Apr 25, 2013
Executives
Henry H. Gerkens - Chairman, Chief Executive Officer, President, Member of Strategic Planning Committee and Member of Safety & Risk Committee Pat O'Malley - President-Landstar Carrier Group James B.
Gattoni - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Joseph J. Beacom - Chief Safety & Operations Officer and Vice President
Analysts
Scott H. Group - Wolfe Trahan & Co.
William J. Greene - Morgan Stanley, Research Division Christopher J.
Ceraso - Crédit Suisse AG, Research Division Justin B. Yagerman - Deutsche Bank AG, Research Division Christopher Harrell Jack Atkins - Stephens Inc., Research Division Todd C.
Fowler - KeyBanc Capital Markets Inc., Research Division Scott A. Schneeberger - Oppenheimer & Co.
Inc., Research Division Thomas S. Albrecht - BB&T Capital Markets, Research Division Anthony P.
Gallo - Wells Fargo Securities, LLC, Research Division Ryan T. Bouchard - Avondale Partners, LLC, Research Division David P.
Campbell - Thompson, Davis & Company David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division Matthew S.
Brooklier - Longbow Research LLC Alexander Johnson Alexander K. Johnson - JP Morgan Chase & Co, Research Division Matthew Young - Morningstar Inc., Research Division
Operator
Good afternoon, and welcome to Landstar System Incorporated's First Quarter 2013 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, Executive Vice President and CFO; 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, Brad, and good afternoon and welcome to the 2013 First Quarter Earnings Conference Call. [Operator Instructions] 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 risks including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2012 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.
In our 2013 first quarter mid-quarter update call, I stated that revenue for the 2013 first quarter would likely be a little shy of the 2012 first quarter revenue, and that diluted earnings per share could also be a little shy of the 2012 first quarter diluted earnings per share amount. Overall, revenue for the first quarter of 2013 compared to the first quarter of 2012 declined a little more than 3%.
On a monthly basis, revenue for January 2013 versus January 2012 declined approximately 5%. February -- revenue for February 2013 versus February 2012 declined almost 1%.
And revenue for March 2013 versus March 2012 declined 3.5%. Revenue for March of 2013 did not accelerate as we had anticipated and, as such, was a bit disappointing.
All that being said, the 2013 first quarter revenue performance was the second best first quarter revenue performance in Landstar's 25-year history, second only to 2012, a tough comp. Earnings per diluted share finished at $0.57 per diluted share for the 2013 week period, the same as the 2012 13-week period.
Let's talk a little bit more about revenue. Consolidated revenue to the 2013 first quarter was approximately $628 million down, approximately $21 million or 3.2% from revenue generated in the 2012 first quarter.
But as I said, it was the second best revenue performance in Landstar history. The decrease was driven by slower demand in Landstar's industrial-based accounts, and in particular, in the heavy specialized truckload sector.
Landstar's 2013 first quarter revenue, that is classified in the machinery commodity group, declined over $30.5 million versus the 2012 first quarter and more than accounted for the lower revenue versus the 2012 first quarter. As an example, revenue from our largest wind energy shipper was down $15 million or over 60% quarter-over-quarter.
Additionally, revenue generated from new agent additions represented 2.2% of total revenue in the 2013 first quarter versus our historical new agent revenue run rate of between 3% and 6% of revenue. Pat O'Malley will talk a little bit more about this later.
From a revenue -- from a service offering standpoint, total revenue from truck transportation for the 2013 first quarter declined 4% from the 2012 first quarter. The decline was from an approximately 1% decrease in load volume and an approximate 3% decrease in revenue per load.
The revenue generated through our platform equipment service offering in the 2013 first quarter declined 9% compared to the 2012 first quarter, 4% due to lower load volume and 5% due to lower revenue per load. Total revenue generated through our van equipment service offering was 2% lower in the 2013 first quarter versus the 2012 first quarter due to a 3% decrease in load volume, partially offset by a slight increase in revenue per load.
And revenue from our relatively new approach to our LTL service offering contributed a total of approximately $18 million to the 2013 first quarter versus $15 million in the 2012 first quarter, an approximate 20% increase. And I might add, as a truck offering, the bulk of our agents are very comfortable selling this service, and I believe we will see continued growth in this offering.
Pat is also going to talk about this service offering a little later. Total revenue generated from rail intermodal service increased 4% in the 2013 first quarter over 2012 first quarter, while revenue generated through ocean cargo and air cargo providers increased 19% quarter-over-quarter and although of a much smaller revenue base, it, nonetheless, reversed some of the negative trends experienced in recent quarters in these service offerings.
From a new agent revenue standpoint, revenue generated from all new agent locations added over the past year amounted to $14 million in the 2013 first quarter, lower than our recent historical run rate, but this is just due to timing of new agent additions, and I anticipate the amount to be much higher as we move into the back half of the year. Before I leave revenue, a couple of thoughts as it relates our first quarter revenue performance and revenue for the balance of the year.
Comps become easier in the back half of 2013. April load volume trends have not accelerated.
In fact, they have decelerated slightly. On the other hand, revenue per load trends in April have been slightly positive.
Some of the wind power generation business should start to re-accelerate starting late in the second quarter, and new agent revenue should be stronger starting in the 2013 third quarter. At this point, I'm going to ask Pat O'Malley to talk about our LTL service offering and our new agent additions.
Pat?
Pat O'Malley
Thank you, Henry. Although Landstar has historically participated, to a small degree, in the LTL market, beginning in August 2011, we increased our emphasis on this service offering by implementing an easy-to-use capacity procurement tool, established standard rates with LTL carriers and work with our agents to identify customer opportunities.
As such, LTL volumes have increased over 20% in the first quarter of 2013 compared to the first quarter the previous year. As Henry mentioned, most of our sales staff and many agents have a background in LTL and are comfortable selling the product.
From the perspective of the LTL carrier base, Landstar's business model, diverse agent population and large customer base represents an attractive variable cost sales channel. In addition, virtually every existing Landstar truckload customer has some LTL business.
This gives Landstar and our agents an additional revenue stream inside our existing account base. Finally, having this service offering exposes Landstar to another group of potential agents.
Now, Henry had talked about our new agent revenue performance. As a reminder, a new agent in the 2013 first quarter represents an agent who had contracted with Landstar after January 1, 2012.
As Henry stated, new agent revenue in the 2013 first quarter was 2.2% of revenue, below the historic range of 3% to 6%. We continue to believe the challenges for small independent brokers are many and difficult to solve without outside support.
Whether it's access to capital, cash flow, tight capacity, inferior systems or the increase in the minimum surety bond requirement from $10,000 to $75,000, this segment of the population is fertile ground to recruit productive new agents. The Landstar agent recruiting department and field staff have done a good job of seeding our pipeline with quality new agent prospects.
Although the number of new agents add in the first quarter 2013 declined slightly year-over-year, the average revenue per new agent per week nearly doubled to over $10,000, near an all-time high. We believe that our recruiting strategies, business environment and systems will help us maintain the momentum in adding productive new agents through the balance of the year.
Henry?
Henry H. Gerkens
Thanks, Pat. Our gross margin in 2013 first quarter was 16.3% versus 16.3% in the 2012 first quarter.
Our operating margin in the 2013 first quarter was 42.3% versus 40.8% in the 2012 first quarter. Jim is going to talk more about our P&L in a few minutes.
As it relates to truck capacity, we ended the seasonally slower 2013 first quarter with a total capacity base of 39,622 compared to 36,153 capacity providers at the end of the 2012 first quarter, and 39,555 capacity providers at the end of the fiscal 2012 year. As an update, over 1,800 electronic onboard recorders have either been ordered by or installed on our BCO capacity.
And with that, I'm going to turn it over to Jim for his review of the P&L.
James B. Gattoni
Thanks, Henry. Henry has already discussed certain information in our 2013 first quarter release.
I will cover various other detailed financial information included in that release. Gross profit representing revenue less the cost of purchased transportation and commissions to agents was $102.6 million, or 16.3% of revenue in the 2013 first quarter compared to $105.9 million or 16.3% of revenue in the 2012 first quarter.
The decrease in gross profit was generally due to lower revenue hauled on, on-site [ph] platform equipment in the 2013 first quarter compared to the 2012 first quarter. The cost of purchased transportation was 75.9% of revenue in both the 2013 and 2012 first quarters.
Revenue contributed by truck brokerage carriers, which has a higher rate of purchased transportation, was 43% of revenue in the 2013 first quarter and 42% of revenue in the 2012 first quarter. The rate of purchased transportation paid to truck brokerage carriers in the 2013 first quarter was 10 basis points lower than the rate paid in both the 2012 fourth quarters and the 2012 first quarter.
Commissions to agents was 7.8% of revenue in the 2013 first quarter compared to 7.7% of revenue in the 2012 first quarter. The increase in the rate of commissions paid to agents was primarily due to a change in revenue mix as BCO revenue, which has a lower rate of commissions to agents as compared with other modes of transportation, was 48% of revenue in the 2013 first quarter compared to 51% of revenue in the 2012 first quarter.
Other operating costs were 5.2% of gross profit in the 2013 quarter compared to 6.1% in the 2012 quarter. This decrease was due to gains on sales of traveling equipment of $600,000 in 2013 first quarter compared to $200,000 in the 2012 first quarter and lower maintenance cost on company-owned trailing equipment compared to the 2012 first quarter.
Insurance and claim costs were 11.5% of gross profit in the 2013 quarter compared to 10.5% in the 2012 quarter. The increase in insurance and claims as a percent of gross profit was primarily attributable to unfavorable development of prior year claims of $2.4 million that was primarily attributable to 1 claim in the 2013 first quarter compared to $750,000 unfavorable development of prior claims in 2012 first quarter.
Also, insurance and claims expense was 3.9% of BCO revenue in the 2013 first quarter compared to 3.4% of BCO revenue in the 2012 first quarter. Both higher than the average insurance and claims expense of 3.3% experienced over the previous 5 years.
Selling, general and administrative cost were 34.3% of gross profit in the 2013 first quarter and 36.6% of gross profit in the 2012 first quarter. The decrease in selling, general and administrative costs as a percent of gross profit was primarily attributable to the cost associated with the company's annual agent meeting, which was held during the second quarter of 2013 but held in the first quarter of 2012, and a decreased provision for bonuses under the company's incentive compensation program in the 2013 first quarter, partially offset by increased wages in the 2013 first quarter.
Depreciation and amortization was 7% of gross profit in the 2013 first quarter compared to 6.4% in the 2012 first quarter. This increase was due to the effective lower gross profit in the 2013 first quarter, and increased appreciation of trailing equipment as we replaced older, fully-depreciated equipment with new equipment.
Investment income was $374,000 in the 2013 quarter compared to $387,000 in the 2012 period. The effective income tax rate was 37.3% in the 2013 first quarter compared to 36.7% in the 2012 first quarter.
The effective income tax rate in both quarters was reduced by tax benefits recognized by the company on the exercise of incentive stock options of $375,000 in the 2013 first quarter compared to $630,000 in the 2012 first quarter. In general, the company's effective income tax rate was 38.2% in both periods before the tax benefits recognized on the exercise of incentive stock options.
Operating income was $43 million in both the 2013 and 2012 first quarters. Operating margin, representing operating income over gross profit, increased to 42.3% in the 2013 first quarter from 40.8% at 2012 first quarter.
Excluding impact of the timing of the annual agent meeting from the 2012 first quarter, 2012 first quarter operating margin would have been similar to the 2013 first quarter operating margin. Although gross profit was 3% lower in the 2013 first quarter compared to the 2012 first quarter, the company was able to maintain its operating margin generally due to the variable nature of its incentive compensation programs.
Looking at our balance sheet, we ended the quarter with cash and short-term investments of $140 million. 2013 first quarter cash flow from operations was $53 million.
Cash capital expenditures was $1.7 million in the 2013 first quarter. Trailing 12-month return on share -- average shareholders' equity was 35% and trailing 12-month return on invested capital, representing net income divided by the sum of average equity plus average debt, was 27%.
At March 30, 2013, shareholders' equity represented 80% of total capitalization. Back to, you Henry.
Henry H. Gerkens
Thanks, Jim. Through the first several weeks of the 2013 second quarter, there has been no real meaningful change in revenue trends, load volumes from truck transportation continued to be lower compared to the load volumes in the same period in 2012, and as I said before, has deteriorated a bit from what Landstar experienced towards the end of the first quarter of 2013.
Revenue per load trends, however, are slightly positive. Right now, based only on a continuation of our current revenue trends, I see the second quarter of 2013, when compared to the second quarter of 2012, playing out very similar to how the 2013 first quarter compared to the 2012 first quarter.
As such, I anticipate 2013 second quarter consolidated revenue to be slightly lower than the 2012 second quarter revenue, say, in a 2% to 4% range, and I anticipate 2013 second quarter diluted earnings per share to be in the range of $0.68 to $0.73. It should be noted that the previously mentioned range of diluted earnings per share estimates for the 2013 second quarter reflect the negative impact from the approximate $0.03 per diluted share charge relating to our annual agent convention, which normally is a first quarter event, and a normalized run rate of insurance claims expense.
I'm going to turn it back to Jim for a little bit, just to review the forecast or the estimates.
James B. Gattoni
Just to highlight a few items from our second quarter projection as it relates to the 2012 second quarter actual, we reported gains on sales of trailing equipment in the 2012 second quarter of $1.8 million. We are currently projecting gains of only $400,000 in the 2013 second quarter.
Also, insurance and claim costs was 2.5% of BCO revenue in the 2012 second quarter, well below the previous 5-year average of 3.3%. We have included a normalized insurance and claims expense in our 2013 projection, an amount more representative of the 5-year average.
And the annual agent convention was held in 2013 second quarter resulting in an unfavorable comparison to 2012 second quarter of approximately $2 million.
Henry H. Gerkens
Thanks, Jim. In summary, still believe there exists weakness within certain sectors of the economy, especially with the manufacturing and industrial-based shippers.
Landstar's annual revenue goal of $3 billion in 2013 remains our goal. However, the achievement of such goal depends, in large part, on a recovery in our industrial-based accounts in the back half of the year.
And with that, Brad, we'll open it up for questions.
Operator
[Operator Instructions] Our first question will come from Scott Group of Wolfe Trahan.
Scott H. Group - Wolfe Trahan & Co.
So why don't you just start, Henry, with the BCO count that fell a little bit sequentially and was pretty flat year-over-year? What do you think is driving that pressure?
Is it the rollout of EOBR? Is it something else?
What are you doing to start growing the BCO count a little bit more?
Henry H. Gerkens
Joe, you want to...
Joseph J. Beacom
Sure. Scott, as we've said before in the first quarter, we typically do see a decline.
We saw a decline starting in the fourth quarter of 2012. We thought that, that was, in part, due to the initiation of our on-board recorder program, and that still could be having some impact.
But typically, in the first quarter, we see a decline, and so far, through the first 3 weeks of April, we've already seen that turn to a positive, which we typically do. But all the same, advertising programs and different on-boarding programs that we have are intact and mature, and we believe that they will continue to be successful in a pretty tough recruiting environment.
Scott H. Group - Wolfe Trahan & Co.
Okay. So Henry, to get to $3 billion of revenue for the year, we kind of -- we'll need at least double-digit growth in the third and fourth quarter.
How do we get there? Is it -- how do you think about the mix of volume and pricing to get there in the back half of the year?
Henry H. Gerkens
I gave you the one commodity group that was down significantly in the first quarter, and we see that continuing through much of the second quarter, which is a machinery commodity group. We need that to rebound.
We need a rebound in our industrial-based accounts. I mean, as everybody knows, we're 35% flatbed heavy haul combination and that needs to recover.
And that's, again, what I said in my closing comments, if we don't start to see a recovery in that, in the back half of the year, that $3 billion goal is in jeopardy. On the other hand, if that recovers and it recovers nicely, I think that's clearly attainable.
And that remains our goal, is to try to be that $3 billion -- be at that $3-billion mark at the end of the year. But again, I caution, to achieve that, I've got to have a recovery in our industrial manufacturing-based accounts.
And right now, as I said, we went through the first quarter, we've seen through the first couple of weeks of the second quarter, haven't really seen much change. Now, we do know from a progression standpoint, based on what our largest wind energy customers told us, we expect the trend in 2013 to start to move up now.
We'll see what happens in the back half of the year.
Scott H. Group - Wolfe Trahan & Co.
Okay. And just last one and then I'll pass it off.
Can you talk about the brokerage gross yields and what you saw in the first quarter and what you're seeing so far in the second quarter?
Henry H. Gerkens
Jim?
James B. Gattoni
Give me a second.
Scott H. Group - Wolfe Trahan & Co.
You can -- I can pass that to someone. And whenever you have that Jim, you could just...
Henry H. Gerkens
[indiscernible] back to Suzie to -- [ph] gets the numbers.
Operator
Our next question will come from William Greene of Morgan Stanley.
William J. Greene - Morgan Stanley, Research Division
Henry, I have -- I hear you on the economy, so I was thinking about 2 other things here. And I was trying to think about what are avenues of growth you could pursue that perhaps you haven't thought about before, haven't spent the time to invest in?
And I was thinking about 2 areas. One, I was thinking about could the Landstar model work in other markets?
So could it work in Europe or in Asia? Do you ever think about that?
And then the second part of that question then is, could -- can you use the Landstar model to get into parts of the market? Or is it only driven by the agents?
In other words, we hear so much about shale plays, and in the past, you've said, "We don't really play there that much." But it would seem there may be a lot of growth there that maybe that's a way to direct the business to tap into secular growth and be less dependent then on macro.
How do you think about that?
Henry H. Gerkens
It's interesting because a lot of our stuff is -- let me deal with the first question. Yes, we thought about Asia, we thought about Europe.
In fact, we've done some investigation and -- we've made the determination that at this point we were going to concentrate on basically, North America, if you will, as that's a very large market. And again, our model is extremely -- it's different.
We do have a couple of agencies that are satellite offices of agents that we currently have with us. So we are, let's say, testing Europe.
We've got an office or a satellite in London, I believe, and in Denmark and -- that at this point. So we are looking at that.
Everybody talks about China. I got to be perfectly frank.
I just am a little bit leery about doing business in a communist country, so I think we've sort of backed away from that and that's just -- we'll see where we go with that. As far as attacking different markets, one of the things that -- service offerings, for example, and -- our agents are actually the linchpin to our model.
So a lot of things we do, we've got to get our agents involved. What we've tried to do is expand our service offerings, I think Pat mentioned our LTL service offering.
And clearly, our agent family understands truck, and a lot of those guys have backgrounds in LTL to begin with. So we think that's a -- and we haven't talked about that before, because we talk about a lot of things but some things don't take off so we basically left this one a little bit to see how it was going to progress.
And actually, it's progressing pretty nicely at this point in time when you think about the amount of revenue we generated there. It's probably next to truck load.
It's our second largest offering at this point in time. But as far as getting into specific markets, Pat, I mean you've got some ideas on that.
I know that you've done some things.
Pat O'Malley
Bill, I think there's some opportunity. If you look at all the stuff that -- coming back to near shoring, if you will.
We think that there's some opportunities down south of the border. We're exploring some things there that I don't really want to get into the detail on the call about.
There are some other product lines that we have looked at. And they're not worth talking about in specifics right here, but what we look at is anything that's real high-touch, required sophistication.
Those kinds of products, those kinds of product lines, those industries really serve Landstar well because of the agent model and their ability to execute. Lastly, I would tell you that some of the procurement tools that came with the acquisitions have been used to secure capacity -- excuse me, additional shipments from industries we're currently serving.
So I think those are kind of 3 things that we look at to extended into different markets.
Operator
Our next question will come from Chris Ceraso of Credit Suisse.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
I wanted to visit the long-term operating margin target of 50% over the next 3 to 5 years. Do you still think that you'll make progress toward that this year?
I mean, you're down a little bit in Q1. If you adjust for the timing of the meeting, based on the guidance, it looks like you'll be down year-to-year on that measure again in Q2.
Can you improve versus the 45.8% [ph]?
Henry H. Gerkens
Look, our objective is to improve continually. And as I said, you can't take 1, 2 or even 3 quarters and say, "Okay, that's what it is."
Our objective is to be at 50% in a 3 to 5 year timeframe, and I state that with all confidence, that we will be there in that timeframe. That is our objective and that's what we're going to move towards.
Again, I think the falloff in certain accounts that we had, obviously, drove a lot of that falloff in the first quarter, and you're going to see some of that in the second quarter. You saw it rebound a little bit -- back in the third and fourth quarter.
But again, I wouldn't cherry pick 1 quarter versus another quarter as far as what our longer-term objective is because you're going to have ups and downs, and I don't -- I can't manage quarter-to-quarter, I try to manage longer-term.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Okay. And then maybe kind of another long-term question as well, as your brokerage business grows faster than your BCO business over the next few years.
Will you take on some more of the characteristics of the pure play brokerage names such as more volatility in gross margin, general compression in most margin, things that your model has allowed you to kind of sidestep for the past several years?
Henry H. Gerkens
Yes, and we've talked about that. I mean, as my percentage of brokerage grows as it relates to the total revenue, of course, you're going to get -- you're going to be subject to the market conditions, whether it's tight capacity or not.
But the one difference is that all of our brokerage is split within agents. So whatever that up or down might be, it's split within agents.
So whatever happens, it wouldn't be on the upside not as much, on the downside, it wouldn't be as much.
James B. Gattoni
Just a follow-up back on the yield question that came in from Scott. On the brokerage revenue per load.
By month, January it was 2% below prior year, February was 1% below prior year, and March was 7% below prior year. But the thing you need to consider there is remember there's not necessarily that it's a pricing mechanism.
It's partly price, but it also has a little bit to do with mix, whether flat in there, as flatbeds and LTL. So it's a little bit impacted -- the negative trend that we've seen is a little bit negatively impacted by the LTL growth, which has a lower revenue per load.
Henry H. Gerkens
And in addition, I mean, you've got the higher revenue per load is really the wind energy, which was down dramatically. Remember, I mentioned that $30 million decline in machinery.
And I mentioned one customer, our largest wind energy, and that was over half of that decline, which is the largest revenue per load. So I mean -- so that's what drives that comparison.
Operator
Our next question comes from Justin Yagerman of Deutsche Bank.
Justin B. Yagerman - Deutsche Bank AG, Research Division
The wind energy, I mean, that is a very profitable business for you guys. Do you have line of sight to that picking back up?
Or I mean, with nat gas and all the rest? I mean, do you think that, that may continue to fall through a little bit here?
Henry H. Gerkens
Well, from a trend line, it's going to pick up. Last year was very strong.
So I mean, the differential you've got going on in the first quarter, second quarter is pretty big. I mean, you're going to eat into that differential as you move throughout the year.
You'll still have some decline, but from -- it will be a positive as you move through the third and fourth quarter from a trend line compared to the first and second quarter. I think actually, in maybe November, December, I think it actually is positive from a comparative standpoint.
But from a trend standpoint, clearly, it's going to improve.
Justin B. Yagerman - Deutsche Bank AG, Research Division
Okay. And then this LTL business, I just want to make sure I understand it properly.
This is you using existing LTL carriers in a broker carrier type of capacity. This isn't you doing Roadrunner type of business, where you're doing a virtual LTL type of setting, is it?
Pat O'Malley
Justin, correct the first time. Right, we're using the LTL carriers as brokerage capacity.
Christopher Harrell
Got it. Have you given any thought to looking at that model like what Roadrunner does, where they have their agents and they have their pickup and delivery network, and it's kind of a complement to what you guys are doing from a capability standpoint but obviously not exactly what you're doing?
Pat O'Malley
It's something that we haven't looked yet up to this point, Justin.
Justin B. Yagerman - Deutsche Bank AG, Research Division
Okay. And then just last quick question here.
Do you guys own intermodal containers? Do you think about having to own them?
I mean, that seems to be one -- I know you own some trailing equipment in the specialized segment. And then incentivize your agents to cross sell into intermodal, is that something you'd consider?
Henry H. Gerkens
We don't own intermodal containers. One of the issues we have with that is really the tracking of those containers, and we don't.
We've looked at that a number of times as far as whether we should do that or not, and we moved away from that.
Pat O'Malley
Our road trailers, Justin, are specced to be able to go on a railroad. But as you know, it's moving more to container, and we do not own any containers, correct.
Operator
Our next question comes from Jack Atkins of Stephens.
Jack Atkins - Stephens Inc., Research Division
So I guess first off here, to go back to, Pat, your comments earlier about the regulatory environment as it relates to the increase in cash bonding. Just sort of curious, is that sort of the primary driver when you think about agent comp picking up in the second half of the year?
Is that sort of the main driver behind that? Or are there other things also feeding into it?
I would be curious to hear you talk some more about that. And also, do you think that as the regulatory environment, sort of the driving guys, look to affiliate with Landstar, do you think that is going to help increase the amount of sort of average revenue per new agent that you're bringing in here?
Pat O'Malley
The regulatory environment, Jack, is just another piece on top of all the other things that we've talked about that are compelling people to move from being a small broker to seek refuge with someone like Landstar. Okay.
So I think that's just part and parcel of it. Clearly, we receive calls, and we use that as part of our advertising to agent prospects.
We talk about what happens when the surety bond increases. Do we believe that, that will lead to a higher quality of agent, therefore, lead to a higher revenue per agent per week?
Yes. Clearly, we are focused on bringing on productive agent locations.
To do otherwise is kind of folly. When there's so many, we believe, opportunities out there that have existing agents that are looking for a good place to go.
Jack Atkins - Stephens Inc., Research Division
Okay. Great.
That makes a lot of sense. And then Jim, just going back to the commentary on the insurance headwind in the second quarter, if I look back 2012, you guys seemed to have fairly low insurance rates as a percentage of -- not insurance rate -- the insurance expense as a percentage of gross revenue and net revenue for most of the year, I'm just sort of curious if this is going to be a headwind that you're going to face I think in the third and fourth quarter as well?
Or is it just confined in the second quarter?
Henry H. Gerkens
Let me make one comment before Jim responds. First thing.
If you take a look at first quarter, all right, the weather clearly was a lot worse in the first quarter of this year than it was last year, so therefore, that impacted as far as the frequency if you will and some of this severity. When you go into the second quarter, I think Jim alluded to it pretty nicely.
What we factored into our forecast, all right, is the normalized run rate, which is based on a percentage of BCO revenue, which is the way you should always forecast it. We have a very safe second quarter.
That number will be lower. All right.
I mean, but when you look at -- when I look at insurance, I think you've got a forecast in which is what we do, the 5-year average, and that's what is included in that range of EPS. Now can that be better?
Yes. Can it be worse?
Yes. Depends on the frequency and severity of the accidents we have.
But that is the way we would have to look at insurance on a go-forward basis. And we look at it every quarter as far as when we look at what the numbers might be.
And we happen to have been very safe last year in the second and third and fourth quarters and, therefore, the numbers were lower. On the other hand, now we're in 2013 so we are going throw our forecast at basically the average of the last 5 years.
Operator
Our next question will come from Todd Fowler of KeyBanc Capital Markets.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
Can you give an order of magnitude how much was wind energy revenue in the second quarter of '12 and then also in the third and fourth quarter of last year?
Pat O'Malley
I don't have the second and third quarters of last year. I mean our largest account, which is the predominant account, was -- I think it was down $15 million.
Let me just see what the -- I don't have the second and third offhand with me. But the -- bear with me 1 second.
2012 we had -- round figures, we had $21 million of revenue. In the first quarter, we had $6 million basically, is it?
$6 million basically in the first quarter of this year.
Henry H. Gerkens
That's the sort of magnitude we're talking about. Now when I talk about the $30 million decline in equipment, $15 million of it was that one customer, and that's the bulk of our wind energy business.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
Okay. And I guess, so Henry, so it would be safe, I mean -- to me it felt like that the wind energy business would have slowdown in the third and fourth quarter of last year, so maybe a $20 million number from a comparison standpoint, give or take, I mean, in the second quarter of '12 within that number, the comparisons will become easier in the third and fourth quarter?
Henry H. Gerkens
Comparisons become easier all throughout the year. However, it was pretty strong up until you got to the fourth quarter, where it became a little bit weaker.
But that customer tried to basically shove a lot of things through. What we do know is that the orders have picked up, and we do know that the trend line is clearly positive as you move forward on a comparison of the current year quarters.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
And to that planning, it seemed like that, that would get back up to, let's call it, like a $20 million run rate in the third and fourth quarter? Or would it be something less than that?
Henry H. Gerkens
Pat, I mean, you're going to have answer the question. I don't know if we have those numbers.
James B. Gattoni
Todd, we don't have it by quarter. And the first quarter, obviously, was lower this year than it was last year.
We were -- we did about $60 million, $65 million last year, and we're projecting about half of that for the remainder of the year.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
Okay. That definitely helps.
The second one I had, is just when I look at the BCO productivity in the quarter, so the number of BCO loads divided by the BCO counts, it was down somewhere in the mid-single digit type range. Is some of that related to the electronic onboard recorders?
Or is most of that the machinery movements? And I guess if you have any sort of color or commentary around the BCO productivity, that would be helpful.
Pat O'Malley
Todd, I think you can look at a couple of things. I think they had a pretty decent 2012.
And I think our BCOs, the platform BCOs clearly were probably a little bit less busy in the first quarter than they would have been a year ago. And I also think you factor in a little bit of the weather.
Our guys, typically one truck at that time, own their own equipment. They're pretty cautious when it comes to operating in bad weather, so I think you've probably got a factor in a little bit of that as well in the first quarter.
Operator
Our next question will come from Scott Schneeberger of Oppenheimer.
Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division
Could you speak at all to weather in the quarter and any impact as well as the number of days and any readthrough on those 2 factors?
Henry H. Gerkens
Well, I'd tell you, the weather caused a lot of business to be choppy. I mean, I believe there was 2 less working days.
Is that right, Jim? It was 2?
James B. Gattoni
Two. Yes, full working days.
Henry H. Gerkens
Two full working days in the first quarter here. And yes, to try to quantify our revenue as it relates to that, I mean, I'd be -- I wouldn't want to throw a number out.
But clearly, they impacted. Two days always would impact.
And then obviously, the weather, I think, has some impact because it literally -- the weather was bad in the first quarter. But for me to place a number on that, it's kind of hard to do.
Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division
All right. And outside of the wind vertical, just if we look at industrial x that, could you give us a taste of what the business environment is?
Henry H. Gerkens
Yes, no problem. I mean, how many guys heard Caterpillar's report?
I mean, Caterpillar is in that equipment or machinery thing. I think it's our second largest customer, all right?
So that was down. John Deere was down.
I mean, so you've got -- again those customers dealing with flatbed type stuff and -- that was impacted. And as I said, I mean, that one commodity group was all basically -- more than all of the total revenue decline.
It was over $30 million. And so I mean, I tried to point that out.
I mean, that's literally where it was.
Operator
Our next question comes from Tom Albrecht of BB&T.
Thomas S. Albrecht - BB&T Capital Markets, Research Division
Two other questions. So on the LTL brokerage effort, you gave some growth rates.
But what was the approximate size of that, either in the quarter or if you took the quarter and annualize that run rate?
James B. Gattoni
Yes. For the quarter, it was 9% of the truck volume, so the BCO brokerage.
And it's all sitting in brokerage, so that's what the LTL was for the quarter -- of loadings, about revenue.
Thomas S. Albrecht - BB&T Capital Markets, Research Division
And then appliances. How did that category do, Henry?
I mean we're all trying to figure that out. Some of that could be housing.
Some of it could be just catch-up old appliances. I think it's 12% to 15% of your revenues in a lot of years.
Henry H. Gerkens
That one, I got that right here. Appliances and furniture were 15% -- yes, I got that right first -- no that's 2012.
Sorry, I got the wrong one. You've got that number, Jim.
James B. Gattoni
Yes. The appliances and furniture is up 3% compared to last year during the quarter.
Relative to flat, I mean, it wasn't impressive.
Thomas S. Albrecht - BB&T Capital Markets, Research Division
It's a positive number, right?
James B. Gattoni
That was positive. Plus 3.
Henry H. Gerkens
Jim considers anything below 10 flat.
Operator
Our next question will come from Anthony Gallo of Wells Fargo.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
Jim, I wanted to go back to the insurance number, if I could. I thought I heard you say there was $2.4 million.
Was that unusual or prior year claim that hit the first quarter?
James B. Gattoni
It's an adjustment to our prior year claim due to a change in tax. So we are aware of the claim.
We have put some up a little bit on the claim, and it turned unfavorable on us during the quarter. So most of that $2.4 million came from one specific incident.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
Perfect. And then that same category in the first quarter of 2012, was -- did you say $700,000 or $750,000?
James B. Gattoni
$750,000.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
Okay. Were there any other prior year bumps in 2012?
And if so, what were they during the quarters?
James B. Gattoni
That's all. If you look in the critical accounting areas in our 10-Qs, it's just each number is specifically disclosed, so you can actually pull that data out.
Operator
Our next question will come from Ryan Bouchard of Avondale Partners.
Ryan T. Bouchard - Avondale Partners, LLC, Research Division
So you've said that the BCO count is trending back up in the second quarter. Can you give us an idea of how much you've seen come back or what the increase is so far?
Joseph J. Beacom
Well, through the first 3 weeks, we're positive by a pretty small number, but it's positive. January, February, March were all negative, and that's pretty normal.
Through the first 3 weeks of April, it's a little bit better than breakeven. But that's, again, a good sign and typical of our prior years.
Ryan T. Bouchard - Avondale Partners, LLC, Research Division
Okay. And then I apologize if you covered this before.
I wasn't able to catch everything you said about the wind power customers. But I know in the past, you've said that you kind of expect them to come back on the May.
Is that -- is any of that factored into your EPS estimate for the coming quarter? Or have you factored in...
Henry H. Gerkens
I think it is. I think the bulk of the trend increase that we see quarter -- first quarter, second quarter, third quarter, again the bulk of that improvement, if you will, is going to be in the third and fourth quarter.
But yes, it is factored into the second quarter estimates.
Operator
Our next question will come from David Campbell of Thompson & Davis Company (sic) [Thompson, Davis & Company]
David P. Campbell - Thompson, Davis & Company
I know you don't report agent locations, but can you say whether they were up or down in the first quarter and what you may happen in the second quarter on agent locations?
Henry H. Gerkens
Well, as you said, we don't report agent locations. I think what Pat had alluded to is that from a productive quality agent recruiting standpoint, the number of agents recruited in the first quarter of this year was a little bit -- was slightly lower than we had last year.
But from a productivity standpoint, I think the number Pat quoted was $10,000 per week per agent added, which is -- is that correct, Pat?
Pat O'Malley
So for us, David, it's really not about the number of agents, although it's important that each agent you bring on is productive. So we don't look at the number of agents as much as we look at how productive those agents are.
What Henry said is correct. We were slightly below the previous year in the number but the productivity of those agents is almost double what we had in the first quarter of 2013 -- or excuse me, 2012.
I apologize.
Henry H. Gerkens
That's the only thing, David, that you're looking at because what you want to do is drive revenue. It's not a location count, it's like -- it's the revenue piece.
David P. Campbell - Thompson, Davis & Company
Then you expect the same sort of trend to happen in the second quarter?
Henry H. Gerkens
We are -- we believe that, that trend will continue for the balance of the year, correct.
Operator
Our next question will come from David Tamberrino of Stifel.
David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division
Took -- take a look at the balance sheet, it looks like you guys are back to kind of a net debt positive, so you have a pretty large cash balance and you haven't necessarily been ramping your share repurchase activity. I just wanted to know kind of what your plans were for the rest of the year, taking a look at where you've worked your debt balance to and where cash is and then in relation to your second quarter '13 guidance, how much share repurchase activity you're assuming?
James B. Gattoni
I didn't project any, not that we wouldn't do it, but I didn't project any share repurchase into the second quarter. Yes, we hadn't been in the market for a little bit of time.
And it really -- we're just being opportunistic. But it wasn't purposeful, but I would expect that you'd see us act like we have in the past historically and not based on the recent activity you've seen.
We didn't buy anything in the first quarter, but we are not unwilling to ride the revolver up in the event we see an opportunity.
David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And then one of the things I kind of took away from the agent convention earlier this year, obviously, Landstar's had a pretty long and impressive history.
But the thought crossed my mind as to kind of the average age of your different agents and your agent locations and if you track kind of how old the owners of those businesses have grown and what kind of the average age of your agents are.
Henry H. Gerkens
David, since [ph] you actually say that, because as you were there, we brought back some of the older guy -- older people sort of like an old-timer's day, if you will, as far as bringing back some of the people who basically brought this company together. And I got a thank you note from the first CEO here, John Bowron, who basically said that -- I'm just going to quote, "It was also gratifying to see the second and third generations of the agent family now participating in the business."
And I think that's key because that is what we do, and that's what our agents do. It's basically trans -- moving the business to the younger group, and I can cite a number of agents that have done that.
I mean, we've got one of our big agents in Pittsburgh. We just had a call from the guy who's operating it now.
But on the other hand, the guy who built that business is sort of semi-retired. We've got 2 guys in Hagerstown.
Their kids run the business now. And we've got story upon story upon story like that.
The model stays, and I think we have transitioned the business. And obviously, John had recognized that right away as far as when he was down at that convention.
Operator
Our next question will come from Matt Brooklier of Longbow Research.
Matthew S. Brooklier - Longbow Research LLC
I wanted to get a feel for what you're seeing within your building products category. I think that's roughly maybe 9% to 10% of your book of business, and I think half of that is flatbed.
I'm just curious to see if we're seeing improving trends there?
Henry H. Gerkens
Go ahead, Jim.
James B. Gattoni
Yes. We're showing 11% growth there, but we added 2 rather sizable new customers in that category, too.
So it's not just growth from our existing customer base. There's growth coming in from 2 new customers in there.
So I mean, if you -- I can do the math on that and tell you that without those 2 new customers, yes, we are 6% or 7%.
Matthew S. Brooklier - Longbow Research LLC
Okay. Still a pretty healthy number.
And do you know what that number was in the fourth quarter of '12?
James B. Gattoni
What the growth was?
Matthew S. Brooklier - Longbow Research LLC
Yes, what the year-over-year growth was in the fourth quarter of '12.
James B. Gattoni
I have just to go somewhere else. But if you've got another question, I'll answer that.
Henry H. Gerkens
He's staying here. He's got to go to another book.
Matthew S. Brooklier - Longbow Research LLC
Okay. And just -- I'm not sure if we touched on it, but have you guys provided an update in terms of your CapEx fund for '13?
James B. Gattoni
Cash CapEx, $5 million to $7 million. But we're going to -- we're replacing a trailing equipment during the year of maybe $45 million on top of that.
That goes to capital leases and not cash we borrowed from that.
Matthew S. Brooklier - Longbow Research LLC
Okay. That sounds like it's unchanged.
James B. Gattoni
Yes, it's pretty typical.
Operator
Our next question comes from Tom Wadewitz of JPMC.
Alexander Johnson
It's actually Alex on for Tom. So just to -- I'm sorry if I missed this earlier in the call.
You were providing a lot of excellent detail. Trying to get it all down.
But to pick out another, I guess, end market, I was wondering in terms of government, did you talk about your, I guess, mix of your business with the government? And specific to that, any portion of the business that would be subject to sequester and whether you've seen any impact from that yet?
James B. Gattoni
To comment on -- I think it was the business, it was down 6% -- it was -- I'm sorry, up pretty consistent with what it was first quarter on first quarter. Fourth quarter on fourth quarter was also up 6%.
Alexander K. Johnson - JP Morgan Chase & Co, Research Division
And is there much of the business that you think would be subject to sequester that you haven't seen yet or there isn't much of an issue around that?
Henry H. Gerkens
No, I don't think so, and the numbers you just gave were for building products, right?
James B. Gattoni
That was building products.
Henry H. Gerkens
The government business, Jim, I've got -- just hold on a second. I think it was just down slightly, about 2%, $2 million.
About $2 million it was down.
Alexander K. Johnson - JP Morgan Chase & Co, Research Division
Is that $2 million year-over-year?
Henry H. Gerkens
Yes. We do see a little -- is that right, $2 million?
And DTC now as far some of the flatbed business has been eliminated from the DTC contract, correct?
Pat O'Malley
Yes, some of the contracting through DTCI, some of that business is now back into transportation officers' hands. If you think about what Landstar does from a DoD perspective, we're typically hauling cargo that is needed for the war fighter and/or our security efforts.
And so they're really not subject to the sequestration. There were some [ph] business, Alex, it is.
But by and large, what we do is not subject to that. The slowdown we see in government is really because of the wind-down of the war.
Alexander K. Johnson - JP Morgan Chase & Co, Research Division
Okay. That's very helpful.
And then just one last question, I guess, in terms of furthering our understanding of the LTL business that you're doing. Is there -- can you help us understand, is there significant concentration of the business with certain agents, with certain shippers?
Which carriers are you using? Can you provide any additional information around that?
Pat O'Malley
I think just like the model itself, it's widely diversified from a customer base, from account penetration, from the number of the agents and from the capacity provider's perspective. So I think it's pretty broad-based.
There are some customers that we have that we do all of their LTL business, but I think Henry mentioned in his comments and I reiterated that this product line is a product line that our agents and field people and salespeople are very familiar with, or many of them are familiar with, so it's a much easier sell for them.
Operator
Our next question will be from Matt Young of Morningstar.
Matthew Young - Morningstar Inc., Research Division
I know the underlying demand is softer in some of these end markets. But I was just wondering if there are opportunities for you guys to continue to gain market share kind of beyond the underlying market growth in flatbed, heavy haul or any end market in particular that you'd point out, perhaps from smaller brokers or from other asset base carriers and so forth.
Henry H. Gerkens
Well, I think you hit one right on the head. I think Pat went through a little bit of color on new agents.
And obviously, every time we bring on a new agent, that's taking on market share. And I think with the increase in the surety bond requirement and what we're doing, that's where we're going to take and gain into that market share.
I mean, Jim mentioned a couple of new accounts that we had in our -- was it building -- building products commodity code. So we're constantly working on that.
I think the biggest issue we had in the first quarter, however, was that on our very larger accounts, larger machinery equipment type accounts, which we alluded to basically 3 out of the top 5, I believe, was down -- were down pretty significantly. And that sometimes is tough to overcome.
I think it's a testament to our business model as far as how well we perform despite that large decline. And what's encouraging, as you move through to the back half of the year, we know the comps get easier.
And if that starts to change, as far as that business starts to pick up, I think we're sitting in pretty good shape. But again, as I said before, it all depends if that stuff recovers.
So although we're disappointed in the overall results, we're encouraged as far as the fact that based on the one commodity code that declines so significantly, we're able to basically maintain an operating margin because of our variable cost business model and moving forward. And I think we've got things moving in the right direction.
We just need a little kick from the manufacturing base. Yes, again, the only thing I'll add to this is it's no different than a little bit slower than we anticipated.
But I've said, as we moved into the 2013, that the first half was going to be slower and the second half we anticipate to pick up. Now hopefully, that occurs, and we'll see what happens.
Matthew Young - Morningstar Inc., Research Division
There needs to be business to get it, right?
Henry H. Gerkens
Now look. We're always going to go after new business.
Matthew Young - Morningstar Inc., Research Division
A quick question on the cap leases, really quick. You said $45 million this year.
That looks like it sort of near peak. Does it tail off a little bit over the next few years for the trailing equipment?
James B. Gattoni
We have about 8,000 van trailers, and we're probably going to do -- swap out 1,200 to 1,400 over the next 2 or 3 years. So you'll probably see that consistent over the next 2 to 3 years, but then I expect it might slide off.
Henry H. Gerkens
All right. Well, It is 3:00, so were going to basically call the conference call to a close, and I'm going to go around the horn here to see if there's any closing comments.
Joe?
Joseph J. Beacom
Nothing here, I don't think.
Henry H. Gerkens
Pat?
Pat O'Malley
No, Henry.
Henry H. Gerkens
Jim?
James B. Gattoni
No.
Henry H. Gerkens
Okay. I basically gave my summation in response to Matt's last question.
And we look forward to the back half of the year, the second quarter and the back half of the year. We hope that things from the manufacturing base will start to improve.
And I think from that standpoint, if it does, I think we're in a pretty good shape. But with that, I'm going to wish everybody a good afternoon, and I look forward to talking to you again on our mid-quarter update call.
Thanks again.
Operator
Thank you are joining the conference call today. Have a good afternoon.
Please disconnect your lines at this time.