Landstar System Inc

NASDAQ:LSTR

Earnings Call Analysis

Challenges and Growth Potential Amid Soft Trucking Demand

Landstar's Q2 2024 performance faced headwinds due to soft demand and high truck capacity. Truck loads declined 9% year-over-year, while revenue per load was down 2.6%. BCO truck count fell by 13%, but increased heavy haul revenue by 3% was promising. The company announced a $56 million stock buyback and a 9% dividend hike. Expected Q3 revenue ranges from $1.175 billion to $1.275 billion, with EPS guidance of $1.35 to $1.55.

Introduction

Landstar Systems, Inc. hosted its second-quarter earnings call to discuss the performance and future outlook. The company showed resilience despite challenges in the freight environment.

Soft Demand and Market Conditions

The freight environment during the second quarter continued to face soft demand and ample truck capacity. Industrial output was inconsistent, impacting the quantity of truckload freight. However, the company's strong business model and balance sheet have helped navigate these challenging conditions.

Financial Performance

Landstar's overall revenue decreased compared to the previous year, with truck revenue per load being down 2.6% and non-truck transportation service revenue dropping by 7%. The number of loads hauled decreased by 9% year-over-year mainly due to a disappointing May. Despite this, the bottom line exceeded the midpoint of the guidance range, displaying the company's resiliency.

Safety and Operational Excellence

The company reported an improved safety performance, with an accident frequency index of 0.57 DOT reportable accidents per million miles, a 2% improvement from the previous year. This highlights the company's strong safety-first culture, which is a significant competitive advantage.

Guidance and Future Outlook

Looking ahead, Landstar provided guidance for the third quarter, expecting truckload volumes to be 6-10% below the third quarter of the previous year and truck revenue per load to be flat to up 4%. The company also anticipates revenue for non-truck loads to remain similar. For the third quarter, revenue is expected to range between $1.175 billion to $1.275 billion with earnings per share ranging from $1.35 to $1.55.

Strategic Initiatives

Landstar is focusing on strategic growth areas such as heavy haul and cross-border Mexico transportation. They believe these areas present significant opportunities for incremental growth.

Capital Allocation and Dividend Increase

The company remained committed to returning capital to shareholders, repurchasing approximately 316,000 shares of common stock for over $56 million in the second quarter and announcing a 9% increase in its quarterly dividend.

Operational Costs

Selling, general, and administrative costs were slightly up at $54.9 million versus $54.5 million the previous year. Insurance and claims costs decreased due to a reduction in the severity of accidents.

Conclusion

Despite the tough operating environment, Landstar's strong business model and strategic focus on growth areas are expected to drive the company forward. The company's commitment to safety, operational excellence, and shareholder returns positions it well for the future.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, and welcome to Landstar Systems, Inc. Second Quarter Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. [Operator Instructions] Joining us today from Landstar are Frank Lonegro, President and CEO; Jim Todd, Vice President and CFO; Joe Beacom, Vice President and Chief Safety and Operations Officer; Jim Applegate, Vice President, Chief Corporate Sales Strategy and Specialized Pride Officer; Matt Dannegger, Vice President, Chief Field Sales Officer.

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

[James Todd, executive]

Thank you, Bill. Good afternoon, and welcome to Landstar's 2024 Second Quarter Earnings Conference Call. 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 2023 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.

With me this afternoon are Frank Lonegro, Landstar's President and Chief Executive Officer; Joe Beacom, Landstar's Chief Safety and Operations Officer; Jim Applegate, Landstar's Vice President and Chief Corporate Sales, Strategy and Specialized Freight Officer; and Matt Dannegger, Landstar's Vice President and Chief Field Sales Officer.

Frank and I will handle the prepared remarks, with Joe, Jim and Matt available for questions. I'll now pass it to Landstar's CEO, Frank Lonegro, for his opening remarks.

[Frank Lonegro, executive]

Thanks, JT, and good afternoon, everyone. First, I want to thank our million mile safe drivers and Roadstar BCOs, many of whom were able to spend some time with us celebrating their accomplishments at the annual BCO All-Star event held earlier this month. This outstanding group of owner-operators exemplify our shared passion and purpose at Landstar to safely deliver freight for our customers every day. It is incredibly energizing to engage with our network of entrepreneurial agents, BCOs and carriers as we work together to align Landstar for future growth and continued success.

As JT mentioned earlier, I'm pleased to be joined this afternoon by Jim Applegate and Matt Dannegger, the new leaders of our sales organization. Jim and Matt's coordinated approach to driving our sales efforts will serve Landstar and its agents well.

As we move into the back half of 2024, we are laser-focused on executing on our strategic initiatives. Cross-border Mexico and heavy haul are 2 areas we have identified where we already have scale and believe we have significant opportunities for incremental growth. We also remain focused on our commitment to continuous improvement in the level of service and support we provide to our customers, agents, BCOs and carriers each and every day.

Turning to Slide 5. Landstar performed relatively well in the 2024 second quarter, considering that the freight environment continued to be characterized by soft demand and readily available truck capacity. I believe our results speak to the strength and resiliency of the Landstar business model. Our balance sheet continues to be very strong, and our capital allocation priorities remain unchanged.

I'm a strong believer in the company's stock buyback program and I'm committed to opportunistically executing on our existing authority to benefit our long-term stockholders. As noted in the release, we deployed over $56 million and repurchased approximately 316,000 shares of common stock during the 2024 second quarter.

We also announced today a 9% increase to our quarterly dividend.

We continue to invest in leading technology solutions for our network of independent business owners and have allocated a significant amount of capital this year towards refreshing our fleet of trailing equipment.

In the 2024 second quarter, overall demand in the freight environment was soft. The impact of accumulated inflation on goods continue to impact the amount of truckload freight generated in relation to consumer spending.

Industrial output was inconsistent throughout the quarter as evidenced by an IFM that fluctuated just fairly above and below 50. We remain in a loose truck capacity environment when measured by historical standards, and market conditions favor the shipper.

Even with that backdrop, Landstar's 2024 second quarter bottom line results exceeded the midpoint of our guidance range. I was pleased to see heavy haul loadings, which is mentioned above as one of our strategic growth priorities, grow 3% year-over-year, incrementally improving from the plus 2% year-over-year growth experienced in the first quarter.

On the other side, and as expected, given the capacity environment, our substitute line haul load volumes declined more than the company average and continue to be soft after an incredibly strong run during the pandemic.

Our second quarter guidance issued in conjunction with our 2024 first quarter earnings release call for the number of loads hauled via truck to be 5% to 9% below the 2023 second quarter and overall revenue per truck load to be flat to 4% below the 2023 second quarter.

The actual number of loads hauled via truck in the 2024 second quarter was 9% below the 2023 second quarter at the low end of our truckload volume guidance.

Actual revenue per truckload in the 2024 second quarter was 2.6% below the prior year quarter, slightly below the midpoint of our guidance. The softness in truck loadings compared to guidance was mostly driven by a disappointing fiscal May, during which loadings were below fiscal April for only the second time in nearly 2 decades.

Turning to Slide 6 and looking at our network, the scale, systems and support we provided helped to drive the operating results generated during the 2024 second quarter. JT will get into the details on revenue, loadings and rate per load.

As noted on our first quarter earnings call, I've been in the transportation sector for most of my career and realize how important Landstar's safety-first culture is to our continued success. Our safety performance is a direct result of the professionalism of the thousands of Landstar BCOs operating safely every day and the agents and employees who work to reinforce the critical importance of safety at Landstar.

I'm proud to report an accident frequency index of 0.57 DOT reportable accidents per million miles during the first 6 months of 2024, an improvement of approximately 2% as compared to the corresponding period of 2023. This is an impressive operating metric that speaks to the strength, skill, talent and dedication of our BCOs and provides a point of differentiation our agents are able to highlight in discussions with our freight customers.

Turning to Slide 7 in the capacity side. BCO truck count decreased sequentially in the second quarter from the first quarter by 230 trucks, consistent with our expectations of BCO declines slowing in Q2 relative to Q1.

On a year-over-year basis, BCO truck count has decreased approximately 13% since the end of the 2023 second quarter. It is typical to incur turnover in BCO truck count when truck rates decrease. BCO turnover continues to be influenced by the significant increase in the cost of repairs and the extended period of time trucks are out of service awaiting repairs. We would expect BCO count to continue to decline in the coming months given the challenging operating environment faced by many truck owner-operators, but at a slower pace than we saw in the second quarter.

I'll now pass the call back to JT to walk you through the 2024 second quarter financials in more detail.

[James Todd, executive]

Thanks, Frank. Turning to Slide 9. As Frank mentioned earlier, the number of loads hauled by a truck came in at the low end of the company's previously issued guidance range, primarily due to a soft fiscal May. Truck revenue per load came in slightly below the midpoint of our guidance.

Non-truck transportation service revenue in the 2024 second quarter was 7% or $7 million below the 2023 second quarter. The decrease in non-truck transportation revenue was mostly due to a 62% decrease in air revenue per shipment attributable to decreased high-value loadings from one customer.

As for the breakdown in Truck Transportation, revenue per load on loads hauled by unsided platform equipment increased 3% year-over-year, whereas revenue per load on loads hauled by van equipment decreased 5% year-over-year.

We consider revenue per mile on loads hauled by BCO trucks a relatively pure pricing number, as it excludes fuel surcharges billed to customers that are paid 100% to the BCO. Revenue per mile on van equipment followed by BCOs in the 2024 second quarter was 4% below the 2023 second quarter.

It should be noted that although the market has softened from a year ago, Landstar's revenue per mile on BCO van equipment remains above the pre-pandemic 2019 second quarter by approximately 15%. We believe that rates will stay relatively higher than pre-pandemic levels given the significant amount of incremental cost to operate a truck today as compared to 5 years ago.

Revenue per mile on van equipment hauled by BCOs sequentially decreased 1% from March to April, increased 1% from April to May, and increased 2% from May to June. The March to April and May to June month-to-month changes underperformed pre-pandemic typical patterns, whereas the sequential change in BCO revenue per mile on van equipment from April to May outperformed these pre-pandemic historical patterns.

As to revenue per mile on unsided platform equipment hauled by BCOs, revenue per mile increased 1% from March to April, decreased 1% from April to May and increased 2% from May to June. The month-to-month sequential trends on unsided platform equipment are generally more unpredictable compared to that of van equipment. This relative volatility is often due to the mix between heavy specialized loads and standard flatbed volume.

Heavy haul revenue, one of our areas of increased strategic focus was up approximately 6% year-over-year in the second quarter. Heavy haul loadings and revenue per heavy haul load were each up approximately 3% year-over-year. This represented a mixed tailwind to our unsided platform revenue per load as heavy haul revenue as a percentage of the category increased from approximately 27% during the 2023 second quarter to approximately 29% in the 2024 quarter.

Turning to Slide 10. We provided revenue share by commodity and year-over-year change in revenue by commodity.

Transportation Logistics segment revenue was down 11% year-over-year on a 9% decrease in loadings and a 2% decrease in revenue per load as compared to the 2023 second quarter. Within our largest commodity category, consumer durables, revenue declined 10% year-over-year on a 10% decline in volumes, while revenue per load was approximately equal.

Aggregate revenue across our top 5 commodity categories, which collectively make up about 71% of our transportation revenue, was down 10% compared to the 2023 second quarter.

While Slide 10 displays revenue share by commodity, we thought it would also be helpful to include some color on volume performance within our top 5 commodity categories. From the 2023 second quarter to the 2024 second quarter, total loadings of machinery decreased 12%. Automotive equipment and parts decreased 1%. Building Products decreased 1% and Hazardous Materials decreased 14%.

Additionally, substitute line haul loadings, one of the strongest performers for us during the pandemic and one which varies significantly based on consumer demand, decreased 29% from the 2023 second quarter.

Also, Landstar is a truck capacity provider to other trucking companies for EPLs and truck brokers. During periods of tight truck capacity, those other freight transportation providers reach out to Landstar to provide truck capacity more often than during times of more readily available to our capacity. The amount of freight hauled by Landstar on behalf of all the truck transportation companies is reflected in almost all our commodity groupings, including our substitute line haul service offering.

Overall, revenue hauled on behalf of other truck transportation companies in the 2024 second quarter was 27% below the 2023 second quarter, a clear indicator in our model that capacity is more readily accessible. Revenue hauled on behalf of other truck transportation companies was 13% and 16% of transportation revenue in the 2024 and 2023 second quarters, respectively.

Even with the ups and downs in various customer categories, our business remains highly diversified, with over 25,000 customers, none of which contributed over 6% of our revenue in the 2024 first half.

Turning to Slide 11. For the 2024 second quarter, gross profit was $120 million compared to gross profit of $139.7 million in the 2023 second quarter. Gross profit margin was 9.8% of revenue in the 2024 second quarter as compared to gross profit margin of 10.2% in the corresponding period of 2023.

In the 2024 second quarter variable contribution was $175.1 million compared to $198.2 million in the 2023 second quarter. Variable contribution margin was 14.3% of revenue in the 2024 second quarter compared to 14.4% in the same period last year.

The decrease in variable contribution margin compared to the 2023 second quarter was primarily attributable to a decreased variable contribution margin on revenue generated by truck brokerage carriers, as the rate paid to truck brokerage carriers in the 2024 second quarter was 163 basis points higher than the rate paid in the 2023 second quarter, partially offset by mix as an increased percentage of revenue was generated by BCO independent contractors, which typically has a higher variable contribution margin than revenue generated by other modes of transportation.

Turning to Slide 12. Operating income declined as a percentage of both gross profit and variable contribution, primarily due to the impact of the company's fixed cost infrastructure, principally certain components of selling, general and administrative costs in comparison to smaller gross profit and variable contribution basis.

Other operating costs were $14.1 million in the 2024 second quarter compared to $13.5 million in 2023. This increase was primarily due to decreased gains on sale of used trailing equipment.

Insurance and claims costs were $27.2 million in the 2024 second quarter, compared to $29.8 million in 2023. Total insurance and claims costs were 5.8% of BCO revenue in both the 2024 and 2023 periods. The decrease in insurance and claims costs as compared to 2023 was primarily attributable to decreased severity of accidents during the 2024 period and decreased BCO miles traveled during the 2024 period.

During both the 2024 and 2023 second quarter, insurance and claims costs included $1 million of net unfavorable adjustment to prior year claim estimates.

Selling, general and administrative costs were $54.9 million in the 2024 second quarter compared to $54.5 million in the 2023 second quarter. As we have previously discussed regularly on these calls in the past, the provision relating to Landstar's incentive compensation programs is an important component of our SG&A line and a key defensive feature of our model, given the highly cyclical nature of our business.

In each of 2023 and 2024, following the end of the second quarter, Landstar booked a credit to reduce a significant portion of the incentive compensation accrual established at the end of the first quarter. The credits recorded in each period were approximately equal, at just over $1 million. Each of these credits favorably impacted second quarter SG&A expense.

Apart from the favorable net impact of our incentive compensation programs on the SG&A line in the quarter, Landstar experienced increased employee benefit costs and increased provision for customer bad debt in the 2024 second quarter, compared to the 2023 second quarter, partially offset by decreased project consulting costs.

Costs associated with our annual agent convention appeared in the second quarter in each of 2023 and 2024 and were approximately the same in each period.

Depreciation and amortization was $14.5 million in the 2024 second quarter, compared to $14.9 million in 2023. This decrease was primarily due to decreased depreciation on the company's trailer fleet, partially offset by increased depreciation on software applications resulting from continued investment in new and upgraded tools for use by agents and third-party capacity providers.

The effective income tax rate was 24.5% in the 2024 second quarter compared to an effective income tax rate of 24.6% in the 2023 second quarter.

Turning to Slide 13 and looking at our balance sheet. We ended the quarter with cash and short-term investments of $504 million. Cash flow from operations for the 2024 first half was $142 million, and cash capital expenditures were $17 million. The company continues to return significant amounts of capital back to stockholders, with $95 million of dividends paid and $57 million of share repurchases during the 2024 first half.

In addition, as noted in the press release, the company increased the regular quarterly dividend by 9%. The strength of our balance sheet is a testament to the cash-generating capabilities of the Landstar model.

Back to you, Frank.

[Frank Lonegro, executive]

Thanks, JT. As we progress through the second half year-over-year comparisons should begin to ease. Looking at historical seasonality from Q2 to Q3, pre-pandemic patterns would normally yield a 1% to 2% improvement in truck revenue per load typically offset by a 1% to 2% decline in the number of loads hauled via truck, yielding a similar top line sequentially.

In 2024, as we move from June to July, our truck volumes have trended below normal sequential month-to-month patterns based on pre-pandemic seasonal performance trends. On the other hand, truck revenue per load has outperformed these pre-pandemic patterns.

Turning to Slide 15. Our year-over-year expectations for the 2024 third quarter are that truckload volumes will be 6% to 10% below the 2023 third quarter and truck revenue per load will be in a range of flat to up 4% versus the 2023 third quarter.

On a sequential basis, our guidance for the third quarter implies a 2% to 7% decline in truckload volumes and truck revenue per load ranging from up 3% to up 7% versus the 2024 second quarter. We also expect revenue for our non-truck loads to be somewhat similar to what we experienced in the 2024 second quarter.

Based on these assumptions, we expect revenue in the 2024 third quarter to be in the range of $1.175 billion to $1.275 billion and earnings to be in the range of $1.35 per share to $1.55 per share. The 2024 third quarter guidance incorporates a variable contribution margin range of 14% to 14.3% and insurance and claim costs of approximately 5.5% of estimated BCO revenue.

One last point before we take your questions, the 2024 second quarter benefited from the reversal of a significant portion of the Q1 bonus accrual. That benefit obviously won't repeat in the third quarter and is a primary reason for the difference between the $1.45 midpoint of our third quarter EPS guidance range in the $1.48 of EPS we achieved in the second quarter.

With that, Bill, we'd like to open the line for questions.

[Operator]

Thank you very much, sir. At this time, we will begin the question-and-answer session. [Operator Instructions] We have the first question coming from the line of Scott Group of Wolfe Research.

[Jacob Lacks, analyst]

This is Jake LACK on for Scott. The guidance that implies a pretty strong sequential improvement in rates, but a pretty large sequential decline in volumes. I guess, is this a sign do you think that pricing is starting to firm up for the industry? Or is this more specific to Landstar? And I guess, it would be great to get your thoughts on the reason for this divergence.

[Frank Lonegro, executive]

Yes, Jake, it was a little surprising to us as well as we looked at July's numbers. We were certainly excited to see a little bit of lift on the rate side of the equation, but July was a little bit softer. Some of that could be the holiday and sort of typical seasonality there around the 4th of July and the time of the week that it hit. There was some weather in the second week.

So there were a couple of things, I think, that we look at and wonder whether or not those are going to stay with us.

JT can give you a little bit of color around how June to July and obviously, July to August, August, September as we progress through. But I think it's probably too early to call the ball on true inflection in the second half. I think we did that last year and it didn't happen. We did it this year, and it's maybe just coming off the bottom right now. So a little reluctant to lean in and say that happy days are here again.

But I do think that we're seeing a little bit of lift on the revenue side. A lot of the things that we're working on. We mentioned heavy haul in the prepared remarks. I think that's exciting for us. But let me let JT give you some color on the month-to-month, too.

[James Todd, executive]

Yes, absolutely. Thanks, Frank. Jake, we saw pretty good strength toward the end of June on both truck loadings and truck revenue per load with the benefit of first 4 weeks of the third quarter, we typically drop off about 4% on a loads per workday walking from June to July. We're underperforming that by about 300 basis points.

On the other hand, in truck revenue per load, we typically get about a 200 basis point good guide June to July, and we're about 300 basis points better based on 4 weeks of process revenue per load. So that's kind of the launch point for the guide.

[Jacob Lacks, analyst]

That's helpful. And then BCO count is below pre-COVID levels and keeps trending lower while approved and active broker carriers is nicely above pre-COVID. Why do you think we're seeing that?

[Frank Lonegro, executive]

Yes. I'll kick it off and turn it over to Joe here in a second to give you some more color. We did some, I'll say, analysis and purging on the approved carrier side last August. So you're seeing the impact of that on a year-over-year basis.

On the BCO side, clearly, the length of the downturn and the rate trough is really the largest impact on what's happening on the BCO side. What we did say on the prior call, and it actually came to fruition, was we thought that the rate of decline would slow and it did, and we're continuing to see that rate of decline lessen over time, and we believe that will hold true in Q3 relative to Q2 as well. But let me let Joe provide some color.

[Joseph Beacom, executive]

Sure. Yes, Jake. So as Frank alluded to there, we've seen the cost pressures continue. The duration of the cost pressure is clearly having a pretty big impact on the BCO front. What I think we've also seen and talked about is that the brokerage margin splits that we've had that our agents have enjoyed have been tightening over time. They've tightened through 2023 and it continue to tighten. So I think you see agents leaning more towards BCOs, and that's going to help improve loadings there.

One thing I would caution, though, is, we look at our carrier counts and active carriers, and we look at the same authority revocation data that everybody on the call probably looks at. I just don't think that when you look at us as a carrier, we have 3 carriers here. And the truck counts within those carriers can move, but we're still 3 carriers.

And I think as an industry, we look at revocations and you're seeing this modest decline in revocations. Well, what you don't see is the number of trucks that are not within the carriers that are in that mix, right?

So we're still 3 carriers. We were 3 carriers a couple of years ago. What we don't get to see from the macro data is what's the decline in truck count within those carriers. And we get to see some of that in our carrier database that we look at and our active carriers, we see some significant declines in not only the number of carriers, especially the small carriers who participate in the spot market like we do, but also some of the larger carriers.

So it looks to us, just from our limited viewpoint, that the smaller carriers are exiting the business, albeit slowly, and the larger careers are getting smaller as demand and increased cost and those kind of things take effect. So that's kind of how we see it.

And again, we've had some pretty good indicators of things leveling off. July was the lowest net decline that we've seen since the second quarter of 2022. And the last week of July was a positive truck count week for us, something that's been a long time in coming.

So early indicators, but hopefully positive indicators for BCO count going forward, Jake.

[Operator]

We will move now to the next question coming from the line of Jordan Alliger of Goldman Sachs.

[Paul Stoddard, analyst]

This is Paul Stoddard on for Jordan. I guess a question that we have is, when we look at the percentage of variable contribution on EBIT kind of coming into that 39% up from the first quarter, I guess when can we start to see that getting into the high 40 percentage range that we started to see pre-COVID? Or is there just going to be structural costs that just keep a ceiling on that?

[Frank Lonegro, executive]

Yes, I'll take the first crack at it and JT can fill in some gaps and some numbers. I mean, obviously, in a declining revenue environment, it's going to be harder to drop more to the bottom line. But what we're going to ultimately see as the rate environment turns and the volume environment turns, I mean, our fixed costs are not going to go up as a result of that. So you're going to get operating leverage as we pull that forward.

A lot of that's going to depend on how much of it's volume related and how much of that's rate related. But as we see both of those, we expect to have more fall to the bottom line. Obviously, we've troughed in the last couple of quarters, and we're looking forward to coming out the other side stronger.

We've got some initiatives internally to really look at the cost structure. As JT mentioned on this call, and I think on the prior call, there's not that much opportunity in the fixed cost side of the equation. We have certain costs that are in the environment, whether we've got 1.8 million loads or 2.2 million loads. So we're going to focus on that one.

We're looking at every position that comes open and making sure that we absolutely have to fill that position. And JT's sort of the cost cap in some respects and is doing a really good job of making sure that our cost structure stays at an appropriate level. JT?

[James Todd, executive]

Yes. Thanks, Frank. Paul, mid- to high 40s, it's a good question. I mean clearly, the pandemic highs, we printed 55 and 56 OM, respectively, in '21 and '22. What I will tell you is I'm still a big believer in our ability to push through 70% of the incremental VC dollars down to operating income. Ultimately, that is how we climb back from an OEM standpoint.

To Frank's earlier point, if the majority of that comes from price versus vols, it's easier to leverage that as price doesn't drive the need for more equipment and more insurance exposure, et cetera.

On a positive note, 2 big inflationary pressures that we've had here for the last -- and not unique to Landstar, by the way -- the last 7 years have been insurance and technology. We have 2 years in a row now of decelerating gross dollar premium on our excess casualty programs, which is good. I think our May 1 most recent May 1 renewal was about a 5% gross dollar increase. So as that pressure begins to hopefully ease a little bit and the tech side start growing at a more kind of normalized inflation rate, that should emphasize.

And I would just tell you, Paul, take a look at the back of the baseball card, we've demonstrated over time, even pre-pandemic, our ability to achieve that 70% incremental push-through.

[Paul Stoddard, analyst]

No, great. That's great. And just as a follow-up, as we think about volumes kind of heading into the second half, obviously, guiding for lower volumes in the third quarter. I guess any view into peak season and kind of where you think volume could look as we look out to the fourth quarter as well?

[Frank Lonegro, executive]

Yes. So I'll take a first shot at that one, and then Matt Dannegger, who's got the field sales force, so we'll chime in a little bit in terms of some color that he's hearing from his folks in the field.

Just from a calendar day perspective, this peak season is going to be compressed by a couple of days. So we'll likely see some elevated volumes on a per day basis. It may not be impactful in the grand scheme of things.

But to me, it's going to come down to the consumer and what is the consumer going to do with disposable income or credit card debt in the last couple of months of the year. We haven't really had peak in the last few years. So I think this year, certainly, the GDP numbers would make you think that there's going to be some spending in the second half of the year.

But ultimately, it's going to depend on what the consumer wants to buy. And honestly, how much the retailers and the wholesalers want to lean into inventory in this type of an interest rate environment. They certainly have peeled them back from where they were in the COVID highs. But I think there is, on the other side of the equation, just a general reluctance to build up a lot of inventory, not knowing where the sales are going to be.

So I think right now, we're going to take a wait-and-see approach. We've got capacity that is sort of ready to dive in. We've got good conversations with our customers that Matt can give you some color on. But if it's there, we're ready for it. Matt?

[Matt Dannegger, executive]

Paul, this is Matt. Yes. Normally, about June, we get down with our customers and really take a good look at what their needs are going through peak season. Here at Landstar, it's a relatively small group of customers that drive that e-commerce parcels, substitute line haul. And the early projection is it's going to look a lot like last year. Certainly, not like anything we saw in '21. '22 decelerated a little bit. And of course, last year, it wasn't much of a peak at all.

And right now, we're looking closer towards '23. We'll finalize that up here in the next month or so as we get our final projections on that. But we're not looking for an overly vibrant peak season this year.

[Operator]

We will move now to the next question coming from the line of Daniel Imbro of Stephens, Inc.

[Joe Enderlin, analyst]

This is Joe Enderlin on for Daniel. Could you maybe provide an update on BCO productivity? How much room is there to go higher? And then maybe break out training procedures or how you help BCOs select loads better and maximize routes?

[Frank Lonegro, executive]

Yes. Let me kick that one to Joe. He's front and center on that one, but it's a great question.

[Joseph Beacom, executive]

Yes. Good question, Joe. Yes, we were up 3% in the first quarter. We're up 6% year-over-year in the second quarter from a BCO utilization standpoint, which is a good sign. And I think it's, again, kind of with the slowing terminations and that kind of thing. I think it's a good sign.

From a utilization standpoint, we have a required orientation program when somebody leases on, and we go through a 2-day tutorial and hands-on exercise for them to use the tools that we have internally that helps them navigate our loading opportunities, and it's either via a laptop or their app, and they can customize that to fit their business plan, so they can look at particular loads based on equipment type or origin, destination, anything -- we can fall around the country and feed them loads that they like to haul.

And beyond all the technology, what we really do is emphasize the need to have agent relationships within the system. So we've got about 1,100 agents, and it's just critical for BCOs to make those relationships and introduce themselves and establish that trust back and forth between the BCO and agent as is fairly unique to our model. And the BCOs that grasp that and take a hold of that and own that tend to do very, very well and stay here for a very long time.

One of the things that we've seen in '21 and '22 when freight volumes were so high, you could live off the app. And as things have gotten a little bit leaner, those that didn't have those relationships have struggled a little bit. So we've redoubled our efforts there to make sure it's the technology which can pay great dividends, but it's also the relationships, and we're doing the same thing from a field perspective and going to our agents and letting them know that there's BCOs out there and helping make introductions, particularly with new agents to the BCOs that are in the fleet currently and trying to redouble those efforts to help both parties.

And Matt, if you want to comment on that from an agent perspective, please feel free.

[Matt Dannegger, executive]

Yes, Joe, that's been a big push for us here this year. New agents, they tend to come from a brokerage background, and a lot of times aren't really familiar with the BCO model and how that works. And so it's easy to fall into what you know, right?

So that's a big push for us this year. We're working with Joe to come up with some new ways to get them grained in that BCO culture and the value that they bring to the customer.

[Joe Enderlin, analyst]

That's helpful. As a follow-up, Manufacturing remains contractionary after a head fake in February. It sounds like Consumer Durables demand is underwhelming after a pull-forward of demand during COVID. Are you seeing anything new within these end markets or anything increasingly optimistic from shippers on demand?

[Frank Lonegro, executive]

Yes. I think on the manufacturing side, there's a couple of things at play. When I try to back up and look at nearshoring and American manufacturing and things like that. I mean I'm bullish on North American manufacturing on a long-term basis.

There's going to be wobbles along the way. Obviously, the election is going to play a part in that as we go forward into 2025. When I look at where some of the highlights were in the quarter, I mean Consumer Durables, I hear you, but it was good to see that it was actually in line. It's been a while since the consumer durables have been in line with the company average. So I'd say that's on its way back.

Machinery is doing okay, Auto vols are there. The rate environment is kind of over-competitive. So it wasn't a volume play there. Building Products is doing well, and there's -- the data center business is embedded within that. So there's a lot of good business in there.

It was really the super cyclical elements that JT called out in his prepared remarks that were one of the things that hurt us a little bit on the top line.

I mean GDP, to me, it's a question of what is the consumer going to do? What are they going to spend their money on. I think you've seen the pull forward. I think it's kind of well telegraphed, what's happening there. There is a point at which the durable that you bought 3 or 4 years ago needs to get replaced. So that cycle will be helpful for us when that does come back around.

And again, I'm bullish on the American economy and the American consumer, the American manufacturing capabilities. And I think the election ultimately is going to put more people back to work regardless of who the victor is, and it's going to put more emphasis on U.S. and North American manufacturing.

So long term, I see us in a good spot.

[Matt Dannegger, executive]

Yes. Joe, I would just add, even with the choppy ISM backdrop that Frank mentioned, I was pleased we grew unsided platform volume 7% sequentially. And on a revenue per load basis, that increased 4% sequentially. And if you dive in even deeper into the heavy haul component that we called out, the demand there really was broad-based across a whole bunch of customers, different industries. Jim can touch on that more.

[James Todd, executive]

Yes. And just kind of to that, and Frank outlined a couple of the end markets that have been really strong like the building products, data centers. But something kind of encouraging, I think, that we're seeing over on the project side, we are seeing wind. We're seeing projects starting to kick back up for that. And we're also seeing some refurbishment of equipment for the oil and gas industry. And I think that's actually something that's pretty encouraging. It might be a sign of things in the future if that keeps up.

[Operator]

We will move now to the next question coming from the line of Elliot Alper of TD Cowen.

[Elliot Alper, analyst]

Great. It's Elliot for Jason Seidl. Any idea on why May was weak in truckload? I thought I heard that in the prepared remarks. I just want to clarify that. And then did that bounce back in June?

[James Todd, executive]

Yes, Eli, you good question. May we typically get about a 3.3% tailwind from April on a per workday basis, and it's almost always positive. We were down about 0.5%. The weakness we saw a couple of our automotive accounts were a little softer in May. Some loadings from other transportation companies was a little soft in May as well.

Coming off an April that we felt good about it. It was a little bit surprising. From a volume perspective, May into June, we increased 150 basis points admittedly off a low starting point, which was pretty close to the plus 240 we usually get May to June.

[Elliot Alper, analyst]

Okay. Helpful. And then you brought up cross-border Mexico as an area of focus in your prepared remarks. Would love to hear maybe any more commentary around that.

[Frank Lonegro, executive]

Yes, I'll give a shot here and then kick it over to Joe. So cross-border, obviously, is an important thing for us. It's a great long-term play in terms of near-shoring initiatives. And so I think it's absolutely the right strategy.

It's getting more competitive, not surprisingly, as other people see the same thing that we are seeing. I think we were a first mover clearly, certainly in the Laredo gateway. We've got a great facility down there, great folks down there. So continuing to introduce agents into that. So I do think it probably wasn't our best quarter on a year-over-year basis for cross-border. It's absolutely the right thing to do.

I'll let Joe provide some color on that.

[Joseph Beacom, executive]

Thanks, Frank. Yes, our volumes were actually off a little bit greater than the company average, isolated to a handful of accounts, a lot of consumer goods, consumer durable kind of accounts that are down. We don't believe that we've lost the business. We just believe that they're slow at the moment. So we're on top of that, looking for any rebound when that occurs.

But to Frank's point, we've got our slogan and our strategy around Mexico made simple to really provide the necessary tools, facilities and capabilities, whether it's on the border with our facilities, which are across a number of gateways, or with the carriers in the interior of Mexico that we've had for years, all CT PAT certified.

We really think we've got a great framework. When things bounce back, we think we'll be in a great position to do that. We've added some dedicated salespeople that are in the interior. So if an agent has an opportunity, but doesn't want to make the trip south of the border, we've got resources there to help them along. So we think that we're in the right place with the right strategy going forward and just kind of waiting for a few things to turn our way.

[Frank Lonegro, executive]

Yes. Matt, we've got agents down there that we're introducing, obviously, to the cross-border initiative, maybe folks that haven't really engaged in cross-border have done a long time ago. So tell us a little bit about what you're doing there.

[Matt Dannegger, executive]

Yes. It's been a big push for Frank. We really need to get the agents familiar with Mexico. You've got the customs down there, going over borders. It can be a little bit scary if it's not something that you're used to doing. So we're really trying to take that fear away from them.

So the field is out there. We're meeting with the agents. Here in the spring, we got done with, I guess, a round robin of agent meetings throughout the country, talking about Mexico and how we can help them grow their business down there.

It's a tremendous opportunity that I think everybody in the industry is looking at right now and jumping into -- so we're really just trying to get them comfortable with them and lead them to the table and take that fear out of it. We've got Mexico 101 classes, getting coached up on what the operating expectation is down there, how to sell it, getting in front of their customers.

So it's really been a full push throughout the entire sales team to get in front of the agents, and we've identified a little over 150, I think, right now, of agents that we're really pushing and we're coming up with opportunities. And I wouldn't say the market is great right now to be chasing those, but crawl-walk-run we're really starting to crawl right now.

So I think as the economy pushes back, we should be in really good shape to take advantage of that.

[Operator]

We will have the last caller for today's conference from the line of Stephanie Moore of Jefferies.

[Stephanie Benjamin Moore, analyst]

I wanted to maybe touch back a little bit on just kind of where we are in the cycle and the overall freight environment. I appreciate your color, the color you provided about seeing some improvement, but not going to call a full inflection. I'd love to get your thoughts on the -- answering the, what's it going to take question, meaning does capacity need to keep leaning lower at the rate that we're seeing now? Or does it need to accelerate? Is this a demand shock? I know we all have our own crystal balls, but I do appreciate your opinions on what you see. Appreciate it.

[Frank Lonegro, executive]

Yes, sure thing, Stephanie. Thank you. I think it's ultimately a couple of the things that you referenced. I do think capacity needs to continue to come out, to Joe's earlier point.

It's hard to know the exact number of trucks that came in during the COVID-induced era. If you look at the -- just the number of new authorities that were granted during that period of time, it was significant. We also believe that it was largely smaller carriers coming into the business that were able to buy a used truck and get into the business given the fact that the rate was so significantly greater than it had been in the pre-pandemic period.

And so folks made a lot of money during that time period of kind of second half of '20, '21, '22, even into the first half of '23. So there is some staying power in that capacity. We do think there is a significant amount of truck capacity rather than authorities that is on the sidelines and appropriately so, given the operating environment that we're in.

Continuing growth, whether it's on the good side of GDP or IDP is certainly going to be helpful. not that we wish for hurricanes or other things like that, but you could end up with something that helps us a little bit on the demand side that's unexpected. But I think it's going to be continued growth of the economy, and it's going to be a return to a goods preference by the consumer and then continuing to have capacity come back out of the equation.

And while all of that's happening, we're going to remain very, very focused on the strategic initiatives that we have and other things that we're talking about internally that are more secular in nature rather than cyclical in nature, and we're going to continue to push for that age and BCO relationship that you heard Joe and Matt talk about, and we're going to continue to keep an eye on costs.

And as I mentioned, I think, in the last call, we're going to be stronger as a result of this trough and come out the other side really good.

[Stephanie Benjamin Moore, analyst]

No, appreciate that. And then just to follow up from the conversations that you're having with some of your large customers, do you feel like it's overall lack of confidence kind of just holding on the sidelines in a lot of cases? Because you're right. I mean I think we all can speak to the secular tailwinds ahead of us. So I would love to get maybe hear some of the commentary that maybe they're hearing in this environment, more so on the demand side.

[Frank Lonegro, executive]

Yes. And so a couple of things maybe. We certainly have others around the table that can chime in on this one. I mean being a spot market player, we're generally going to be on the cyclical end of things.

As folks went through the bid cycle, I think there was a lot of commentary about holding the line and then prices dropped and people locked in the volume. So I do think that the contract piece of the market probably took some rate decreases and that would be consistent with the commentary that we've heard publicly from folks.

And if you think about where we are, we play in a bit of a different element of the cycle, we are beginning to see it come off of the bottom. The rate inflections that we've talked about are helpful there.

I think customers are beginning to come back to us. We've had instances both on the areas that Jim Applegate handles as well as the areas that Matt handles, where maybe we were, I'll say underbid in the competitive process back in the spring. Folks are coming back to us, which is nice to see. I think that is almost directly related to our service product and how good we are at what we do and the professionalism of the BCOs and the approved carriers that we have, like we do a really good job, and we make sure we do a really good job. But that good service comes at a bit of a premium. And so we've got to make sure that we stay true to that, and we don't bottom fish in terms of rates.

And that's been a real hallmark of the Landstar model, and it's not something that I intend for us to change. But Matt and Jim, you guys have thoughts on this?

[James Todd, executive]

Yes, I'll jump in real quick. As a part of normal business here at the start of July, we take a look back at the first part of the year and kind of level set for the next back half of the year and then kind of an early on '25. And through that, we go through all of our top agents, all of our $1 million agents and get some input from what they're hearing from their customers and what we can expect.

And I still think there's still quite a bit of pessimism out there. You've got the election coming up. There's still talk of pending recessions coming up. So I think going through the backside of this year, we're not overly optimistic for that big tide to come and switch the cycle. It can't come soon enough for all of us.

But I would say in the near term through this year, most of the general feedback is they're not overly optimistic.

[Matt Dannegger, executive]

And I'd echo that. I would say specifically the consumer side of it, very rate sensitive right now, very rate-driven, to Frank's point, about valuing service versus rates. However, I do think some of the end markets over in the spot market, specifically around the heavy haul area, we're starting to see some of those end markets with some encouraging signs.

And I think our agents -- the nice thing about our model. Our agents are very incentivized to find that. And typically, they find it first. And I expect our model to kind of continue to kind of identify those quickly and get us out in front of some of those markets.

[Stephanie Benjamin Moore, analyst]

You said I was last -- I had one last question because no one else asked it, buyback appetite, I'd love to get your thoughts here at this level and then I'll be quiet.

[Frank Lonegro, executive]

Yes. No worries. So it was really good to reengage in buybacks. And I think as I mentioned on the prior call, we were a little bit blocked out from the market given the CEO transition at the end of the fourth quarter and the beginning of the first quarter. So give us a pass on Q1, but obviously back in the market and did well.

I mean one of the things that is a hallmark of the Landstar model on capital returns is we're very patient, and we're very opportunistic. I think we bought well in the quarter, and you'll see in the Q that we bought sub-1.80, on an average basis. So I think we did really well in terms of doing that, and we'll continue to have that opportunistic and patient appetite as we go forward into Q3.

We have the authorization to do it, but we're not going to have the money burn hole in our pocket, so to speak, and we're going to be real thoughtful around how we engage in buybacks.

It was nice to raise the dividend 9% today, and that's another way to return capital to shareholders. And we're excited about being able to do that, real confidence vote from our perspective in terms of the future.

[Operator]

We have the last caller for today's conference from the line of Scott Group of Wolfe Research.

[Jacob Lacks, analyst]

This is Jake Lacks on again. Just one follow-up. Air and ocean cargo pricing looks like it took a big step up in 2Q. Do you expect that to continue in 3Q? Does it trend even higher just as ocean rates picked up through the quarter, would just be good to get your sort of near-term expectations there.

[James Todd, executive]

Jake, look at you playing leadoff man on the call and finishing up. No, to your point, we had a 39% uptick in our ocean revenue per load from the first quarter to the second quarter. I think we had a couple of rounds of GRIs pass and stick.

Ours is project based. There's probably 10 or a dozen so agents, Jake, playing in that space. We will see the guidance calls for the multimode revenue to be relatively flat 2Q to 3Q. So there's not a bet embedded in the guidance on the continuation of that ocean rep per load move.

[Operator]

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

[Frank Lonegro, executive]

Thanks, Bill. In closing, while the freight environment remains challenging, we do see some positives in the near term. We are encouraged that truck revenue per load seems to have stabilized and is moving higher, which is potentially a positive sign for the rest of 2024.

Regardless of the economic environment, the resiliency of the Landstar variable cost business model continues to generate significant free cash flow. Landstar has always been a cyclical growth company, and we are well positioned to navigate these dynamic times and look forward to higher highs when the freight market turns our way.

Thank you for joining us this afternoon. We look forward to speaking with you again on our 2024 third quarter earnings conference call in late October. Thank you.

[Operator]

Thank you for joining the conference call today. Have a good afternoon. Please disconnect your lines at this time.