Landstar System, Inc. (LSTR) Q1 2008 Earnings Report, Transcript and Summary

Good afternoon and welcome to Landstar System Incorporated first quarter 2008 earnings release conference call. (Operator instructions). Joining us today from Landstar are Henry Gerkens, President and Chief Executive Officer, Jim Gattoni, Vice President and Chief Financial Officer, Pat O’Malley, President Landstar Carrier Group and Jim Handoush, President of Landstar Global Logistics. Now I would like to turn the call over to Mr. Henry Gerkens, sir, you may begin.

Thanks Terry and good afternoon and welcome to the Landstar 2008 first quarter earnings conference call. A couple of housekeeping items before we start. First, I am going to limit today’s call to no more than one hour. As such my prepared comments will be a little shorter than usual. Secondly, I urge each of you to limit your questions to no more than two questions each when the question and answer period begins. Let me read the following statement. The following is a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward looking statements. During this conference call, I and other members of Landstar’s management may make certain statements containing forward looking statements such as statements which relate to Landstar’s business objectives, plans, strategies and expectations. Such statements are by nature subject to uncertainties and risks, including but not limited to the operational, financial and legal risks detailed in Landstar’s form 10K for the 2007 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. As you can see from our earning release, we have revised our segment disclosure by combining the Carrier Group and the Global Logistics Group segment into a single segment called transportation logistics. This presentation is more representative as to the structure and direction of the company. During our 2007 year end conference call, I stated that I anticipated that revenue would increase in the first quarter of 2008 over the first quarter of 2007 in a mid-single digit to high single-digit range and that diluted earnings per share for the first quarter of 2008 would be in the range of $0.41-$0.46 per share. I reiterated this guidance on our first quarter 2008 mid-quarter update call. Actual revenue for the 2008 first quarter increased approximately 6% over the first quarter of 2007 and was within our range of revenue guidance. Earnings per diluted share finished at $0.45 per share and was in the upper end of our range of diluted EPS guidance. Once again we had a very good quarter. The solid results were despite continued weakness in some of the same sectors that were weak all of last year. We continued to do things right and execute on our revenue producing strategies. New revenue brought in from productive agent additions, new customers, increased account penetration and increased revenue per load all contributed to our successful first quarter results. Revenue generated by our to 25 accounts represented 36% of total consolidated revenue in 2008 versus 32% in 2007. Revenue generated by our top 100 accounts represented 52% of consolidated 2008 first quarter revenue versus 50% in 2007. Revenue generated by our top 100 accounts in 2008 was approximately 16% greater than the revenue generated by these same accounts in 2007. Included in our top 100 accounts in the 2008 first quarter were 33 transportation and logistics companies. Revenue at these accounts increased approximately 13% quarter over quarter primarily due to increased substitute line haul revenue with certain carriers. US government revenue was down over $3 million entirely due to $3.4 million of FAA revenue included in the 2007 results and none in 2008. All automotive related revenue including revenue generated through 3PLs decreased 19% quarter over quarter. And despite that automotive shortfall, revenue increased approximately 6% quarter over quarter. Revenue hauled by BCOs represented 53% of total consolidated revenue in the 2008 first quarter versus 56% in the 2007 first quarter. Revenue hauled by BCOs increased slightly quarter over quarter as a slight decrease in the number of loads hauled was offset by a 3% increased in the average revenue per load. Truck brokerage revenue represented 38% of consolidated revenue in 2008 versus 36% in the 2007 first quarter. Revenue hauled by truck brokerage carriers increased 11% quarter over quarter as the number of loads hauled by truck brokerage carriers increased 3% and the revenue per load increased 8%. Revenue generated through rail, ocean and air cargo carriers represented 8% of consolidated revenue in the 2008 first quarter versus 7% in the 2007 first quarter. Revenue hauled by rail intermodal carriers increased 25% quarter over quarter and revenue generated by ocean cargo carriers increased 41% quarter over quarter and more than offset a decline of $1 million in revenue hauled by air cargo carriers. Gross warehouse billings was approximately $900,000 which represented $85,000 of revenue in the 2008 first quarter versus approximately $77,000 of gross billings in the 2007 first quarter which represented approximately $8,000 or reported revenue. However, transportation revenue associated the above warehousing billings was approximately $3.8 million in 2008 first quarter versus only $17,000 in the 2007 quarter. We ended the 2008 first quarter with 1,375 agent locations as compared to 1,338 at the end of the 2007 first quarter. There were 237 agent additions added in 2007 and 2008 that generated approximately $22 million of new revenue in the 2008 first quarter. There were 1,138 agent locations open in both the 2007 and 2008 first quarters. Revenues at these agencies increased 5% quarter over quarter. I will now turn it over to Jim for his Financial review.

Thanks Henry. Revenue increased approximately 6% in the first quarter of 2008 to $609 million compared to $577 million in the 2007 first quarter. Revenue hauled by truck capacity, capacity provided by BCO independent contractors and truck brokerage carriers increased 5% over the 2007 first quarter while revenue hauled by rail and ocean increased 25% and 41% respectively over the 2007 first quarter. Investment income was approximately $1.1 million in the 2008 quarter compared to $1.7 million in the 2007 period. The $644,000 decrease in investment income was attributable lower average investments held by the insurance segment in the 2008 first quarter and the decrease in the rates of return on those investments. Purchased transportation was 76.4% of revenue in the 2008 first quarter compared to 75.3% in the 2007 first quarter. The increase in purchased transportation as a percentage of revenue was primarily attributable to increased less than truck load substitute line haul revenue hauled by truck brokerage carriers and increased revenue hauled by rail and ocean carriers which tend to have a higher cost of purchased transportation. Commissions to agents were 7.7% of revenues in the 2008 quarter compared to 8.1% in the 2007 quarter. The decrease in commissions to agents as a percentage of revenue was primarily attributable to increased less than truck load substitute line haul revenue and increased revenue for hauled by rail and ocean carriers, all of which have a lower commission rate resulting from a lower gross profit, representing revenue less of cost of purchased transportation. Other operating costs were 1.1% of revenue in the 2008 quarter compared to 1% in the 2007 quarter. The increase in other operating costs as a percentage of revenue was primarily attributable to a favorable settlement in the 2007 first quarter of a disputed property tax position with one of the states in which the company operates and $979,000 in gains on sales of trailing equipment in the 2007 first quarter. Insurance and claims costs were 1.6% of revenue in the 2008 quarter compared to 3% in the 2007 quarter. The decrease in insurance and claims as a percent of revenue was primarily attributable to a $5 million charge for the estimated cost of a severe accident in the first quarter of 2007 plus decreased frequency and severity of accidents in the 2008 first quarter compared to the 2007 first quarter. Selling, general and administrative costs were 5.9% of revenue in the 2008 quarter compared to 5.8% of revenue in the 2007 quarter. The increase in selling, general and administrative costs as a percent of revenue is primarily attributable to an increase provision for bonuses under the company’s incentive compensation plans, partially offset by increased revenue. Depreciation and amortization was 0.8% of revenue in both the 2008 and 2007 first quarters. Interest and debt expense was approximately $2.1 million in the 2008 quarter compared to $1.6 million in the 2007 quarter. The increase in interest expense was primarily attributable to increased capital lease obligation for trailing equipment. The effective income tax rate was 38.9% in the 2008 quarter compared to 38.8% in the 2007 quarter. The increase in the effective income tax rate was primarily attributable to an increase in state tax, primarily Texas and Michigan which beginning in 2008 initiated a gross receipts tax on revenue which is significantly higher than the income tax historically charged to the company by those two states. Operating margin for the 2008 first quarter was 6.7% compared to 6.4% in the 2007 first quarter. Operating margin in the 2007 period was impacted by the estimated cost of one severe accident of $5 million, offset by $979,000 in gains on sales of trailing equipment, an $800,000 recovery of a previously disputed property tax issue with one of the states in which the company operates and $1 million of operating income from revenues generated for disaster relief service under the contract between Landstar Express America and the Federal Aviation Administration. In addition, there was no provision for bonus under the company’s incentive compensation plans reported in the 2007 first quarter. Net income in the 2008 first quarter was $23.7 million or $0.45 per diluted share compared to $21.6 million or $0.38 per diluted share in the 2007 quarter. As previously mentioned, operating income was impacted in the 2007 first quarter by several items, including the estimated cost of a severe accident, gains on trailer sales, a recovery of a disputed property tax position and operating income from disaster relief services. Also as previously mentioned, there was no bonus provision for the bonuses in 2007 first quarter. Overall there was little impact resulting from these items on quarter over quarter diluted earnings per share comparisons. Looking at our balance sheet, we ended the quarter with cash and short term investments of $105 million. During the 2008 first quarter, Landstar reduced long term debt by $17 million since the 2007 fiscal year end. Cash flow from operations was $34 million during the 2008 first quarter. The company has authorized the purchase of 734,000 shares of common stock under its most recently authorized share purchase program. Shareholder’s equity represents 59% of total capitalization at the end of the 2008 first quarter and 2008 trailing 12 month return on equity remains high at 53%. Henry, back to you.

Thanks Jim. I am excited about the remainder of 2008. Our ability to execute on our revenue growth strategies should continue to generate increased revenue. It is all about execution and focus. Our agent pipeline remains full and we will concentrate on adding new productive agent locations. We will continue to bring on new customers and further penetrate our existing customer base by offering a full array of transportation and logistics services. Additionally, we will seek to penetrate other markets. As we enter the 2008 second quarter, I see little change in freight demand. However, I do see a tightening capacity market and a stronger pricing environment. I anticipate the 2008 second quarter to be similar to that of the 2008 first quarter. As such, I would anticipate revenue growth for the second quarter of 2008 over the second quarter of 2007 to be in a mid to upper single digit range and earnings per diluted share to be in a range of $0.51-$0.57 per diluted share. For comparative purposes, it should be noted that the 2008 EPS guidance that there is approximately $0.02 per diluted share of cost related to bonus accruals not in the 2007 second quarter. In addition the 2007 second quarter included a total of approximately $0.02 per diluted share of income related to gains on sales of equipment and a legal fee recovery, none of which is contemplated in the 2008 quarter. With that Terry we’ll turn it over for questions.

(Operator instructions). Our first question will come from Ed Wolfe, Wolfe Research. Ed Wolfe – Wolfe Research: Thanks, good afternoon guys. Jim was going pretty quick so I’m sorry if you said it and I missed it but can you talk about what the FAA FEMA revenue was in the quarter and what the operating income and also the year ago and then talk about what you’re expecting or what’s in your guidance for second quarter and going forward.

Okay, it’s about, Jim you can correct me, it’s about $3.4 million of revenue included in 2007 and nothing in 2008. That equates to about $0.01 a share from on an EPS basis and again zero in 2008. There is nothing factored in our forecast for FAA. That contract has not been awarded to anybody at this point in time so there’s nothing factored into any of our EPS numbers or revenue numbers. Ed Wolfe – Wolfe Research: I would assume you know God forbid there’s a disaster even though they haven’t re-awarded it that you’re still the standing provider of those services, is that how you’re treating it or not?

Let’s put it this way, I don’t like to assume much but I would, if I were the government yeah I would turn to Landstar. Ed Wolfe – Wolfe Research: You stopped breaking out the corporate overhead, can you give us a sense of what that number was for the quarter and how it was apportioned between transportation and insurance?

There is no apportionment between transportation and insurance, it all goes to transportation. Ed Wolfe – Wolfe Research: And what’s the number for the quarter? It was $12.6 million a year ago, one quarter 07.

$14.3. Ed Wolfe – Wolfe Research: $14.3, thanks guys I’ll get back in the queue, I appreciate it.

Our next question comes from Justin Yagerman, Wachovia Securities. Analyst for Justin Yagerman – Wachovia Securities: Hey good morning guys, this is Rob [Salmon] on for Justin Yagerman. I guess you guys had mentioned a little bit toward the end of your remarks about kind of an expectation for tightening of capacity out there, I was curious what you guys were seeing in terms of your interactions with some smaller carriers, what you’re currently seeing in the marketplace on that front.

Well a couple things, I mean we see even from our own BCO front as far as the more difficult to bring people in because there’s less people out there actually looking. People are exiting from our brokerage capacity aspect, it’s hard to tell because again we don’t know why people might be exiting, we have as you can see from our report, have increased our total capacity and increased our total brokerage capacity. But you know when an insurance renewal comes up and it doesn’t come on board, I mean we don’t know why that happened so I don’t want to make any assumptions but as I read various publications and talk to various people there’s clearly an indication that capacity is tightening as people go out of business. Actually I’m surprised it’s not worse at this point. Analyst for Justin Yagerman – Wachovia Securities: Fair enough. On the OR front you guys had kind of improved actually OR sequentially 30 basis points in a very challenging environment, I was kind of curious what cost buckets you know that are out there still in terms of trimming and if you could just speak a little bit in terms of just kind of your philosophy on that front.

Well I think you know one of the things that we do here at Landstar you know we are constantly looking at trying to look for efficiencies in productivity. And as you see some of the things that we’ve done with the combining of the segments which is more of a directional move on Landstar’s part that it’s really the way we’re operating the business as we go forward. You know there’ll be more efficiency gains and more productivity gains as we go through that process. I’ve said many times before that I would anticipate another full one percentage point of operating margin gain over a period of time. I can’t, I’m not going to say it’s going to occur in the second quarter, third quarter, fourth quarter but I think when you look over and continue to find, you’ll see Landstar improve its margin by 1 full percentage point and I think we’ve proven that over time. So you know we constantly work quarter to quarter to try to improve that margin, obviously we work on safety a lot and safety has a huge impact on our margin. But you know that’s how I’d respond to that question.

Our next question comes from Jon Langenfeld, Baird. Jon Langenfeld – Robert W. Baird: Thanks for having the call. Henry if the environment does take another big turn down, what sort of levers do you have left to pull internally? Have you given thought to that?

Yeah I mean there’s things we can do. I mean we don’t think quite frankly that and a couple of things Jon, the economy shrinks even further, although I don’t think, I believe personally we’re close to turning it around. I mean when you look at our results, you know I’ve got four, six consecutive quarters now of increase, not quarters but six consecutive months of revenue where I’ve, where revenue has increased. So I see a little bit of a turn. I mean the housing market still depressed, the automotive as I explained, big issue for Landstar, had that been flat we would have had a really robust quarter. We’ve got a lot of good things happening. You know we have a variable cost structure here. I’m more concerned with concentrating on revenue, there is still freight being hauled so our job is to go out and get the revenue and the cost will take care of itself you know if that occurs. But I think we’ve got the team focused right is that the economy is one thing and we can’t control that so let’s just go out and get more business. Jon Langenfeld – Robert W. Baird: Okay, that’s good I mean I would agree with you in terms of being near the bottom. I was just curious on that front. So and my follow up would be, just as it relates to the intermodal side, you guys have continued to put up some very nice growth there, can you give us some more color in terms of what you’re seeing there, what type of products you’re hauling and what regions?

I’ll turn it over to Jim.

Yeah there’s been good growth on the intermodal side [unintelligible] the last several quarters and much of that pertains to a major recruiting [unintelligible] as I’ve discussed before. Some of the new agents we brought on, some of the smaller [IMCs] are looking to take advantage of the marketplace have reached out to us and we’ve had one large conversion in Chicago late last year. And as we bring on these new agents they’re bringing us into new product lines and new commodity groupings. So for the intermodal front, it’s very diverse in terms of the commodities we’re hauling and we’ll continue to see growth there as we continue to execute on our strategy of brining in new agents and in expanding the opportunities that we have. And there’s much initiative between the two operating companies, the capital lines on customers and our existing portfolio and looking at services including intermodal to them. Jon Langenfeld – Robert W. Baird: Very good, nice job on the quarter guys.

Our next question comes from Tom Wadewitz, J.P. Morgan. Tom Wadewitz – J.P. Morgan: Let’s see, I’ve got a question to start with here. On the pricing you talked a bit about the market, when do you think, how long do you think it takes given your views on capacity being taken out for pricing to really start to improve I guess talking to shippers you don’t get any sense that they’re looking at higher rates any time for quite a while. But you know.

When they can’t source capacity Tom the rates will go up and I think not to shortcut you Tom and clearly you can have another question but what we’ve seen if I can generalize form the flatbed arena, obviously our revenue per load if you will is probably up 5%. When I look at the van arena it’s basically held pretty flat, it hasn’t decline and I think that’s a telling sign also. Tom Wadewitz – J.P. Morgan: Okay so do you think it’s you know third quarter, fourth quarter where you really see pricing start to pickup meaningfully, is that kind of what you’re. I was looking for a little more sense of timing for when you think it might happen or are you saying it’s already happening now? Pat O’Malley: Tom, this is Pat O’Malley. On the platform side we’re already seeing that pricing opportunities that we’ll be able to take and I think you’ll see that through the balance of the year frankly and I think what Henry said about the van side is right on the money. It’s stabilized. Where we’ve seen kind of big declines and then little declines over the past year or so, it’s stabilized and I don’t want to make a similar prediction on the vans side, but certainly on the platform side, we’re already seeing that. Tom Wadewitz – J.P. Morgan: Right, okay great, that’s helpful. And then I guess the second one in terms of, you mentioned LT, your line haul revenue with LTL had picked up quite a bit and I don’t recall if you had that in fourth quarter or not but what do you think is behind that?

I think it’s a couple things, we’ve got some increased volumes with certain customers really is what it is and you know I’ve decided we’re not going to identify the customers anymore for their request and what not. But it’s literally due to a pickup in volume with certain customers. Tom Wadewitz – J.P. Morgan: Okay, great, fair enough, thank you for the time.

Next question comes from Todd Fowler, Keybanc Capital Markets. Todd Fowler – Keybanc Capital Markets: Henry or maybe Jim, could you guys go over again the impact of the bonus here in the first quarter and then what you laid out for going forward for the rest of 2008?

Yeah I think Jim will talk about the first quarter and I’ll give you what I think is needed for a proper comparison for the second quarter as it relates to our earnings forecast if you will. But go ahead Jim.

Basically if we hit targets for the year, your bonus is anywhere between $5-$6 million. Todd Fowler – Keybanc Capital Markets: For the full year?

Yeah and if you figure out you know quarterly, $1.5 million. Todd Fowler – Keybanc Capital Markets: Okay, so a couple, so maybe like $0.01 or so here in the first quarter.

Comes out to $0.02. Todd Fowler – Keybanc Capital Markets: Okay and then Henry for the guidance piece of that then?

Yeah and it ties in, what I had said at the close when I gave my $0.51 to $0.57 per diluted share estimate, you know we do have approximately $0.02 per share for bonus accruals in addition, you know if you go back to the second quarter of last year you will see in the 10Q that we had, gains related to sales of equipment which we don’t anticipate happening this year and a legal fee recovery. All of that added to $0.02 of income in the quarter. So if you add those two together you’re looking at a $0.04 type of item if you will when you look at our guidance. Todd Fowler – Keybanc Capital Markets: That’s very helpful. And then for a follow up Henry I was hoping you could talk a little bit about how the profitability in the different logistics offerings and then I think what I’m sensing is as we see faster growth in some of the intermodal and the forwarding businesses that maybe those are slightly lower margin on an operating margin basis than the core trucking services, so I was wondering if you could talk a little bit directionally is that correct and do you gain any efficiencies to any of those businesses continue to grow where you get some pricing leverage and some expanding margins and as those businesses are bigger on a standalone basis.

Yeah I think you know when we laid out the presentation it’s the way we’re going to run our business. If I look at the business capacity, owners for example, if I looked at something called net margin, you know the BCO business, it’s about 21.5% in the 2007 first quarter versus 21.7% in the first quarter of this year. And if I go all the way down to the brokerage carriers for example, that net margin was 7.2% in the first quarter of last year versus 6.6% this year and that’s all that the client if you will is all due to increased revenue in one particular part of the truck brokerage which is the substitute line haul business which the margin tends to be a lot smaller and we had a pretty big pickup in there. Rail intermodal, margin there, 4.5% last year, 2.9% this year and that really is due just to higher pricing that we’re getting charged and Jim do you want to comment on that?

That’s something that we’ve seen over the last four to eight quarters as we’ve taking price increases from most of the rail carriers. A lot of that’s passed onto customers and some is not based on the contractual obligations that we have.

Yeah and to comment further on that Todd, when you look at that, again the first reaction is well your net margin is better on the BCO business and in general that is correct. But again you can see the, as more of my business becomes more geared towards other than BCO business, I have less of an insurance exposure if you will and you can see that you have some pickup in the insurance line and some other lines, other operating costs for example that are not included in this net margin number. So the bottom line that I’ve always looked at is the more revenue I can put on and pour over my relatively fixed SG&A line which is what we look at, you know I’m going to drop more money to the bottom line and hopefully get better leverage on the SG&A line. So you know the presentation I think is correct, it’s how we’re running our business and those are the types of margins you’re looking at.

Our next question comes from David Campbell, Thompson, Davis & Co. David Campbell – Thompson, Davis & Co.: Henry, David Campbell speaking, how are you. Despite the fact that you said your operating margins should trend up over a period of time, it looks like in the second quarter your target is $0.51-$0.57 earnings is about the same operating income margin as you had in the first quarter despite the fact there should be more revenue in the second quarter. Is there some unusual, I mean is it just too difficult to say that every quarter that’s going to be up?

Well I think I’ve said many times David that I can’t predict an individual quarter as far as when you’re going to see that and whether does it go up all the time, I think you’ll see some times where it goes one way and it depends on revenue mix. I’ve explained in my comments that if you look at or example in the second quarter in 07, you had $0.02 per diluted share related to gains on sales of equipment and a legal fee recovery that is not going to be in 2008, so that obviously impacts that and you’re going to offset that. You know it really depends on the revenue mix, alright and, but over a continuum of time, which is what I’ve always said, you will see improvement in our margin. In fact if you go back and look at that over a continuum of time from the five years prior to 2007, we’ve picked up a 2 full percentage points on margin. So you know it just depends on where it falls. I mean it’s a longer term directional statement that I make. David Campbell – Thompson, Davis & Co.: Were you providing restated P&Ls for last year in an 8K or anything like that?

Well the P&L, the consolidated statement of income remains the same. As far as the segment data, I mean the segment data really if you add the logistics segment and the old carrier group segment and the corporate piece and you get the numbers. I mean there’s no magic to that. Jim you can answer that question.

The only information that’s not available is the revenue per load and the lumber loads by mode. Everything else you just simply add the three columns together that we used to report. The insurance segment remains unchanged, everything else rolls into the transportation segment. David Campbell – Thompson, Davis & Co.: Okay, thanks. Do you have any estimates for the whole year and any target earnings estimate for the whole year?

We only comment on that once a year, we did that at the beginning and I think that’s in our first quarter or our year end press release. David Campbell – Thompson, Davis & Co.: Okay so that, as far as we know, that’s unchanged.

We don’t update year end guidance. David Campbell – Thompson, Davis & Co.: Okay, thank you.

Our next question comes from Tom Albrecht, Stephens Inc. Tom Albrecht – Stephens Inc.: Hey a couple of things. In the carrier, well the former carrier group, whatever you want to call it, DCOs, I noticed you’re no longer giving the rate for mile nor the length of haul, is there a way to get that still?

It’s not really what we use to run the business per se and it was done because you know on a certain things, I mean I have that from the carrier group standpoint and you know the length of haul really hasn’t changed all that much. The revenue per mile from the carrier group standpoint for example, the vans were virtually flat and it would have been, had I reported that $1.99 last year and $2.06 this year. Tom Albrecht – Stephens Inc.: Okay so that $2.06 is the consolidated that reflects the vans and the platform?

Yeah if I broke between the two it’s $2.28 to $2.47 and $1.82 to $1.80, so it’s virtually flat on the van side. Tom Albrecht – Stephens Inc.: Okay and then, so was there zero bonus accrual in the second quarter of 07, I heard you say zero for the first quarter of 07.

That’s correct. Tom and that’s why I gave, as far as trying to help people out as it relates to guidance of $0.51 to $0.57, you know there’s about $0.04 that actually impact that guidance when you think about the $0.02 approximately for bonus accruals and then last year we had two items that normally you don’t see with Landstar, gains on sales of equipment and we had a legal fee recovery which also added the $0.02, so you had a $0.04 item there for comparative purposes. Tom Albrecht – Stephens Inc.: Okay and then last question, it’s really a two parter. What percentage of your business is auto now and relative to the agents, I know you’ve been focusing maybe on just quality of the agent but it’s the second quarter in a row that sequentially the agents have come down, can you update us on your thoughts there, how much of that is the economy versus other efforts you have.

I think it’s a combination of a bunch of things and I’m sorry Jim go ahead.

Just the first part of that question, the automotives now about a little over 8%. Tom Albrecht – Stephens Inc.: Okay, great.

And the second part of your question Tom, you know when you look at last year and I think if you go back and look at the first quarter of 2007 as it related to 2006, you’d see a slight drop off in agent locations too as far as from the prior year. We have somewhere, 23-24 agent locations that have signed agreements that haven’t generated any revenues that we don’t include in the numbers. And you’re also partially correct in the fact that we are trying to make a concerted effort as far as to bring in some bigger hitters than we did before. But it’s all timing and I’m not concerned about that minor drop off at all. Tom Albrecht – Stephens Inc.: Okay, thanks very much guys.

Our next question will come from Jason Seidl, Credit Suisse. Analyst for Jason Seidl – Credit Suisse: Good afternoon guys, this is Alison [Pizek] in for Jason today. Just one quick question, what percentage of your agents are currently cross selling services, you know transportation and logistics and where do you expect that to trend?

I don’t and I’ll turn to each of my operating company presidents, there’s very few agents at the current time that are basically selling every mode of transportation. Now our, let me talk to my 495 agent locations that did over $1 million last year, I think those are the guys that will, that’s where you’ll get the people very interested in wanting to take advantage of this cross selling ability because those are your more successful agents. So I always looked at our, when I looked at my total agent base that it would be like the 80/20 rule, you have 20% of them that want to basically grasp everything and do everything and the other people might just be happy with what they do. Now we’ll try to convince more but I don’t know, Pat or Jim do you have any comments on that?

Yeah I think it’s really hard to put a percentage on it but there’s a lot of agents that work together that we don’t even know about but I can tell you just the activity level of opportunities that we do know of have accelerated over the course of the last 12 months and of course the last six months it was, both offering companies continued to kind of push that as an opportunity. You know so I think you’ll see that generate more and more opportunities for us over the course of the year and years. But it’s very difficult at this time to put a percentage on that at all.

Pat do you have any comments on that? Pat O’Malley: Well I think Alison what you’ll see is what Jim said is right on the money, progressively we’re getting more and more agents interested in serving their customer’s needs on every one of those modes and we’re doing some things internally to make sure that we can have our agents prepared and ready to do that form a sales standpoint and then from a fulfillment standpoint. So it’s about selling and executing and I think we’re working on that. The interest level from the agents is starting to increase and what Henry said is true, are we going to have every agent that’s selling every mode, I don’t think so. But we’ll have a significant number of them doing it over time. Analyst for Jason Seidl – Credit Suisse: Fair enough, thank you for your time.

Our next question comes from Matt Grady, Stifel Nicolaus. Analyst for John Larkin – Stifel Nicolaus & Co.: I’m standing in for John Larkin today, thanks for taking my two questions. First one just has to do with the revenue per load growth in the brokerage segment. Give me some sense for how that shakes out in terms of your price versus what might be fuel and mix?

The problem with trying to split that out and obviously there is some, it does reflect some fuel pricing in there is we don’t always, we don’t necessarily follow on the brokerage side how much we’re billing for fuel verse how much we’re billing per rig per mile. Some of the shippers just want us to build it into the rate and others just tell us they want to separate it out. So unfortunately I can’t answer that question. But you can assume that there’s some fuel cost built into that rig per load and if I were to guess, you’d probably see a similar increase in rate per load at the, similar to what the BCO rate per load increased would be what the brokerage would increase, you know give or take a couple points. Analyst for John Larkin – Stifel Nicolaus & Co.: Okay, thanks and second question, you mentioned earlier that safety can have a huge impact on the operating margin in any given quarter. It looked like in the first quarter you had a great performance from a safety standpoint, maybe if you could talk about how you were able to achieve that and how sustainable we should think about it being.

Well the last year’s first quarter we had one accident that we estimated to cost $5 million. Analyst for John Larkin – Stifel Nicolaus & Co.: Okay I mean I guess even netting that out, it seemed like a great quarter.

Yeah and I think you know it’s sort of like safety, the old line here is there’s no finish line to safety, just keep pushing safety. It happened to be safety Thursday where we had a nationwide conference call at 12 o’clock. But we continue to push safety. Obviously you know from just a pure revenue mix standpoint, the more revenue that is modes other than BCO it just has a greater affect on that percentage also. But it’s a safety culture, I can’t point to one thing that we do that says okay, you know, safety is going to turn on a dime in the next quarter, you just keep working at it and it’s built up over time. Now you will have accidents and sometimes those accidents cost a lot of dollars which is what occurred last year. But I don’t think our, I mean our safety culture here at Landstar is top notch and I think that’s why you see generally the great safety results. Analyst for John Larkin – Stifel Nicolaus & Co.: Excellent, thank you very much.

Our next question comes from Todd Fowler, Keybanc Capital Markets. Todd Fowler – Keybanc Capital Markets: Jumped back in there. So, Henry I was just curious if you’d talk about two things, I mean first about some of the trends that you saw during the quarter and maybe what you’re seeing a little bit more current here in April. And then the second piece is also if you could talk a little bit about any sort of kickback or any sort of rumblings that you’re hearing from the BCOs and the impact on fuel on them as far as how satisfied they are with the relationship with Landstar and what fuel is doing to your individual BCOs.

Well let me just talk about generally I mean I think as I’ve said before for the last six months and if I just looked at January, February and March, I mean revenue was up about 6% in March, it was up about 4% in February and it was up about 6% in March. So January it was 6%, February 4%, March 6%. You know and the one thing about March is you had Good Friday and Easter related in this year’s March where you know you had a sort of a negative impact if you will because of that holiday thing and even with that we grew 6% and even with the automotive decline. So you know we feel and I said the guidance of mid single digit to upper single digit, we feel pretty comfortable with at this point in time. I think we’ve got a lot of things going in the right direction. As far as your question on fuel, as you can see from our press release we passed back I think it was $57, $58 million of fuel surcharges that we collected on behalf of, from customers on behalf of our BCOs and that was an increase from the prior year first quarter of about 66% which is large. Our agents have done a very nice job of collecting fuel surcharges and passing that back to our capacity. The fact of the matter is however it’s probably not enough and we need to continue to go out to get those fuel surcharges because the cost of fuel is exorbitant and it hurts our BCOs without a doubt. So we will work very hard to continue to increase that number. Todd Fowler – Keybanc Capital Markets: Okay, good, thanks for the additional time.

(Operator instructions). Our next question comes from Adriano Almeida, DGHM. Adriano Almeida – DGHM: Hey guys. I have a quick one here, have you actually had any sort of explicit strategy to reduce the BCO count or is that just something that’s happening as a function of?

We don’t have any specific strategy as a matter of fact I want to increase our BCO count, I want to increase our brokerage count. I think what you’re seeing is the effect of the economy and you know as people leave it’s very difficult to get more qualified drivers on board and I think that’s the key to Landstar because our standards are a little bit above a lot of other companies out here and it takes a real businessman to be successful in Landstar and that’s part of the rationale or part of the issue as far as bringing the people in. Our turnover rate, if I were to 52 week annualize that, it’s running around 37-38% as I recall. Pretty good but not where we were at our all time low at 28% I believe back in 06. And I think that’s all due to the economy. Adriano Almeida – DGHM: Okay and I think you gave this but I didn’t catch it, your $1 million agent count has gone up year over year?

Yeah it was 495 at the end of 2007 and in 2006 it was 490. Adriano Almeida – DGHM: Okay just to get an idea here on, it’s related to these other two questions, is there something in kind of the mix as you do more brokerage that allows you to collect faster because one of the things that’s striking here is that your receivables turn keeps going up and I mean you haven’t really had accounts receivable growth even though you’re growing revenues pretty nicely and then this last quarter actually stepped down. Is there something that actually allows you to, that’s different from say BCO versus brokerage and your ability to collect?

It really just has to do with who the shipper is, not who the carrier is. So our historically our number of days sales outstanding runs between 45-50. So there’s nothing specific in there. Adriano Almeida – DGHM: Okay, alright thanks a lot guys.

Our next question comes from John Barnes, BB&T Capital Markets. John Barnes – BB&T Capital Markets: I’ve got two questions for you, the first one is, in terms of your BCO count, I think this is a bit of a follow up but you know is there a number where you started to get a little bit nervous about critical mass and I know you’re not anywhere near that right now, but, you know as the number continues to shrink or something you know is there a number you start to get more nervous about?

I haven’t really, John I got to tell you I don’t focus on that, obviously we want to increase our count. I think it’s a very difficult recruiting environment right now, but I wouldn’t even begin to guess where an issue would be as far as critical mass. John Barnes – BB&T Capital Markets: So you don’t believe you’re anywhere near that yet?

No. John Barnes – BB&T Capital Markets: Okay. The second question, in terms of, if the economy were to get weaker and you guys had to be a little bit more brutal on the cost structure, you know could you give us an idea from a headcount standpoint or something like that, you know how much more headcount could you pull out of the business if you needed to or do you feel like, you know you all have been a growth company so you’ve obviously staffed to be a growth company, you know if this downturn was a bit more prolonged you know is there 5-10% of headcount you could remove or would you?

In deference to employees that might be listening to this call, what we would probably do the first step if something really got bad was we would be just go on an attrition type thing and not replace people as people leave. But we’ve never and I’ve been here John since as you know 88 and have seen a couple of different cycles here as far as downturns, but we’ve never had to go that far. John Barnes – BB&T Capital Markets: Okay, alright, very good. Again, nice quarter, thanks guys.

Our next question comes from Donald Broughton, Avondale Partners. Donald Broughton – Avondale Partners: Can you give me just a little bit more, delve into your reasoning into the changing in the way you classified the breaking out of the business, I mean where are we going Jim, what are you trying to accomplish?

Donald as you know over the last three to five years we’ve centralized a lot of the administrative and operational functions. If you look back to the late 90’s and early 2000’s, the operating segments pretty much the leaders of those segments ran the business all the way from revenue down to operating income. As we’ve collapsed certain administrative functions within the entity and centralized those functions, we’ve basically, the support staff now for both carrier and global are the same people. So as you get to there you know the operating company president now spend more of their time managing revenue, agents than they do working, managing to the bottom line so we like to look at it from a mode standpoint and leave the costs to basically the administrative guys.

In addition to that Donald, what you’re seeing is you know as this push to move into a direction where all our agents have the ability to sell all product modes, I mean it also ties into our direction. Donald Broughton – Avondale Partners: So if I characterize it as you’re changing your reporting to more clearly or more reflect the way your internally looking at the business, is that a mischaracterization?

That’s exactly correct and it’s also from a future directional basis as far as how we’re going. So yes, it’s all correct. Donald Broughton – Avondale Partners: Alright and so I understood the addition part of what you were talking about with David, revenue per load though would be the only thing we shouldn’t back into historically, is that right?

Yes. Donald Broughton – Avondale Partners: Do you think you could supply that for us maybe going back at least eight quarter so just for modeling purposes, that’d be very helpful.

Alright we can, we’ll talk about that if you want to give me a buzz. We’re working on it. If we go back, we’re thinking about just doing 07 and maybe putting them out. Donald Broughton – Avondale Partners: Okay but the further you can go back obviously the better but any additional information would be helpful. Thank you gentlemen.

Our next question comes from Jon Langenfeld, Robert W. Baird. Jon Langenfeld – Robert W. Baird: Just a follow up on the revenue trends, Henry you were talking 6.4 and 6%, April, what would be your read on that?

So far, I would think what I’ve seen so far we’re probably hang in for this is two weeks now Jon, alright, my guess is we’re probably in the 6-7% range. Jon Langenfeld – Robert W. Baird: Okay and do you have any, I mean if you think about the environment and when it does improve, is there a part of your business you’re going to look to as to be the leading indicator? In terms of on the demand side.

Yeah, I think, well Pat you answer. Sometimes Jon I tend to boggle the answers, I don’t want to say something. The, what we would do is probably within the business capacity piece, business capacity owner piece and truck brokerage piece I would look at what we would call the expedited division to see if people are starting to ship more on an expedited basis that usually is a pretty good indication as far as what was happening. And you know based on what we can see it’s sort of like flat to the prior year which actually is much better than it was when you look back a year ago. So you know we think there’s a little bit of a change. And as I said when I look at our overall growth rate over the last six months, you know we’re seeing a change and as I said we’re pretty positive as far as looking for the back half or the balance of 2008. Jon Langenfeld – Robert W. Baird: And when did the express side flatten out, was that third or fourth quarter?

I’d probably say it was in the late fourth quarter. Jon Langenfeld – Robert W. Baird: Got it, okay, good enough, thank you.

Our last question will come from David Campbell with Thompson, Davis & Co. David Campbell – Thompson, Davis & Co.: Hi, thanks, just one last one, that’s the air freight business. I see it was down in the quarter. Is that something we should expect to continue or was there some unusual thing going on there?

No I don’t think you should expect that to continue, I think we had a couple pieces of business that’s off and on us, it’s been one agent no longer with us as well, we were able to retain that business. But the overall marketplace is strong, so I don’t anticipate that being a long term trend. David Campbell – Thompson, Davis & Co.: So you don’t see any particular weakness in air freight and the industry in general?

Well there’s some, if I broke out air freight on the domestic side versus the international side, the international side has a lot of growth in it. And obviously I mean we’re talking about a small base of our revenue as well and as we continue to execute on the strategy we’re looking at I mean there’s a lot of market share for us to take out there. David Campbell – Thompson, Davis & Co.: Right, I know. Okay, thank you.

One more question did appear, due to time restraints do you want to go ahead and take it?

Yeah, go ahead.

James Gray of Greenleaf Trust, your line is open. James Gray – Greenleaf Trust: Hi Henry, thanks for taking my call. I guess the question I have is based on your incentive comp that you mentioned, is there any indication that that wasn’t originally planned in your 2008 operating numbers that you indicated or would this be an incremental incentive comp plan over your original plans?

No there’s no incremental, it’s always the incentive comp plans are already pre-determined at the beginning of the year. James Gray – Greenleaf Trust: So it just wasn’t originally planned in your original estimate?

It was baked into the original estimates. James Gray – Greenleaf Trust: Okay, great, thank you very much.

At this time I show no further questions, I would like to turn the call back over to you sir for closing remarks.

Thanks Terry. My only closing remark is that I think Landstar is well positioned to take advantage of a lot of different things in the back half of the year, the remaining nine months of this year and we are pretty positive as far as going into the second quarter and beyond. Jim, do you have anything? No. Okay well I look forward to talking to you all on May 16th for our second quarter mid-quarter update call and thanks for dialing in and have a great afternoon, bye.

Once again, thank you for joining our conference call, have a good afternoon. Please disconnect your lines at this time.