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Landstar System, Inc.$98.55$.80.82%

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 Landstar System Reports Record Quarterly Revenue of $893 Million and Record Quarterly Diluted Earnings Per Share From Continuing Operations of $0.94
   Wednesday, February 01, 2017 4:15:19 PM ET

Landstar System, Inc. (LSTR ) reported net income of $39.6 million, or $0.94 per diluted share, in the 2016 fourteen-week fourth quarter on revenue of $893 million. Landstar reported net income of $37.9 million, or $0.88 per diluted share, on revenue of $849 million in the 2015 thirteen-week fourth quarter. Revenue for the 2016 fourth quarter was the highest quarterly revenue in Landstar history while diluted earnings per share for the 2016 fourth quarter was the highest quarterly diluted earnings per share from continuing operations in Landstar history. Gross profit (defined as revenue less the cost of purchased transportation and commissions to agents) was $132.8 million in the 2016 fourth quarter compared to $126.4 million in gross profit in the 2015 fourth quarter. Operating income was $63.8 million in the 2016 fourth quarter and operating margin, representing operating income divided by gross profit, was 48.0 percent.

The Company’s fiscal year ends each year on the last Saturday in December. As such, the Company’s 2016 fourth quarter included fourteen weeks of operations whereas the 2015 fourth quarter included thirteen weeks. We estimate the extra week in 2016 contributed revenue of approximately $36 million. In comparison, however, the 2015 fourth quarter included $38 million of revenue from a special project for a customer in the automotive sector. That project ended at year end 2015.

Truck transportation revenue hauled by independent business capacity owners ("BCOs") and truck brokerage carriers in the 2016 fourth quarter was $832.2 million, or 93 percent of revenue, compared to $786.4 million, or 93 percent of revenue, in the 2015 fourth quarter. Truckload transportation revenue hauled via van equipment in the 2016 fourth quarter was $548.4 million compared to $481.4 million in the 2015 fourth quarter. Truckload transportation revenue hauled via unsided/platform equipment in the 2016 fourth quarter was $263.3 million compared to $285.6 million in the 2015 fourth quarter. Revenue hauled by rail, air and ocean cargo carriers was $48.7 million, or 5 percent of revenue, in the 2016 fourth quarter compared to $50.6 million, or 6 percent of revenue, in the 2015 fourth quarter.

Return on average shareholders’ equity was 28 percent and return on invested capital, representing net income divided by the sum of average equity plus average debt, was 22 percent in fiscal year 2016. Landstar purchased approximately 773,000 shares of its common stock during the fiscal year ended December 31, 2016 at an aggregate cost of $50.5 million. Currently, there are approximately 1,036,000 shares of the Company’s common stock available for purchase under Landstar’s authorized share purchase program. As of December 31, 2016, the Company had $245 million in cash and short term investments and $214 million available for borrowing under the Company’s senior credit facility.

In addition, Landstar announced that its Board of Directors has declared a quarterly dividend of $0.09 per share payable on March 17, 2017 to stockholders of record at the close of business on February 20, 2017. It is currently the intention of the Board to pay dividends on a quarterly basis going forward.

Commenting on Landstar’s 2016 fourth quarter results, Landstar’s President and CEO Jim Gattoni said, "I am very pleased with Landstar’s performance in the 2016 fourth quarter given the challenges of a low growth macro environment and more readily available capacity. Diluted earnings per share was $0.94 in the 2016 fourth quarter, the highest quarterly diluted earnings per share in Landstar history, other than the fourth quarter of 2013 when we had a significant, one-time gain on the sale of our former supply chain companies. 2016 fourth quarter revenue was $893 million, the highest quarterly revenue in Landstar history. Moreover, gross profit of $132.8 million in the 2016 fourth quarter was the highest quarterly Landstar gross profit in any quarter over the last ten years."

Gattoni continued, "The number of loads hauled via truck in the 2016 fourth quarter increased 11 percent over the 2015 fourth quarter, while the number of loads hauled via railroads, ocean cargo carriers and air cargo carriers increased 6 percent over the 2015 fourth quarter. There are a few factors impacting the comparison of the number of loads hauled via truck in the 2016 fourth quarter compared to the 2015 fourth quarter. As previously mentioned, the 2016 fourth quarter included an extra week. Additionally, in 2016, Christmas day fell on a Sunday whereas in 2015 it fell on a Friday, making the week prior to Christmas in 2016 more productive than the comparable week of 2015. We estimate that the extra week, plus the increased productivity due to the timing of Christmas, added approximately 30,000 loads to the 2016 fourth quarter, while the special project for the automotive customer that ended at the end of 2015 added 19,000 loads hauled via unsided/platform equipment to the 2015 fourth quarter. Excluding these items, we estimate the number of loads hauled via truck in the 2016 fourth quarter exceeded the 2015 fourth quarter by approximately 8 percent. As expected, revenue per load on loads hauled via truck was 4 percent lower in the 2016 fourth quarter as compared to the 2015 fourth quarter, mostly due to a somewhat softer freight environment and the impact of more readily available truck capacity."

Gattoni further stated, "Landstar executed well throughout fiscal year 2016 despite the tough industrial macro conditions and more readily available truck capacity that, along with the $100 million in revenue (51,000 loads hauled via truck) from the special project in 2015, made for difficult year-over-year comparisons. Revenue for 2016 was approximately $3.2 billion and gross profit was approximately $488 million, the second highest annual gross profit in Landstar history behind only 2015. Revenue in 2016 was provided on the strength of approximately 1,746,000 loads hauled via truck capacity, the highest number of loads hauled via truck in any year in Landstar history. These fiscal year 2016 achievements speak to the strength and depth of the Landstar network and ability to execute in almost any environment. I am pleased by our continued organic load volume growth and our ability to continue to attract productive agents and capacity to the network."

Gattoni continued, "The impact of potential changes in 2017 to U.S. trade, tax and other economic policies on the domestic and global economies contribute to a highly unpredictable environment for our industry. As such, I will not be providing annual revenue or earnings guidance for fiscal year 2017. As it pertains to anticipated costs and expenses, however, there are several specific assumptions we wish to highlight with respect to the 2017 fiscal year:

-- We continue to invest in the agent network and, as previously disclosed, are currently underway in a multi-year project aimed at increasing efficiencies, primarily through technology, at both Landstar and across all of our agent offices. We believe this initiative will support growth in the years to come. We expect the cost of this project to be in the range of $6.5 million to $9.5 million, or approximately $0.10 to $0.15 per diluted share, in fiscal year 2017. The cost of this initiative was $6.6 million in 2016, or $0.10 per diluted share.

-- We estimate that the costs of insurance and claims will approximate our historical average of 3.3 percent of BCO revenue.

-- We expect higher depreciation expense in 2017 as we have grown our trailer fleet and our trailer fleet is newer than it has been in recent years.

-- Certain bonus targets under the Company’s incentive compensation plan were not achieved in 2016, as operating income and earnings per share targets were not met. The achievement of a one-time target bonus payment in 2017 would result in approximately $7 million of bonus expense that was not included in 2016, and we could exceed that amount if we exceed our 2017 targets.

-- We have assumed no changes to the applicable U.S. statutory corporate income tax rate and, therefore, assume an effective income tax rate for the Company of 38.2 percent for 2017."

Gattoni further commented, "With respect to near term performance, during the first three weeks of the 2017 first quarter, we are experiencing growth in the number of loads hauled via truck, but at a somewhat lower rate as compared to the quarter-over-quarter volume growth rates experienced during the 2016 fourth quarter. I expect the number of loads hauled via truck in the 2017 first quarter to increase in a mid to high-single digit range over the 2016 first quarter. As it pertains to revenue per load on loads hauled via truck, rates appear to have stabilized over the last several months and I do not expect a significant change in the rate environment over the balance of the 2017 first quarter. As such, I expect revenue per load on loads hauled via truck in the 2017 first quarter to be equal to or slightly below the 2016 first quarter. Assuming the current environment continues throughout the 2017 first quarter, I anticipate revenue for the 2017 first quarter to be in a range of $725 million to $775 million. Assuming that range of estimated revenue and no material changes with respect to the expense assumptions set forth above, I would anticipate 2017 first quarter diluted earnings per share to be in a range of $0.70 to $0.75 per share. We believe that the potential changes to U.S. trade, tax and other economic policies will lead to a very interesting time for our industry. Regardless of the changes that may occur, Landstar’s variable cost business model performs well in almost any environment and I would expect Landstar to outperform industry fundamentals in the years ahead."

Landstar will provide a live webcast of its quarterly earnings conference call tomorrow morning at 8:00 am ET. To access the webcast, visit the Company’s website at www.landstar.com; click on "Investor Relations" and "Webcasts," then click on "Landstar’s Fourth Quarter 2016 Earnings Release Conference Call."

This earnings announcement, as well as an accompanying slide presentation, is available through the Company’s website at http://investor.landstar.com under "Presentations" and on a Form 8-K filed with the Securities and Exchange Commission.

The following is a "safe harbor" statement under the Private Securities Litigation Reform Act of 1995. Statements contained in this press release that are not based on historical facts are "forward-looking statements". This press release contains forward-looking statements, such as statements which relate to Landstar’s business objectives, plans, strategies and expectations. Terms such as "anticipates," "assumes," "believes," "estimates," "intention," "expects," "plans," "predicts," "may," "should," "could," "would," "will," the negative thereof and similar expressions are intended to identify forward-looking statements. Such statements are by nature subject to uncertainties and risks, including but not limited to: an increase in the frequency or severity of accidents or other claims; unfavorable development of existing accident claims; dependence on third party insurance companies; dependence on independent commission sales agents; dependence on third party capacity providers; decreased demand for transportation services; substantial industry competition; disruptions or failures in the Company’s computer systems; cyber and other information security incidents; dependence on key vendors; changes in fuel taxes; status of independent contractors; regulatory and legislative changes; catastrophic loss of a Company facility; intellectual property; unclaimed property; regulations focused on diesel emissions and other air quality matters; and other operational, financial or legal risks or uncertainties detailed in Landstar’s Form 10K for the 2015 fiscal year, described in Item 1A Risk Factors, and in 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 the Company undertakes no obligation to publicly update or revise any forward-looking statements.

About Landstar:

Landstar System, Inc. is a worldwide, asset-light provider of integrated transportation management solutions delivering safe, specialized transportation logistics services to a broad range of customers utilizing a network of agents, third-party capacity providers and employees. All Landstar transportation services companies are certified to ISO 9001:2008 quality management system standards and RC14001:2013 environmental, health, safety and security management system standards. Landstar System, Inc. is headquartered in Jacksonville, Florida. Its common stock trades on The NASDAQ Stock Market(R) under the symbol LSTR.

(Tables follow)

Landstar System, Inc. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
                                                                        Fiscal Years Ended                    Fiscal Quarters Ended
                                                                        December 31,       December 26,       December 31,       December 26,
                                                                        2016               2015               2016               2015
Revenue                                                                 $      3,167,634   $      3,321,091   $      892,829     $      848,602
Investment income                                                              1,502              1,396              402                353
Costs and expenses:
Purchased transportation                                                       2,415,663          2,551,343          684,918            651,030
Commissions to agents                                                          264,205            270,260            75,130             71,147
Other operating costs, net of gains/losses on asset sales/dispositions         29,702             31,618             8,218              7,230
Insurance and claims                                                           57,280             48,754             14,485             11,144
Selling, general and administrative                                            143,239            149,704            37,028             37,907
Depreciation and amortization                                                  35,796             29,102             9,687              7,849
Total costs and expenses                                                       2,945,885          3,080,781          829,466            786,307
Operating income                                                               223,251            241,706            63,765             62,648
Interest and debt expense                                                      3,794              2,949              1,069              741
Income before income taxes                                                     219,457            238,757            62,696             61,907
Income taxes                                                                   82,107             91,068             23,122             24,052
Net income                                                              $      137,350     $      147,689     $      39,574      $      37,855
Earnings per common share                                               $      3.26        $      3.38        $      0.95        $      0.89
Diluted earnings per share                                              $      3.25        $      3.37        $      0.94        $      0.88
Average number of shares outstanding:
Earnings per common share                                                      42,112,000         43,664,000         41,805,000         42,729,000
Diluted earnings per share                                                     42,236,000         43,813,000         41,938,000         42,849,000
Dividends per common share                                              $      0.34        $      0.30        $      0.09        $      0.08
Landstar System, Inc. and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
(Unaudited)
                                                        December 31,         December 26,
                                                        2016                 2015
ASSETS
Current assets:
Cash and cash equivalents                               $      178,897       $      114,520
Short-term investments                                         66,560               48,823
Trade accounts receivable, less allowance
of $5,161 and $4,327                                           463,102              462,699
Other receivables, including advances to independent
contractors, less allowance of $5,523 and $4,143               18,567               18,472
Other current assets                                           10,281               11,604
Total current assets                                           737,407              656,118
Operating property, less accumulated depreciation
and amortization of $190,374 and $182,591                      272,843              225,927
Goodwill                                                       31,134               31,134
Other assets                                                   55,207               78,339
Total assets                                            $      1,096,591     $      991,518
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Cash overdraft                                          $      36,251        $      35,609
Accounts payable                                               219,409              223,709
Current maturities of long-term debt                           45,047               42,499
Insurance claims                                               26,121               19,757
Other current liabilities                                      53,483               47,963
Total current liabilities                                      380,311              369,537
Long-term debt, excluding current maturities                   93,257               81,793
Insurance claims                                               26,883               21,477
Deferred income taxes and other non-current liabilities        53,583               52,474
Shareholders’ equity:
Common stock, $0.01 par value, authorized 160,000,000
shares, issued 67,585,675 and 67,391,616 shares                676                  674
Additional paid-in capital                                     199,414              195,841
Retained earnings                                              1,512,993            1,389,975
Cost of 25,747,541 and 24,972,079 shares of common
stock in treasury                                              (1,167,437 )         (1,116,765 )
Accumulated other comprehensive loss                           (3,089     )         (3,488     )
Total shareholders’ equity                                     542,557              466,237
Total liabilities and shareholders’ equity              $      1,096,591     $      991,518
Landstar System, Inc. and Subsidiary
Supplemental Information
(Unaudited)
                                                                 Fiscal Years Ended                                             Fiscal Quarters Ended
                                                                 December 31,                           December 26,            December 31,           December 26,
                                                                 2016                                   2015                    2016                   2015
Revenue generated through (in thousands):
Truck transportation
Truckload:
Van equipment                                                    $                 1,900,406            $         1,894,221     $         548,426      $        481,397
Unsided/platform equipment                                                         963,649                        1,109,356               263,280               285,589
Less-than-truckload                                                                74,530                         80,687                  20,464                19,390
Total truck transportation                                                         2,938,585                      3,084,264               832,170               786,376
Rail intermodal                                                                    103,721                        105,347                 26,734                28,659
Ocean and air cargo carriers                                                       78,513                         86,664                  22,013                21,939
Other                                                                              46,815                         44,816                  11,912                11,628
                                                                 $                 3,167,634            $         3,321,091     $         892,829      $        848,602
Revenue on loads hauled via BCO Independent Contractors
included in total truck transportation                           $                 1,488,925            $         1,522,513     $         402,077      $        381,643
Number of loads:
Truck transportation
Truckload:
Van equipment                                                                      1,179,183                      1,102,654               331,975               282,431
Unsided/platform equipment                                                         451,686                        485,993                 120,460               126,224
Less-than-truckload                                                                115,521                        112,363                 31,205                28,525
Total truck transportation                                                         1,746,390                      1,701,010               483,640               437,180
Rail intermodal                                                                    48,820                         45,060                  12,700                12,710
Ocean and air cargo carriers                                                       20,690                         18,060                  5,780                 4,740
                                                                                   1,815,900                      1,764,130               502,120               454,630
Loads hauled via BCO Independent Contractors
included in total truck transportation                                             865,430                        826,600                 234,550               210,190
Revenue per load:
Truck transportation
Truckload:
Van equipment                                                    $                 1,612                $         1,718         $         1,652        $        1,704
Unsided/platform equipment                                                         2,133                          2,283                   2,186                 2,263
Less-than-truckload                                                                645                            718                     656                   680
Total truck transportation                                                         1,683                          1,813                   1,721                 1,799
Rail intermodal                                                                    2,125                          2,338                   2,105                 2,255
Ocean and air cargo carriers                                                       3,795                          4,799                   3,808                 4,628
Revenue per load on loads hauled via BCO Independent Contractors $                 1,720                $         1,842         $         1,714        $        1,816
Revenue by capacity type (as a % of total revenue);
Truck capacity providers:
BCO Independent Contractors                                                        47                %            46        %             45        %           45       %
Truck Brokerage Carriers                                                           46                %            47        %             48        %           48       %
Rail intermodal                                                                    3                 %            3         %             3         %           3        %
Ocean and air cargo carriers                                                       2                 %            3         %             2         %           3        %
Other                                                                              1                 %            1         %             1         %           1        %
                                                                                                                                December 31,           December 26,
                                                                                                                                          2016                  2015
Truck Capacity Providers
BCO Independent Contractors                                                                                                               8,824                 8,907
Truck Brokerage Carriers:
Approved and active                                                                                                                       31,471                29,728
Other approved                                                                                                                            15,982                14,715
                                                                                                                                          47,453                44,443
Total available truck capacity providers                                                                                                  56,277                53,350
Trucks provided by BCO Independent Contractors                                                                                            9,439                 9,500
(1) Includes primarily reinsurance premium revenue generated by the insurance segment.
(2) BCO Independent Contractors are independent contractors who provide truck capacity to the Company under exclusive lease arrangements.
(3) Active refers to Truck Brokerage Carriers who moved at least one load in the 180 days immediately preceding the fiscal quarter end.
Contact: Kevin Stout
Landstar System, Inc.
www.landstar.com
904-398-9400

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