Landstar System Inc
NASDAQ:LSTR
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
167.1
198.87
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Landstar System Inc
You don't have any saved screeners yet
Good morning and welcome to Landstar System Incorporated Year-end 2020 Earnings Release Conference Call. All lines will be in a listen-only mode until the formal question-and-answer session. Today's conference 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; Rob Brasher, Vice President and Chief Commercial Officer; 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.
Thank you, Missy. Good morning and welcome to Landstar's 2020 Fourth 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 by nature is subject to uncertainties and risks, included but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2019 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.
I believe it is safe to say 2020 was a year like no other. The economic and social disruption caused by the COVID-19 pandemic had unprecedented impacts on many sectors of the U.S. economy. Consumer spending on travel and entertainment along with other service related expenditures shifted to spending on goods, while U.S. manufacturing was adversely impacted by the pandemic and still has not fully recovered.
To conclude this rollercoaster of a year, Landstar achieved numerous all-time quarterly financial records in the 2020 fourth quarter. This remarkable turnaround from the adverse financial impact that COVID-19 had on our 2020 second quarter financial results was mostly due to significant consumer demand driving our van truckload business.
2020 fourth quarter performance was also favorably impacted by an improvement in U.S. manufacturing compared to the 2020 third quarter. In fact the fourth quarter was the only quarter of 2020 where revenue from transportation services hauled via unsided platform equipment exceeded the corresponding prior year quarter.
At Landstar, the swings in financial performance caused by the pandemic were more dramatic than during any other time in the company's history. 2020 second quarter gross profit decreased from the 2020 first quarter by almost 21% due to the sudden adverse impact COVID-19 had on the U.S. economy and actions taken by Landstar to provide additional financial support to the company's network of agents and BCOS. This was the first time in the company's history that gross profit decreased sequentially from the seasonally softer first quarter to the second quarter.
Our second quarter performance was followed by substantial sequential quarterly growth in gross profit, which increased 42% from the 2020 second quarter to the third quarter and 13% from the third quarter to the fourth quarter. This gross profit growth was led by significant sequential increases beginning in June in month-to-month truck revenue per load and above normal month-to-month increases in the number of loads hauled via truck. These sequential increases in revenue per load and the number of loads hauled via truck that began in June and continued through fiscal year-end drove our record quarterly financial performance in the 2020 fourth quarter.
Also as described in Landstar's 2020 fourth quarter earnings press release that we put out yesterday these sequential trends drove our fourth quarter financial results to far exceed both the fourth quarter financial guidance we first presented in our 2020 third quarter earnings release on October 21st, and the updated financial guidance provided on November 17th via Form 8-K filed with the SEC.
Our updated guidance issued on November 17th, indicated our expectation that revenue and diluted earnings per share in the fourth quarter would be slightly above the high end of our initial guidance issued on October 21st of $1.2 billion and $1.42, respectively. Actual revenue in the 2020 fourth quarter was $1.296 billion, and diluted earnings per share was $1.70.
Revenue exceeded the high end of our guidance by $96 million as growth in the month-to-month trends in revenue per load and the number of loads hauled via truck exceeded our already high expectations. The increased revenue drove gross profit growth that contributed approximately $0.17 to the increase in diluted earnings per share over the high end of the guidance.
The additional increase in diluted earnings per share compared to guidance were due to lower net costs primarily insurance and claims during the quarter than expected plus a $0.05 favorable impact from a lower than expected effective income tax rate.
As it pertains to monthly trends, October closed with truck revenue per load 15% above the October 2019 and the number of loads hauled via truck 10% above that of October 2019. As we move through the fourth quarter, as previously mentioned, truck rates and volume continue to strengthen compared to the corresponding prior year period. November-December revenue per load on loads hauled via truck increased 17% and 18% over November and December 2019 respectively. And the number of loads hauled via truck in November December increased 13% and 15% respectively compared to the same months of 2019.
Overall, revenue per load on loads hauled via truck in the 2020 fourth quarter exceeded the 2019 fourth quarter by 17% and the number of loads hauled via truck exceeded the 2019 fourth quarter by 13%. The strength in demand for Landstar services provided via van equipment during the 2020 fourth quarter, further strengthened from the already strong demand we experienced during the 2020 third quarter.
In the 2020 fourth quarter, demand for services provided by unsided equipment also improved as compared to the third quarter with load volume and revenue per load on loads hauled via unsided equipment each exceeding the 2019 fourth quarter. As noted previously, the fourth quarter was the only quarter of 2020, where the number of loads hauled and revenue per load on loads hauled via unsided platform equipment, each exceeded the corresponding prior year quarter.
Even as demand for unsided platform services improved in the fourth quarter, overall demand for transportation services provided via van equipment continue to significantly outpace demand for services provided by unsided equipment. More specifically, the number of loads hauled via van equipment in October, November and December were 13%, 16% and 17% above October, November and December 2019.
Revenue per load on loads hauled via van equipment in October increased 23% over October 2019 and increased 25% in both November and December over November December 2019. The number of loads hauled van -- the number of loads hauled via unsided equipment in October was about equal to October 2019. In November, December 2020 were 8% and 12% above November and December 2019.
The revenue per load on loads hauled via unsided equipment in October, November and December exceeded prior year by 6%, 4% and 5% respectively. In comparing the 2020 fourth quarter to the 2019 fourth quarter demand for our services fluctuated significantly by industry sector. The sector is behind the revenue growth in the 2020 fourth quarter with the same sectors that drove revenue growth in the company's 2020 third quarter over the 2019 third quarter. The growth in revenue was driven by strength in consumer durables, automotive parts, building products and substitute line haul services, where Landstar provides truckload transportation services to LTL and parcel carries between their hubs.
The boom in home improvement and renovations helped growth in the building products sector, while new business awards outside the big three automotive, manufacturers partly contributed to the automotive parts performance. Growth in new and existing accounts resulted in increased revenue in the consumer durable sector. Consumer demand for e-commerce drove the growth in substitute line haul services.
Revenue from the machinery and metal sector, both of which are typically serviced using unsided equipment, improved compared to what we experienced in the 2020 third quarter. Revenue from the machinery sector in the 2020 fourth quarter was about equal to the 2019 fourth quarter, a significant improvement from the 12% decrease in the 2020 third quarter compared to the 2019 third quarter.
Likewise, revenue from the metals sector was 3% above the 2019 fourth quarter, a significant improvement from a decrease of 12% in the 2020 third quarter compared to the 2019 third quarter. While certain sectors of the U.S. economy appeared strong and others lagged, the efforts of our agents to expand their business with new and existing customers across a broad array of sectors was critical in driving the company's strong fourth quarter performance.
As to truck capacity, we continue to track qualified owner operators to the model. We ended the year with a record 10,991 trucks, 420 more than at the end of the 2020 third quarter and 748 more than December 2019. BCO utilization or loads per BCO per week was slightly above seasonal norms. BCO utilization in the 2020 fourth quarter increased approximately 4% compared to the 2019 fourth quarter. Record BCO truck count and the increased BCO utilization led to a record number of quarterly loadings hauled by BCO capacity in the 2020 fourth quarter.
Also, as demand increased, we saw increased number of third-party carriers haul loads for Landstar. Active truck broker carrier count defined as carriers who have hauled the Landstar load in the past 180 days, increased from approximately 41,000 in the 2020 third quarter to an all-time record of 46,000 in the 2020 fourth quarter. Approved and active third-party carrier count continues at an all-time high.
As it relates to third party carriers, the inflection in demand that began in August resulted in a sudden tightening truck capacity that drove an increase in the rate of purchased transportation paid to third-party truck carriers.
In the 2020 fourth quarter, revenue per load increased approximately 18%, while gross profit per load increased approximately 5% on truckloads hauled by third-party carriers as compared to the 2019 fourth quarter. The exceptional finish to fiscal year 2020 was partly due to very strong demand during the holiday peak season.
Beginning in early November, overwhelming demand for e-commerce tightened truck capacity driving rates and volumes higher at the end of the year. Although, I expect strong demand to continue through the 2021 first quarter the impact of the year-end spike in e-commerce on truck rates and volume is expected to subside. Therefore, I expect quarter over prior year quarter growth in truck rates and volume in the 2021 first quarter compared to the 2020 first quarter to be somewhat below the exceptional growth rates of the 2020 fourth quarter, although similar to the strong growth experienced in October 2020 over October 2019 prior to the spike in e-commerce.
As a result, we expect truck revenue per load in the 2021 first quarter to exceed the 2020 first quarter in a mid-teen percentage range. We also currently expect the number of loads hauled via truck in the 2021 first quarter to exceed the 2020 first quarter in the high single-digit percentage range.
As such, I expect first quarter revenue to be in the range of $1.100 billion to $1.150 billion. Based on that range of revenue, I anticipate diluted earnings per share to be in the range of $1.55 to $1.65. Landstar business model with access to substantial number of truck capacity providers including both our BCO owner operators and third party carriers combined with the expertise and experience of the agent family and the geographic distribution of our over 1,200 agents throughout the U.S. and Canada drives exceptional performance in most environments. The 2020 fourth quarter was no different.
I just want to just touch on a couple of line items on the – within the P&L. Gross profit increased 23% to $182.4 million compared to $148.7 million in 2019. Gross profit margin was 14.1% of revenue in the 2020 fourth quarter and 14.9% in the 2019 fourth quarter. The 80 basis point decrease in gross profit margin was mostly attributable to a 220 basis point increase in the rate of transportation paid to third-party truck, brokerage carriers, partly offset by 140 basis point decrease in the rate of commissions paid to agents on that revenue.
Gross profit margin in 2020 fourth quarter was also lower than the 2019 fourth quarter due to mix as a percent of revenue from fixed margin business decreased compared to prior year.
Other operating costs were $7.4 million in the 2020 fourth quarter compared to $8.7 million in 2019. This decrease was primarily due to a decreased provision for contractor bad debt.
Insurance and claim costs were $21.2 million in the 2020 fourth quarter compared to $25.1 million in 2019. Total insurance and claim costs were 3.8% of BCO revenue in the 2020 period and 5.7% of BCO revenue in the 2019 period. The decrease in insurance and claims as compared to 2019 was primarily due to decreased net unfavorable development of prior year claims, decreased severity of current year claims during 2020, as well as decreased frequency during the 2020 period, partly offset by an increase in insurance premiums primarily for commercial trucking liability coverage.
Selling, general and administrative costs were $42.9 million in the 2020 fourth quarter compared to $38.2 million in 2019. The increase in SG&A was mostly attributable to increased stock-based compensation expense an increase in the provision for bonuses under the company's incentive compensation plans and increased wages, partly offset by decreased travel and entertainment costs and decreased event costs.
In the 2020 fourth quarter, stock compensation and the provision for incentive compensation was $3.6 million. Stock compensation and the provision for incentive compensation were both insignificant in the 2019 fourth quarter.
Depreciation and amortization was $11.6 million in the 2020 fourth quarter compared to $11.4 million in 2019. Operating income was $84.4 million, or 46.3% of gross profit in the 2020 fourth quarter or $66.5 million or 44.7% of gross profit in 2019.
Operating income increased 27% year-over-year. Excluding the $15.5 million one-time cost to buy out certain incentive commission arrangements, with several agents operating income and operating margin in the 2020 fourth quarter would have achieved all-time quarterly records. The effective income tax rate was 22% in 2020 fourth quarter compared to 23.8% in 2019. The effective income tax rate was favorably impacted in both periods by resolutions of certain tax items and tax benefits resulting from equity compensation arrangements.
Looking at our balance sheet, we ended the quarter with cash and short-term investments of $291 million. Cash flow from operations for 2020 was $211 million, compared to $308 million in fiscal year-end 2019. The decrease in cash flow from operations is mostly due to the spike in revenue to end 2020, driving year-end net receivables, accounts receivable less accounts payable up.
As it relates to full year 2021, the company does not provide revenue and earnings guidance beyond the upcoming quarter due to the unpredictable nature over extended periods of time in the U.S. spot market in which it primarily operates. However, as it relates to full year 2021, certain costs and cost savings that took place in 2020 mostly due to the COVID-19 pandemic are not expected to recur.
During 2020, the company paid $50 per load as pandemic relief to BCOs and independent agents for all loads hauled via BCO during April and May, which resulted in a total one-time cost of $12.6 million. Additionally, the company recorded a $2.6 million charge at Landstar Metro related to the impairment of customer intangibles and a $15.5 million charge for the buyout of certain legacy agent incentive commission arrangements.
The termination of those commission arrangements should result in a tailwind in commissions to agents in 2021 as compared to 2020 of approximately $10 million. The company also estimates that it had cost savings due to cancellation of events travel and entertainment, BCO training and recruiting costs and various other savings totaled about $7 million in 2020. Overall, we estimate the aggregate impact of all these one-time items equal to a net $13.7 million providing a nice tailwind heading into 2021.
As most of you know, several years ago, we began the process of transforming our technology infrastructure. That plan includes an overall overhaul of Landstar's technology systems and involves changes to our network architecture, hardware, software and how data is stored and accessed to provide a more flexible agile platform.
Most of all the transformation involves the delivery of new and upgraded tools that we make available to the company's network of small and large business owners. The new platform allows us to move to a plug-and-play environment, where we can build or buy tools and make sense to the business.
Over the past few years, we have delivered a pricing tool to the agent family, automated the customer credit and trailer request process, provided a data analytics tool to the agents to help them better manage their business, delivered a freight visibility application, consolidated our applications used by the BCO network to a single mobile app called LandstarOne and improved our load and truck search features. We also continue to move forward on replacing our legacy operating system with a new transportation management system.
During 2020 we established Landstar Blue, a company-owned operated transportation company that will allow us to further design and develop tools that ultimately benefit the company's network of agents and capacity providers. During 2021, our recent investments in the company's technology ecosystem will add approximately $5 million to depreciation in 2021 over 2020.
Additionally, as we continue to invest in new enhanced tools, I expect to incur approximately $5 million in costs related to continuation of our technology plan along with $2 million in IT wages -- wage increases as we transform the IT team with new skill sets. Overall, the incremental cost for the continuation of the company's technology transformation in 2021 is expected to be about $12 million.
2021 is setting up well for Landstar's operating conditions that contributed to our record quarterly performance in the 2020 fourth quarter, but appear to be carrying through to January. We begin 2021 with a record number of BCO trucks and approved third-party carriers. Demand remains strong for van service, I believe demand for unsided platform service has turned the corner.
Overall, strong demand and easy year-over-year comparisons through the first half of 2021 should result in first half revenue and earnings well above the first half of 2020. As we move to the back half of the year, we anticipate year-over-year comparisons may become a bit challenging due to our record finish to 2020, and the expectation of a normal spot market cycle, which would suggest softening truckload pricing in mid to late summer 2021.
Nevertheless, from a longer-term perspective, Landstar expects to grow gross profit in mid single-digit percentage range pass 70% of that growth to operating income and increase diluted earnings per share in a high single to low double-digit percentage range. Ultimately, those expectations should result in an annual operating margin of 50% or more within a period of three to four years.
Regardless of the environment, Landstar's network of small and large business owners provide the expertise to satisfy shipper demand in almost every sector in every geographic region in North America sourcing capacity of varying equipment types, while Landstar provides the tools and financial support to empower their success. The strength and resiliency of Landstar's light asset-based variable cost business model proves itself over and over, 2020 is shaping up to be another great year.
And with that Missy we are ready to take questions.
Thank you very much. At this time, we will begin the question-and-answer session. [Operator Instructions] Our first question is from Jack Atkins of Stephens. Your line is now open.
Great. Good morning and congratulations on a great quarter guys.
Thanks Jack.
So, Jim maybe if we could just sort of start -- and first of all, I think everyone really appreciates all the additional commentary you provided here on 2021. But would just be curious if you could maybe kind of talk for a moment about how you view the market-shaping up this year. You talked about the potential for normal sort of cyclical spot market trends to indicate maybe the second half seeing a little bit of -- just a slowdown relative to 2020.
Are you seeing anything from a supply entering the market perspective that would lead you to believe that, or could it certainly feels like with additional stimulus in the market the industrial economy picking up that there could be some pretty significant tailwinds as we move through 2021? Just curious to hear your thoughts on that.
Well, first of all, Jack you know my position on positive news I'm more of a pessimist than an optimist, so I will go with normal business cycles, right?
Understood.
So, just my basis on -- my thoughts on 2021 which actually probably a little bit different in a lot because I think there's a lot of thought out there that this is going to continue through the year. Right now the strong trends have continued right through January, there's no indications that they won't continue in the short-term at least, through the first half of the year that I see, right? But when I look at things that are occurring in the industry like the increase in truck orders, the wage increases to drivers and things like that to me, it was the -- you're seeing the significant spike in spot rates.
And talking about contracts, people are talking about contract rates being up in the low double digits next year, right? So, I do feel that we're just -- I'm not saying the demand is going to go away but I think there'll be a shift later in the year from spot to contract like we've historically seen. That's a Gattoni opinion which I forced my guys here to believe in, but I'm not sure they believe it. But I see all the things indicating that it's going to be a normal spot cycle where we -- you see the significant climb similar to 2017 into 2018 and then slowing down into 2019. And that's -- I just think it happened faster this time.
I mean clearly this thing went from June to December if you look at what happened at rates, we're growing about 5% sequentially month to month until we hit in November and that it was like 2.5% to 3%.
So, under my view, there's nothing indicating that right now Jack that we are going to -- there's nothing concrete that says we're going to see a slowdown other than I'm looking at normal cycles based on what I've seen occurring with the increased orders and increased wages to truck drivers and contract rates coming up to kind of offset the pain of the high spot rates.
Okay, understood. Got you. Makes sense. And then I guess for my follow-up question with the new administration in place in Washington and a democratic controlled House of Senate. How are you guys thinking about potential regulatory changes around owner operators the potential for maybe AB5 or AB5 like bill that we saw out in California to either be it more of a national mandate or maybe move into some other states in the Northeast or maybe the Midwest?
Yes. Clearly, we've been watching that for quite a while. And in California we can deal with that at state-by-state level. And I think if you recall back at the end of 2019, we were saying that we probably have to either move probably 300 to 400 BCOs out of California or just have them not freight in California. But if it became a national issue, we'd have to look at a little bit differently.
And there are options that we have to -- they drive on our motor carrier authority, they could drive independently. There are certain things you can do, but until we know exactly what the rule is you don't know what actions we need to take. Is it wage and hour laws? Is it health and benefits? Is it stuff like that?
AB5, watching how that transpires, gives us a little comfort that they wouldn't necessarily mandate that at a national level because if you see what's going on there's a ridiculous amount of exceptions to that rule. And it got voted down by the public, right? So, I would hope there'd be a little bit of I don't want to call it common sense but a little bit of look into really what these independent contractors want, right? Our independent contractors they want to be on their own. They want to drive when they want where they want and haul what they want. And the reason they do it is because they're small business owners.
And I think that the U.S. should focus on this is an opportunity for people to run their small businesses and it shouldn't be taken away. But we got our eyes on it. We always have. It's always been a thing we watch. But I think this administration, I think, it will probably cause a little disruption, but nothing so adverse that it will disrupt the operations of Landstar. But into the future there might be a little adverse financial impact if they really come up with this dependent contractor concept.
But just following up on that briefly though, Jim. I mean with your access to third-party broker carriers as well not just the BCOs, you've got a lot of options in terms of how you source capacity. So, sort of, no matter what comes you'll be able to effectively access capacity in the market. Is that the message?
Yes. Absolutely. Yes our systems are all designed to do it regardless of whether they're BCOs or not. Yes, absolutely.
Okay. That’s great. Thanks for the time.
Yes.
Thank you so much. Our next question is from Allison Landry of Credit Suisse. Your line is now open.
Good morning. Thanks. I wonder if you could speak to your expectations for insurance costs when you come up for renewal of the coverage this year? Any sort of headwinds -- incremental costs headwind you're anticipating? And then maybe just, sort of, the other side of that question. Are you seeing an increase in -- or like an easier time getting the BCO carriers and attracting them to the platform as a result of higher insurance costs?
Okay. I'll answer the first question about the premiums, and I'll pass the next question to Joe about recruiting in carriers as BCOs due to the high increase in insurance costs. On the premium side, we expect -- we renew on May 1 as you know. So we got a renewal coming up in a couple of four months. There is talk that we're going to see another 25% to 50% increase in the truck -- commercial trucking liability coverage, which you're talking like $4 million, but there are things we can do. I mean we have significant coverage problem where our limits are pretty high probably higher than most of the industry.
And I think there's things we can do within our layers come May 1 to reduce that 25% to 50% increase. So it's hard to commit right now whether it's going to be an increase, but it's not -- I don't believe it's look we went from $8 million to $22 million on net coverage May 1 2020.
There's -- I'm talking maybe $4 million more, but what I think what we can get -- I think we can reduce that below $4 million. I think we might even be even by the time we renew in May 1, but we will probably just end up taking a little more risk at the high levels of insurance. So it's certainly well managed through come May 1 and I'll have a better answer probably for you to come in the end of the first quarter. And with that I'll let Joe respond to the recruiting trucks and as BCOs.
Yes, Allison. Hi. So I don't -- we don't get a sense that the increase in BCO the net count is really a function of insurance. It really hasn't been as much of an addition as it has been our retention levels. And I think that's just a function of the processes and the technology and all the things we have in place to keep small business owners productive in the system. So I don't sense that the BCO growth is a function of insurance.
And then clearly on the carrier side with the growth in approved carriers and active carriers the insurance -- while we believe it to be a factor and I don't know to what extent it's hit that population yet I do think over time if insurance rates impact those small carriers, I do think that could be something that we would watch and that could be a potential BCO recruiting opportunity down the road.
Okay. That was really helpful. Thanks. And then just as a follow-up question, I apologize if I missed this earlier. But could you give us your expectations for CapEx for 2021? And maybe how much of that is slated for technology?
Good question. Kevin, you want to answer that? No. I think that -- actually I have the technology. I think it's about $18 million on technology and then trailers of about $40 million or $50 million which really gets funded through capital leases. So it doesn't show up as a CapEx expense, cash expense.
Got it. Thank you, guys.
Thank you so much. Our next question is from Todd Fowler of KeyBanc Capital Markets. Your line is now open.
Great. Thanks. Hey, good morning, Jim. Jim, just a couple of questions on the mix of business. Can you talk a little bit about the inflection that you saw on the unsided business in the fourth quarter -- November and December showing that nice volume growth -- specifically where were you seeing that? And then with your first quarter volume guidance the up high single-digits do you have a breakout between what you're expecting on the van side and the unsided side in that number?
Well, speaking to the guidance we -- clearly we had a 13% volume increase over the fourth quarter over fourth quarter, right? The majority was on the van side, a little bit was on the flatbed side. The slow -- and now I'm saying high single digits, right? The slowdown really is on the van side, so you'd pull that back from I think it was 17% down really low. And I think the van side -- the flatbed side was running maybe 3%.
And I didn't anticipate much of an increase in van growth over prior year's first quarter. We kind of anticipate more of a similar kind of growth that we had fourth quarter over fourth quarter for the flatbed coming into the first quarter, which got me to my high single digits. But Rob can probably speak to the flatbed trends in the fourth quarter.
Yes, Todd, this is Rob. So we really kind of saw it, as we all know the automotive industry was disrupted. So we started picking up a lot of ground there on the unsided side from the automotive. Building materials as we talked about with new housing starts and remodels that became big -- the big-box retailers, as well as a lot of support groups there.
And then the consumer durables, again there's a just lot on the open sided. As this continues, as this e-commerce and as this consumer spending continues, we picked up in that as production picked up. So, really, if you kind of look at building materials, consumer durables and automotive that's kind of where we picked up in the fourth quarter and kind of moving forward.
Okay. Good. That helps, Rob. And it seems like those are all markets that should have some tailwind as we move into the first half of 2021. Jim, maybe just for a follow-up. It's been a while since we've talked about substitute line haul kind of with this order of magnitude.
Can you just refresh us a little bit in how that business is priced? Does it come through a close to a spot rate, or is it priced a little bit differently? And then how do you think about the sustainability of that? I mean, obviously, the e-commerce trends should be pretty favorable for a while.
Does some of that business at some point shift to more of a contract or kind of a more -- outside of your network at some point, or do you think that that business is pretty sustainable as we move into the second half of 2021. You expect to kind of see, maybe not the same magnitude, but to keep a lot of that business as you move through this year. Thanks.
I actually think it's a combination of both. One of the larger organizations that we haul peak season for coordinates with us over the summer, right? And we're kind of lock up rates and do that and get those get those certain amount of miles allowed to us when we run those routes. So there's a big piece of that, but there's also a big piece of -- I'm sorry ad hoc that we haul too.
So I think what really drove it is the excess -- we get our allotted miles and next thing I know, the e-commerce just gets crazy and the ad hoc fills up. So it's kind of a combination of both that really hit us. If you recall when we're talking in the third quarter, we started seeing that substitute line haul pick up in August, which typically starts about mid-November.
That clearly at the front end of it was the ad hoc coming into about November and then we started with our traditional kind of contract, but agreed upon rate dedicated line business that we run for them. In that state, that was given to us so dedicated. So most of the growth out of that was ad hoc.
Like I said, through the first quarter, if you looked at what happened, our volumes dispatch truckload volumes the last two weeks of the year were up over 20%, which is just really speaks to the peak holiday season and that substitute line haul business. And that's why in the first quarter I expect that to subside.
Now I'll tell you honestly, that I think some of it carried into January and I do expect it to kind of slow down a little bit. As to next year I think, if there's that kind of demand come through, I think it's going to be a really tough comp in the fourth quarter next year.
Even if you have that kind of e-commerce push through, because I think these carriers get a little more handle over it. Each year they learn a little more about how to manage through the increase in e-commerce freight coming through. And they assign more of the contract business out each year.
So the ad hoc, which is higher price, kind of, slows down. So I think that's how you're going to see us transition throughout the year. But it's still -- I think it’ll stay -- I think it will stay a little elevated throughout the year, but not to the extent where it was during peak season.
Yes. Got it, Jim. Okay. That makes a ton of sense. I'll turn it over and get back in the queue. Thanks for the time this morning. Congratulations.
Sure, Todd.
Yes. Thanks.
Thank you so much. Our next question is from Jordan Alliger of Goldman Sachs. Your line is now open.
Yes. Hi. Question, I heard your commentary and color around supply demand and price in the second half of 2021. I'm just curious since the industrial/flatbed markets that come with a bit of a lag relative to the consumer side. Does the same commentary apply on price? And can you maybe talk to the dynamic around that versus the more consumer-oriented demand business? Thanks.
Yes. I would think the flatbed strength on pricing really -- since there wasn't a high demand, we didn't really get that strength in pricing. I would expect, yes, it would -- as manufacturing picks up and it tightens up your flatbed -- if there's an infrastructure build or anything that tightens up the flatbed market, which should result from increased -- improved manufacturing you would see the cycle up on pricing.
So where you saw significant increases in rates in van this year, I'm not saying you'll see the same type of growth in the flatbed. I mean that was just -- it was incredible the way the van rates increased from about June until the end of December. We did not see that same thing on flatbed. I would say that as manufacturing picks up and demand for the flatbed -- in the flatbed market improves you'll see -- you'll clearly see increases in pricing throughout the back half of the year but not near the level of what you saw on the van side.
My thoughts really are as the economy starts to open is that consumer demand will kind of slow us down a little bit and that's tough consumer demand comps going in the back half and it will be slightly, but not completely offset by increased demand on the flatbed side.
Great. Thanks so much.
Thank you so much. Our next question is from Scott Group of Wolfe Research. Your line is now open.
Hey. Thank. Good morning, guys.
Good morning.
So Jim, I thought, I heard you mention that you think you'll get to a 50% net operating margin in a few years. You guys were there in the last two quarters. Why do you think you take a step back and then eventually get there in a few years?
Yes. Because we're seasonally softer in the first quarter so you got to take that one into consideration. And then if you look at the year we clearly ran some pro formas on the year. And this year we're about 45% 46% this year. We were -- to be honest Scott we were at 49.7% in 2018, right where we had about $667 million in gross profit and $340 million of costs. This year we -- in my brain we probably had about $340 million of cost below the gross profit line, but the gross profit was really soft.
The reason I'm delaying that why I don't think we're going to get to 50% over the next year or two or three years because one is the pressure from insurance. I think that's going to continue to creep up a little bit not necessarily from premiums, but claim costs continue to bite us a little bit. The $100,000 claims five years ago now it's $200,000. And then our technology spend as I laid out we're going to be spending a little bit more on technology, but continuing down the path of incremental spend on technology with next year in 2021 it's going to be at $12 million. That's where I have about three years to four years out.
Now if you exceed your gross profit growth of mid single-digits you can get there faster. And there are some levers we can pull on costs just not that many. So can we get there quicker in three years to four years? Yes. But I think three to four years is our manageable timeframe if we grow mid single-digit gross profit. It really has to do with some of those incoming costs on technology investment and the recent spike on the insurance premiums.
Okay. I don't know that there's an easy answer here but how have you thought about infrastructure bill is there any good rules of thumb in terms of how many billions of dollars and what this could mean for Landstar? Any way to think about the potential opportunity for you guys here?
Well it's hard because we don't really have a benchmark because they keep promising an infrastructure bill and they've never put one in place. So there's nothing to look back and say, hey last time they did this right? We don't really have a good metric for it. So all we can say is that any kind of infrastructure bill whether they're doing anything with flatbeds would tighten up that market and help out with pricing within the flatbed whether we're involved directly in infrastructure support for transportation or not it's just a good indication for our flatbed business which is 30% to 35% of our business.
Would you think you'd be involved directly?
That's hard to say. It depends. Like we're not -- we don't haul a lot. We don't haul road stuff or anything like that. We might haul equipment into constructions also. But we're not really doing that kind of infrastructure work on our flatbeds. It's not our routine nature to be doing anything to do with roadwork or anything like that. So I wouldn't think it would be directly involved but it's yet to come see what that bill looks like.
Okay. All right. Thank you, guys.
Yeah.
Thank you so much. Our next question is from Stephanie Benjamin of Truist. Your line is now open.
Hi. Good morning. Thank you for the question.
Sure.
I appreciate you walking through some of the major technology investments that you laid out over the last couple of years and also providing the color on the incremental call it $12 million or so cost expected in 2021. Can you maybe talk through what the 2021 investments or incremental dollars what initiatives those are going towards? Thanks.
Yes, we continue -- four years or five years ago we started a transition of our old operating system which is an IBM model in the 80s into a new more flexible TMS. That's a pretty large component of it. And actually we are actually starting to -- our plan is to roll out maybe to get about 80% of the agent base on that system this year. So hopefully it's the last year we'll have investment into that.
Not the last -- that will continue with investment. How about significant investment it would be a better answer. What we're doing too is, we're very focused on user experience whether it be the customer the agent or the capacity we've always had tools that are built around sharing information with either our agents or our independent contractors. We've been upgrading those.
But -- and we've also been consolidating them. So we refer to these as portals right where we're trying to build a better user experience for the agents where they don't have to bounce around screens and stuff like that. So we have an agent portal it's being built out. And we have a capacity portal that's being built out to give access to a single source for all of them to go to.
And it includes upgrades and functions too whether it's access to trucks or available loads pricing tools all that kind of stuff is being built out. So that's part of the big investment next year. So we hopefully have some portals rolled out for the agent family and by the end of the year the capacity customer may roll into the year after that. We also have a -- we've been monitoring our trailer fleet. We own about 13000 trailers. And a lot of that's been a manual process. I know you're probably a little surprised I'm a little surprised myself.
But we're building out, we -- in beta right now. We have a trailer pool management which is all automated now with -- so the agents can manage their trailer pools within their drop-and-hook locations. So there's a lot of pieces to this. There's -- our track and visibility tool is a little bit more investment in going there. It's very easy to track BCOs because they all have ELDs, but you need an aggregator to help you aggregate all the small carriers we use. right?
So we -- we're building out for the third-party broker carriers to make our track and visibility seamless for all types of capacity. So there's many little things we're doing to just improve the user experience in the organization at the same time building out our operating system and trying to roll out of the old IBM that we sit on not 100%, but move our operating system off of that.
Got it. No that's helpful. Thank you so much. And then just a second question here. I appreciate you giving the revenue growth by industries served and a lot of tremendous 20% plus growth in some of the categories. Can you maybe talk through were there any maybe new customer wins or share gains that can attribute to some of that growth, or is this a lot just what we're seeing is a pretty robust whether it's e-commerce trends or recovery in the industrial economy? Anything you can speak to that would be helpful.
Yes. We do have -- there are customer wins. But when you think about our business model I mean the top 100 customers only make up about 40% of our business. So it's really hard to talk -- even if we have new customers they don't really necessarily move the needle. A new customer may add $4 million or $5 million to a quarter that has $1.2 billion.
So we always play small ball, right? It's we clearly one of the things I've mentioned during -- on the consumer durables it's just the top 25 customers there only makes like 20% in that category. Automotive is probably the top -- that category is probably -- the top 25 customers make up about 60%. We had a nice land of a new customer or a fairly new customer on the automotive parts side.
But it's mostly just general economics and our agents diving in when things slowed down during the pandemic they build up our relationships, right? They kind of eat what they kill. So when they see business slowing down they do a very good job of getting out and attacking the market where the freight is. And I think they just did a very good job attacking the market where the freight was. They go to where the freight is.
In consumer durables building products automotive with the new decent size of cab land this year. That's kind of how the model works out because it's hard to talk to specific customers. Occasionally we do speak to specific customers if something moves the needle. But this time there is -- it's more of the categories as opposed to a customer performance.
Great. Thank you so much.
Thank you. Our next question is from Bascome Majors of Susquehanna. Your line is now open.
Thanks for taking question. Jim I don't think in the guidance just from a housekeeping item. Did you give the expected range of the net revenue margin or gross margin for the quarter?
I did not. I might be able to. Yes, I'm about -- I'd say, -- I got to make sure, I am right. I'm sorry, about 14.8% to 15%, maybe. Not maybe, it's 14.8% to 15%.
Thank you for that. And, whatever level you want to answer this at, I think it would be helpful for us to understand kind of how the business continues to evolve cyclically after that really wonderful second half in the dry van business.
But, what parts are still outperforming normal seasonality, or maybe kind of incrementally recovering, when you look at the patterns you normally observe? And how the business is trending be it on rate or volume?
And is the dry van just tracking seasonality at very high levels now, or are there other parts of your business that have started to trail and kind of cooled down cyclically? Just any way you could frame that, whether it's van versus flatbed or industry verticals versus other industry verticals?
I think it will be helpful for people like, myself that are trying to understand where things are right now. Thank you.
Yeah. I'm trying to think of something, that's actually starting to drag a little bit. And to be honest with you, through the first several weeks of January the substitute line haul did continue above normal seasonal trends. And we're seeing improvement on the machinery and metal side that we saw similar to what the fourth quarter is.
I'm trying to think of where there's a drag. And I'm telling you, I'm not -- right now, I'm not feeling one. I think my projection just assumes we're going to see a little bit of a slowdown in the van side, as we come out of January because of the substitute line haul. But really there's no indication that anything from the demand percent.
Now the growth rate, there's -- we're not far above seasonal norms right now, as we move on volume from December to January were above seasonal norms on rate from -- from December to January, maybe slightly.
So, the growth rate which was just unbelievable from month-to-month has slowed a little bit. But I don't see a drag. I honestly don't, from any -- whether it's van flatbed consumer. Rob, do you?
Yeah. Bascome, I mean, not necessarily a drag a shift. As this pandemic kind of takes place, and we kind of figure out where we are in the marketplace, and where people are going to live and work, and how their dollars are going to change in their spending, and some of this disruption goes away, I think as Jim has pointed out, some certain things will stabilize like automotive, right?
There's been a big disruption, building materials with people moving out of community living if you will apartments and condos and things like that, and moving out into more of the suburbs and redoing their homes, there's great projections on what -- how many homes are going to be remodeled this year. And then with the new housing starts.
But, as we start to stabilize, right and that's when, kind of what we're talking about construction projects, from the flatbed side. When construction comes back and people are going to start to build more schools, more office buildings, more campuses things of that nature and that's going to kind of kick off the heavy equipment in house aerospace wind going to come back.
And oil and gas is going to be a big factor as people go back to work, or don't go back to work and how things are going to move in that direction. So, again, Jim kind of said, we're kind of looking for manufacturing to take on a bigger piece in the back half of the year potentially, it really kind of depends on what happens, I think from the virus thing and how this vaccine takes place. And what we do as business is getting back to work and how we get back to work.
Okay. Thank you both for that detailed answer. Very helpful. Thanks.
Thank you so much. Our next question is from Amit Mehrotra of Deutsche Bank. Your line is now open.
Thanks, operator, hi, Jim, Hi team. I hope you guys are doing well. I want to ask a couple of questions. First, ask about yield trends versus maybe what's indicated by the Load Board data? And how should we think about those two, moving with each other over time? I think there's a lag effect, given maybe some of the stickier parts of your book of business.
If I remember correctly, your yields actually held in there quite a bit longer back in 2019 versus what the spot market was doing. So maybe you could just help us think about, that dynamic especially maybe going into a little bit more of a slower period later this year into 2022, as some of the supply comes on.
Yeah. I think in the history of Landstar I think what you see is the agents tends to lag the market reaction a little bit. So when things start to shift rapidly, the agents don't either increase pricing on one side or decrease pricing when they need to. So you generally do would see a couple of month lag -- I mean, it's not even a couple of months. It might be a couple of month lag in pricing for us.
So -- and the other thing to us on those public load boards, they tend to be shifting a lot higher they're higher highs than we see. Like if you see a DAT load board or something like that at 30%, we don't achieve that compared to what that, because I think a lot of that has to do with like we're in the premium freight market most of the time anyway.
So I think our prices are a little bit elevated when it comes to our BCO business, whether it's a flatbed or the van side drop and hook. So I think it's a little bit different spot market world, when you're looking at the load boards is when you compare it to us. But there tends to be a lag in the reaction time on our agents as it relates to market conditions. It's not as quick as things are moving on the boards.
Yeah. So, maybe a little bit later and then also a little bit more muted in terms of the volatility. The other question is a little bit more structural. There's obviously -- we've obviously seen spot rates at all-time high levels and maybe orders actually inflected later this cycle than we would have thought given where spot rates were for the last six nine months. And I guess that kind of supports the view that the hurdle rate to order a new unit is higher just from a rate per mile perspective.
And kind of speaks to maybe some of the structural changes in the industry or the thesis that people have that the industry barriers to entry are rising a little bit as it relates to insurance premiums and things like that. I'd love to get your perspective on that. If you buy into that argument based on what you've seen in terms of orders inflecting much later when spot rates are much higher this cycle than in prior cycles, or do you really not think it's that different this cycle versus prior?
I'm just a believer that it happens faster, all right? And I think that since it happened faster, I didn't think anybody was going to -- you're sitting here in April, May, June, no one is going to invest in trucks. And then August, September is where the spike started, maybe July right starting to see pricing start to climb.
And I think there was a -- look it took them two or three months to jump on it. The pricing was up. Spot pricing was up 15% to 20% from May to August-September time frame, right? You haven't seen that in the history. For me, I haven't experienced that kind of -- 2017 climbed, but not at that pace. I think it's just an accelerated climb in spot rates would made it look like a delay on the orders. But I think it just happened so fast, it took them two or three months to react as spot rates and start ordering trucks.
So that's why I think it's just a quicker climb and I think the reaction is the same as it always has been. So I don't think there's any change in the way -- structural changes in the way the spot versus contract cycles work. I'm just a big believer, because like I said what you're seeing is, you’re seeing the wages coming up, you're seeing more trucks being ordered. And you're hearing talk of contract rates coming up 10% to 15% next year, which would pull spot rates down.
That's -- it just felts like a normal cycle. There's other things driving it that could clearly make my opinion wrong is that you've got the drug and alcohol clearinghouse right, which you're putting drivers on the sideline that can't come back, because everybody knows that they didn't pass the drug test. And I've heard a number about 46,000 drivers that are put out of business.
You got that. And then you mentioned insurance. So there are structurally, I think those two things have a bigger impact than spot market rates. I think it's just timing on the spot market. I think that's a normal cycle. But what happens to capacity from a driver side, even though they're ordering trucks what happens to drivers in the marketplace. And then my other piece is demand.
Yes. Yes. Sorry, Jim, I'm sorry to interrupt you. Go ahead.
No, go ahead.
No, no, just related to that, if it's hard to see the truck how -- where are these orders coming from? Is it independent owner operators, or I mean this is always a question I feel like every cycle that we ask ourselves is where are the orders coming from, but there's clearly above replacement the last three months. Where are you seeing kind of pockets of incremental capacity coming on beyond replacement?
Well, Amit, this is Joe. I'll take a stab at this. I mean, I see the large order numbers whether those are and I would agree that it's beyond replacement. Some of that is a makeup from the second quarter where there were little, right? The orders and production were down, and so the orders have strengthened. I think some of the lag in that happening was people wanted to see if this recovery in these spot market rates and everything was going to -- people were I think a little bit cautious about being it a V-recovery, which it turned out to be a nice V-recovery.
And I just look at I've said on prior calls, I think, there was a lot of capacity sitting on the sideline waiting to see what would happen with the virus, with the potential vaccine, with the demand environment and pricing. And I think, once it's sustained itself for a few months, I think you saw orders go up. And I think now the challenge is seeking the trucks when they get them and then for the manufacturers to actually meet the production demand that you see. So I don't know that the hurdles to entry are any greater. I just think they were a little bit weird because of the freight demand and wanting to know if this thing was going to be sustainable.
Got it. Okay. Thanks very much. Appreciate your time.
Yes.
Thank you so much. We still have a few more questions on queue. And the next one is from Scott Schneeberger of Oppenheimer. Your line is now open.
Thanks very much. Good morning. Yes, two questions. First one, in the automotive end market obviously very strong there and you've covered it pretty well. It sounds like that was largely automotive parts. And you had said something, you said outside of the big three automotive manufacturers. I'm just curious, if you could comment on them. Was all the strength in the quarter in auto parts and not as much the big manufacturers? And anything unique heading into 2021 in this end market that's noteworthy? Thanks.
Yes, Scott. This is Rob. Listen, we do a great deal of business with the big three. There was major disruption, which I don't think that's a secret to anybody that went on that we did with the big three. Jim, kind of mentioned it earlier. We did lay in -- when we talked about big wins, we did lay in a big award from one of the non-big three customers it continues to be a large customer for us. And again, it is -- we're not hauling finished product. We are bringing goods in to support the manufacturing of those companies.
I don't see -- I think your last question, could you repeat it again, but it was do you see any other big wins in the future? Is that what kind of was with...
Yes, just any unique trends. You kind of covered a little bit there, but yes stepping into 2021?
Yes. I mean, the trends are simply this. When it's disrupted as Jim kind of pointed out, we're kind of there for the disruption. We're there for that ad hoc for that premium freight, we're helping them get right as the automotive stabilizes, it will get more back. And we're already seeing it now to contracted base and the rates will kind of come down. And a lot of that business gets pulled out and gets moved to carriers that do it on a lower contractual basis than what we do in the spot market.
Great. Thanks. I appreciate that. And then my second question is, this -- I think it was 2014 and 2017 in December you had special dividends. But then here in 2019, a $2 special dividend in December and then in 2020, $2 a special dividend. Just curious what's the return of capital policy going forward? Is that something we should see going forward now, or might there be an increase in buyback, a shift to M&A? Just thoughts on the return on capital. Thanks.
Well, I wouldn't expect a shift in M&A. There's nothing on the horizon for us. We're really focused on just on the core and just see all our technology investment stuff like that at this point. Not saying, there wouldn't be something. But at this point there's nothing on the M&A horizon. And really our philosophy from a management group hasn't changed. We prefer the buybacks. We always have.
The way we look at it as you kind of look at how much cash is sitting on the balance sheet at the end of the year. You look at market conditions and we didn't really buy. In the first quarter last year, we spent about -- a little over $100 million on share purchases at an average price of about $100, $105. And then the stock hit about $80, something $88 at the height of the pandemic in April and it ran up from there. We didn't chase -- we don't generally chase the stock price up, when -- if we get into the market.
And we ended the year with maybe a little over $300 million of cash and decided that there was a special dividend. And that's kind of held true to the last few years is, if we end up -- if we have the end -- if we sit at the end of the year, we look at our cash position, we look at what the market conditions look like 12 to 18 months out and make a decision whether it's going to be a buyback or a dividend. But it's not going to happen every December. But you got to look at what -- if you watch what we do during the year, if we're in and out of the market it's a pretty good indicator of what's going to happen in December, but not a guaranteed payout.
Great. Thanks. Appreciate the color.
Yes.
Thank you so much. We'll take the last question from Todd Fowler of KeyBanc Capital Markets. Your line is now open.
Great. Thanks for taking the follow-up.
Hey, Todd. Someone before sounded just like you.
I got to be able to speak back in, I guess. You should see me. So real quickly, I'll say I thought earlier when Jack was asking questions about the change in the administration. I thought he was going to be the first to label you guys the Biden carrier after you've been the Obama carrier for so long?
Yes. I remember that from -- that was -- who was that? Someone, yes, someone us but who was that? I forgot who we were.
Well, hey, anyway, I just had two quick housekeeping questions. The first is, Jim, I know you gave us some of the parts on what's moving around in SG&A this year. But, can you share with us what you have kind of penciled in for a full year SG&A number? And then, any quarterly cadence, I don't think that you're having the agent convention or at least a big agent convention this year. So if you can help us think about what you're expecting for SG&A quarterly that would be helpful.
Well, I think -- yes, without the agent convention muddying up numbers, we're typically a little lighter in the first quarter. And the big factors are the things that change are really stock compensation quarter-by-quarter and incentive compensation. Assuming we guess right at what the year looks like, you wouldn't see a lot of variations in the quarter-to-quarter movement in SG&A. And what I mean by assuming we guess right on our targets, that means we have an equal amount of stock comping, an equal amount of incentive comp in each quarter.
Now if we either start exceeding what we thought we were going to do or we start ending up below we thought we were going to do that will move that a little bit. But without the agent convention, I'd say you're probably about -- you're pretty equal. I would expect you're going to see a little -- in this -- I'm sorry, it wouldn't be exact. In the third and fourth quarter, we generally -- you see raises. We give raises worth a couple of million dollars. So, I think you'd see SG&A increased by third and fourth quarter $1 million or $2 million as compared to the first two quarters.
Okay. And what is -- I mean is it 43%, 44% for the -- go ahead.
You might be looking 45%, maybe 44%, 45% with the tech spend and stuff in there.
Okay.
And we do expect a little bit -- I thought we did -- we do expect a little bit higher stock comp a couple of million bucks. So, I would say it's going to -- SG&A is going to be a little higher.
Okay. Good. Yes that helps from a modeling perspective. And then, I think you mentioned earlier to one of the questions that you've got 45% to 46% operating margins penciled in for the year. It feels like your first quarter guidance has something above that range, can you just talk about how that's trending through the year? And my guess is that that's the comparisons that you're factoring in some of the comments on the spot rates since the second half. But is that the biggest driver where you kind of start-up higher but you end the full year below that range if it feels like?
Yes. I think some of the tech spend is more in the -- some of the depreciation when we roll out, we've got some things we're starting to roll out. So the depreciation wouldn't start kicking in until after the first quarter. Some of the professional fees wouldn't start kicking until after that, so -- which is pretty much what drives that. We are pretty high in the first quarter.
Look, I'm not saying that we can't do 50% in 2021. We would just need more than a mid-single-digit gross profit growth, which hey, if we grow -- if I grow 10% or 15% gross profit, clearly we'll get there a lot faster. The assumption is that we're just going to do 5% of gross profit growth a year and that's just an assumption. I'm not kind of saying that's what's going to happen. I'm saying in a world where we grow 5% gross profit year it's three to four years out. Now if we grow faster than that, I think we can clearly get to the 50% margin quicker.
Yes. No Jim. I think we all appreciate that. Just trying to understand the thought process behind it, and we all call 2020 perfectly and it came out exactly the way we planned. So our expectation is your crystal ball for 2021 is perfect too.
Well, I hope you guys got it right because of my expert guidance.
All right, guys, that’s what I had. Thanks so much for the time.
All right, Todd. Thank you.
Okay. Thanks.
Well, thank you, and I look forward to speaking with you again on our 2021 first quarter earnings conference call, currently scheduled for April 22. Enjoy the rest of your day.
Thank you so much and that concludes today's conference call. Thank you all for joining the conference. Have a good morning. Please disconnect your lines at this time.