Landstar System Inc

NASDAQ:LSTR

Earnings Call Transcript 2019-Q2

[Operator]

Good morning, and welcome to Landstar System's Second Quarter 2019 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 Jim Gattoni, President and CEO; Kevin Stout, Vice President and CFO; Rob Brasher, Vice President and Chief Commercial Officer; and Mr. Joe Beacom, Vice President and Chief Safety and Operations Officer.

Now I would like to turn the call over to Mr. Jim Gattoni. Sir, you may begin.

[Jim Gattoni, President and Chief Executive Officer]

Thank you, Missy. Good morning. 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, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies and expectations. Such information is 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 2018 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 information, and Landstar undertakes no obligation to publicly update or revise any forward-looking information. Landstar opened the 2019 second quarter faced with a decelerating rate of growth in year-over-year truck volumes and increased pressure on spot market pricing. Both truckload volume and revenue per load on loads hauled via truck were impacted by the continued softening of the spot market. We believe it has been due to slowing U.S. manufacturing production growth and increased available truck capacity. Also, the exceptional financial results of 2018 have made for very difficult year-over-year comparisons. During our 2019 first-quarter earnings conference call on April 24th, we provided revenue guidance of $1.075 billion to $1.125 billion. 2019 second-quarter revenue was $1.045 billion.

We also provided earnings per share guidance of $1.56 to $1.62 during our first-quarter earnings conference call. 2019 second-quarter diluted earnings per share was $1.53. On June 5th, we announced in a Form 8-K filed with the SEC that there was risk to Landstar achieving the low end of our second-quarter revenue and earnings guidance provided on April 24th. Our updated guidance in early June was a result of May truck revenue per load that fell below our expectations.

As our June update warned, revenue and diluted earnings per share fell short of the second-quarter guidance we provided during our first-quarter earnings conference call. Nevertheless, by historical standards, we remain in a relatively solid freight environment with Landstar continuing to perform at high levels. While 2019 second-quarter gross profit was $13 million lower than the 2018 second quarter, 2019 second-quarter gross profit exceeded the 2017 second quarter, previously second highest second-quarter gross profit in the company's history by $25 million or 19%. 2019 second-quarter operating income was $80.9 million also far exceeding any other second quarter in the company's history other than the 2018 second quarter.

And diluted earnings per share in the 2019 second quarter of $1.53 was the highest diluted earnings per share of any second quarter in Landstar history, exceeding even that of the 2018 second quarter. Turning back to the top line, year-over-year growth in revenue in both revenue per load and the number of loads hauled via truck began to decelerate toward the end of 2018. This weakening environment continued into 2019 with revenue per load beginning to decrease on a year-over-year basis in January, and the number of loads hauled via truck beginning to decrease on a year-over-year basis in April. Overall, 2019 second quarter truck revenue per load was 11% lower than the 2018 second quarter.

During the first half of 2019 beginning with January, month over prior-year month revenue per load on loads hauled via truck was 3%, 4%, 7%, 8%, 11% and 13% lower than each corresponding month of 2018. The increase in shortfall to prior year was due to increasingly difficult year-over-year comps as we moved through the quarter, along with the effects of softer spot market event and more readily available capacity during the 2019 second quarter. On a sequential basis, truck revenue per load increased from May to June at a somewhat -- at a rate somewhat consistent with historical seasonal patterns. Our shortfall to revenue guidance was also partially attributable to the actual truckload volume that was slightly below the volume anticipated in our April 24 guidance.

We also had a difficult year-over-year volume comparison with truckload volume in 2019 second quarter 1% below that of the 2018 second quarter. During the first half of 2019 beginning with January, month over prior-year month truckload volume was 5%, 2% and 1% above January, February and March of 2019, but 1% below 2018 in April and May and 2% below June 2018. From a historical standpoint, our truck revenue per load and truckload volumes continued to be generally strong. Truck revenue per load in the 2019 second quarter was among the highest second-quarter truck revenue per load in Landstar history.

And with respect to volumes, over the past three years, the number of loads hauled via truck has increased over 20% in comparison to 2016 second quarter, accumulative annual growth rate in excess of 6%. During the 2019 second quarter, services provided under fixed and variable gross profit margin arrangements contributed 51% and 49% of revenue, respectively. During the 2019 second quarter, lower truck rates as compared to the 2018 second quarter reduced gross profit on the company services that are contracted at a fixed gross margin while they ship to more readily available capacity lead to improve gross profit margins on services provided under variable gross profit margin arrangements. Overall, 2019 second-quarter gross profit margin increased to 15.1% compared to 14.5% in the 2018 second quarter.

The increase was mostly due to a 90-basis-point increase in the gross profit margin on revenue under variable gross profit margin arrangements mostly due to a lower rate of purchased transportation paid in track brokerage carriers. The nature of the company's incentive and equity compensation programs are designed to vary with annual financial performance and coincide with a variable cost nature of our model. As expected, 2019 second-quarter equity and incentive compensation was far below the amounts provided in the 2018 second quarter. Assuming current market conditions persist for the remainder of 2019, we expect that trend to continue.

As we continue to demonstrate less variable cost business model generally performs well with changes in business cycles, and I would say the results of the 2019 second quarter are no exception. Operating margin increased to 51.2% compared to 48.7% in the 2018 second quarter. Year-over-year comparisons will remain very difficult through the third quarter of 2019 given the outstanding performance of 2018 and the softening freight environment that began in late 2018. Although it's difficult to forecast long-term pricing conditions in the spot market, our recent trends indicate that pricing has return to more normal seasonal patterns with May to June and June to July pricing trends generally in line with normal patterns.

However, reduced demand or additional truck capacity entering the market could result in unfavorable fluctuations and normal seasonal patterns. In the near term, we expect the more recent trends experienced in June and early July to continue through the 2019 third quarter. As such, we expect truck revenue per load in the 2019 third quarter to be below the 2018 third quarter and a low double-digit percentage range and a number of loads hauled via truck to be below the 2018 third quarter in the low single-digit percentage range. Based on those expectations, I anticipate revenue to 2019 third quarter to be in the range of $1.010 billion to $1.060 billion.

Assuming that estimated range of revenue, I anticipate diluted earnings per share to be in the range of $1.48 to $1.54. We knew we'd be facing difficult year-over-year comparisons in 2019 due to the exceptional freight environment and extraordinary financial results of the company in 2018. Although demand from freight services has slowed and capacity has become more readily available as compared to 2018, I believe we continue to be in a relatively healthy freight environment. If we again look at our 2019 second-quarter results compared to those of 2017 second quarter, it is impressive to note just how much the company's performance exceeded the results of two years ago.

In addition to the growth in gross profit and operating income I previously mentioned, revenue in the 2019 second quarter exceeded the 2017 second quarter by $175 million or 20% unless our truck volumes in 2019 second quarter exceeded truck volumes in the 2017 second quarter by 9% or almost 45,000 loads. We continue to focus on profitable load volume growth and increasing our available capacity to haul those loads. We also remain focused on our priority to provide enhanced technology and industry-leading sales and operations support to all the independent business owners in Landstar network. We look forward to 2019 being another successful year at Landstar.

Here's Kevin to provide additional commentary on the 2019 second quarter.

[Kevin Stout, Vice President and Chief Financial Officer]

Thanks, Jim. Jim has covered certain information on our 2019 second quarter, so I will cover various other second-quarter financial information included in the press release. Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, decreased 8% to $158 million and represented 15.1% of revenue in the 2019 second quarter compared to $171.4 million or 14.5% of revenue in 2018. The cost of purchased transportation was 76.5% of revenue in the 2019 quarter versus 77.5% in 2018.

The decrease in purchased transportation as a percent of revenue was primarily due to a decrease in the rate paid to truck brokerage carriers and an increase in the percentage of revenue contributed by BCO independent contractors. The rate paid to truck brokerage carriers in the 2019 second quarter was 168 basis points lower than the rate paid in 2018 second quarter. Commissions to agents was 8.4% of revenue in the 2019 second quarter versus 8% in 2018 due to an increased net revenue margin, revenue less the cost of purchased transportation divided by revenue on loads hauled by truck brokerage carriers. Other operating costs were $9.9 million in the 2019 second quarter compared to $7.6 million in 2018.

This increase was primarily due to increased trailing equipment cost and increased contractor bad debt. Insurance and claims costs were at $16.3 million in the 2019 second quarter compared to $21.5 million in 2018. Total insurance and claims costs for the 2019 quarter were 3.4% of BCO revenue compared to 4.1% in 2018. The decrease in insurance and claims as compared to 2018 was due to reduced net unfavorable development of prior-year claims in 2019.

Unfavorable development of prior-year claims was $5.7 million and $1.5 million in the 2018 and 2019 second quarters, respectively. Selling, general and administrative costs were $41.3 million in the 2019 second quarter compared to $49 million in 2018. The decrease in SG&A cost was attributable to a decrease in the provision for bonuses under the company's incentive compensation plans and decreased stock compensation expense. Stock compensation expense was $1.4 million and $4.4 million in the 2019 and 2018 second quarters, respectively, mostly due to the impact of decreased earnings on our variable cost equity compensation arrangements.

The provision for incentive compensation was $900,000 in the 2019 second quarter compared to $5.4 million in the 2018 second quarter. Quarterly SG&A expense as a percent of gross profit decreased from 28.6% in the prior year to 26.1% in 2019. Depreciation and amortization was $11 million in the 2019 second quarter compared to $10.8 million in 2018. This increase was primarily due to the increased depreciation on information technology hardware and software and the increase in the number of company-owned trailers.

Operating income was $80.9 million or 51.2% of gross profit in the 2019 quarter versus $83.4 million or 48.7% of gross profit in 2018. Operating income decreased 3% year over year. The effective income tax rate was 23.8% in the 2019 second quarter compared to 24.3% in 2018. The effective income tax rate was favorably impacted in both periods by tax benefits resulting from employee equity compensation programs.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $285 million. Year to date cash flow from operations for 2019 was $184 million and cash capital expenditures were $9 million. During the 2019 second quarter, the company purchased approximately 550,000 shares of its common stock at an aggregate cost of approximately $57 million. There are currently 1,326,000 shares available for purchase under the company's stock purchase programs.

Back to you, Jim.

[Jim Gattoni, President and Chief Executive Officer]

All right, Kevin. Missy, we will now open up to questions.

[Operator]

[Operator Instructions] Our first question is from the line of Jason Seidl of Cowen and Company. Your line is now open.

[Jason Seidl, Cowen and Company]

Thank you, Operator. Hey, good morning, gentlemen. I just wanted to talk a little bit about the pricing side. You mentioned return to more seasonal patterns, but you gave a caveat obviously looking for a reduced demand or an increase in capacity.

What have you seen in terms of capacity in the marketplace out there? Are you looking for increased capacity come into the marketplace in this market?

[Joe Beacom]

Yeah. Jason, this is Joe. I don't think we're going to see a lot of increase, but I don't -- at this point, it doesn't look like we've seen much in the way of decrease either. So from a capacity standpoint, I'd say it would be kind of consistent with where it's been in Q2.

[Jason Seidl, Cowen and Company]

Okay. That's good color. The other thing, I wanted to see if you can talk a little bit more about the unsided/platform business. Obviously, that looked like it had more strength in the quarter.

Where you think that demand is coming from and sort of the outlook for that particular portion of your business?

[Rob Brasher, Vice President and Chief Commercial Officer]

Hey, Jason, this is Rob.

[Jason Seidl, Cowen and Company]

Hey, Rob.

[Rob Brasher, Vice President and Chief Commercial Officer]

Yeah. The platform side does looks stronger at this point. If you pull a heavy haul out, platform actually is performing about the same level as the van. So more on the heavy haul project side where we participate, that's kind of where you're seeing that influx in that number.

[Jason Seidl, Cowen and Company]

And how is the outlook for heavy haul right now in the back half of the year since it's more big project-type stuff? Do you have any sort of a view into that?

[Rob Brasher, Vice President and Chief Commercial Officer]

We feel it's kind of stabilized toward that. We don't see any highs, any lows right now. Most of that is project-driven, but we've got a -- we feel pretty good going into the back half of the year on the heavy haul side.

[Jason Seidl, Cowen and Company]

Let me squeeze one more in on cost. Obviously, you talked a lot about insurance and claims. How should we view that lightened going forward? I mean it's been down a lot and you have harder comps in the back half of the year in terms of -- it wasn't off as much as it was in the first half year in '18?

[Kevin Stout, Vice President and Chief Financial Officer]

Yeah, Jason. This is Kevin. Last year, as everyone knows, we had a bad unfavorable development year last year. We continue to believe that the 3.6% of BCO revenue is your best number to put into your model for Q3 and Q4.

[Jason Seidl, Cowen and Company]

Fantastic. Gentlemen, thank you for the time as always. I'll turn it over to somebody else.

[Operator]

Thank you so much. Our next question is from the line of Scott Group of Wolfe Research. Your line is now open.

[Scott Group, Wolfe Research]

Hey, thanks. Good morning, guys. So not a big change, but the BCO count just down slightly sequentially. What do you make of that and maybe what trends do you expect for third quarter? I know you said you don't expect capacity to be exiting the market, but the TL carrier seem to think that it's starting to happen, maybe the BCO count is an early sign that maybe it's starting to happen. Just curious on those questions.

[Joe Beacom]

Sure. Yes, Scott, this is Joe. So we've seen a great deal of interest in Landstar. The pipeline is very full, our ads are very strong, but determinations are also strong, and there you saw us lose 50 BCO trucks in the quarter.

So I think the retention side of things is what we're focused on to try to maintain truck count. I would see going forward that we're kind of expecting flattish in the third quarter. We still think there's going to be interest, but the environment, the change environment, the change in the price, I think there is an adjustment period going on, but I don't know that capacity is necessarily leaving the market. And on that carrier side where we've seen a decline in total carriers, that is really a function of not necessarily, in our view, carriers leaving the market, but are posting fewer loads to third-party boards where we have unapproved carriers seeing our loads and then coming in being approved.

So that volume of load postings externally decline, if you tend to see some level of decline in the approved carrier count. But our active count is off less than 1%, about 300 carriers from prior. So that's what we come up with the comment that we're really not seeing evidence here. The capacity is leaving the market.

I understand and read what some of the other guys are saying. I guess whether bankruptcy is taking hold, whether some of that stuff actually occurs, I guess we'll wait and see. But from where we're sitting today, capacity seems to be somewhat flattish overall.

[Scott Group, Wolfe Research]

So do you see risk of rates then taking another step down to get to the place where we will see capacity exit the market?

[Joe Beacom]

I don't know. It's hard to -- if it stays flat, maybe pricing stays kind of -- where is that, right? I think there have to be some sort of a catalyst to change capacity in a little bit more meaningful way to see much of a movement on price.

[Jim Gattoni, President and Chief Executive Officer]

I think when you -- when I put a little bit of disclaimer in my opening remarks about the unpredictability of spot markets, we are sitting at the end of April pretty consistent with trends to when we put out our guidance for the second quarter, and then May dropped off. We had about a negative -- from April to May, I think rates dropped off about 2.6%, when generally they're slightly up if you look at a 5-year history. And that was unexpected. So it's hard to really predict what's going to happen in the spot market.

Like Joe said, it's -- when you got a capacity side. But you also got the demand side, U.S. manufacturing is kind of key to some of the stuff we do. We're not heavy on the consumer good side.

And you look at the U.S. manufacturing and what's going on there, I mean it's growing at less than 1%. So there's little unpredictable analysis there that we just don't know where it's going to end up. So that's why the little disclaimer in the unpredictable spot market right now because we didn't anticipate that May dropped off, and we are almost through April.

[Kevin Stout, Vice President and Chief Financial Officer]

And you've also had one of the truck makers, I think forecast builds to be on the rise and some of that maybe was market share moving around. But -- so I think there's some mixed signals from what I see.

[Scott Group, Wolfe Research]

Okay. And then just -- we've seen the year-over-year decline and spots start to moderate just a little bit, are you seeing that shop in your rev per load year over year at all?

[Kevin Stout, Vice President and Chief Financial Officer]

Yes, Scott. We're -- like Jim said, we're seeing consistent sequential pattern going from June to July, which is up -- for pricing up 1% to 2%. So we've seen the other numbers out there, but we're not seeing a huge increases just yet.

[Jim Gattoni, President and Chief Executive Officer]

Yeah. The June -- remember June was off, I think I said 13%, July looks similar. So I think we're seeing a stabilized spot pricing right now based on the last two months. The two months doesn't really giving a lot of comfort, but at least it gives me some comfort.

[Operator]

Thank you so much. Our next question is from the line of Amit Mehrotra of Deutsche Bank. Your line is now open.

[Amit Mehrotra, Deutsche Bank]

Thanks, Operator. Hey, everybody. Appreciate the questions. I wanted to ask, yes, first and foremost, on the demand environment.

I think, Jim, you've talked about in the past kind of -- I know you guys operate in the spot market, but a lot of your loads and volume are kind of more relationship-based type business that's maybe a little bit stickier. So I guess in that context, is there any reason for some optimism in some snap back in volumes in the back half of the year. Obviously, we've had lackluster volumes in the first half, but still pretty healthy in absolute terms. But any optimism around where inventory levels are? What is the stickier aspects of your business kind of talking about with respect to back half volumes and kind of beheaded, kind of the peak selling season.

I think that will just be helpful given kind of the fast-moving data points that we're in today.

[Jim Gattoni, President and Chief Executive Officer]

Yeah. One of the things we look at is that's important to us. As you know, 30% of our business is on our trailer, right? So we do that drop and hook business. Unfortunately, with those -- the request for the volumes -- before they don't start coming in until the end of summer, so we're a little early on that.

But we don't see any -- we see probably a consistent maybe a little bit softer spot request coming in for trailers this year coming in the fourth quarter. The other stuff like heavy haul automotive government expedite cross-border, I just think it's going to be sluggish through the rest of the year the way it sits today. We don't see anything and see it's going to drop off or growth, unless we see a dynamic trend or some kind of strange move on the manufacturing in the U.S.

[Amit Mehrotra, Deutsche Bank]

Okay. Yeah, that makes sense. And then we've heard more and more about just digital brokers, and we're seeing some kind of asset-based carriers invest more and more in digital freight-matching platforms. So one, does that at all kind of change your strategy and pressure maybe temporarily the drop-through to operating income? I know it's something you've been whether is what connect or maximize or something you guys have been focused on for a while, but anything to call out from an investment standpoint as the digital platforms start to give more and more traction in the marketplace?

[Jim Gattoni, President and Chief Executive Officer]

No. I would say that we have the capability that they have, right? And what they do -- it's a pricing game, and we're well aware of the pricing game at their plan. We make our agents well aware of it, and that's what we do, right? You just got to be -- stay price-competitive. But our agents, we're not hearing a lot from the agents that they're in there.

We've heard a couple of scenarios where one of those digital freight guys have gotten into one of our customers. But then you hear other scenarios where they come back to us because the trucks just don't show up because in our world, I mean there's this belief out there that I think you'd put an app out and trucks just show up. And a lot of stuff we do, it's not the case, right? We're dealing with special handling and stuff like that. So it's a little bit different world.

But we're -- do I anticipate that over the next few years I'm going to put pricing pressure on it trying to build scale? Absolutely. But we feel we're prepared for that, and we -- eventually, you might have to get into the pricing game. But today, we're not seeing that. And it's -- our -- the spreads on our brokerage freight are kind of trending the way they would in the environment where in.

There's not unusual there. So I think right now, we're ready from a technology standpoint. We have all the tools they have, and we just got to make sure that when the shipper's deciding on whether they want to go digital freight matching his Landstar, we can do both.

[Amit Mehrotra, Deutsche Bank]

And I guess the uniqueness of the Landstar model is that kind of 50% plus or minus gross margin and then the 70% incremental drop-through, that's still kind of well protected where you guys may be impacted by that trend would be the yield numbers. But the margin profile, the net revenue and the gross and operating margin kind of stays pretty consistent, I would imagine.

[Jim Gattoni, President and Chief Executive Officer]

Yes. That's true. We just got to make -- look, if margin start to get squeezed, you got to push through more volume through the system. And I think our systems are capable of putting a lot more volume through our system without adding people.

Yes, we have automated systems, so it's just getting the volume pushed. As margins get squeezed, it just push more volume through, and that's kind of our thought process going forward.

[Operator]

Thank you so much. Our next question is from the line of Jack Atkins of Stephens. Your line is now open.

[Jack Atkins, Stephens]

Jim, Kevin, Joe, good morning.

[Jim Gattoni, President and Chief Executive Officer]

Good morniing.

[Jack Atkins, Stephens]

Rob, congratulations on the promotion.

[Rob Brasher, Vice President and Chief Commercial Officer]

Good morning, and thank you.

[Jack Atkins, Stephens]

So guys just kind of following up on Amit's questions there for a moment, just in terms of how Landstar sort of manages through what could be a changing or more dynamic sort of brokerage market over the next couple of years. Can you help us think through different portions of your business that would not be disrupted if we where to see some more competition from these digital brokers, I'm thinking your cross-border business, your drop and hook business. That makes up a pretty significant component of your overall revenue stream. Can you kind of remind us of sort of what that looks like?

[Jim Gattoni, President and Chief Executive Officer]

Well, the platform, for example, is one, which is 30% of our business. You got automotive and government. You got time definite, right, where you'll probably not going to rely on an app and you're getting someone on the phone if something goes wrong. So I would say between automotive government, drop and hook, cross-border Mexico cross-border Canada, time definite, you're probably talking about 70% of our business that is some kind of sticky where it wouldn't be conducive to an app.

[Jack Atkins, Stephens]

Okay. Now, that's what I thought. I think, it makes sense. I think, it's worth kind of clarifying for folks.

Jim -- or I guess Rob, if you'd like to chime in too, I'd love to get your take on it. I mean you talked about this a bit, but if you could expand on it. Maybe if you could kind of go into some subsets of your business where -- or maybe it's a mode, maybe it's a customer vertical where you've been surprised to the downside just in terms of demand or conversely if there's been an area of particular strength. Just curious what you're seeing out there as you sort of look across the business.

[Rob Brasher, Vice President and Chief Commercial Officer]

Yes, this is Rob. On the automotive side, in a lot of sectors, we made the decision not to do business that didn't benefit us as an agent base and us as a company. So we haven't really been surprised by the decrease in some of the volumes and some of the automotive in particular. We haven't been surprised by that.

On the heavy haul side, we're project-driven company. We provide a service that very few people can. So that's when that we can capitalize on and that we continue to grow scale with. So as we look forward in some of the things that we touch, some of the things that we do, I guess Jim refers to a sticky that kind of protects us and our model across the board.

[Jack Atkins, Stephens]

Okay. Definitely, that makes sense. Last question, Kevin, for you. Can you give us an update on your free cash flow outlook for 2019, just sort of how you're thinking about that for the year?

[Kevin Stout, Vice President and Chief Financial Officer]

Yeah, the -- we had $174 million year-to-date free cash flow. The operating cash flow was $184 million, but it slowed into the second quarter. In round numbers, $120 million in Q1 and about $60 million in Q2. So I think the trend is going to continue to slow a bit.

So my number is still $250 million -- let's say, $250 million to $275 million on a year-to-date basis.

[Operator]

Thank you so much. Our next question is from the line of Todd Fowler of KeyBanc Capital Markets. Your line is now open.

[Todd Fowler, KeyBanc Capital Markets]

Great. Thanks, good morning.

[Jim Gattoni, President and Chief Executive Officer]

Good morning.

[Todd Fowler, KeyBanc Capital Markets]

Hey, Jim. Can you guys maybe just provide a little bit more color on the van volumes here in the quarter? Obviously, I understand there's difficult comparisons and what's happening in the macro, but I mean thinking about your business and having more spot exposure, we think that there would be demand on the spot side, and so seeing the van volumes come in. Is that just a reflection of the difficult comps? Or is it something in the macro? Or do you think there's some share that's going on, on the van side?

[Jim Gattoni, President and Chief Executive Officer]

Yeah. We can touch on a couple things there. One is that if you look at foodstuffs being off, that's pretty much one customer that was all van volumes. So that's one of it.

That's one of the things. That was actually still in the first quarter also. The other thing in our world is when you're looking at 2018 and you have brokers and other carriers out there that just can't find trucks, they kind of come to us as third party, basically 3PLs, and not our trucks are little more accessible. That business gets a little softer for us when working for other 3PLs to put stuff on vans.

So I would say that two spots that we can actually point to -- or actually, I'll add a third one, automotive, you saw that was down. So if you take the foodstuffs which is van, and the automotive which is primarily van and then the 3PLs to or find it a little bit easy to find trucks and not having to come to us to find them, I think those are the three things that prior driving the van volumes a little softer than they have -- than they were compared to prior year.

[Todd Fowler, KeyBanc Capital Markets]

Okay. Good. That's really helpful. And then, Jim, thinking about the second half of the year, I think in the last several years, you've had some ramp in the fourth quarters, you've done some more shipments or loads for some of the e-commerce type retailers.

Based on where you sit today, would your expectation be that you see some of that lift as you move into the fourth quarter? Do you have any visibility onto that sort of demand in the second half of the year?

[Jim Gattoni, President and Chief Executive Officer]

I just sense that we're going to stay that Q3, Q4 are going to look similar. I did -- we didn't necessarily feel that ramp-up in the '18. Those e-commerce type companies were kind of softer, I won't say -- it's not soft. It's just on a comparative basis, right? So I would expect we're going to see a fourth quarter that's going to look similar to the third quarter as I sit here right now.

[Todd Fowler, KeyBanc Capital Markets]

Okay. Good. That's helpful. And then just one last quick one, Kevin, on the other operating costs during the quarter, about $10 million, which was a step-up.

I think in the prepared remarks, you made some comments about trailing equipment and then some bad debt, maybe that was there. But can you go over kind of a list going through that line item again and what we should expect for that for the rest of the year?

[Kevin Stout, Vice President and Chief Financial Officer]

Sure, Todd. Yeah, the contractor bad debt number was abnormally low in Q2 last year, and I'd say it's higher than average this year so you got that delta there. And then the trailer costs were up about 930 trailers year over year, so you're going to have more maintenance in tires on those. So that's what's driving that.

I'd split it probably evenly between contractor bad debt and the maintenance on the trailers. As far as going the rest of the year, we have an event -- BCO event that hits in the third quarter, that's, let's say, in round numbers, $1 million. So let's assume normalized contractor bad debt. We're going to get a number pretty similar to Q2 and Q3 and probably $500 million to $1 million lighter in Q4.

[Operator]

Thank you so much. Our next question is from the line of Scott Schneeberger of Oppenheimer. Your line is now open.

[Scott Schneeberger, Oppenheimer]

Thanks very much. Good morning, everyone.

[Jim Gattoni, President and Chief Executive Officer]

Good morning.

[Scott Schneeberger, Oppenheimer]

Jim or anyone, just looking back historically, could you give us a feel for what business conditions look like right now versus past cycles, perhaps the 2016 time frame? It sounds like we're kind of at the crossroads where it's not clear what's going to come, but just anything historical to pull from?

[Jim Gattoni, President and Chief Executive Officer]

Well, in my opening comments, I was talking about 2017, but because it felt similar to that up until prior the third quarter, but it's not going to feel similar to that because if you'll recall, rates started climbing pretty rapidly at the end of the third-quarter 2017 when the storms hit Texas. So that comp really isn't there. I'm not sure where '16, I think '16 was a little bit softer than where we are now. '14 was very strong.

That part of maybe '14, '15 kind of flow, '15 was pretty -- a little bit soft. We had some special freight in there when we had that automotive contract. So it's kind of -- I tried to pin it back to what we're kind of looks like, and it's -- to tell you the truth, it was difficult when you all look at it, so I would use '17 for the first nine months, but now we're sitting, we're going to have a flat. What I expect third quarter to fourth quarter, and I think that's probably what '16 looked like.

[Scott Schneeberger, Oppenheimer]

Thanks. Appreciate that perspective. Thoughts on gross margin going forward, maybe how previous transportation looks. Thanks.

[Kevin Stout, Vice President and Chief Financial Officer]

Say that again?

[Scott Schneeberger, Oppenheimer]

Just thoughts on the gross margin expectations going forward on trends you've seen recently?

[Kevin Stout, Vice President and Chief Financial Officer]

Yeah. Like I said in my prepared remarks, the brokerage buy rate was down 168 bps in Q2. I'm modeling something similar to that in the third quarter. Obviously, pricing is going to impact that, but I would expect again in the 49 to 51 range in Q3 on the gross profit margin.

[Operator]

[Operator Instructions] Our next question on queue is from the line of Bascome Majors of Susquehanna. Your line is now open.

[Bascome Majors, Susquehanna]

Thanks. You guys were pretty clear that the shortfall in 2Q revenue was more rate-driven than volume-driven, and you talked about rates coming back to typical seasonality in the latter part of the quarter and end of July. Can you dig into volumes a little bit? How have those performed month-over-month versus what you typically expect for Landstar? And any sense of whether that's tracking normally or above or below heading into the other parts of 3Q?

[Jim Gattoni, President and Chief Executive Officer]

Yeah. It's actually tracking slightly slower than what the last five years trends have seen. So when you go from April to May, May to June, you typically see -- and I don't have the specific numbers, but when I looked at it, we're about 0.5 basis point off of what the growth rate would have been in those months. So it has -- from a sequential basis, as you move month to month, it has slowed somewhat.

[Bascome Majors, Susquehanna]

Okay. And Kevin, on incentive comp, with the shortfall in 2Q and the outlook for 3Q, can you let us know where you're accrued for the full year on a cash basis and maybe for stock comp as well? Thanks.

[Kevin Stout, Vice President and Chief Financial Officer]

Yeah, Bascome. We booked $1 million on the incentives comp in Q1 and about $900,000 in Q2. I expect that not number to be similar to the Q2 number the rest of the year. And the stock-based comp was $1.4 million in Q2, that again will continue into Q3 and Q4.

[Bascome Majors, Susquehanna]

Okay. And lastly, you were fairly active on the buyback in the quarter, I think $57 million or so. It looks like the average price was closer to $100, $105 than where you were trading yesterday. Do you still comfortable being active at $110, $115 range?

[Kevin Stout, Vice President and Chief Financial Officer]

Yeah. The average price was $103 in Q2. I think it was $104 in Q1, and we got 1 million shares at $105 in Q4. So that should give you a pretty good indication of where our heads are on share buybacks.

[Jim Gattoni, President and Chief Executive Officer]

Yes. But we -- we've -- there's a chance to be active at one time. We're not kind of counting that out. So it's -- we're kind of -- we kind of watch the volatility and look what's going on in the market, and it wouldn't stop from getting at that rate, maybe just not the volumes you saw.

[Bascome Majors, Susquehanna]

Thank you very much, guys.

[Operator]

Thank you so much. At this time, I show no further questions. I would like to turn the call back over to you, Mr. Gattoni, for your closing remarks.

[Jim Gattoni, President and Chief Executive Officer]

Well, thank you, Missy. And thank you, and I look forward to speaking with you again on our 2019 third-quarter earnings conference call currently scheduled for October 24th. Have a good day.

[Operator]

Thank you for joining the conference call today, have a great morning, please disconnect your lines at this time.