Q2 2019 Earnings Call
Thank you Brian Your company name Sir.
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Let me just check if the call has started.
On the call hasn't started yet you'll be listening to music until it begins I'll turn you know sir.
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You're welcome.
All lines will be in a listen only mode until the formal question and answer session. Today's call is being recorded.
[laughter].
The objections you may disconnect at this time.
Joining us today from Landstar are Jim Gattoni, President and CEO , Kevin Stout, Vice President and CFO , Rob Brasher, Vice President and Chief Commercial Officer, and Mr., Joe Beacom, Vice President and Chief Safety and operations Officer, now I would like to turn the call over to Mr., Jim Gattoni, Sir you may begin.
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Thank you Missy.
Good morning.
Before we begin let me read the following statement. The following is a safe Harbor statement under the private Securities Litigation Reform Act of 90 95.
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 landstars 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 Landstars Form 10-K for the 2018 fiscal year described in the section risk factors and other SEC filings from time to time.
These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated.
Investors should not place undue reliance on such forward looking information and Landstar undertakes no obligation to publicly update or revise any forward looking information.
Landstar opened the 2019 second quarter faced with a decelerating rate of growth in year over year truck volumes and increased pressure on spot market pricing.
Both truckload volume and revenue per load on loads hauled via truck were impacted by the continued softening of the spot market. We believe has been due to slowing us manufacturing production growth and increased available truck capacity.
Also the exceptional financial results of 2018 have made for very difficult year over year comparisons.
During our 2019 first quarter earnings conference call on April 24th we provided revenue guidance of $1 billion $75 million to $1.125 billion.
2019 second quarter revenue was $1 billion $45 million. We also provided earnings per share guidance of $1.56 to $1.62. During our first quarter earnings conference call.
2900 equity diluted earnings per share was $1.53.
On June 5th we announced in a form 8-K filed with the SEC that there was risk to landstar, achieving the low end of our second quarter revenue and earnings guidance provided on April 24th.
Our update to guidance in early June was a result of May truck revenue per load that fell below our expectations.
As of June update warned revenue and diluted earnings per shell share fell short of the second quarter guidance. We provided during our first quarter earnings conference call.
Nevertheless by historical standards, we remain in a relatively solid freight environment with last are continuing to perform at high levels.
While 2019 second quarter gross profit was $13 million lower than the 2007 2018 second quarter.
2019 second quarter gross profit exceeded the 2017 second quarter previously second highest second quarter gross profit in the company's history by $25 million or 19%.
2019 second quarter operating income was $80.9 million also far exceeding any other second quarter in the company's history other than the 2018 second quarter.
And diluting the earnings per share in the 2019 second quarter of $1.53 was the highest diluted earnings per share of any second quarter and last our history exceeding even that of the 2018 second quarter.
Turning back to the top line year over year growth in revenue in both revenue per load and the number of loads hauled via truck began to decelerate towards the end of 2018.
This weakening environment continued into 2019 with revenue per load beginning to decrease on a year over year basis in January .
And the number of loads hauled via truck beginning to decrease on a year over year basis in April .
Overall 2019 second quarter truck revenue per load was 11% lower than the 2018 second quarter.
During the first half of 2019, beating beginning with January month over prior year month revenue per load on loads hauled via truck was 3%, 4%, 7%, 8%, 11% and 13% lower than each corresponding month of 2018.
The increase in shortfall the prior year was due to increasingly difficult year over year comps as we move through the quarter, along with the effects of softer spot market demand and more readily available capacity during the 2019 second quarter.
On a sequential basis truck revenue per load increased from May to June at a somewhat at a rate somewhat consistent with historical seasonal patterns.
Our shortfall at the revenue guidance was also partially attributable to actual truckload volume that was slightly below the volume anticipated in our April 24th guidance.
We also had a difficult year over year volume comparison with truckload volume to 2019 second quarter, 1% below that of the 2018 second quarter.
During the first half of 2019, beginning with January .
Month over prior year month, truckload volume was 5%, 2% and 1% above January February and March of 2018, but 1% below 2018 in April and May and 2% below June 2018.
From a historical standpoint, Howard truck revenue per load and truckload volumes continue to be generally strong.
Truck revenue per load in the 2019 second quarter was among the highest second quarter truck revenue per load in Landstar history, and with respect to volumes over the past three years. The number of loads hauled via truck has increased over 20% in compressed into 2016 second quarter, a cumulative annual growth rate in excess of 6%.
During the 2019 second quarter services provided under fixed and variable gross profit margin arrangement arrangements contributed 51% and 49% of revenue respectively.
During the 2019 second quarter lower truck rates as compared to the 2018 second quarter reduced gross profit on the company services that are contracted at a fixed gross margin while the shift to more readily available capacity led to improved improved gross profit margins on services provided under variable gross profit margin arrangements.
Overall 2019 second quarter gross profit margin increased to 15.1% compared to 14.5% in the 2018 second quarter.
The increase was mostly due to a 90 basis point increase in the gross profit margin on revenue under variable gross profit margin arrangements, mostly due to lower rate of purchased transportation paid the truck brokerage carriers.
The nature of the company's incentive and equity compensation programs are designed to vary with annual financial performance and coincide with a valid cost nature of our model.
As expected 2019 second quarter equity and incentive compensation was far below the amounts provided in the 2018 second quarter.
Assuming market current market conditions persist the remainder of 2019, we expect that trend to continue.
As we continue to demonstrate landstars variable cost business model generally performs well with changes in business cycles, and I would say the results of the 2019 second quarter No exception operating margin increased to 51.2% compared to 48.7% into 2018 second quarter.
Year over year comparisons will remain very difficult through the third quarter of 2019, given the outstanding performance of 2018, and the softening freight environment that began in late 2018.
Although it is difficult to forecast long term pricing conditions in the spot market. Our recent trends indicate that pricing has returned to more normal seasonal patterns with may to June and June to July pricing trends generally in line with normal patterns.
However, reduced demand or additional truck capacity entering the market could result in unfavorable fluctuations a normal seasonal patterns in the near term. We expect the more recent trends experienced in June and early July to continue through the 2019 third quarter.
As such we expect truck revenue per load in the 2019 third quarter to be below the 2018 third quarter in a low double digit percentage range and the number of loads hauled via truck to be below the 2018 third quarter in a low single digit percentage range.
Based on those expectations I anticipate revenue to 2019 third quarter to be in a range of $1 billion and $10 million to $1 billion and $60 million.
Assuming that estimate a range of revenue I anticipate diluted earnings per share to be in the range of $1.48 to $1.54.
We knew we would be facing difficult year over year comparisons in 2019, do the exceptional freight environment and extraordinary financial results of the company in 2018.
Although demand for freight services has slowed and capacity has become more readily available as compared to 2018 I believe we continue to be in a relatively healthy freight environment.
If we again look at our 2019 second quarter results compared to those of 2017 second quarter is impressive to know just how much of the company's performance exceeded the results of two years ago.
In addition to the growth in gross profit and operating income I previously mentioned revenue in the 2019 second quarter exceeded the 2017 second quarter by $175 million or 20% and less our truck volumes and in 2019 second quarter exceeded truck volumes in the 2017 second quarter by 9% or almost 45000 loads.
We couldn't we continue to focus on profitable load volume growth and increasing our available fast to hold those loads.
We also remain focused on our priority to provide enhanced technology and industry, leading sales and operation support to all the independent business owners in the laughter network.
We look forward to 2019 being another successful year laughter, here's Kevin to provide additional commentary on the 2019 second quarter.
Thanks, Jim.
Jim has covered certain information on our 2019 second quarter. So our will cover various other second quarter financial information included in the press release.
Gross profit defined as revenue less the cost of purchased transportation and commissions to agents decreased 8% to $158 million and represented 15.1% of revenue in the 2019 second quarter compared to $171.4 million or 14.5% of revenue in 2018.
The cost of purchased transportation was 76.5% of revenue in the 2019 quarter versus 77.5% in 2008.
The decrease in purchase transportation as a percent of revenue was primarily due to a decrease in the rate paid to truck brokerage carriers and an increase in the percentage of revenue contributed by Bcltwo independent contractors.
The rate paid to truck brokerage carriers in the 2019 second quarter was 168 basis points lower than the rate paid in 2018.
Second quarter.
Commissions to agents.
Was 8.4% of revenue in the 2019 second quarter versus 8% in 2018 due to an increased net revenue margin revenue less the cost of purchased transportation divided by revenue on loads hauled by truck brokerage carriers.
Other operating costs were $9.9 million in the 2019 second quarter compared to $7.6 million in 2018.
This increase was primarily due to increased trailing equipment costs.
And increased contractor bad debt.
Insurance and claims costs were $16.3 million in the 2019 second quarter compared to $21.5 million in 2018.
Total insurance and claims cost for the 2019 quarter were 3.4% of beef BPO revenue compared to 4.1% and 2018.
The decrease in insurance and claims as compared to 2018 was due to reduced.
Reduced net unfavorable development of prior year claims in 2019.
Unfavorable development of prior year claims was $5.7 million and $1.5 million in the 2018 and 2019 second quarters respectively.
Selling general and administrative costs were $41.3 million in the 2019 second quarter compared to 49 million in 2018.
The decrease in as DNA costs was attributable to a decrease in the provision for bonuses under the company's incentive compensation plans and decreased stock compensation expense.
Stock compensation expense was $1.4 million and $4.4 million in the 2019, and 2018 second quarters, respectively, mostly due to the impact of decreased earnings on our variable cost equity compensation arrangement.
The provision for incentive compensation was $900000 in the 2019 second quarter.
Compared to $5.4 million in 20 in the 2018 second quarter.
Quarterly EPS DNA expense as a percent of gross profit decreased from 28.6% in the prior year to 26.1% in 2019.
Depreciation and amortization was $11 million in the 2019 second quarter compared to $10.8 million in 2018.
This increase was primarily due to increased depreciation on information technology hardware and software and the increase in the number of company owned trailers.
Operating income was $80.9 million or 51.2% of gross profit in the 2019 quarter.
Versus $83.4 million or 48.7% of gross profit in 2018.
Operating income decreased 3% year over year.
The effective income tax rate was 23.8% in the 2019 second quarter compared to 24.3% in 2018.
The effective income tax rate was favorably impacted in both periods by tax benefits, resulting from.
The employee equity compensation programs.
Looking at our balance sheet, we ended the quarter with cash and short term investments of $285 million.
Year to date cash flow from operations for 2019 with a $184 million.
And cash capital expenditures were $9 million.
During the 2019 second quarter.
The company purchased approximately 550000 shares of its common stock at an aggregate cost of approximately $57 million. There are currently 1.326 million shares available for purchase under the company's stock purchase programs.
Back to you Jim.
Alright, Kevin Missy, we will now open up to questions.
Thank you very much Sir at this time.
We will now begin the question and answer session.
We would like to ask a question. Please press star followed by the number one on your Touchtone phone. Once again that is star one to ask a question. Please record your name and company name one from Jade.
To cancel your request please press star followed by the number two.
Our first question is from the line of Jason Seidl of Cowen and company. Your line is now open.
Thank you operator, hey, good morning, gentlemen.
Just wanted to talk a little bit about the pricing side, you mentioned it returned to more seasonal patterns.
But you gave it a caveat obviously.
Looking for a reduced demand or an increase in capacity.
What have you seen in terms of capacity in the marketplace out there.
Are you are you looking for increased capacity coming to the marketplace in this market.
Yes, Jason This is Joe I don't think were going to see a lot of increase but I don't this at this point it doesn't look like we've seen much in the way of decrease either so from a from a capacity standpoint, I'd say it would be kind of consistent with where it's been in Q2.
Okay.
That's good color and the other thing I wanted to see if you can talk a little bit more about.
The.
The Unsided platform business, obviously that looks like even more strength in the quarter, where you think that demand is coming from and sort of the outlook for that particular portion of your business.
Hey, Jason this is Rob.
Yes, the platform side does look strong at this point if you pull heavy haul out platform actually is performing about the same level as the van so more on the heavy oil project side, where we participate that's kind of where you're seeing that in flux in that number.
And how is the outlook for heavy haul write down in the back half of the year since its more big project type stuff do you have any sort of a view into that.
We feel it's kind of stabilized to where it's at we don't see any highs and lows right now most of that is project driven.
But.
We've got a.
We feel pretty good going into the back half of the year on the heavy wholesale.
Let me squeeze one more in on cost obviously, you talked a lot about insurance and claims how should we view that line item going forward.
It's been down a lot.
And then you have any of harder comps for the back half of the year in terms of wasn't up as much as it was in the first half of the year in 18.
Yes, Jason. This is this is Kevin last year as everyone knows we had a bad unfavorable development year last year.
We continue to believe that the 3.6% of vivo revenue is your best number to put into your model for Q3 and Q4.
Okay Fantastic gentlemen, thank you for the time as always I'll turn it over somebody else.
Thank you so much. Our next question is from the line of Scott Group of Wolfe Research. Your line is now open.
Hey, Thanks morning, guys, Hey morning.
So not a big change, but the Bcf account just down slightly sequentially, what do you make of that and maybe what trends do you expect for third quarter. I know you said, you don't expect capacity to be exiting the market but.
The TL carrier seem to think that it's starting to happen and maybe the visco count as you know in early sign that maybe it's starting to happen just curious on on.
On those questions sure Yes, Scott This Joe was so we've seen.
A great deal of interest in Landstar. The pipeline is very full ads are very strong, but the terminations are also strong and you saw us lose 50 bcl trucks in the quarter.
So I think the retention side of things is what we're focused on to try to maintain truck count.
I would see going forward to that we're kind of expecting flattish in the third quarter, we still think there's going to be interest.
But the environment and the changed environment the change in the price I think there is an adjustment period going on.
But I don't know that the capacity is necessarily leaving the market.
And on the carrier side, where we've seen a decline in.
Total carriers that is really a function of not necessarily in our view carriers, leaving the market, but our.
Posting fewer loads to third party boards, where we have unapproved carriers seeing our loads and then coming in being approved show is that volume of load postings externally.
Decline you tend to see some level of decline in the approved carrier count, but our active count is off less than 1% about 300 carriers from.
From a prior so.
Thats Thats, where we come up with the comment that we're really not seeing evidence here. The capacities, we have in the market I understand and read what some of the other guys are saying I guess will you know whether bankruptcies take hold.
Or whether some of that stuff actually occurs I guess, we'll wait and see but from where we're sitting today capacity seems to be somewhat flattish overall.
So do you see risk of rates than taking another step down to get to the place where we will see capacity exit the market.
I don't know, it's hard to if it stays flat maybe pricing stays kind of you know.
We're at that right I I think there'd have to be some sort of a catalyst to change capacity in a in a little bit more meaningful way to see much of a movement on price I think when you when I put a little bit disclaimer in my opening remarks about the.
The unpredictability of spot markets.
You know.
We're sitting at the end of April pretty consistent with trends when we put out our guidance for the second quarter and then May dropped off we had about a negative from from April to May I think rates dropped off about 2.6%. When generally they are slightly up if you look at a five year history and that was unexpected so it's hard to really predict what's going to happen in the spot market like Joe said, it's what you've got to capacity side, but you also got the demand side US manufacturing is kind of key to some of the stuff. We do we're not heavy into the consumer goods side and you look at the U.S. manufacturing and what's going on there I mean, it's growing at less than 1%. So there's little unpredictable unpredictable.
Yes, I'll analysis, there that we we just don't know where it's going to end up so thats why the little disclaimer in the yellow unpredictable spot market right now because we didnt anticipate that may drop off and we're almost through April .
You've also had one of the truck makers I think forecast the builds to be on the rise.
And some of that may be was market share moving around but so I think there's some mixed signals.
From what I see.
Okay, and then just we've seen the year over year decline in spot start to moderate just a little bit.
Are you seeing that show up in your revenue per load year over year at all.
Yes, Scott were.
Like Jim said, we are seeing a consistent.
On a sequential pattern going from June to July , which is up for pricing up 1% to 2%.
So we've seen the other numbers out there, but we're not seeing the huge increases just yet.
Yes. The June remedy June was off I think I said, 13% July look similar.
So I think we're seeing stable a stabilized spot pricing right now based on the last two months with two months doesn't really giving a lot of comfort, but at least it gives me some comfort.
All right. Thanks for the time guys appreciate it.
Thank you so much. Our next question is from the line of Amit Malhotra of Deutsche Bank. Your line is now open.
Thanks, Operator, hi, everybody appreciate the question.
I wanted to ask I guess first and foremost on the.
Demand environment, I think Jim you've talked about the past kind of.
No I know you guys operate in the spot market, but a lot of your your loads and volumes are kind of more relationship the type business, that's maybe a little bit stickier. So so I guess in that context.
Is there any.
Reason.
For some optimism in some snap back in volumes in the back half of the year, obviously with pads lackluster volumes in the first half, but still pretty healthy in absolute terms.
But any optimism around our inventory levels on what do you what is the stickier aspects of your business kind of talking about with respect to back half volumes.
And kind of the head of kind of the peak selling season, I think that would just be helpful. Given kind of the fast moving data points that we're in today.
Yes, one of the things we look at as you know thats important to US as you know 30% of our businesses on our trailer right. So we do that drop and hook business. Unfortunately with those the request for the volumes for their don't start coming until the end of summer. So we're a little early on that but we don't we don't see any.
We see probably a consistent maybe a little bit softer rock spot request covenant for trailers this year coming into the fourth quarter. The other stuff like heavy haul automotive government expedite cross border I, just think it's going to be sluggish through the rest of the year. The way. It sits today, we don't see anything to see its going to drop off or grow you know unless we see a dynamic trend or some kind of strange move on the manufacturing in the us.
Okay, Yeah that makes sense.
And then.
We've heard that more and more about just digital brokers and we're seeing some kind of asset based carriers invest more and more in digital.
Freight matching platforms. So one does that does that all kind of changed your strategy and and pressure may be temporarily the drop through to operating income I know, it's something you've been the weather's with conagra maximize or its something you guys have been focused on for a while but anything to call out from an investment standpoint, as these digital platforms start to get more and more traction in the marketplace.
I would say that we have the capability that they have right and what they're doing it's a pricing game and where we're well aware of the pricing game that their plan, we make our agents well aware of it and that's a that's what we do right. Just you just got to be stake price competitive, but you know our agents that were not hearing a lot from the agents that they're in there. We've heard a couple of scenarios, where one of those digital freight guys have gotten into one of our customers.
But then you hear other scenarios, where they come back to us because the trucks don't show up at because in our world. I mean, there is this belief out there that I think you put an app out and trucks just show up on a lot of stuff. We do that's not the case right, where we're dealing with special handling and stuff like that so it's a little bit different world, but where do I anticipate that over the next few years are going to put pricing pressure on the trying to build scale absolutely, but we feel we're prepared for that and we eventually you might have to get into the pricing game, but.
Today, we're not seeing that and it's you know are the spreads on our brokerage freight or you know kind of trending the way they wouldnt the environment. We're in there is nothing unusual there so and so I think right now we're ready from a technology standpoint, we have all the tools they have and we just got to make sure that when when the shippers deciding on whether they want to go digital freight matching use landstar, we can do both.
And I guess, the the uniqueness of the Landstar model is that that kind of 50% plus or minus gross margin in the 70% incremental drop through that you'll kind of well protected where you guys may be impacted by that trend would be you know the yield numbers, but but but the margin profile than net revenue and the gross and operating margin kind of stays pretty consistent I would imagine yes. That's true and then we just got to make it look at margins start to get squeezed you got to push through more volume through the system and I think our systems are cable capable of putting a lot more volume through our system without adding people. Yes, we have automated system. So it's just getting the volume push as margins get squeezes put more volume through and Thats kind of our.
So our thought process going forward.
Okay. All right. Thanks for taking my questions appreciate it guys.
Thank you so much. Our next question is from the line of Jack Atkins of Stephens. Your line is now open.
Jim Kevin Joe Good morning.
Good morning, Rob Congratulations on the promotion.
Good morning, and thank you.
So guys just just kind of following up on all of these questions. There for a moment just in terms of.
You know thats how landstar.
Sort of manages through what could be a changing or more dynamic sort of brokerage.
Market over the next couple of years.
Can you help us think through different portions of your business that would you know.
Not be disrupted if we were to see some more.
Competition from the digital brokers I'm thinking your cross border business.
Your drop and hook business that makes up a pretty significant component of your overall revenue stream can you kind of remind us of what that what that looks like.
Platform for examples one which is 30% of our business you got you got automotive and government you've got you've got time definite right, where you probably not going to rely on an app and you're going to want someone on the phone if something goes wrong. So you know I would say between automotive government drop and Hook Cross border, Mexico Cross border Canada.
Time definite you're probably talking about 70% of our business that has some kind of sticky where it wouldn't be conducive to an app. Okay. Yes that that that's what I thought and I think makes sense I think is worth worth kind of clarifying for folks.
Jim Murray I guess, Rob if you'd like to chime in too would love to get your take on it I mean, you talked when it's a bad but if you could expand on it maybe if you could kind of go into some subsets.
Of your business, where you're maybe your or maybe it's a mode, maybe the customer vertical where you know I've been surprised to the downside just in terms of demand or Conversely, if there has been an area of particular strength just curious.
What you're seeing out there you sort of look across the business.
Jack This is rob on the automotive side.
And a lot of sectors, we made the decision not to do business that didnt benefit us as an agent based on us as a company. So we haven't really been surprised.
By the by the decrease in some of the volumes in some of some of the automotive in particular.
We haven't been surprised by that.
On the heavy haul side, we are project driven company, we provide a service that very few people can so that's one that we can capitalize on it and that we continue to look to grow scale with so.
As we look forward and some of the things that we took some of the things that we do that.
Yes, Jim refers to a sticky that kind of protects us in our model across the board.
Okay definitely that that makes sense last question. Kevin for you can you give us an update on your on your free cash flow outlook for 2019, just sort of how you're thinking about that for the year.
Yes, the we had 174 year to date free cash flow the operating cash flow was 184, but it slowed into the second quarter.
In round numbers 120 million in Q1 and about $60 million in Q2 so.
AG.
I think the trend is going to continue to slow a bit so my numbers still.
250, let's say to 50 to 75 on a year to date basis. Okay. That's really helpful. Thanks again for the time guys sure.
Thank you so much. Our next question is from the line of Todd Fowler of Keybanc capital markets. Your line is now open.
Great. Thanks, good morning.
Hey, Jim can you guys, maybe just provide a little bit more color on the van volumes during the quarter.
Obviously understand there's difficult comparisons in what's happening in the macro but I mean.
Thinking about your business and having more spot exposure, we think that there would be demand on the spot side and so seeing the van volumes come in is that just a reflection of the difficult comps or is it something in the macro or do you think theres some share that's going on on the van side.
Yes, we can touch on a couple of things are one is that if you look at foodstuffs being off thats pretty much one customer that was all band volumes. Okay. That's one of it that's one of things that that was actually saw in the first quarter also the other thing in our world is.
When you're looking at 2018.
And you have brokers and other carriers out there to just can't find trucks, they kind of come to us those third party basically threepl and that attracts a little more accessible that business gets a little softer for us when we were working for other threepl to put stuff on bands. So I'd say the two spots that we can actually point to.
Actually I'll I'll add a third one automotive you saw that was down so if you take the foodstuffs, which is banned and the automotive which is primarily van and then the threepl to our find it a little bit easier to find trucks and not having to come to us to find them. I think those are the three things are probably driving the van bonds little softer.
Then they have but then they were compared to the prior year.
Okay. Good that that's really helpful.
And then just thinking about the second half of the year I think in the last several years you've had some ramp in the fourth quarters you've done some more.
Shipments are loads for some of the ecommerce type retailers.
Based on where you sit today would your expectation be that you see some of that lift as you move into the fourth quarter or do you have any visibility on to do that sort of demand in the second half of the year.
I just sense that we're going to stay that Q3 Q4 going to look similar and I you know I didnt, we didnt necessarily feel that ramp up in the 18 those those those ecommerce type companies were kind of softer than I wouldn't say, it's not softness on a comparative basis right. So I would expect we are going to see a fourth quarter is going to look similar to the third quarter as I sit here right now.
Okay. Good that's helpful. And then just one last quick one Kevin on the other operating cost during the quarter, there about $10 million, which was a step up I think in the prepared remarks, you made some comments about trailing equipment and in some some bad debt maybe that was through here, but can you go over you kind of always go into that line item again, and what we should expect for that for the the rest of the year sure Todd.
Yes, the the contractor bad debt number was abnormally low in Q2 last year and I'd say, it's higher than average this year. So you got that Delta there and then the.
The trailer cost were up about 930 trailers year over year, so you're going to have more maintenance and tires on on those so thats whats driving that I'd split it probably evenly between contractor bad debt and.
And the maintenance on the trailers.
As far as going the rest of the year.
Have any event Bcl event that hits in the third quarter, that's let's say in round numbers $1 million. So, let's assume normalized contractor bad debt, we're going to get a number pretty similar to Q2, and Q3 and probably $502 million lighter in Q4.
Okay perfect.
Thanks for the time those all helpful.
Thank you so much. Our next question is from the line of Scott Schneeberger of Oppenheimer. Your line is now open.
Hi, Thanks, very much good morning, everyone.
Jim or any one just looking back historically could you could you give us a feel for what business conditions look like right now versus past cycles, perhaps at 2016 timeframe.
It sounds like we're kind of at a crossroads, where it's not clear what's going to come but just anything historical the pull from.
[laughter], while my opening comments I was talking about 2017, but.
Because it felt similar to that up until probably the third quarter, but it's not going to feel similar to that because if you recall rate started climbing pretty rapidly at the end of the third quarter 2017, when the storms in Texas, So that comp really isn't there I'm not sure. We're at 16, I think 16 was a little bit softer than where we are now.
You know it's made it 14 was very strong.
I'd put it maybe 14 15 kind of flow 15 was pretty little bit soft we had some special freight in there.
When we had that automotive contract. So it's kind of I tried to pin it back to what you are kind of looks like and it's it to tell you. The truth. It was it was difficult when youre looking at is I would I would use 17 for the first nine months, but now we're saying we're going to have a flat what I expect third quarter, the fourth quarter and I think thats, probably what 16 look like.
Hi, Thanks, I appreciate that perspective.
Thats on gross margin going forward.
How how purchase transportation, we expect.
Say that again.
I'd just add just thoughts on the gross margin expectations going forward on trends Youve seen recently.
Yes, like I said in my prepared prepared remarks.
The brokerage by rate was down 168 bits in Q2.
I am modeling something similar to that in the third quarter.
Obviously pricing is going to impact that but.
I would expect again in the 14 nine to 15, one range in Q3 on the gross profit margin.
Hi, Thanks, I appreciate it guys I'll turn it over.
Thank you so much once again participants if you would like to ask a question. Please press star one on your Touchtone phone. Once again that is star one to ask a question. Our next question on queue is from the line of Bascome majors of Susquehanna. Your line is now open.
How are those performing month over month versus what you typically expect for Landstar and any sense of.
Whether that's tracking normally or above or below heading into the early part should review.
Yes, it's actually tracking slightly slower than what the last five year trends have seen so when you. When you go from April to May to June you typically see a.
I don't have the specific numbers, but when I looked at it were about a half a basis point off of what the growth rate would have been in those months. So it has from a sequential basis as you move month to month that has slowed somewhat.
Okay, and then Kevin on incentive comp.
With the shortfall in Twoq, you and the outlook for Threeq here can you, let us know where were your accrued for the full year on a cash basis or maybe for stock comp as well. Thanks.
Yes, Bascome, we we booked a $1 million on the incentive comp in Q1 and about 900000 in Q2, I expect that number to be similar to the Q2 number the rest of the year.
And the stock based comp was 1 million four in Q2 that again will continue into Q3 and Q4.
Okay, and lastly, you were fairly active on the buyback in the quarter, I think $57 million or so.
It looks like the average price was closer to 100, 105, and where you are trading yesterday do you still feel comfortable being active at the 110 115 range.
Yeah. The average price was 103.
In Q2, I think it was 104 in Q1, and we got 1 million shares at 105 in Q4, so that should give you a pretty good indication of where our heads are on.
Your buyback, yes, but we.
Weve does a chance you'd be active at one time were not were not kind of cotton that out. So it's we're kind of we kind of Watson volatility look what's going on in the market wouldn't wouldn't stop from getting that that rate, maybe just not at the volumes you saw.
Thank you very much guys.
Thank you so much at this time I show no further questions I would like to turn the call back over to you Mr. good Tony for your closing remarks.
Well, thank you Missy and thank you and I look forward to speaking with you again on our 2019 third quarter earnings Conference call. Currently scheduled for October 24th have a good day.
Thank you for joining the conference call today have a great morning. Please disconnect your lines at this time.