Jan 31, 2014
Executives
Henry H. Gerkens - Chairman, Chief Executive Officer, Member of Safety & Risk Committee and Member of Strategic Planning Committee Pat O'Malley - President-Landstar Carrier Group Joseph J.
Beacom - Chief Safety & Operations Officer and Vice President James B. Gattoni - President, Chief Financial Officer and Principal Accounting Officer
Analysts
William J. Greene - Morgan Stanley, Research Division Jason H.
Seidl - Cowen and Company, LLC, Research Division Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division John G.
Larkin - Stifel, Nicolaus & Co., Inc., Research Division Scott H. Group - Wolfe Research, LLC Allison M.
Landry - Crédit Suisse AG, Research Division Jack Atkins - Stephens Inc., Research Division Benjamin J. Hartford - Robert W.
Baird & Co. Incorporated, Research Division Matthew S.
Brooklier - Longbow Research LLC Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division Daniel Hultberg - Oppenheimer & Co.
Inc., Research Division Thomas Kim - Goldman Sachs Group Inc., Research Division Nathan Brochmann - William Blair & Company L.L.C., Research Division Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division David Pearce Campbell - Thompson, Davis & Company Matthew Young - Morningstar Inc., Research Division Robert H.
Salmon - Deutsche Bank AG, Research Division Thomas S. Albrecht - BB&T Capital Markets, Research Division Donald Broughton - Avondale Partners, LLC, Research Division Cleo Zagrean - Macquarie Research
Operator
Good morning, and welcome to the Landstar System Inc.' s Year-End 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 Gerkens, Chairman and Chief Executive Officer; Jim Gattoni, 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 morning, and welcome to the Landstar 2013 Fourth Quarter and Year-End Earnings Conference Call. This conference call will be limited to no more than 1 hour.
Our prepared comments for this call are a little longer than usual. [Operator Instructions] But 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 the other members of Landstar's management team 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.
One of the highlights of the 2013 fourth quarter was obviously the completion of the sale of Landstar's Michigan-based supply chain solutions operations to XPO Logistics for $87 million in cash. The sale resulted in a gain on sale of $0.72 per share, and after estimated income taxes and transaction costs, generated approximately $53 million of cash proceeds.
As I have stated before, the sale afforded our shareholders a tremendous return on the 2 companies it purchased in 2009. Another highlight of the quarter was the strong finish to the 2013 year.
Revenue from continuing operations for the 2013 fourth quarter was $692 million and earnings per diluted share was $1.30, both metrics above the upper end of our range of fourth quarter updated financial guidance. December load volumes and revenue per load amounts were much better than we anticipated and drove our revenue increase.
Although our earnings were negatively impacted by higher-than-anticipated insurance and claims expense, which largely offset the positive effect of the lower-than-anticipated effective income tax rate, we still finished at the upper end of the range of our earnings per diluted share guidance. Overall, it was a great finish to an otherwise slow 2013.
In order to properly understand the 2013 fourth quarter results, it is important to repeat what I stated in our 2013 fourth quarter mid-quarter update call. First, I stated that estimated 2013 fourth quarter revenue from continuing operations would be in a range of $658 million to $678 million, and that range excluded the estimated revenue from the supply chain entities.
Second, I stated that our estimated range of earnings per share guidance was $1.25 to $1.28 per share. Third, I stated that I anticipated that the previously mentioned range of earnings per share estimate would include an estimated gain on the sale of Landstar Supply Chain Solutions of approximately $0.71 per share and would include estimated 2013 fourth quarter operating results of Landstar Supply Chain Solutions, up $0.02 per share, and that both of these amounts would be recorded in the line item, discontinued operations.
And finally, I stated that I estimated a $0.07 per share charge to continuing operations in the 2013 fourth quarter for a significant bonus accrual, entirely as a result of the significant gain on sale. If one were to do the math from the EPS estimates given on our 2013 fourth quarter mid-quarter update call, it would yield an estimated range of earnings per share from continuing operations of $0.52 to $0.55 per share and an estimated discontinued operations amount of $0.73 per share.
Even though the gain was to be recorded in discontinued operations, the significant provision the gain generated was to be recorded in continuing operations. The range of analysts' estimates, as per first call for our 2013 fourth quarter, was $0.53 per share to $0.67 per share, with a mean estimate of $0.63 per share.
I don't know how the guidance was actually interpreted by each sell-side analyst when they put out their estimates, but I suspect most of the sell-side analysts excluded the estimated $0.07 bonus charge from their estimates. And still, some might also have included the estimated $0.02 2013 fourth quarter Landstar Supply Chain Solutions income per share amounts in their estimates.
All appear to have excluded the gain on sale from their estimates. No matter how one might have treated these items, Landstar's fourth quarter 2013 earnings per share amount was at or exceeded the upper end of the EPS guidance.
For example, if the estimated significant charge for the bonus provision of $0.07 per share was excluded from our range of estimates, our estimated range of earnings per share from continuing operations guidance would have been $0.59 to $0.62 per share. X the actual charge of $0.08 per share for the significant bonus provision related to the gain on sale, our actual adjusted earnings per share from continuing operations was $0.63 per share.
Revenue from continuing operations also topped the upper end of our guidance by $14 million. Now let's more specifically address the 2013 fourth quarter results.
As I said, revenue from continuing operations for the 2013 13-week fiscal fourth quarter was approximately $692 million, and compares favorably to the $685 million of revenue generated in the 2012 13-week fiscal fourth quarter. It was the best 13-week fourth quarter revenue performance in Landstar history.
For the 2013 quarter, truck transportation total load volume increased 2.4% over the prior year comparable quarter, while truck transportation revenue per load was 1,741 in the 2013 quarter versus 1,772 in the 2012 quarter, a 1.7% decrease. However, revenue per load in the fiscal month of December 2013 was approximately 3.1% better than the 2012 December month.
And as I said in yesterday's press release, it was the first month over prior-year month increase we had all year. Total operating income from continuing operations for the 2013 13-week fourth quarter was approximately $40 million versus $48 million in the 2012 13-week fourth quarter and was negatively impacted by a $4.5 million increase in insurance and claims expense and a significant bonus provision of approximately $6 million, which related entirely to the gain on sale.
I am now going to turn the call over to Pat, Joe and Jim to add some color to our fourth quarter performance. Pat?
Pat O'Malley
Thank you, Henry. As noted by Henry, the 2013 fourth quarter revenue was approximately $692 million compared to the 2012 fourth quarter of approximately $685 million.
As a reminder, in the 2013 third quarter, the top 10 revenue accounts from the prior year declined over $40 million as compared to the 2012 third quarter. This represented more than the entirety of the revenue shortfall in the third quarter of $36.6 million.
In the 2013 fourth quarter, the top 10 accounts from the prior year declined by over $20 million as compared to the 2012 fourth quarter. This small group of accounts represented 16.3% of revenue in the quarter versus 19.4% in the 2012 fourth quarter.
Improved performance in this segment was a function of increased opportunities in a specific energy account and cuts merged with seasonal business. In the fourth quarter, we experienced increased demand for transportation services in core industrials around energy, power generation and machinery, while government, agriculture and mining remained muted.
Overall demand for platform services were flat compared to the fourth quarter of 2012, while pricing remains similar to the 2013 third quarter, but behind the previous year. Meetings with customers, current bid activity and improving estimates in industrial production give us cautious optimism around the platform business.
Currently, approximately 37% of Landstar's truck transportation revenue is generated using unsided platform equipment. Revenue from our vans segment increased sequentially over the third quarter and was up 5% when compared to the fourth quarter of 2012.
The year-over-year revenue increase is attributed to a 5% increase in load volumes, as we experienced increased demand from a wide range of customers throughout the fourth quarter. While demand for van capacity remained strong, pricing in this segment was up 2% compared to the third quarter of 2013, and similar to the fourth quarter of 2012.
As has been mentioned, improving estimates in industrial production and the anticipated capacity reductions associated with regulatory challenges may provide opportunities for Landstar. Earlier this year, we provided some detail around our LTL initiative.
Although Landstar has historically participated to a small degree in the LTL market, in late 2011, we increased our emphasis on this service offering by implementing an easy-to-use capacity procurement tool, established standard rates with LTL peers and worked with our agents to identify customer opportunities. Revenue in the LTL segment increased when compared to the third quarter of 2013 and the fourth quarter of 2012.
This, in spite of losing a high-volume LTL customer in May of this year, who assumed the transportation management functions that was previously performed by a Landstar agent. We continue to gain traction in this space by adding quality carriers to our base of capacity providers and increasing the number of agents that are selling this service.
As we've 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 of 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. As for new agent revenue, we continue to improve our results by bringing on productive new agents.
In the quarter, revenue from new agents represented 2.9% of total revenue. As a percent of revenue, this is the best quarter in 2013 and nearing our historic average of 3% to 6%.
As a reminder, a new agent in the 2013 fourth quarter represents an agent who had contract with Landstar after October 1, 2012. Revenue from new agents increased 14% compared to the third quarter and is up 54% from the fourth quarter of 2012.
This improvement in new agent revenue is a direct reflection of the quality and availability of new candidates, and our pipeline remains well seated. In addition, the number of new agents contracted in the fourth quarter of 2013 was higher than any quarter in the year.
Landstar finished the year with $478 million agents compared to 504 in 2012. The decline in million-dollar agents can be attributed to softer demand, causing agents to move down 1 position and out of the million-dollar category; and the departure of certain agents, both planned and unplanned.
In the case of departed agents, in almost every circumstance, Landstar was able to maintain the business by transitioning the account to an existing agent. We continue to believe that the challenges for small, independent brokers are many and difficult to solve without support.
Whether it's cash flow, tight capacity or inferior systems, this segment of the industry is fertile ground to recruit productive new agents. We are confident that our scale, systems and support will help us maintain momentum in adding productive new agents in 2014.
Joe?
Joseph J. Beacom
Thanks, Pat. In the fourth quarter, Landstar was able to grow BCO accounts, as well as active broker carrier accounts, ending 2013 with a total truck capacity provider network in excess of 40,000 providers, in spite of the elimination of carriers that were contracted solely for Landstar Supply Chain Solutions companies.
The company's approved truck capacity provider network at the end of the fourth quarter exceeded the prior quarter by nearly 500 truck capacity providers. BCO count increased each of the last 3 quarters.
And interest in Landstar from owner operators, considering BCO status, remains consistent. In general, we see the BCO recruiting outlook as challenging, as owner operators remain cautious on making major changes.
The net gain in BCOs in each of the last 3 quarters of 2013 was the result of a very solid retention effort, which has continued into January of 2014. The first quarter typically sees a reduction in BCO truck count, yet Landstar saw its first January net increase to BCO trucks in 5 years, doing approximately 30% reduction in the number of BCOs leaving the company.
BCO truck turnover in 2013 was 27%, a very respectable outcome. Solid execution on adding BCOs and a strong retention effort will be key to BCO freight growth in 2014.
As demonstrated by the record number of active broker carriers in the Landstar network, we continue to make progress, retaining capacity and building relationships with carriers who see the opportunity to grow their business with Landstar. The foundation for further growth from truck brokerage is in making attractive quality freights available to approved carriers.
Given the ad-hoc and unplanned nature of much of Landstar's freight mix, the size and scope of the network of capacity providers is very important in sourcing capacity across a wide range of services, often within a short window of time. We began to see some additional favorable indicators around truck transportation in the fourth quarter.
Overall, the number of loads hauled via truck increased 2.4% over prior year's fourth quarter, driven by a 5% increase in BCO loading, with broker carrier loadings essentially flat in the prior year's fourth quarter. Historically, the number of loads hauled via truck in the 13-week fourth quarter has been lower than the number of loads hauled via truck in the third quarter.
However, in 2013, loads hauled via truck in the 2013 fourth quarter exceeded the 2013 third quarter by 2%. The 2013 fourth quarter increase in BCO load volume over the prior year period was the first quarter of 2013, where BCO load volumes exceeded the prior year quarter.
In addition, the number of loads hauled via broker carriers in the 2013 fourth quarter were approximately the same as the 2012 fourth quarter, yet 4% over the 2013 third quarter, much improved from the trends experienced in the 2013 second and third quarters. This fourth quarter load volume improvement in truck transportation is attributed to the increase in loading opportunities attractive to Landstar capacity providers.
Whether in single or in multiple lanes, capacity relationships drive capacity growth and allow for improved account and accretion as opportunity presents themselves. We continue to see customers seeking reliable solutions that take into consideration the means to manage carrier selection, in-transit freight visibility and to meet service requirements.
The standard and methodology Landstar deploys to ensure the quality of the capacity made available to our customers, we believe, is a competitive advantage. Landstar has proven consistently that the model is appealing to third-party capacity in any economic environment through the volume and quality of freight, the freedom they have to operate their business, timely payment for services and their ability to benefit from the meaningful discounts on tires, fuel and equipment.
The cost of purchased transportation increased to 77.2% of revenue in the 2013 fourth quarter from 76.8% in the 2012 fourth quarter. Percentage of revenue on a fixed margin, which has an overall lower cost of purchased transportation than revenue on a variable margin, decreased to 58% of revenue in the 2013 fourth quarter from 59% of revenue in the 2012 fourth quarter.
The rate of purchased transportation paid on revenue under agreements that result in a variable margin increased 40 basis points over the 2012 fourth quarter, primarily from a 50% -- 50 basis point increase in the rate of purchased transportation paid to truck brokerage carriers in the 2013 fourth quarter. We believe that the increase in the rate of purchased transportation paid to truck brokerage carriers was primarily attributable to the sudden spike in demand during the 2013 fourth quarter.
It should be noted that the increase in the rate of purchased transportation paid to truck brokerage carriers on revenue haul under variable margin agreements was partly offset by a 40 basis point decrease in the rate of commission paid to agents. If capacity were to tighten, we would expect pricing to improve.
And with that, price paid to capacity to increase. If anything, Landstar, only approximately 60% of revenue that is generated on a fixed margin, while prompting us to pursue pricing increases in order to protect the margin on revenue generated with a variable margin.
Turning to safety performance. DOT capacity frequency was elevated in the fourth quarter of 2013 due to largely to the weather that impacted much of the company -- country, excuse me.
While frequency of accidents occurring in the fourth quarter was elevated, the resulting severity of these crashes has been moderate. We continue to have strong participation and commitment around the company's safety programs from agents, BCOs and employees.
The company continues on pace with the implementation of its electronic logging device initiative, with more than 1/3 of the BCO fleet equipped with ELDs, and had seen the desired improvement in its CSA hours of service basic scores. Each of the 7 CSA basic scores for each Landstar carrier is below the threshold established by the Federal Motor Carrier Safety Administration.
As customers continue to evaluate capacity providers, we believe this level of safety and compliance performance is a competitive advantage, and believe this will be additive in light of the additional regulation aimed at more carriers, freight brokers and forwarders, which are on the horizon. Jim?
James B. Gattoni
Thanks, Joe. We have already discussed certain information regarding the 2013 fourth quarter.
I'll cover various other financial information included in our fourth quarter release. The company's full year and fourth quarter income statements have been presented with the historical results of operations on the Landstar Supply Chain company, shown separately under discontinued operation.
All comments that follow include comparisons of the financial results of continuing operations for the 2013 fourth quarter compared to the 2012 fourth quarter. Gross profit, representing revenue less the cost of purchase transportation and commission to agents, was $102.7 million or 14.8% of revenue in the 2013 fourth quarter, compared to $103.7 million or 15.1% of revenue in the 2012 fourth quarter.
The decrease in gross profit was attributable to an increased rate of purchased transportation paid to third-party capacity providers, partially offset by lower rate of commission to agents. Joe has already discussed the cost of purchased transportation and commission to agents in his prepared comments.
Other operating costs were 6% of gross profit in the 2013 quarter, compared to 5% in the 2012 quarter. This increase was attributable to an increased provision for contractor bad debt in the 2013 fourth quarter.
Insurance and claims costs were 13.2% of gross profit in the 2013 quarter, compared to 8.7% in the 2012 quarter. The increase in insurance and claims, as a percent of gross profit, was primarily due to unfavorable development of prior year claims of $2.7 million in the 2013 quarter compared to $1.4 million in the 2012 quarter.
Insurance and claim costs in the 2012 fourth quarter also experienced a lower frequency in estimated severity of accidents, when compared to the frequency and estimated severity of claims impairment 2013 fourth quarter. Insurance and claim expense was 4% of BCO revenue in the 2013 fourth quarter, which was higher than anticipated, and higher when compared to the average of 3.3% experienced over the past 5 years.
The increase on insurance and claims expense in the 2014 -- 2013 fourth quarter over the 5-year average, negatively impacted fourth diluted earnings per share by $0.03. Selling, general and administrative costs were 35.8% of gross profit in the 2013 fourth quarter and 34.4% of gross profit in the 2012 fourth quarter.
The increase in selling, general and administrative costs as a percent of gross profit was primarily attributable to an increased provision for bonuses under the company's incentive compensation program in the 2013 fourth quarter compared to the 2012 fourth quarter. It should be noted that the provision for bonuses reported as a component of continuing operations under 2013 fourth quarter was entirely attributable to the gain on sale of Landstar Supply Chain Solutions.
The increase in selling, general and administrative costs as a percent of gross profit caused by the provision for bonuses was partly offset by a lower provision for customer bad debt and lower stock compensation in the 2013 fourth quarter. Depreciation and amortization was 6.7% of gross profit in the 2013 fourth quarter compared to 6.2% in the 2012 fourth quarter.
This increase was due to increased appreciation of trailing equipment, as we continue to replace older, fully-depreciated equipment with new equipment. Investment income was $364,000 in the 2013 quarter, compared to $378,000 in the 2012 period.
The effective income tax rate was 35.3% in the 2013 fourth quarter, compared to 30.1% in the 2012 fourth quarter. The effective income tax rate which generally is approximately 38.2%, was impacted in both periods by favorable outcomes of various tax matters.
Looking at our balance sheet. We ended the quarter with cash and short-term investments of $250 million.
2013 fiscal year cash flow from operations was $169 million. Cash capital expenditures were $6.4 million in fiscal year 2013.
Fiscal year 2013 return on average shareholder's equity is 35%. And fiscal year 2013 return on invested capital, representing net income divided by the sum of average equity plus average debt, was 28%.
At December 20, 2013, shareholders' equity represented 82% of total capitalization. Back to you, Henry.
Henry H. Gerkens
Thanks, guys. The fiscal January 2014 period closed last Saturday.
And I'm pleased to say that truck transportation revenue trends experienced in January 2014 compared to January 2013 are very favorable. Both truck transportation load volume and truck transportation revenue per load in fiscal January 2014 were better than the prior year month.
A very, very encouraging sign. I will note, however, that during the first several business days of the 2014 fiscal February period, we have been negatively impacted by some severe weather, primarily in the South East.
Also encouraging are the last -- are the latest 2014 quarterly forecasted industrial production growth rates, which are now forecasted to be better than the previously published 2014 quarterly industrial production growth rate forecasts and better than the growth rates experienced in 2013. During the past 4.5 years, we have spent much time and effort trying to create ways to integrate the automotive-focused, Michigan-based supply chain companies into our agent-based model with modest success.
Over that time, we came to recognize that those acquired companies were better suited for a company store-type operation and not our agent-based model. So when the opportunity presented itself, we took advantage of it and sold those companies.
As I said before, the sale offered our shareholders a tremendous return on our 2009 investment in those companies. As we enter 2014, we are reenergized and refocused on growing our core agent-based model.
To that end, we have realigned our internal field sales organization into 3 field divisions from 2 field divisions, with each field division led by a senior sales executive. Each field division, in turn, will contain 3 regions, each led by a region vice president.
Each region is further segmented into various sales areas, each led by an area sales manager. And additionally, each field division will include 2 business development vice presidents.
The increased and more concentrated field presence should augment our agent growth in addition to driving incremental overall revenue increase through account penetration. The improving economic picture, coupled with the increase in more concentrated field presence, sets Landstar up for solid revenue growth.
Well, that being said, there still remains some uncertainty. And although I am optimistic as to 2014 and beyond, however, I think it is important to be somewhat cautious.
Based on the continuation of the current revenue trends and the increased economic indicators, I currently would anticipate revenue for the 2014 first quarter to finish in a range of $640 million to $690 versus the $623 million in the 2013 first quarter. Based upon that range of estimated revenue and taking into consideration an approximate $2.2 million charge for the Landstar annual agent convention to be held in the 2014 first quarter versus being held in the second quarter in 2013, I estimate diluted earnings per share from continuing operations to be in a range of $0.56 to $0.61 per share versus $0.55 per share from continuing operations in the 2013 first quarter.
While the convention cost is a headwind in the 2014 first quarter, it is a tailwind in the 2014 second quarter. And Dory, with that, we're going to open it up for questions.
Operator
[Operator Instructions] Our first question comes from Bill Greene with Morgan Stanley.
William J. Greene - Morgan Stanley, Research Division
Henry, you didn't sort of mention there at the end some of the commentary on the press release about the long-term growth rates. Maybe you could just sort of put some color around that in terms of the assumptions that go into that.
Is it sort of -- what kind of macro environment? Are there acquisitions in there or buybacks?
Maybe just some color to kind of get us understand the...
Henry H. Gerkens
I think, historically, a couple of things. One, I think with the repositioning, if you will, an increased field presence with our -- the way we've divided up the country, I'd think that is going to basically create much more revenue opportunity.
And if our model really generates -- if I can generate the top line and generate gross profit, the structure falls pretty much and yields that operating income number. And it's my feeling that we can grow at those rates.
Our objective is to be at a 50% operating margin within a 5-year period. This year, we took a little bit step backwards.
But I think we basically refocused ourselves with pushing, selling the supply chain companies which, by the way, we want the people there, great operation, but really didn't fit our company. We recognized that.
And what we decided to do is just reenergize our focus, if you will, on growing the top line, managing our costs. It's 2 ways to look at it: grow the top line and make our agents and capacity more productive.
And that's how we're going to get there. Now, obviously, we're looking also at that double-digit mid-teen EPS growth that coupled with increasing net operating income number and coupled with our buyback program, which we historically have executed on, and we will ramp up that as we move into the future.
So that's how we're going to get there. I'm pretty confident on this.
Operator
Our next question comes from Jason Seidl with Cowan and Company.
Jason H. Seidl - Cowen and Company, LLC, Research Division
Quick question here. I recall last year we had some issues with some of the demand from sort of the wind sector.
Can you remind us where that comes up in the quarter and how that business is looking this year?
Joseph J. Beacom
Jason, I don't have that at my disposal by quarter. But I can tell you that we anticipate the wind business being better in 2014 than it was in 2013, but not as good as it was in 2012.
Jason H. Seidl - Cowen and Company, LLC, Research Division
Okay. Maybe you can give me that offline, after the call, in terms of where it kind of hit you last year.
James B. Gattoni
Okay. Thanks, Jason.
Operator
Our next question comes from Todd Fowler with KeyBanc Capital Markets.
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
I just wanted to help maybe understand a little bit about the dynamics in the fourth quarter and then how you're thinking about the sequential progression of gross profit margins into the first quarter. Revenue was obviously strong, higher than your range, earnings per share coming in right at the high end of the range.
Is most of the reason why the revenue didn't drop under the bottom line is that the net revenue margin compression, some of the things that Joe talked about? And then when would you expect the net revenue margins to normalize?
We see that in the first quarter. Is there a greater lag?
James B. Gattoni
A couple of items here. I mean, there's a lot of things that focus in here.
And I would say that when you have increased demands and you've got some tight capacity, you are going to basically pay a little bit more for that brokered truck. Now all that being said, we've done a pretty good job on BCO loadings, and our system benefits in that environment.
We might pay a little bit more for that broker truck, but when we get that price increase, which we will get, what happens is that from the fixed margin, as Joe mentioned, that really benefits Landstar. And I would say that you're going to start to see that progress as you move through the year.
At first, when the stabilizes -- I mean, it depends on the volume and whatnot, how much composition that you have. But what we look at is, okay, get that price increase.
Because that price increase is going to basically resolve some of that pressure. But I would anticipate that you're probably going to see some pressure, assuming demand stays where it is, on the variable piece.
The other thing as far as the fourth quarter, which I think is very important, and Jim mentioned it in his -- as it relates to the results and pushing it down to the bottom line, insurance and claims expense in 2013 was higher than we would have anticipated. And clearly, when I get my mid-quarter update in December, the insurance costs were even higher than we anticipated then.
And that really impacted, I think why you didn't see the full benefit of some of the numbers in the fourth quarter. I don't anticipate that we're going to run 4% of BCO revenue in 2014.
And you go back to that historical 5-year rate that Jim refers to at 3.3, that's picking up some pretty good margin there. Now obviously, not good you've got to be safe and we've also talked about the number of cases out there of large value, and that's dwindling.
So we feel comfortable with that, but you never know with that line item. And the weather has not been good, but so far in January, we've been okay.
So that's about the best I can get. And let's see, someone else want to add anything on that?
Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division
Henry, would you care to share, I mean a range for the gross profit margin percentage that's incorporated in the first quarter guidance?
James B. Gattoni
15, 15.5, slightly higher for fourth quarter.
Operator
Our next question comes from John Larkin with Stifel.
John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division
Your balance sheet liquidity is probably better than it's been in quite some time, with something like $215 million in cash and marketable securities and another $185 million in borrowing capacity, if I read the press release correctly. It's about $400 million firepower, if you will.
Last year's share repurchase rate was about $60 million worth, if I'm correct on that point. So the question is, what do you plan to do with all this availability?
Do you plan to step up the share repurchase program opportunistically if that makes sense? Or is there an acquisition in the offing that perhaps fits better with the structure of the organization?
Henry H. Gerkens
I think we would be looking. Obviously, we do have a lot of firepower.
We would be looking a couple of things. One, we're going to step up the share buyback program.
Two, we would also be looking if the right acquisition comes along. I mean -- and, John, and you know this, and a lot of people on the call know this company very well, the culture here is different.
We have to be -- it's a very unique company that would fit into this particular company. There are a number of those out there, and we would continue to look.
And if that opportunity came, we would clearly strike. Absent that, our objective with what we have would be basically to return this to the shareholders through an increased buyback program.
But we're always on the lookout for a potential acquisition. We don't have anything on our radar at this time.
Operator
Our next question comes from Scott Group with Wolfe Research.
Scott H. Group - Wolfe Research, LLC
So I wanted to talk a little bit more on the gross margins. Jim, do you have the brokerage gross margins year-over-year?
And if you have them sequentially, that would be helpful. I guess, the question, the crux of the question is, I get gross margin getting squeezed.
Talk about brokerage net revenue, and if that was kind of better or worse than you were thinking? And how do you're thinking about net revenue growth for brokerage in 2014 versus 2013?
James B. Gattoni
I think when you listen to Joe's prepared comments, he had mentioned, we don't give out the exact percentage net revenue margin for brokerage, but in Joe's prepared comments he had mentioned that truck brokerage within that variable business, the PT rate was up 50 basis points over the prior year. So you see, we're getting a little bit of margin compression.
But again, in that variable business, when the brokerage PT rate goes up, the agent share that a little bit and at the same time you had mentioned that the agent commission goes...
Joseph J. Beacom
Goes down.
James B. Gattoni
We picked up 40 basis points there. So it's really, we're feeling margin pressure on the brokerage side on the variable business coming into this fourth quarter of 50 basis points.
And like I said, carrying into the first quarter, we do anticipate a little bit of that continuing into the first quarter. But from an overall first quarter, we're looking at 15 to 15.5 on the gross margin.
Henry H. Gerkens
I think it's important, Jim stressed again is that every time we have that compression, as far as what we pay for PT, we never -- we don't bear the full brunt of that. I mean if that's shared with the agent.
Again, that's what sets us apart from, I think, other "brokerage operations." They bear the full brunt of that.
We don't. In addition to that, we've got this huge 60% piece that is fixed margin that -- because eventually this is going to turn into price increase, and that clearly is going to benefit Landstar.
Scott H. Group - Wolfe Research, LLC
I appreciate that. That all makes a lot of sense.
I guess, the question was more on -- and everyone is focused on the margin. I was getting more on the net revenue and how that did in brokerage and...
Henry H. Gerkens
Scott, our -- again, our piece is different because net revenue, you're referring to revenue less purchased transportation, we always have an agent commission associated with our revenues. So therefore, you can't ignore the two.
And what we're trying to say is, if I get compression in that net revenue number, I get an offset, because I'm paying lower commissions. So again, that's why we're different on from a brokerage operations.
Next question.
Operator
Our next question comes from Allison Landry with Credit Suisse.
Allison M. Landry - Crédit Suisse AG, Research Division
I was wondering if you could talk a little bit about what you've seen specifically from your top 10 accounts in January and as you're talking to them about their outlooks for 2014. Could you just give us some flavor about how they're thinking about their businesses and possibly what that means for Landstar.
Pat O'Malley
Allison, this is Pat. I think I mentioned in my prepared comments that whether you look at conversations we've had with customers or if we look at bid activity that is coming in, we anticipate our top accounts in the energy sector, power generation.
We saw some pretty good things happening towards the end of the year. We look at the van that we talked about in the fourth quarter.
Not only was it strong in December, but it was throughout the quarter from a wide range of customers. So if you talk -- in our conversations with our agents, our customers and our salespeople, I think what Henry said in his prepared remarks are correct.
And that is, it's been a great start. We look at the industrial production numbers.
We're cautiously optimistic about things relative to those 2 things. So that's kind of where we stand.
Operator
The next question comes from Jack Atkins with Stephens.
Jack Atkins - Stephens Inc., Research Division
So I guess a couple of housekeeping items. Henry, could you quantify for us the improvements in January that you saw in volumes and then in revenue per load?
And then secondly, Jim, could you quantify the impact on the full year from bonus accruals in 2014, because I know that you're going to have some bonus accruals this year in the first 3 quarters that you seem like you didn't have last year.
Henry H. Gerkens
Simply put the -- they're both revenue per load and load volume. Truck volumes have increased in currently [ph] by about 3% each, each.
James B. Gattoni
From a bonus perspective, we had -- the entire bonus was pretty much booked in the fourth quarter 2013. So from a quarter-to-quarter standpoint, looking into 2014, a onetime payout under our plan would be about a $7 million, $8 million a year.
And generally, that's quarterly. So you kind of look it at that way.
So you're talking about little bit of headwind each quarter going into 2014 based on bonus, because the first 3 quarters we pretty much didn't have any in 2013.
Operator
Our next question comes from Ben Hartford with Baird.
Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division
Henry, you made the comment about going after price, and it sounded like you were a little bit more optimistic that things will normalize from a gross margin standpoint in '14. I'm just wondering specifically, if you look at January, you look at the disruptions that we see in November and December and into January, from a capacity standpoint, do you think that shippers on balance are more receptive to paying, and the volatility is a trigger that we need so that this gross margin compression that has been taken place for several years can start to unwind in '14?
Is that something specifically that provides you optimism as it relates to '14's gross margin?
Pat O'Malley
Ben, this is Pat. Yes, I think what you're seeing is increased demand and not a tremendous increase in the amount of capacity that's in the marketplace.
If you recall, in my prepared remarks, we talked about the van business specifically, and the impacts some of these regulatory requirements are going to have on capacity. You saw the fourth quarter, I think it was Avondale who came out and said the fourth quarter had a significant number of fleet failures much more than anticipated.
And we expect, again, capacity to kind of tighten if demand creeps up. As we've mentioned in our prepared remarks, we expect to be able have some pricing power.
Operator
Our next question comes from Matt Brooklier with Longbow Research.
Matthew S. Brooklier - Longbow Research LLC
I wanted to talk about January and that 3% volume number. How does that break up between your drive and business and your flatbed business?
It sounds like dry van was stronger in fourth quarter, and I'm just curious to hear if flatbed is starting to reaccelerate.
James B. Gattoni
Matt, I'd love to give you that answer. If I had it on finger tips the period just closed last Saturday.
I've got fine along. So I don't have reports in front of me that break that out between equipment.
And really can't. I don't have that at this point.
But that's just the answer to that. Sorry about that.
Operator
Our next question comes from Tom Wadewitz with JPMC.
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
So I guess another along the lines of flatbed and van. How much of the December tightening was really a spike in flatbed pricing and it drove the gross margin pressure?
Or was it primarily dry van that was really tightening up?
Henry H. Gerkens
Pat, you want to answer that?
James B. Gattoni
I think it was more van than flatbed. More van than flatbed.
Pat was that accurate?
Pat O'Malley
Yes. The van pricing in the quarter was stronger than flatbed pricing in the quarter in a year-over-year comparison.
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
Okay, so was it -- it wasn't kind of an unusual squeeze and tightness and it was just -- in flat, it was just -- it sounds like may be building tightness through the quarter and then exaggerated a little more in van in December.
Henry H. Gerkens
We saw van pricing and flat pricing both climbed from November to December, with van asset pricing climbing a little bit more than the flat.
Operator
Our next question comes from Scott Schneeberger with Oppenheimer.
Daniel Hultberg - Oppenheimer & Co. Inc., Research Division
This is Daniel Hultberg filling in for Scott. When you guys look in 2014, can you just give us some colors on the end markets where you see the most upside?
Henry H. Gerkens
Well, I'll try that and then maybe Pat can come back. I think the most -- I think there's a lot of potential upside, right?
I'm a lonely and optimistic guy. But when you think about what's happened with Landstar in 2013, the decline in -- not the decline, but the flatbed being not as robust as we would've liked.
I think there's a lot of opportunity there. We've remained the #1 flatbed onside carrier.
So when industrial production picks up, I would expect that to pick up and that should clearly benefit Landstar, and I think that's the most exciting thing. The other piece of that is Pat talked about his top 10 accounts being off.
We did lose one of those accounts, all right, but we have the other accounts. And at some point in time, those things are going to come back and some of that ties into my flatbed comment, but we've done a very good job as far as secondary and tertiary accounts, and building that up which really offset that top 10 decline.
So I think there's a lot of opportunity for Landstar, and I am optimistic. But as I said in my prepared comments, I try to tamper that a little bit with a little bit of caution, because I still think there's some geopolitical uncertainties out there that who knows how people might react.
Pat, I don't know if you want.
Pat O'Malley
I absolutely agree with Henry. I think it would be broad-based.
If you look at the 36 -- or excuse me, the $40 million decline year-over-year in top accounts, top 10 accounts in the third quarter, $20 million decline in the fourth quarter, and yet we beat last year's revenue. Clearly, the model works, where you have multiple agent servicing those secondary, tertiary accounts.
And I think the platform business will rebound somewhat from the previous year as we mentioned to Ben, we think that there's some pricing opportunities as we go through 2014.
Henry H. Gerkens
And the other thing I'll add is the fact that, and again, the fact that we're focused on -- not that we weren't focused, but we're refocused, I mean we're not trying to base and do some other things, i.e., with supply chain, all right, that we did in the past which sort of I think maybe took our eye off the ball a little bit.
Operator
Our next question comes from Thomas Kim with Goldman Sachs.
Thomas Kim - Goldman Sachs Group Inc., Research Division
I wanted to ask around the new agent pipeline. Can you give us a sense of how many new agents you anticipate this year?
And then with regards to your Multimillion Dollar Agents, what do you see as potentially turning the sort of number sort of reversing the declines in the number of Million Dollar Agents? Is it just a matter of the top line growing, again because of demand or do you anticipate -- or are there company-specific measures in place to actually help stimulate overall individual agents revenue growth?
James B. Gattoni
Tom, a couple of things. If you look at it, we anticipate getting back to that traditional 3% to 6% run rate, our new agent revenue per quarter.
We have 2.9% in the fourth quarter, 2.6% in the third quarter, 54% increase in new agent revenue over the fourth quarter of 2012. So we don't have the specific number of agents that we're going to bring on where we can produce that.
As it relates to the decline, the agents that are in our million-dollar category, let's look at it a couple of different ways. We had 43 agents, 9 of them move into the million-dollar category.
We had 49 agents move out of the million-dollar category. And just as we said in our prepared remarks and you formed in your question, some of that top line revenue growth caused some of the agents to drop out of that area.
Of the agents that left us, we talk about planned and unplanned, the majority of those were planned, and the unplanned ones, there were 2 agents that left Landstar, we were able to retain about 25% of the total business there. So we felt, although the number is down, there's good explanation for all of that.
And then lastly, if you think about what Henry talked about relative to the reconfiguration of the field, we have more people out calling on agent prospects to bring them in here, and we think that, as we mentioned in our remarks, we think that, that's pretty fertile ground for those small brokers that are continuing to get squeezed. We think we've got the right scale, systems and support for those people to become successful.
Thomas Kim - Goldman Sachs Group Inc., Research Division
If I could just add or just elaborate a little bit more on that 36% run rate? Like -- what is on the chart to get that run rate back up there again?
Henry H. Gerkens
Bringing on productive new agents.
Operator
Our next question comes from Nathan Brochmann with William Blair & Company.
Nathan Brochmann - William Blair & Company L.L.C., Research Division
This is a little bit more of a strategic question and like with the sale of NOM and kind of the supply chain businesses, a lot of your competitors are kind of moving to the small-time modal, holistic, collaborative approach all encompassed with technology and the skill set. And obviously, you guys have a great platform with that in terms of all the different modes you offer.
And with the Agent network, how do you see that involving in terms of just your own strategy to take advantage of some of those trends? Or how do you more holistically research some of those customers across your Agent network?
Henry H. Gerkens
I -- look, there's couple of things. I mean, what we're trying to do is basically move in with what we call a solutions approach, which will encompass a lot of different things, capacity, technology.
But I think the biggest thing we have to do is make our agents, make our capacity more productive and efficient, and then look what the customer wants. And I think we can provide all that.
Pat?
Pat O'Malley
Yes, I think one of the barriers when you have technology, as you go in with the technology cell and you say, listen, here's how I'm going to solve your problem. You don't do a lot of what Henry referred to as solution selling in trying to build a collaborative solution with the customer.
And if you look at the customers that Landstar has, and we really perform these kinds of services, it's when we have a customer that values our flawless execution, the expertise that the agent brings to the party and then we collaborate with them on the solution. And our capacity providers are big part of that.
And as Joe sketched in his comments, that capacity solution we have is broad, deep and experienced. And we think that gives us competitive advantage.
So frankly, the technology kind of held us back, because it was -- we were going into selling technology first, and we weren't really seeking solutions. We were trying to say here's the solution you need, that never works.
Nathan Brochmann - William Blair & Company L.L.C., Research Division
Okay, and then just real quick with that, and with the realigned field sales force, and getting a little bit deeper on that. Do you think that, that helps with that collaborative approach to like even when you have to work with multiple agents across like for one customer?
Henry H. Gerkens
Anytime you put more boots on the ground, because that's what this is, you're going to get a better answer.
Operator
Our next question comes from Anthony Gallo with Wells Fargo.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
Could you continue along those lines, the biggest differences you've got in that sales organization? I recognize there might be some competitive details you don't want to share.
But maybe how the incentives are structured, the number of people, the main differences between what that looks like today versus say 1 or 2 years ago?
Henry H. Gerkens
When I first set up this division of -- a field division of North and South, and you got to go back because as I set it up in 2001 or 2002, I set this up, and the company at that point was about $800 million divided either way. We're now, if I look at the U.S., it's $2.4 million, and the size of the staff really hasn't changed.
And so the thought process was well if we further subdivide the United States into a third region. That's going to get me a better revenue answer.
It has to because it's a more concentrated approach. You're not covering the big geographic area.
So what we did is we took -- we promoted one of our internal or region guys to that, present we're going be hiring a number of people, and we've basically redrawn the United States and actually one of the other changes is we moved Canada reports directly up to Pat O'Malley now. And I think that gives a better answer.
We changed our Mexican operation, which is a trailer interchange operational to report to Joe because really it's more operational. And we're also going to basically utilize what we call Vice President of Mexican sales, because we see opportunity there.
So I think what we're trying to do is put more boots on the ground in a concentrated area to basically recruit more agents and basically help our additional agents create additional opportunities within their customer base.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
Is there a number on the sales side that you care to put on? In other words, would these guys drive 2% to 3% more volumes through the system?
Anything there would be helpful.
Joseph J. Beacom
Anthony, we don't have specific numbers that we'll share here. I think that's proprietary.
But I will tell you, the other thing that I think is really good about this is we got a heck of a lot younger. And that's going to bode well for Landstar, short term and long term.
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
Is younger better these days?
Operator
The next question comes from David Campbell with Thomson Davis and Company.
David Pearce Campbell - Thompson, Davis & Company
I just want to make sure I understand how this agent situation works in a period of rising demand. The agent sells as a customer and he offers that customer service at a certain rate and then he finds it out later that it cost him more, so his percentage of his commission goes down.
So the next time he gets the customer comes in, he charges him more money? Is that basically how the gross margin recovers?
Henry H. Gerkens
Yes. Because at a certain point in time, that agent is going to go back out to that customer and say, "Hey, it cost more to basically get this purchase transportation."
And from his standpoint, his stake was therefore last so he goes to the customer and says, "Hey, I need a higher price if you want to move this piece of freight."
David Pearce Campbell - Thompson, Davis & Company
So whatever happened in the fourth quarter shouldn't keep happening in the first quarter? That's embedded in your assumptions, right?
Henry H. Gerkens
Well, that depends on how demand picks up and accelerates. I mean in theory, there is always a catch-up gain that you're going to play as far as price and cost.
I mean, for example, if demand keeps picking up every single month, and let's say you paid $0.01 more in this month, so you try to recover that $0.01 next month, but maybe now, the capacity wants $0.02. So you're still a little bit behind.
But over time, you basically -- you get that back. And it benefits Landstar more than some other company, because a lot of the other companies might have fixed pricing type things where we basically don't have that anymore.
Operator
Your next question comes from Matt Young with MorningStar.
Matthew Young - Morningstar Inc., Research Division
You guys mentioned a little bit here about making capacity a little bit more productive probably referring to BCOs. But in the past, you've also talked about looking for ways to build stronger relationships with your broker carrier capacity.
Anything specific along those lines you've been doing? Perhaps there are opportunities from your efforts to improve buy rates?
And I guess, along those lines, could you clarify if most of the procurement comes from your agent base? Or do you have a centralized procurement team, so to speak?
Joseph J. Beacom
Yes, Matt. This is Joe.
For a while now, for couple of years now, we've been going out calling on carriers some that are with us and active and hauling freight to make sure they're happy, but also a lot that we believe would make a great fit. And what we try to do is understand what their needs are.
Every carrier has headhaul links, backhaul links and opportunities where they can improve their business. And we try to match that up to what opportunities we have coming through the agent network.
And ultimately, at the end of the day, if the agent who deals with the carrier, we're acting as an intermediary to make -- to market the totality of the agent opportunity to carriers. And that's how we're growing our carrier count, and that's how we're growing that approved carrier count when more carriers are actively holding Landstar's rate.
David Pearce Campbell - Thompson, Davis & Company
Okay. That makes sense.
So you don't have then a centralized internal procurement personnel? It's in the hands of the agent?
Joseph J. Beacom
Yes, it's in the hands of the agent.
Henry H. Gerkens
We're going to take about 4 more questions. I know we're a little bit over time, but we're trying to get as many in as we can.
Operator
Our next question comes from Justin Yagerman with Deutsche Bank.
Robert H. Salmon - Deutsche Bank AG, Research Division
This is Rob on for Justin. Could you walk us through those -- the truckload trends were during the quarter?
And obviously, it's up about 3% thus far in January.
Joseph J. Beacom
Well, the problem you've got there, if you're doing month-to-month, our fiscal months aren't consistent year-over-year, so I don't think we want to provide that information, because Thanksgiving -- it's just the way our months work. Thanksgiving and Christmas were in our December month this year, while last year Thanksgiving was in November.
I know it's hard to understand, but it really creates a noncomparable issue when you compare month over month. So those are -- it'd be misleading if I gave you the growth rates of load comps [ph] October, November, December over prior year.
It's just -- it's hard to decipher. For example, we have 20 business days this year in November, but last year it was 18.
Thanksgiving is generally a week -- kind of slower week. So good to try to stay awake and growing up month-to-month, but I will tell you that December picked volumes, there's no question.
Robert H. Salmon - Deutsche Bank AG, Research Division
I totally understand that. And I guess just getting back to the productivity of the BCO count.
Looks like Q4, you guys were about 25 loads per overall BCO, which is a step-up, and despite the headwind from a little bit lower BCO overall count. Can you talk about your expectations for improved productivity as you look forward from that fleet?
Joseph J. Beacom
This is Joe, Rob. I think productivity of the BCO is largely determined by the amount of freight in the system.
And as you know, they're making their own decisions day in and day out, a number of different things affect their decision, weather being one of them. So I mean, in theory, and in generally, historically, the more quality freight we put in system, the more load you'll see being hauled by BCOs as well as brokerage carriers.
And the way we present the quality of freight to them via the Internet or via their phone, via an app or however they want to look at it, it's really about getting the freight in the system and putting it in their hands as quickly as we can and that really is what drives utilization.
Operator
Our next question comes from Tom Albrecht with BB&T.
Thomas S. Albrecht - BB&T Capital Markets, Research Division
A real quick question. We know what happened with insurance last year.
How confident are you that it can return to that 5-year average of around 3.3% of revenues at the BCO line there?
James B. Gattoni
This year, just to point out a little bit what's going around this year is we had a couple of claims from prior years that had some unfavorable development. If you were to add up the quarterly numbers and I provided this quarter, it was $2.6 million unfavorable, we have probably around $9 million or $10 million worth of development -- unfair development of prior year claims in the 2013 number.
And that's all based on what Joe referred to as the pool of significant claims. And we've been able to shrink that pool of significant claims, which has more volatility throughout 2013.
So we're feeling a little bit better on the existing pool claims. But we anticipate if you look at any years $40 million to $50 million, and it's in the high end this year.
And we're probably -- it's so unpredictable, but you definitely hope to have a better year if we can avoid some of the significant accidents.
Henry H. Gerkens
Yes, how confident are we? I'm always confident in our safety record.
What I'm not confident in is the legal system. So you just never know what happens here.
But knock wood, we stay safe. As Joe and Jim alluded to, the number of significant claims have dwindled and those are the ones that create that volatility, largely create the volatility in those development of prior year claims.
So from that regard, we feel pretty good. But 3.3% as a 5-year average, we're at a high.
What are the odds next year we actually finished at the high? I don't know.
Probably a lot less, all right? But it's hard to say.
Thomas S. Albrecht - BB&T Capital Markets, Research Division
That $9 million to $10 million, it's never going to be 0. What's a normal?
$2 million or $3 million of reserves to prior year developments?
Henry H. Gerkens
If you looked at history we're actually been mostly favorable to prior years. This is just driven by 3 or 4 claims this year that just kept turning bad on us.
Operator
Our next question comes from Donald Broughton with Avondale Partners.
Donald Broughton - Avondale Partners, LLC, Research Division
I appreciate the plug earlier in your conference call. Indeed, we did put out a failure report.
Any of our paying buy-side clients want a copy of it, contact Avondale sales representative. That said, I know you're well aware of the admission rules change in California as of the beginning of the year.
You really can't drive an older that '08 model truck in and out of the sate. Has that affected your BCO operations in any way, shape or form?
Are you seeing better rates in and out of California? Are you seeing anything in the marketplace that reflects that change?
Joseph J. Beacom
Don, this is Joe. As far as the rates, I think it's a little bit early to tell because the rule just put into affect, but I think we have seen BCOs upgrade and get newer equipment, and we've seen some that have a kind of taken a wait-and-see approach as you would expect.
What we really encouraged our agents to do going back a year or more is to make sure that they can identify which BCOs have tractors that are carbon compliant, if you will, for California, as well as carriers. We have thousands of carriers in the system who have -- operating in California, in and out of California, so trying to find the right solution for the customer.
But clearly, BCOs are aware of it. Some have taken that active position to change it, and others are taking a little bit more wait-and-see approach.
Hence the huge truck market and the credit issue getting a little bit better for them.
Henry H. Gerkens
This is the last one.
James B. Gattoni
Last question.
Operator
Our final question comes from Cleo Zagrean with Macquarie.
Cleo Zagrean - Macquarie Research
My question is about how you think about repurchases as a contributor to your mid-teens EPS growth rate? And in terms of the other long-term targets that you put out there for gross profit growth and conversion to operating margin, what do you think we should see this year stack up compared to those long term goals?
Joseph J. Beacom
We schedule our buybacks about 2% to 5% of the outstanding based on what we project to be our free cash flow. And obviously, our goal was always, even for 2014, would be to push 70% of our incremental gross profit to nonoperating income.
Cleo Zagrean - Macquarie Research
What do you think would make that -- what gives you confidence about choosing that goal, given the challenges we've seen last year?
Henry H. Gerkens
I think -- this is Henry. I think we've bridged a lot of those challenges.
I don't think you're going to see the same fall-off in top 10 accounts. I think that comes back.
I think the top line growth as indicated by what we just forecasted for the first quarter and what we're seeing in January. So again and knowing our model, I mean if I can generate that top line, I've got a margin, a gross profit margin I'm going to get that might be squeezed a little bit because of some brokerage fees, but at some point it might level off.
And that's going to fall to the bottom line. So I think we've got, coupled with the economic indicators, coupled with the region realignment, I do see Landstar basically generating more revenue, in which case once we generate that revenue, I believe you're basically going to see some of that stuff fall to the bottom line.
And that's really what's going to drive it. That coupled then with the stock repurchase program gets you to that mid-teen, if you will, EPS growth, which is what we're targeting also.
And that is it. Any final comments from anybody here?
No? Okay.
Thanks for tuning in. I know it was a little bit longer than we anticipated.
We had a lot of information to cover. But everybody have a great rest of the day, and I look forward to talking to everybody on our first quarter mid-quarter update call.
Thanks again.
Operator
Thank you for joining today's conference. That does conclude the call at this time.
Please disconnect your lines.