Strength in truckload demand has held up through the first few weeks of 2021, according to management at freight broker Landstar System Inc. (NASDAQ: LSTR).
The Jacksonville, Florida-based company held a call with analysts Thursday to recap its fourth-quarter performance and outline its outlook for the new year. After the market closed Wednesday, Landstar reported record earnings per share of $1.70 for the fourth quarter. Excluding 31 cents per share in buyout expenses related to legacy compensation plans with independent sales agents, the company cruised past consensus of $1.73.
Landstar President and CEO Jim Gattoni said the positive trends in the TL market appear likely to continue through the first half of the year. However, Gattoni admittedly has a more pessimistic view for the back half of 2021. Unlike some analysts that are calling for a prolonged period of high demand and elevated spot rates, Gattoni thinks the current spot market cycle will taper by summer.
He pointed to the spike in truck orders, driver wage increases and double-digit contractual rate hikes as well as history as reasons why freight will begin to shift from spot to contractual agreements.
While the market could turn later this year, that’s not the case currently. Many of the sectors Landstar’s capacity providers serve surged in the quarter. Consumer durables (+48%), automotive (+36%), building products (+29%) and substitute linehaul service (+120%) were the leaders. Even revenue from heavy industrial shipments like metals (+3%) and machinery (flat) have turned the corner on a year-over-year comparison.
The year-over-year increase in loads hauled by truck accelerated throughout the quarter: October (+10%), November (+13%) and December (+15%). Revenue per load followed the trend: October (+15%), November (+17%) and December (+18%).
Landstar’s substitute linehaul service – TL service for large parcel and small package transportation providers – started picking up in August, compared to the typical November ramp. Dispatched volumes rose 20% year-over-year in November and December to support a surge in e-commerce demand during the holiday season. “Very strong levels,” similar to those seen in September and October, are expected to remain in place throughout the first quarter.
Flatbed revenue turned positive for the first time in 2020 during the fourth quarter, up 12% year-over-year. The increase was led by a rise in automotive production, construction and consumer durables demand. Management believes another step up in manufacturing or some sort of infrastructure plan could drive flatbed demand higher, offsetting the tough dry van comps later this year. Landstar sees about a third of its revenue from unsided equipment.
Total truck loads were up 13% year-over-year in the quarter with truck revenue per load up 17%.
Capacity continued to flow back into the Landstar network. The number of business capacity owners increased 7% year-over-year and 4% sequentially. Total truck capacity providers increased 20% year-over-year and 8% from the third quarter.
First-quarter guidance ahead of expectations
Management’s first-quarter guide calls for loads hauled by truck to increase in the high-single-digit percentage range and revenue per load to be up by mid-teen percentages. Net revenue margin is expected to be between 14.8% and 15%.
Consolidated revenue is forecast to be in a range of $1.1 billion to $1.15 billion with EPS of $1.55 to $1.65. Both are ahead of current consensus of $1.06 billion and EPS of $1.45, respectively.
Management said the goal is to still get to a 50% operating margin, which Landstar defines as operating income divided by gross profit, but said that it may take three to four years to accomplish. Increases in insurance expense, IT spend and depreciation are some of the headwinds, but offsets like the discontinuation of COVID-related bonus payments and the restructured comp plans will smooth out the expense line.
Landstar generated $211 million in cash flow from operations in 2020, ending the fourth quarter with $190 million in net cash. The company paid a $2-per-share special dividend on Jan. 21, similar to the amount paid in January of 2020. Landstar repurchased $116 million of stock and ended the year with a 13% debt-to-capital ratio.
Shares of LSTR were up slightly in midday trading Thursday, trailing the S&P 500, which is up 2%.
