Landstar’s immense network of third-party carriers and owner-operators should remain highly valuable to shippers

Business Strategy and Outlook

Landstar ranks among the largest third-party logistics providers in the highly fragmented $90 billion domestic asset-light truck brokerage space. Since Landstar doesn’t own tractors, only a fleet of trailers, it has much lower operating leverage than pure asset-based truckload carriers. Thus, it enjoys a variable cost structure with relatively low capital intensity that generates solid capital returns–more than 30% on average over the past five years. Moreover, as one of the largest providers, Landstar has built a vast network of shippers, asset-based truckload carriers, and independent sales agents that support a wide economic moat. Landstar’s trucking capacity is unusual for an asset-light broker because it relies in part on captive owner-operators (which the firm refers to as business capacity owners), in addition to unaffiliated third-party carriers, to haul freight. BCOs represent roughly half of revenue, haul exclusively for Landstar, and most operate fewer than five trucks. The firm pays BCOs a fixed percentage of revenue, which reduces its gross-margin percentage (net revenue/gross revenue) variability relative to peers like C.H. Robinson and Echo Global Logistics. It also specializes in odd-size freight (around one third of sales represents unsized/flatbed business) and irregular routes–factors that bestow incremental competitive differentiation. Additionally, rather than using a captive salesforce, Landstar contracts with a vast network of independent, commission-based sales agents.

Landstar’s immense network of third-party carriers and owner-operators should remain highly valuable to shippers. This is because shippers desire efficient access to the small carrier base throughout the cycle and the broader trucking industry will probably continue to face periodic growth constraints due to the limited driver pool, including the impact of intensifying regulation. Overall, the highway brokerage market to grow at a faster clip, than the combined for-hire trucking and intermodal markets, as large 3PLs continue to process more for-hire truckload and less-than-truckload freight.

Financial Strength

Landstar’s capital structure to be healthy and sustainable. The balance sheet is strong, with more than $290 million in cash and short-term investments at the end of 2020. The company is not highly leveraged, with a very reasonable debt/total capitalization ratio near 20% (including capital leases used to fund trailing equipment), in line with the five-year average. Debt/EBITDA was less than 1 times for 2020. Landstar enjoys a history of solid free cash flow generation, averaging 5.5% of total gross revenue over the past five years (through 2020). The free cash flow to average roughly the same percentage of revenue over the forecast horizon, though it will probably be higher in 2021, given the robust operating backdrop. Cash flow should be more than sufficient to fund share repurchases, regular dividends, and small opportunistic acquisitions.

Bulls Say’s

Landstar’s vast network of third-party truckload carriers creates a robust value proposition for shippers, particularly during periods of tight supply. The firm is also one of the largest-capacity providers for specialty flatbed shipping; this has proved to be no small advantage.
Landstar has a long history of excellent execution and impressive profitability throughout the freight cycle.
Landstar’s asset-light operating model has generated average returns on capital in excess of 30% over the past five years, well above returns generated by most traditional asset-intensive carriers.

Company Profile

Landstar System is an agent-based asset-light third-party logistics provider focused on over-the-road truck transportation (92% of revenue). It also offers intermodal (3%) and global air and ocean forwarding (3%). The remainder of its revenue stems from warehousing services and premiums from insurance programs offered to captive owner-operators.

(Source: MorningStar)

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