Overdrive Extra

Max Heine

Landstar shows how to make it work

| July 16, 2009

Anyone who thinks the owner-operator business model can’t rebound from the prolonged downturn, rising costs and other factors should take note of Landstar System. The nation’s largest owner-operator carrier reported its second-quarter earnings Wednesday.

Of course, business was down, as it has been everywhere. Revenue dropped 30 percent from a year ago, and earnings dropped from 56 cents per share to 35 cents per share.

But this isn’t a business model that compels its owners to fly to Washington, D.C., and beg for a few billion or so to tide them over. That 35 cents per share translates to an $18 million profit for the quarter. Furthermore, Landstar’s board declared a 13 percent increase (4.5 cents) in the company’s quarterly dividend.

Shareholders aren’t the only ones profiting. Its 8,000-plus owner-operators are among the highest-earning and safest leased operators in the business. If Landstar wasn’t treating them right, they’d leave in a heartbeat.

And if you want a deeper explanation of the fiscal side, here’s what Landstar President and Chief Executive Officer Henry Gerkens had to say in the company’s prepared statement:

“Irrespective of the current economic environment, Landstar continues to generate outstanding returns. Trailing twelve month return on average shareholders’ equity remained high at 35 percent and trailing 12-month return on invested capital (net income divided by the sum of average equity plus average debt) was 24 percent.

“Landstar’s net revenue margin, defined as revenue less purchased transportation and commissions to agents divided by revenue, was 17.2 percent, up from 15.3 percent in the 2008 second quarter. And, as a direct result of Landstar’s variable cost business model and other cost reduction actions taken in 2009, Landstar was able to generate an operating profit margin of 6.1 percent, despite the revenue decline.”

– Max Heine

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