Oct 25, 2012
Executives
Henry H. Gerkens - Chairman, Chief Executive Officer, President, Member of Safety & Risk Committee and Member of Strategic Planning Committee James B.
Gattoni - Chief Financial Officer, Principal Accounting Officer and Vice President Joseph J. Beacom - Chief Safety & Operations Officer and Vice President Pat O'Malley - President-Landstar Carrier Group
Analysts
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division Robert H.
Salmon - Deutsche Bank AG, Research Division Nathan Brochmann - William Blair & Company L.L.C., Research Division William J. Greene - Morgan Stanley, Research Division Christopher J.
Ceraso - Crédit Suisse AG, Research Division Scott H. Group - Wolfe Trahan & Co.
H. Peter Nesvold - Jefferies & Company, Inc., Research Division Thomas R.
Wadewitz - JP Morgan Chase & Co, Research Division Scott A. Schneeberger - Oppenheimer & Co.
Inc., Research Division Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division David P.
Campbell - Thompson, Davis & Company Ryan T. Bouchard - Avondale Partners, LLC, Research Division Matthew Young - Morningstar Inc., Research Division Jack Waldo - Stephens Inc., Research Division Benjamin J.
Hartford - Robert W. Baird & Co.
Incorporated, Research Division Matthew S. Brooklier - Longbow Research LLC Edward M.
Wolfe - Wolfe Trahan & Co.
Operator
Good afternoon, and welcome to Landstar System Inc.' s Third Quarter 2012 Earnings Release Conference Call.
[Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time.
Joining us today from Landstar are Henry H. Gerkens, Chairman, President and CEO; Jim Gattoni, Vice President and Chief Financial Officer; Pat O'Malley, Vice President and Chief Commercial and Marketing Officer; and Joe Beacom, Vice President and Chief Safety and Operations Officer.
Now I would like to turn the call over to Mr. Henry Gerkens.
Sir, you may begin.
Henry H. Gerkens
Thanks, Dory, and good afternoon when welcome to the Landstar 2012 Third Quarter Earnings Conference Call. This conference call will be limited to no more than one hour.
[Operator Instructions] Before we begin, let me read the following statements. 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 risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2011 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. The 2012 third quarter ended up to be another very good quarter for Landstar despite the choppy and slowing economic conditions that impacted the 2012 third quarter.
In our 2012 third quarter mid-quarter update call, I revised Landstar's 2012 third quarter revenue and earnings estimates from a revenue increase in a range of 7% to 10% over the prior year third quarter to an increase in a mid-single-digit range, and from an earnings per share range of $0.71 to $0.75 per diluted share to a range of $0.66 to $0.71 per diluted share. Revenue for the 2012 third quarter finished at $717 million, an increase of approximately 5%, while earnings per diluted share was $0.71 per diluted share, an increase of 11% and at the top of our revised range of guidance.
Operating income as a percent of gross profit in the 2012 third quarter was 48.1% compared to 44.7% in the 2011 third quarter as Landstar continued to gain operating leverage as a result of its unique operating model and its safety performance and ability to control costs. As I said, consolidated revenue in the 2012 third quarter was approximately $717 million, up approximately $33 million from the 2011 third quarter revenue.
Total truck transportation revenue increased approximately 6% in the 2012 third quarter over the 2011 third quarter and represented approximately 93% of consolidated revenue in the 2012 third quarter versus 91% in the 2011 third quarter. Revenue hauled by BCOs represented 50% of total revenue in the 2012 third quarter versus 51% in the 2011 third quarter, while total brokerage revenue was approximately 43% of consolidated revenue in the 2012 third quarter versus 40% of consolidated revenue in the 2011 third quarter.
BCO revenue increased slightly in the 2012 third quarter over the 2011 third quarter, whereas revenue generated through broker carriers continued to increase at a double-digit pace and increased a healthy 12%. From a load volume standpoint, total truck transportation loads hauled in the 2012 third quarter increased approximately 7% over the 2011 third quarter and revenue per load was virtually flat.
Collectively, revenue generated from all other sources decreased approximately $4.5 million, or 8%, in the 2012 quarter versus the 2011 third quarter primarily as a result of lower revenue generated through air cargo services. From a new agent revenue standpoint, revenue generated from all new agent locations added over the past year amounted to approximately $17 million in the 2012 third quarter.
Although this amount of new agent revenue is lower than amounts in recent quarters, our list of prospective new agents remains long. Year-to-date through the third quarter, we have added $78 million in new agent revenue.
Landstar again increased its available capacity providers. Landstar's total available truck capacity providers was 37,863 at the end of the 2012 third quarter, up 2,575 capacity providers from the end of the 2011 third quarter and up 1,570 capacity providers from the end of the 2012 second quarter.
I'm now going to turn it over to Jim for his financial review.
James B. Gattoni
Well, thanks, Henry. Henry's already discussed certain information regarding the 2012 third quarter.
I will cover various other financial information included in our third quarter release. Gross profit, representing revenue less the cost of purchased transportation and commission to agents, increased 2% over the 2011 third quarter.
Gross profit was 15.8% of revenue in the 2012 third quarter compared to 16.2% of revenue in the 2011 quarter. The decrease in gross profit margin in the 2012 third quarter was primarily due to a change of mix as revenue contributed to truck brokerage grew to 43% over revenue in the 2012 third quarter compared to 40% in the 2011 third quarter, and an increase in the rate of purchased transportation paid on revenue hauled by truck brokerage carriers, which increased 120 basis points over the 2011 third quarter.
However, it should be noted that the rate of purchased transportation paid to truck brokerage carriers in the 2012 third quarter was 30 basis points lower than the rate of purchased transportation paid to truck brokerage carriers in the 2012 second quarter. The cost of purchased transportation was 76.4% of revenue in the 2012 third quarter compared to 75.8% in the 2011 third quarter.
This increase was primarily due to an increase in the percent of revenue contributed to truck brokerage, which has a higher rate of purchased transportation, and the previously mentioned 120-basis-point increase in the rate of purchased transportation paid to truck brokerage carriers in the 2012 third quarter. Commission to agents was 7.8% of revenue in the 2012 third quarter compared to 8% in the 2011 third quarter.
The decrease in commissions to agents as a percent of revenue was primarily due to the increased rate of purchased transportation paid to truck brokerage carriers. Other operating costs were 5.7% of gross profit in the 2012 quarter compared to 5.8% in the 2011 quarter.
This decrease was primarily due to the effect of increased gross profit. Insurance and claims costs were 7.1% of gross profit in the 2012 quarter compared to 8.5% in 2011 quarter.
The decrease in insurance and claims as a percent of gross profit was primarily due to an increase in the percentage of gross profit contributed to truck brokerage carriers, which has a lower claims risk profile than gross profit contributed to BCO Independent Contractors and favorable development of prior claims in the 2012 third quarter. Selling, general and administrative costs were 33.2% of gross profit in the 2012 third quarter and 35.4% of gross profit in the 2011 third quarter.
The decrease in selling, general and administrative costs as a percent of gross profit was due to a lower provision for incentive compensation under the company's incentive compensation program. Depreciation and amortization was 6.3% of gross profit in 2012 third quarter compared to 5.9% of gross profit in the 2011 third quarter.
The increase in depreciation as a percent of gross profit was primarily attributable to increased travel depreciation as we replaced older, fully depreciated equipment with new traveling equipment. Investment income was $393,000 in the 2012 quarter compared to $373,000 in the 2011 period.
The effective income tax rate was 38.2% in both the 2012 and 2011 third quarters. 2012 third quarter operating income increased 10% to $54.4 million in the 2012 third quarter compared to $49.5 million in the 2011 third quarter.
Operating margin, representing operating income divided by gross profit, increased to 48% in the 2012 third quarter compared to 45% in the 2011 third quarter. The $4.8 million increase in operating income primarily reflects the $2.2 million increase in gross profit plus the effect of a lower provision for bonuses under the company's incentive compensation program and favorable insurance and claims expense in the 2012 third quarter compared to the 2011 third quarter.
The increase in gross profit was entirely passed through to operating income as the company had established infrastructure to support a significant amount of revenue growth without adding a significant amount of selling, general and administrative costs and, as it specifically relates to truck brokerage revenue, a lower commercial trucking claims exposure. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $118 million.
During the 2012 third quarter, the company purchased 184,000 shares of its common stock at a cost of $8.8 million. 2012 year-to-date cash flow from operations was $103 million.
Cash capital expenditures was $4.4 million in the 2012 year-to-date period. Trailing 12-month return on average shareholders' equity was 39%, and trailing 12-month return on invested capital, representing net income divided by the sum of average equity plus average debt, was 29%.
At September 29, 2012, shareholders' equity represented 76% of total capitalization. Now back to you, Henry.
Henry H. Gerkens
Thanks, Jim. As I look to the 2012 fourth quarter, it is important to keep in mind these 3 points: one, the 2011 fourth quarter included an extra week, which I estimate added approximately $25 million to $30 million in additional revenue and approximately $0.06 to diluted earnings per share; two, the 2011 fourth quarter also included a $0.03 per diluted share increase from a favorable tax benefit; and three, the fourth quarter of any year has historically been the most difficult quarter to forecast.
As I stated in this morning's press release, demand in the first several weeks of the 2012 fourth quarter has been sluggish. However, total revenue is up from the same period the prior year.
The inconsistent demand is reflective of what appears to be sluggish economic conditions. My belief is that the uncertainty in the business community about regulatory policies and the so-called fiscal cliff has caused a gradual slowdown in economic growth.
Businesses are just reluctant to invest and spend money until they see a clear direction. I'm hopeful that after the election, there will be some resolution to the uncertainties that are currently preventing businesses from moving forward.
The picture right now is at best cloudy, making our ability to forecast short-term results somewhat difficult. All that being said, if the current operating trends continue for the balance of the 2012 fourth quarter, I would anticipate diluted earnings per share to be in a range of $0.63 to $0.68 per share.
Once those clouds of uncertainty that are plaguing business investment and growth begin to dissipate, I believe the picture becomes much brighter. The November election results should be the catalyst that creates that certainty and restores business confidence.
In any event, Landstar's flexible business model will continue to capitalize on any and all opportunities presented to it. And with that, Dory, we'll open it up for questions.
Operator
[Operator Instructions] Our first question comes from Todd Fowler with KeyBanc Capital Markets.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
Maybe following on your comments about the outlook. A lot of the machinery and equipment manufacturers here in the quarter have talked about a slowdown in September.
I'm curious if you guys have seen any of that in the current quarter results, or if you have any visibility into the potential impact of that into the fourth quarter and how you've thought about that with the guidance.
Henry H. Gerkens
I think we have thought about that, and I think that's why we're a little bit hesitant as far as in our guidance, as far as what we've put out. And we've fully thought about the revenue effect of what's happening and the slowdown, I think, that you are seeing.
I mean, I do think, however, it's just the hold back, if you will. And I think once we get through the fourth quarter or -- I think things will change because I just think businesses in general are just holding back.
I mean, as I look at our flatbed business, if you will, let me call it un-sided, fourth quarter -- actually, there's a lot of things going on in the fourth quarter. And if you look at our flatbed business, it's actually dominated by heavy haul and it's been pretty good.
Pricing actually in the first several weeks has been very good. Demand, however, is a little bit sluggish.
So I think there's a lot of things here that are going on. I think it really revolves around which, I mean, everybody's talking about it, is really the uncertainty out in the business -- out in the environment.
But in answer to your question, yes, we factored that into our guidance.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
Okay, good. Now that helps and that's kind of what I was looking for.
And then I guess for 2 follow-ups. At this point, can you remind us where you're at as far as installing, well, electronic on-board recorders with the BCOs?
I think that was an issue for the second half of this year. And if you've seen any sort of impact either on the utilization side or on the cost side as I think you've given some incentives to help with that?
Henry H. Gerkens
Yes, we've actually had the -- I would then I'll let Joe answer. But I think it's upwards of over 500 that have been installed at this point on a voluntary basis and have taken advantage.
But Joe, you want to...
Joseph J. Beacom
Yes. Yes, We've got several hundred already installed in the fleet, over 500, as Henry stated.
We really haven't seen any effect from a utilization standpoint. We've actually seen very consistent positive comments from the BCOs just because it makes life a little bit easier.
But most of those are on a voluntary basis. As you may recall, we started requiring it of new BCOs who came on board in the back half of the third quarter, and it's been very well received.
And we are supporting them with the cost of the unit, and then they pay the monthly airtime fee, which is pretty significant. But all things are going about as well as we would have hoped.
Henry H. Gerkens
Yes, yes, yes. I guess we add one point.
At this past month's Safety Thursday call, it's always -- and I think everybody out here understands what we do on Safety Thursday as far as a nationwide call. Phone lines are open.
The last couple of months, we've had actually a BCO or 2 call in and basically sing the praises of the electronic on-board recorders and stating he was reluctant because -- only because he was being told what to do by the government. But now that he has it installed, he finds it the best thing he's ever had.
And those are the types of endorsements that go a long way as far as getting our BCOs to buy off on it. Me telling them whatnot is usually not something that sometimes they listen to.
But having one of your own do that, I think that is -- that means a lot.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
And what's the expectation for the rest of the BCOs? I mean, is there a time line that you have in place or something that you're thinking about?
Henry H. Gerkens
It's a slow grind. As I said, our BCOs are truly independent contractors.
I can't force them to do that. And what they have to do is decide on their own that the -- there's a benefit to them.
And I think slowly but surely, they're going to see that. I think we're ahead of where we thought we would be based on our time line.
But yes, you're going to see this thing move on throughout the next couple of years. I mean, obviously, if it becomes truly mandated, that's a different issue.
Then we can basically -- then they have to do it.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
Right.
Henry H. Gerkens
But right now, it's up to them.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
Okay. And then the last one I had and then I'll turn it over.
But strategically -- and I know you've talked about this in the past. I'm not trying to rehash something that's come up.
But the growth within the brokerage business relative to the BCO business, can you just remind us from a strategic standpoint? I mean, that's pretty much agent-driven right as far as how the loads actually come through.
It's not a top-down decision where you're saying, "Hey, we want more brokerage volume to the network." And then, as far as the growth during the quarter, do you think that, that's something that's reflective of capacity dynamics and the fact that there's been more available capacity and so maybe, it makes -- there's more of an incentive to actually book some brokered loads?
Or can you just talk about the growth between brokerage and BCO in the past couple of quarters?
Henry H. Gerkens
I think the -- it's a couple of things. A lot of things missing.
When we started moving into brokerage, the -- our issue was always getting agent buy-in to move loads on brokerage carriers, all right, that it helps them. And it helps generate more business because the more capacity I can basically haul for any particular customer will generate more business.
And I think our agents have clearly bought into the brokerage model. And I think that really, if I had to lay one thing on an x, the primary driver, I think that what we've done recently with some of the technology that we've added at certain agent locations that allows them to source their capacity better clearly is another avenue.
And I think, again, I don't have any specific goal as far as the split because all I want to do is haul the customers' freight. I want to grow both BCO and brokerage.
I think we've been pretty successful at doing that. And it really is just, I think, a byproduct of the fact that people are starting to realize that it's okay to do that.
Pat, I don't know if you've got anything you want to add to that? No?
Pat O'Malley
No.
Henry H. Gerkens
Okay.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
Okay. No, that's what I remember.
I'll talk to you soon.
Henry H. Gerkens
Thanks.
Operator
Our next question comes from Justin Yagerman with Deutsche Bank.
Robert H. Salmon - Deutsche Bank AG, Research Division
It's Rob on for Justine.
Henry H. Gerkens
Okay, Rob.
Robert H. Salmon - Deutsche Bank AG, Research Division
When you guys had called out the -- in the prepared remarks as well as in the press release, you had called the -- about some of the slowing demand trends that you guys have experienced. Could you run through how the load growth trended by month as well as what we've seen thus far into October?
Henry H. Gerkens
The -- I don't know if you've got that trend, Jim, as far as the load growth for the quarter. What we've seen in the -- or what I stated before is that the daily loads were sort of -- in fact, I even used this example -- maybe up 10% one time and then down -- and then flat the next time.
I think you've seen right now more of a I'm going to call a low, single-digit increase in volume. But on the other hand, what you've seen is a pickup in price.
And it's kind of strange because pricing in -- all the quarter was sort of flat. You've got a pretty big pickup from the platform side on price.
Although some demand on certain businesses of the flatbed industry is down, we obviously do a lot of heavy haul. We do a lot of other stuff.
And the pricing and the demand is actually stronger there and then, therefore, it's driven the price increase better than we anticipated in the fourth quarter. But again, I think as I move forward to the fourth quarter, I really am cautious only because of the fiscal cliff and what's approaching.
I do think once that gets past, I really think things can actually explode. But we'll see what happens.
But right now, if that answers your question. Jim, I don't know if you've got any...
James B. Gattoni
Yes, July, August, September. July, 6% -- this is the truck.
This is 90-some percent of our revenues. This is just truck lines [ph].
July was 6% over, August was 7% over, and September was 7% over prior year.
Robert H. Salmon - Deutsche Bank AG, Research Division
And then, Jim, into October, what we've seen thus far?
James B. Gattoni
I don't have final numbers. They're daily load reports.
And I think to quote a number as far as load volume probably would be not something I think I want to share at this point because I don't even know the number, only from a daily point. And what I'm saying from a daily standpoint when I said it went from 0 to 10, you're now down a little bit more consistent volume flow at the lower end.
Robert H. Salmon - Deutsche Bank AG, Research Division
That's great, Henry. And then if I think about just the overall guidance range that you guys issued for the fourth quarter, I would imagine if the fiscal cliff -- if we get kind of better visibility and load growth accelerates, that would probably put you toward the higher end, and the low end of the range is worry about demand falling off more than...
Henry H. Gerkens
Well, it's interesting because then, everybody tries to be short-term focused. But I don't think things turn on a dime.
I think, obviously, that's going to build momentum as you go through. I think right now, I mean, the election results happen.
They get through the end of December. I mean, if something's going to be decided in a lame-duck Congress, that would be great.
But I don't know how quickly that takes -- that it actually takes effect. Maybe.
And you might see some pick-up. But I think, yes, within that range, yes.
Obviously, anything that is more positive is, in my mind, beneficial towards the upper end of that range.
Robert H. Salmon - Deutsche Bank AG, Research Division
And you had indicated, in response to Todd's question earlier, that you guys are expecting some degradation in terms of the heavy haul machinery growth as we look out based off of some of the reports and recent updates on the earnings calls. How should we be thinking about the declines you guys are baking into the model, looking out for the full fourth quarter?
Henry H. Gerkens
Well, I think when you look at the whole fourth quarter, I think, generally -- if I use the term just flat form or un-sided equipment, I think that's going to be -- up. If I start to split up between certain accounts that's pure flatbed versus heavy haul and some other things, yes, then I think you can say some of the flatbed accounts are going to be down.
But in general, as we looked at it always, is that our platform business or our un-sided business is a combination of all that stuff. And we believe that through the fourth quarter, based on what we see now, that, that will remain strong pretty much through the end of the fourth quarter.
Just so you know -- I know I've taken like 4 questions from Todd and 3 questions -- and that's why we'll try to limit it to 2. Otherwise, we're not going to get through everybody.
So I apologize but we are going to now try to do it at 2. But then we got...
Operator
Our next question comes from Nate Brochmann with William Blair.
Nathan Brochmann - William Blair & Company L.L.C., Research Division
And I'll limit it to 2. Quick question on the agent additions, Henry.
One of the things that we talked about was some of the dislocation maybe going on in the industry with some of the agents. I was wondering if you continue to see that in your pipeline and whether those agent kind of additions are coming on because of some dislocation.
If you could talk a little bit about that?
Henry H. Gerkens
What are you -- this won't count as a question, Nate. But what do you mean by dislocation?
Nathan Brochmann - William Blair & Company L.L.C., Research Division
Well, I mean, just in terms some of the competition that's coming into the -- that's making it difficult for some of the independent guys to compete.
Henry H. Gerkens
Well, Pat, do you want that?
Pat O'Malley
Nathan, I think we've been pretty consistent in our message that if you think about a small broker that's out there today, the challenges are many and the solutions that we provide are superior. They're out there.
They have increasing competition for capacity. We have capacity sourcing tools that will help them manage that.
They're challenged to make sure that they pay their carriers quickly. And yet in this environment, shippers are paying them slower.
So there's a cash crunch. Landstar helps them with that.
If you think about the systems investment that they have to make in order to be able to accommodate those capacity sourcing challenges and the shipping and billing practices, they don't have to do that. Landstar helps them provide a solution to that as well.
So clearly, we think that, that environment is very rich and that, that $1 million to $3 million broker is able to maintain their identity, come to Landstar and have greater solutions to help them grow their business. Their access to capital is also limited.
So if you think about that, we think that those things are what's going to continue to kind of drive some of those players to people like Landstar.
Nathan Brochmann - William Blair & Company L.L.C., Research Division
And are you indeed seeing some of that?
Pat O'Malley
Yes.
Nathan Brochmann - William Blair & Company L.L.C., Research Division
Okay. And then second question is -- and I'm really optimistic with you, Henry, that things can go off to the races if we get some clarity on all these issues.
And hopefully, that happens. If that doesn't happen and we end up in this, again, sluggish economic thing all throughout 2013, how does your leverage look on that?
Obviously, you've been able to put up some great numbers here over the last 12, 18 months. But if we end up in a 1% GDP environment and we're talking freight along the lines of that, granting you still get some share, but how does the leverage and the margins look in that scenario?
Henry H. Gerkens
Well, look, I think it depends on -- well, I believe under any scenario, all right, well, my primary belief is that smarter heads are going to prevail and there will be some resolution to this. The question what resolution that might bring?
I don't know. And I think under one resolution and solution, there might be a faster pickup in the other way.
But I still think things just have to be resolved. I just can't believe our lawmakers, our elected officials, will allow this to happen.
It might tick into next year, all right, at the very beginning, but something is going to get done because I just think -- so if I look at -- if we think -- if we fall off the cliff and things just shut down, and I think that's -- we'll have to deal with that environment when we get there. Obviously, we've got a variable cost model.
We'll have to relook at a lot of different things we do as far us from a cost standpoint. But one of the things that will present is obviously, I think, an opportunity for us to, I think, go out and even increase our penetration as far as bringing in new agents because I think that's going to be a problem, even capacity.
So I think our model is such that we perform fairly well in most environments, in all environments. We don't have that fixed cost.
But obviously, it takes a different mentality as far as when you deal through another period. I don't think you're looking at a 2009, all right?
That would be more of a dramatic change and it would have to take some real dramatic measures. But my basic response to that, Nate, is I don't think that's going to happen.
It might linger a little bit, but I do think once clarity is established and there's more regulations, people are going to deal with that. If we have -- if we deal with things where we -- businesses realize there's going to be less regulations, we deal with it another way.
We deal with it that way. So it just depends.
I just think on either scenario, there'll be certainty, and I think people then will be able to deal with that.
Nathan Brochmann - William Blair & Company L.L.C., Research Division
Okay, fair point.
Operator
Our next question comes from William Greene with Morgan Stanley.
William J. Greene - Morgan Stanley, Research Division
Henry, I'm curious what you think about some of these -- we talked a little bit earlier about the EOBRs. But these broad sets of regulations that are coming into the industry, whether you think about CSA or proposals to change hours of service or whatnot, does ultimately this prove to be a good thing or a challenge for Landstar?
You obviously have flexibility, but it could reduce some capacity from some of your providers. So how do you think about how that nets out for you?
Henry H. Gerkens
Well, I mean, I've said for a long time, all right, in this environment and what I've -- I really believe the company that can access capacity effectively is going to win long term. And how is Landstar going to access capacity?
Obviously, I've got to continue to take market share, put more loads in the system because that will attract capacity. The regulation piece, you put aside.
We have historically dealt with regulatory issues. And the advantage we have is that the smaller companies that can't deal with the regulatory issues, we can provide the infrastructure to basically have them be in compliance and to do certain things for them.
I mean, obviously, we've got to do things. I mean, in California, for example, CARB, I mean, there are things we have to do with our trailers now.
So basically, that's going to probably entail, and will entail, an increase in some of our capital costs going forward in order to get trailers up to speed as far as what they want. So -- but we'll deal with that.
Smaller companies won't be able to deal with that. And when you think of Landstar, you always got to think of the fact that we're the home of small business.
And so I think there's some pluses and minuses, Bill, but I think overall, it's going to be a plus.
William J. Greene - Morgan Stanley, Research Division
Okay. So from the perspective of the industry, maybe it's a challenge.
But you're relatively better positioned in that regard is what you're saying?
Henry H. Gerkens
Correct. Yes.
William J. Greene - Morgan Stanley, Research Division
Okay. And then just on share buybacks, I know you've sort of had a pretty steady approach over the years.
Is there a, I don't know, you talked about it being opportunistic in the past calls. Is there a valuation level or something you think about?
I mean, look at how the stock has done over the last 6 months. I think, gosh, why wouldn't have there been an acceleration?
I would think it'd sort of be that kind of opportunism because you've done pretty well amid the sluggishness. But maybe that's the wrong way to think about it.
Henry H. Gerkens
Look, I can kick myself for not buying more stock back, yes. But the bottom line is it's opportunistic.
And we look at it, we've got window period sometimes that get in the way and other things, and it's just -- it is what it is. But, I mean, I think what you said is correct.
Historically, that is part of our business model, and we will buy the stock back. We've got what, 2 million shares now, Jim, currently authorized?
I mean, that will happen.
Operator
Our next question comes from Chris Ceraso with Credit Suisse.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
So just the first one is to clarify, to make sure I'm interpreting your comments about the fourth quarter correctly. You've said that so far in the quarter, revenues are up a little bit, but then you also mentioned that we have one less day than last year.
When I roll that together by the end of the quarter, does that mean revenues will be down a little bit versus fourth quarter last year?
Henry H. Gerkens
Well, a couple of things. What I said was we had one extra week in last year's fourth quarter, okay?
And that accounts for about $25 million to $30 million in revenue, all right? And I think if you took the gross margin, I believe that was 15.8% in the fourth quarter and you just did a simple calculation, that will get you about $0.06 a share is what we calculate as far as an effect on the fourth quarter.
So from a revenue standpoint, it's about $25 million to $30 million of revenue because of the extra week last year and from an earning standpoint, you've got $0.06 that we attribute to that and then you've got another $0.03 tax benefit we had last year from expiring tax positions that became favorable. Is that correct, Jim?
James B. Gattoni
Yes.
Henry H. Gerkens
And net-net, it's about $0.09. Does that answer your question?
Christopher J. Ceraso - Crédit Suisse AG, Research Division
No, I'm sorry, maybe I wasn't clear. I'm speaking just about the revenue, I think you said that so far is quarter revenues were kind of flat versus the same period in last year's fourth quarter.
Henry H. Gerkens
I said they were up. I did say they were up.
I said demand was sluggish, but total revenue is up, pricing is holding better than we anticipated.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
So by the time we get to the end of the quarter, if we're on that same path but then we adjust for the $25 million of extra revenue you had a year ago, do we end up down in terms of revenue year-over-year fourth quarter?
Henry H. Gerkens
Oh, Jim, is that -- yes.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Okay, just wanted to make sure I was clear on that?
Henry H. Gerkens
Yes. Sorry, I guess I didn't understand, sorry.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Okay. And just as a follow-up, I think you alluded to this, but I know you don't do a lot of housing-related business directly, but do you think that the increase in housing is tightening the flatbed market and that's spilling over and helping you with pricing in flats?
Henry H. Gerkens
Yes, I think what's really helping us in the pricing standpoint, I mentioned that the -- you bifurcate the flatbed business into heavy haul and all other heavy haul has been really carrying the day from a pricing standpoint. But, Pat, I mean, do you want to add anything?
Pat O'Malley
No, that that's the case, is the heavy haul piece of the open deck equipment is kind of driving the price piece, Chris.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
And I'm sorry, did you say why heavy haul was strong?
Pat O'Malley
Well if you think about, whether it's power generation projects and to a lesser extent, machinery, we continue to get business in that environment. If you think about the model, the expertise and capacity that Landstar has, the platform arena we're typically the last one that are asked to leave as freight slows down and the first one invited in when freight picks up.
Just because of the complexity of the shipments and our underlying expertise and capacity, we're kind of the leader in that arena. So even if things are slowing down, as I mentioned, we're the last ones to sort of say, "We don't need you anymore."
And we're the first ones invited back in when business picks up in that sector.
Operator
Our next question comes from Scott Group with Wolfe Trahan.
Scott H. Group - Wolfe Trahan & Co.
So, Jim, I think I heard you mention that some of the yield pressure on the brokerage side moderated a little bit in third quarter relative to second quarter. Can you give us a sense if you're seeing that ease a little bit more so far in October.
And then longer term, how do you think about yields on the brokerage side just given some of the increase in competition from these private guys that are growing so fast?
James B. Gattoni
October, I don't know the -- what the rates our PT were paying to the -- at a midpoint through a month. I mean, we just don't have that information available.
We're really just it's more of a load kind of type thing when looking at revenues and that type of stuff. What was -- I'm sorry, what's the second part of your question?
Scott H. Group - Wolfe Trahan & Co.
Yes, just -- I mean, how do you think about those yields longer term? It just feels like it's getting more competitive with some private guys really growing so fast.
And I appreciate a great sense on it in October, would you think that the yield pressure would ease a little bit more in fourth quarter?
Henry H. Gerkens
Henry, yes, I would. I'll answer that direct because I think what you're seeing is the trend because what you've got is as I said, you've got a little bit more sluggish -- demand is a little bit sluggish, so therefore, what you've got is I think you got a little bit better pricing power from that standpoint.
As far as the relationship, as far as the competition, we haven't really seen anything to that -- you've got a lot of guys that are buying up companies, but when you buy up the companies, they were out there before. So it really -- I mean, it's really -- I haven't seen any impact from "additional competition".
James B. Gattoni
We've actually seen the easing in the rate of purchased transportation. Actually, it was -- it eased as it moved from July to August and August and September sequentially.
So the rates came down a little bit each over -- sequentially each month towards the quarter.
Henry H. Gerkens
So again, that's what I said, I would suspect that would continue into October and November.
Scott H. Group - Wolfe Trahan & Co.
That's helpful. And just one last question, Henry, so CH is making a big acquisition, they're buying an international forwarder.
You guys generate great free cash and if you wanted to make acquisitions, you could. Do you think about a big acquisition either internationally or an intermodal to try and jumpstart the growth in one of those segments?
Henry H. Gerkens
Look we think about acquisitions. Again, I think when I look at our model, our model's different than most models that are out there and what I'm looking for, every piece of business we have basically is pushed out to an agent.
We use third-party capacity exclusively. And that usually, from a major acquisition as you just pointed out, usually, will take us away from actually doing anything like that because it usually doesn't fit and I clearly want to save capacity, clearly want agents that I think fit in this particular model.
And as I said many times before, that doesn't mean I wouldn't do anything like that. But right now, we're growing agent by agent, brick by brick, and I think we've been successful at it, we might not be hitting "the grand slam home run" from a revenue standpoint that but from an acquisition, but we've been adding solid revenue with each of our agent additions and that's all we've done and it's not that I can't change that if something were to come up, but I've got to have a couple of things very, very clear and that's it's got to be something that is agent-based and when you get to that point, I think we're better off looking at individual smaller operations than picking off agent at a time.
Again, that's not to say we wouldn't consider something else.
Operator
Our next question comes from Peter Nesvold with Jefferies.
H. Peter Nesvold - Jefferies & Company, Inc., Research Division
I just want to make sure I understood right because insurance and claims was on the low side last quarter and I thought the math that we're supposed to run with was that insurance and claims are typically 3% to 3.5% of BCO revenue. But when I apply that to the BCO revenue this quarter that would have been 11.6% but it came out as 8%.
Did I -- were my notes wrong or was there something else that explain the variance this quarter?
James B. Gattoni
No, that's kind of how you look at it but the 3%, 3.5% is related 10-year average and we did better than that and then we have a very little bit of favorable development. It just turns out to be it was a safe quarter from a BCO standpoint along with the mix of revenue.
But the exact -- but historically, you're probably in the range of that 3%, 3.5%, we just did better and if you're safe, you do better and if you're not safe, you do worse, and it's just a good safe quarter.
H. Peter Nesvold - Jefferies & Company, Inc., Research Division
Okay. And then I know revenue visibility is low right now.
Is there any -- what kind of top line growth is discounted into the EPS range?
Henry H. Gerkens
Peter, nice way of asking that. We didn't give that guidance, Peter.
We'll see.
H. Peter Nesvold - Jefferies & Company, Inc., Research Division
And then the last one, the 10% sequential decline, if I took the midpoint of the range 4Q, 10% sequential decline is lower normally the company puts up. Is there any particular vertical that you're seeing the weakness being more pronounced?
Henry H. Gerkens
When you say 10%, what do you mean?
H. Peter Nesvold - Jefferies & Company, Inc., Research Division
If I did my the math right, I took the midpoint of the range that you have for next quarter, which is what, 63 to 68 versus the 71 you put up this quarter, maybe not quite 10%, but the downtick's sequentially from 3Q to 4Q is more pronounced than we normally would see. And I'm just curious, is it across-the-board that you're seeing the weaker demand or is it...
Henry H. Gerkens
No it's not across-the-board. I think what you've got to understand is that, again, last year, when I look at the -- what occurred last year and I don't have the third quarter numbers versus the fourth quarter numbers, but we had $25 million to $30 million of additional revenue in the quarter and then from an EPS standpoint, you had what I would say $0.09 of -- I hate to use the word items, but things that were of nonrecurring or that we believe are nonrecurring in the fourth quarter.
So therefore, if you took that away from, what was it, $0.70 we did last fourth quarter, Jim?
H. Peter Nesvold - Jefferies & Company, Inc., Research Division
Yes, but I'm trying to look through fourth quarter '11 and just looking traditionally when you went from 3Q to 4Q. It just seems like the downtick this quarter this year putting...
Henry H. Gerkens
I got to tell you, because the fourth quarter, I think that was my third point, it's been historically, if I go back all the way to 2005 and certain people have heard me give this spill, is they've been really the most difficult quarter to project. And I think with what we have going on right now with the uncertainty out there, I think it's prudent basically to be a little bit on the safe side as far as what our projections are.
Operator
Our next question comes from Tom Wadewitz with JPMC.
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
Can you give us -- I don't think you've given us this in terms of, on the call, pricing by month. Just how that trended through the quarter, is that something you can talk about whether driving inside in flatbed?
Henry H. Gerkens
You got that, Jim?
James B. Gattoni
Yes, again, this is just truck. We were...
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
Yes, total truck, that's been...
James B. Gattoni
Yes just total truck. July, August, September, we're basically July flat to prior year, down 2 in August and back flat in September.
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
Okay. And is there any kind of indication of what the first couple of weeks of October looks like up or down or...
Henry H. Gerkens
Yes, I mean, what we said is we think it's like a change. In fact, we double checked some of these things.
If the pricing is up and it's been, I think I've said this already, it really has been driven by increased heavy haul and that has been driving price in the first several weeks, albeit, it's only first several weeks in the fourth quarter, but that's what's been driving price. And it is up.
It's actually reversed. Demand -- if I can say demand, demand as you recall and all throughout the quarter, well, sort of up and down each day, whereas now you've got a little bit more of a steady play in demand and down from that before and but price is now back to where it's more than we anticipated.
And based on what we hear from -- or what we believe, that heavy haul demand is going to continue through the balance of the quarter.
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
So your comment on the positive platform pricing, that's strong enough to drive your total consolidated pricing you're talking about here...
Henry H. Gerkens
Yes, absolutely.
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
Okay, okay. What do you think about supply in the -- supply-demand in marketing.
You're hopeful as I guess I would be as well that you'd see some increase in economic activity post some of this uncertainty. Do you think the market, it will pick up in activity, the market is going to feel tight fairly quickly?
Or do you think that there's enough excess capacity out there that it's going to take a while to feel a little tightness again?
Henry H. Gerkens
You know that's a great question because I think I do think when -- coming out of 2008, 2009 when you had mass excess capacity and not a lot of people have added capacity, I think, nice added capacity, but not a lot of people have added capacity. As a matter of fact, I think when I read one of the other analysts' report, I think I thought I read that September or whatever was, we had more people going out of business than, and not small, not a large amount, but there was more people going out of business than we've seen of recent.
I got to believe capacity is still pretty tight and if you get any sort of economic boom or economic pickup or confidence or whatever, I got to believe you get right back to a very strong pricing environment.
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
Okay, you think that's true for both driving and flat?
Henry H. Gerkens
Yes. More so probably from flatbed side, but yes.
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
Even more so on flat. Okay.
Operator
Our next question comes from Scott Schneeberger with Oppenheimer.
Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division
Can I follow-up just on flatbed or un-sided or however you want to frame it? It seems like that's been consistent on recent calls that, that's the strong part of the business.
Is that moving a lot in the mix? I think, historically, you've said maybe 33%, 34%, is that move more than 500 basis points is mix?
Henry H. Gerkens
I don't believe so. Jim?
James B. Gattoni
Yes, we're sitting at -- this third quarter, it's about 36% and in the third quarter of '11 was about 36%, and in the second quarter of 2012 was about 36%. I mean, it's moving point basis points here, it's not moving much.
And not much in those periods.
Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division
Okay, all right. Could I swing it a little bit, $1 million agents, could you give us an update on how that's trending if have you had much turnover those that are on the cusp?
Henry H. Gerkens
Pat?
Pat O'Malley
Scott, no, we haven't had any exceptional turnover and that population of agents has been consistent year-over-year-over-year.
Operator
Our next question comes from Anthony Gallo with Wells Fargo.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
Nice performance given the volatility of the business you have to deal with here. If I look at year-to-date revenue versus last year same period, you're up around a little over $170 million.
And I thought I heard you say about $78 million is from new agents, is that correct?
Henry H. Gerkens
That is correct.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
So is it -- is the right way to think about this, you've got somewhere between $92 million and $93 million of organic growth, it's roughly 5%, does that sound right?
Henry H. Gerkens
That would be correct.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
Okay, great. And then I'll count this as a follow-up.
What was the claims reversal? And is this something you do every quarter or what was the driver behind that?
Henry H. Gerkens
The favorable you're talking about -- what are you talking about, insurance, the favorable comment?
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
I thought Jim said there was a...
Henry H. Gerkens
Yes, he did.
James B. Gattoni
Yes, we true up every quarter. And we actually adjust claims daily based on the fact, I don't know, we know of things changing amongst our claims.
So it is in the third quarter, we do use a third-party actuary to come up with a range of estimated losses and we do that twice a year. We did it this year as we did in the last 15 years.
But, yes, we true up every quarter to what we think the best estimate of what each individual claim is going to experience some losses.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
And what was that dollar amount if you can give it?
James B. Gattoni
I have it.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
I'm just trying to get the run rate for what that number should be.
James B. Gattoni
Yes, I have it. The favorable -- were you looking for the favorable movement in the claims, is that what -- the comment that I've made when I talk about favorable adjustments?
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
Exactly.
James B. Gattoni
That's the number you're looking for? So far this is a year-to-date number and you can get the half year out of our 10-Q from the second quarter, but it's about $1.04 million this year, year-to-date.
Henry H. Gerkens
This is last year.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
So really, the real driver of the insurance benefits here or lower insurance expense is the mix, that's the primary driver of what's going on?
Henry H. Gerkens
Yes, there's 2 things that drive that -- there's actually 3 things that drive your insurance number because when you look at insurance and claims, the premiums are fixed year-to-year, so that stays the same. Then what you've got is the true accidents experienced within the quarter and that was good.
You've got a change in mix, all right, which we obviously had a lot more brokerage this time than we had in the prior one. And then you've got what happened to existing case reserves.
So those are the 3 pieces and the 2 big drivers really were the change in mix and the -- Jim, I believe -- well, I know we had a safe quarter so I guess it's the safety quarter.
James B. Gattoni
Yes, we were favorable on current-year claims by $0.5 million or so and then again, the favorable development of $1 million. And then the rest of it is just the results of the quarters.
And that kind of explains compared to where we were last year.
Operator
Our next question comes from David Campbell with Thompson, Davis.
David P. Campbell - Thompson, Davis & Company
Just trying to understand the number of weeks of the year, the one less week in the fourth quarter for 2012, but what about the total weeks for the year, is that different as well?
Henry H. Gerkens
Yes.
James B. Gattoni
Yes, last year we had 53 and this year it's 52. It's all because we have on the last Saturday of December and last year the last Saturday of December 31 we picked up the extra week, just the way it works out.
And this year, the next couple of years will be a 52-week year.
David P. Campbell - Thompson, Davis & Company
So 2013, we're 52, same number of weeks we had in 2012?
James B. Gattoni
Yes.
Henry H. Gerkens
Correct.
Operator
Our next question comes from Ryan Bouchard with Avondale Partners.
Ryan T. Bouchard - Avondale Partners, LLC, Research Division
Wondering if your guidance assumes any certain GDP or ISM estimates for the fourth quarter? And if so, if you'd be able to share those with us?
Henry H. Gerkens
The answer to that is, no. Jim, I'm...
James B. Gattoni
We generally do that when we're looking for longer-term, projecting out more than '12, than the quarter. Most of our stuff is really knowing what's going on in our business in the last 3 weeks or go actually back 6 to 8 weeks, and those really what we're looking at, more than what's going on in the IP index.
Ryan T. Bouchard - Avondale Partners, LLC, Research Division
Okay, second question is what percentage of your brokerage business is fixed margin? It's been a while since you've given us that figure and I can back into it from some of the 10-Qs, but do you have that number for this quarter?
James B. Gattoni
Yes, I do, just give me a second. For the quarter, it was 9%.
Operator
Our next question comes from Matt Young with Morningstar.
Matthew Young - Morningstar Inc., Research Division
Just a quick follow-up on the capacity side. I think if I have this right, I think you said in the past that about 20% of potential BCOs qualify for the network.
Has that mix changed at all given the regulatory pressures over the last year or so?
Henry H. Gerkens
Joe?
Joseph J. Beacom
Not really. Actually, because we've gone to a little bit more of an online type qualification process, it may have eked up a little bit more.
You might be a little bit north of 20% but not significantly north of that number.
Matthew Young - Morningstar Inc., Research Division
Okay. Excuse me, if I missed it, but did you guys comment on the fee-based supply chain business at all?
How is that trending?
Henry H. Gerkens
I think, I didn't specifically comment on that, but I think when you talk about supply chain and what we were doing, and someone asked this question before about incremental brokerage revenue, organic revenue growth, a lot of that stuff is driven, and I said that what you're going to do to start to see the stuff come through in freight by, because we've got -- and that's the driver of what we're trying to do right now. And so that has been -- we've had successes in that, and that's what's driving some of the growth in that organic type business in the brokerage world.
Operator
Our next question comes from Jack Waldo with Stephens Inc.
Jack Waldo - Stephens Inc., Research Division
I wanted to ask, you guys have done a great job reaching your net operating margin goal, I guess its 45%. Have you revised that goal at all?
Henry H. Gerkens
No, I think I've -- think when we first hit our thing in the first quarter, I think I got that question for the first time, what's your new goal? And my response is the same, when we do our fourth quarter call, we will -- I will provide new goals as far as where we're going to try to take that margin.
Operator
Our next question comes from Ben Hartford with Baird.
Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division
I guess just real quick, you've talked about 39% or so of your revenue being generated by flatbed-related equipment. Can we break that down within the BCO component and brokerage, what is the flatbed component -- the flatbed -- what the component in both of those verticals?
Henry H. Gerkens
Jim can get that for you, and while he's doing that, I was in your presentation at the automotive summit, by the way. I don't know if you knew I was in the audience but...
Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division
I did not. That's good.
Hopefully you learned something?
Henry H. Gerkens
I always learn something everyday, even at my age.
James B. Gattoni
It's pretty close to a 50-50 split. BCOs in the third quarter about 53% of flatbed and brokers were the other 47%.
Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division
So if I look at the brokerage business, how much of that revenue is flatbed and similarly on the BCO -- on the brokerage side, how much of that is flatbed/industrial? Just trying to get a sense for what the breakdown is in those 2 components as it relates to flatbed-related equipment?
James B. Gattoni
I'm not sure I followed your question.
Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division
Looking for -- I guess, give it to me this way, the industrial-related revenue generated within the BCO side of the revenue bucket as well as the truck brokerage side? Do you have the breakdown?
Which of then is heavily concentrated?
James B. Gattoni
Yes, I don't know if we have that level of detail within that category.
Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division
Is it fair to assume that it's similarly split, that there isn't -- one isn't disproportionally weighted towards the other?
James B. Gattoni
I believe that, yes.
Operator
Our next question comes from Matt Brooklier with Longbow Research.
Matthew S. Brooklier - Longbow Research LLC
I wanted to dig in a little bit more on the flatbed side. Henry, you mentioned the open deck or whatever you're calling it these days, has felt healthier and specifically from a price perspective, what percentage of your total book of business is that type of equipment and servicing those types of markets?
Henry H. Gerkens
What I did was if you referred to when you talk flatbed, okay, let's talk on side it, because flatbed to us also includes specialized hauling, which is really some of the specialized equipment, and that's the part I was talking about, which really is some Power Generation stuff and that has been up and carrying the whole flatbed area, if you will, or I'd call un-sided. Un-sided flatbed platform, but there's a segment of that called heavy haul that is really specialized equipment that Landstar has got a lot of expertise in and we're hauling a lot of that in the fourth quarter and that's driving and caring that whole segment, if you will.
And as I said there are certain elements within account-specific that flatbed is down. Other flatbed is down.
But in general, if I look at Landstar's business, Landstar's flatbed, as you might refer to it, is actually doing very well in the first several weeks. And is that...
Matthew S. Brooklier - Longbow Research LLC
Okay. I guess my question is of the business that's feeling good now, the heavy haul specialized, how much of that is -- how does that look with respect to your total business, I guess, is the question?
Joseph J. Beacom
The heavy specialized is about 1/3 of the flatbed.
Matthew S. Brooklier - Longbow Research LLC
It's 1/3 of the flatbed?
James B. Gattoni
Of the flatbed, 36% of revenue, 1/3 of that 36%. So that's really heavy haul.
Heavy haul is really, it's either a specialized type of equipment or requires permits or escorts is how we identify what a heavy haul load is.
Edward M. Wolfe - Wolfe Trahan & Co.
Okay so 1/3 of 1/3?
James B. Gattoni
Yes.
Edward M. Wolfe - Wolfe Trahan & Co.
Okay. And I mean, what's your best guess as to what's driving that better demand and better price for I guess, I think, Power Generation and machinery, can you talk about kind of the customers you serve in that market or just your general sense as to why is that market feel better than some of the other flatbed markets?
James B. Gattoni
Well, Matt, I think we'll not give specific customers. We'll give blinds, if you will, but certainly Power Generation, there's a number of projects that are going on, to a lesser extent, machinery.
And, as I mentioned earlier, and I think it bears repeating here, if you look at Landstar and the model and the expertise and the capacity that we have, and then you look at the overall market place and the expertise and capacity that's available in that segment, Landstar is the clear leader in the heavy haul segment. And so, when break starts slowing down in that heavy haul segment, we're the last one to be asked to leave.
And when things pick up, we're the first one invited back in. So we don't see any degradation in that power project business, to a lesser extent, machinery.
But it's really kind of the model itself, if you will, and the expertise and capacity we bring to bear in that segment.
Henry H. Gerkens
I'm going to take one more question, Dory, and then we'll close it up.
Operator
Thank you. Our final question comes from Ryan Bouchard with Avondale Partners.
Ryan T. Bouchard - Avondale Partners, LLC, Research Division
I'll be quick. What do you expect the tax rate to be in the fourth quarter?
You talked about 1 year ago being favorable tax treatment, and I'll leave it at that.
James B. Gattoni
The estimates, just use our effective rate of 38.2% is basically what we've been running like in the third quarter. There's a potential for having another maybe a favorable but benefit in the fourth quarter, I just didn't include it.
It's somewhere less than what we have last year at this point, but until we wrap up the year, it's tough to really calculate that number. But I'm expecting something that's not to the extent of last year, but if that's not included in the estimate we put out.
Operator
And at this time, I'm showing no further questions. I'll turn it back to you, sir, for closing remarks.
Henry H. Gerkens
Thanks, Dory, anybody here have anything? No.
I think my only closing remark is, again, I think it was a very good third quarter I think we are looking forward to the fourth quarter. As I said before, I think once some of this uncertainty gets resolved, I really believe things are poised to take off and I really believe that our elected officials will do the right thing and resolve this thing.
But any event, I'll look forward to talking to you guys on our fourth quarter or our third -- fourth quarter mid-quarter update call. Thanks.
Have a great afternoon.
Operator
Thank you for joining the conference call today. Have a good afternoon.
Please disconnect your lines at this time.