ted]
David, if you think about it they’re moving a lot of the materials that are currently in the Persian Gulf up to the theater in Afghanistan so we’re not going to see a lot of domestic movements. As the war in Iraq winds down you’re going to see some deterioration in government shipments as well.
I mean, it’s very tied to the military actions around the global and so as you see some of that slowdown in Iraq and those materials that are currently in theater are moving north to Afghanistan, they’re not coming from the states over to the theater.
[David Mack – [Inaudible] Capital]
Some guys were also asking about the bottoming and you’re saying that you think that volume has stopped getting worse. My question was the Easter shift made March conceivably look better because you had more operating days so is the bottom off of that 16% or is it like on a per day basis?
Henry H. Gerkens
We look at load volumes on a per day basis and actually we also look at the revenue per load on a per day basis and what we’re seeing is that things seem to have leveled off. You’ve got to understand what I said, if I thought that was a definite that things wouldn’t change I’d be giving guidance but at this point in time the market is just too volatile for me to make a determination, prediction with any conviction.
The only thing I’m trying to tell you is how our model works, and I think when you look at the numbers at a 23% revenue decline generates in the second quarter which is anywhere from $0.40 to $0.45 a share, I don’t think a lot of other companies can take that sort of revenue decline and still generate that type of profit. It is all about our business model.
Look, although the recession has hit just about every sector that we deal in I’ve highlighted where we’re really taking it in the shorts so to speak and that’s in the automotive sector, substitute line haul sector and a little bit of decline in government also and we expect certain sections of the alternate energy to be a little off in the second quarter because of lack of production but we know that’s coming back in the third quarter and we know that the comparisons are better in the back half of the year also. So, that gives us a lot of encouragement also.
[David Mack – [Inaudible] Capital]
But on a per day basis were loads down more than 16% in March or where they down less or right at that level?
Henry H. Gerkens
When I look at what’s occurring in April alright and I look at the decline versus the prior year numbers versus what occurred in March versus March I’m saying again that it looks like the volume declines have leveled off. I’m not sure how else I can explain it.
[David Mack – [Inaudible] Capital]
I want to beat another dead horse so I hope you bare with me a second here. Some people have been asking you about how does the margin, what exactly is happening from first quarter to second quarter and if I frame the question in a different way, sequentially from first quarter to second quarter the OR in the last few years has gotten better by around 50 basis points.
In order to kind of hit that kind of rough number that we’re using as some book ends you need to have about 150 basis points of margin improvement from the first quarter to the second. So, maybe that’s partially why some people are asking some margin questions.
Henry H. Gerkens
You have to understand also that going in to this year we took additional cost cutting actions that are going to affect –
[David Mack – [Inaudible] Capital]
Those are cost cutting actions that didn’t really show up in the first quarter but that are going to show up in the second?
Henry H. Gerkens
No. They probably partly would have occurred in the first quarter but you’ve got items that occur in the second quarter that we’ve either scaled down or eliminated.
In other words, not everything is spread equally if you will, it’s based on when events occur. Certain things occurred in the second quarter of last year that we have eliminated.
I’d have to dig deeper in to the numbers but it sort of ties to what we said at the very beginning of the year when I gave a full year non-guidance guidance if you want to call it that which encompassed a 20% reduction in revenue, if we had a 20% reduction in revenue I think I said that would yield approximately about $1.65. I also said in that same conference that first quarter would be $0.25 to $0.30.
So that by itself implies that the second, third and fourth quarter – and that’s only because of the way the costs fall and what was eliminated in the back three quarters of the year. So, yes we anticipate if the number was 23% what we would anticipate is a $0.40 to $0.45 EPS number.
That’s just the way that the model works.
Operator
Currently at this time there are no further questions. I’d like to turn it back over to you sir for closing comments.
James B. Gattoni
I think it’s a challenging environment but the model holds up well in this kind of environment and I think it holds up as expected. We’ve just got to push forward and keep charging on and recruiting agents and working with our existing agents to cross sell and get additional opportunities.
Thanks for listening in and I’ll pass it back to you Henry.
Henry H. Gerkens
Again, I think the second quarter is going to be an interesting quarter as I said. I think as we move in to the third and fourth quarter a lot of those headwinds that we faced in the first quarter and that we will face in the second quarter will start to elevate.
But, in closing I really want to reiterate how confident I am in our business model and the results it generates. We can’t control the economy however, if we continue to execute on these core strategies in this environment, Landstar is going to emerge from this environment with more agents and more market shares and really laying the groundwork for future revenue growth and that really is what we’re trying to do.
We can’t control what’s occurring now but we can try to create more opportunities. With that I want to thank you and I look forward to talking to everyone again on our second quarter mid quarter update call which is scheduled for May 13th.
With that good evening.
Operator
Thank you for joining the conference call today. Have a good afternoon.
Please disconnect your lines at this time.