Landstar's Q3 2025 Earnings Call: Contradictions Emerge on BCO Count, Regulatory Changes, Rate Environment, and TMS Consolidation

Date of Call: October 28, 2025

Financials Results

• Revenue: Approximately down ~1% YOY; excluding Landstar Metro and ~ $15M of prior-period fraud revenue, revenue increased ~1% YOY
• EPS: GAAP EPS $0.56; adjusted EPS $1.22 excluding aggregate noncash, nonrecurring impairment charges of ~$30.1M (≈$0.66 per share)
• Gross Margin: 9.2% of revenue, compared to 9.3% in the prior year

Guidance:

• Q4 commentary provided instead of formal guidance: October truck loads ~3% below October 2024 and revenue per load approximately flat YoY
• October truck volumes described as modestly below normal seasonality; October-to-date BCO truck count down fractionally vs Q3
• Variable contribution margin typically compresses 20–30 bps from Q3 to Q4
• Early-October multi-stage accident could materially increase Q4 insurance and claims costs
• No numeric Q4 revenue or EPS guidance provided

Business Commentary:

* Revenue Performance and Adjustments: - Landstar's overall truck revenue per load was essentially flat year-over-year in the 2025 third quarter, with a slight increase in revenue per load on both loads hauled by van equipment and unsided/platform equipment, offset by a decrease in LTL revenue per load. - The company excluded the revenue contribution from Landstar Metro and approximately $15 million from the 2024 third quarter associated with an agent fraud matter, resulting in a positive revenue trend for adjusted figures. - The adjustments were necessary due to strategic decisions like selling Landstar Metro and addressing past agent fraud issues.

• Heavy Haul and Unsid/Platform Equipment Growth:
• Heavy haul revenue increased 17% year-over-year in the third quarter, with a 17% increase in revenue and an 8% increase in volume.
• This growth was driven by the performance of Landstar's heavy haul service, with revenue as a percentage of the unsided/platform equipment category increasing from 34% in Q3 2024 to 38% in Q3 2025.

• The increase was attributed to strong demand in specific heavy specialized loads and standard flatbed volume.

• BCO Count and Turnover:

• BCO count increased by 7 trucks on a sequential basis, marking the first increase since the 2022 first quarter.
• This increase in BCOs was despite a persistent 31.5% turnover rate, indicating improved retention efforts and positive recruitment trends.

• The company attributed these developments to efforts in onboarding high-quality drivers and improving retention strategies.

• Operational and Financial Challenges:

• Impairment charges in the third quarter totaled approximately $30.1 million or $0.66 per share, impacting GAAP earnings per share.
• These charges were related to the decision to sell Landstar Metro, select Landstar TMS as the primary system, and impairments on a noncontrolling equity investment.
• The challenges were a result of strategic shifts in operations and financial assessments of certain business units.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted persistent headwinds (soft truckload demand, insurance/claims pressure, three noncash impairments) but noted positive signs: heavy haul revenue +17% YoY, sequential increase of 7 BCO trucks (first sequential growth since 2022 Q1), adjusted EPS $1.22 excluding impairments and strong balance sheet with $434M cash + short-term investments.

Q&A:

• Question from Reed Seay (Stephens Inc., Research Division): What are you seeing in the broader truckload market and capacity exits?
  Response: BCO count showed a modest sequential increase (+7 trucks); regulatory enforcement may reduce capacity over time but impact will be gradual rather than immediate.

• Question from Reed Seay (Stephens Inc., Research Division): Do you have visibility on when BCO count growth could resume (Q4 or 2026)?
  Response: Gross truck adds improved (best in 8 quarters, +15% YoY); turnover improved to 31.5%—return to growth is possible but rate improvement is the key driver.

• Question from Reed Seay (Stephens Inc., Research Division): Could the decline in approved/active carriers impair your ability to source freight?
  Response: No; the company is selectively pruning carriers to reduce fraud risk, and brokerage net revenue margin actually widened ~78 bps in Q3.

• Question from Jonathan Chappell (Evercore ISI Institutional Equities, Research Division): You report spare capacity but some sources show spot rates spiking in October—are you seeing that?
  Response: No material spot-rate uptick in Landstar data; October pricing is flat to September and agents may lag public board movements.

• Question from Jonathan Chappell (Evercore ISI Institutional Equities, Research Division): Anything notable on Q4 expenses and the bridge to incentive comp for 2026 vs 2025?
  Response: Insurance is unpredictable (early-October accident); Q3 BCO appreciation event (~$1M) is a Q4 tailwind; full-year 2025 incentive/stock comp accrual ≈$10M and could present an ≈$11M headwind in 2026 if not reset.

• Question from Scott Group (Wolfe Research, LLC): Are October sub-seasonal volumes a government-shutdown effect or broader?
  Response: Both—government dispatch loads are down materially (dispatches for government loads down >30% in October) but other end markets (automotive, housing) also contributing; government weakness is expected to be temporary.

• Question from Scott Group (Wolfe Research, LLC): What percentage of broker carriers are exposed to nondomiciled CDL/ELP enforcement?
  Response: Hard to quantify; robust vetting reduces exposure, FMCSA data shows enforcement ramping but company has not seen agent reports of loads stopped so far.

• Question from Brandon Oglenski (Barclays Bank PLC, Research Division): How do you get back to pre-pandemic operating margins (40–50% net operating margin)?
  Response: Need higher revenue/rates to spread fixed costs, reduced insurance/claims severity, and efficiency gains from technology/AI plus higher BCO-hauled volumes; cost controls already in place.

• Question from Elliot Alper (TD Cowen, Research Division): How are you planning capacity as nondomiciled CDLs potentially roll off and are insurers discussing risk premiums?
  Response: Company tells insurers it has minimal exposure in BCO fleet due to vetting; focus remains on recruiting/retaining qualified BCOs and selectively onboarding third-party carriers that meet safety/service standards.

• Question from Elliot Alper (TD Cowen, Research Division): How do load and revenue-per-load comps look through the quarter—do comps get tougher after October?
  Response: October started flattish; historically October gives a ~60 bp rate uptick—achieving typical Q4 seasonality will require stronger November/December; October loads per workday down ~4.5% vs typical -2% falloff.

• Question from Stephanie Benjamin Moore (Jefferies LLC, Research Division): What must change for demand to improve and any early optimism for 2026; where are end-market strengths/weaknesses?
  Response: Improvement needs normalized trade policy and capital deployment, a shift of consumer spending back toward goods, and stable rates; bright spots include unsided/heavy haul (heavy haul +17% YoY), AI/data-center related freight, power generation projects, and improving U.S.–Mexico cross-border volumes.

Contradiction Point 1

BCO Count Trend

It directly impacts expectations regarding Landstar's capacity and revenue generation capabilities, which are crucial for the company's financial performance and investor confidence.

What are your views on the overall truckload market, especially capacity exits and the impact of current regulatory issues? - Reed Seay (Stephens Inc.)

2025Q3: We're pleased with the first sequential increase in BCO count since 2022. - Frank Lonegro(CEO)

Is the decline in approved and active brokerage carriers due to accelerated bankruptcies or other factors? - Scott Group (Wolfe Research)

2025Q2: BCO count was flat sequentially at 8,672. - Frank Lonegro(CEO)

Contradiction Point 2

Impact of Regulatory Changes on Capacity

It involves the potential impact of regulatory changes on Landstar's capacity, which could affect its operations and revenue.

What are your views on the truckload market, particularly capacity exits and regulatory challenges? - Reed Seay(Stephens Inc.)

2025Q3: We're not experiencing a significant impact from regulatory issues yet, but it's likely to be a gradual process. - Frank Lonegro(CEO)

Which end markets drove growth in the heavy-haul segment? How will new English proficiency requirements affect driver capacity? - Jason Seidl(TD Cowen)

2025Q1: If enforcement affects 194,000 owner-operators, that would be significant. - Frank Lonegro(CEO)

Contradiction Point 3

Rate Environment and Market Conditions

It involves the assessment of the truckload spot rates and market conditions, which are crucial for understanding the company's pricing strategy and revenue outlook.

Can you reconcile Landstar's revenue comments with October's truckload spot rate spike in the broader market? - Jonathan Chappell (Evercore ISI)

2025Q3: Revenue per load increased sub-seasonally. We are not seeing the same spot rate increases as the broader market suggests in October. - James Todd(CFO)

What will drive a turnaround in truck volumes? Is it demand-driven or a reduction in excess capacity? - Unidentified Analyst (Goldman Sachs)

2024Q4: We are seeing early signs that the shipper is starting to react to the escalating costs they're facing. - Frank Lonegro(CEO)

Contradiction Point 4

TMS Consolidation and Cost Savings

It involves the expected benefits from consolidating transportation management systems (TMS), which could impact operational efficiency and cost structure.

Are there identifiable cost savings from integrating TMS onto one platform? - Bruce Chan (Stifel)

2025Q3: It will avoid having two systems under development. The Blue TMS has a $750,000 depreciation tailwind already captured in 3Q. - Frank Lonegro(CEO)

Where are we in the cycle, and how will it play out this year? - Scott Group (Wolfe Research)

2024Q4: As we consolidate the TMS systems into one platform, we expect to generate significant savings over the next several years. - Frank Lonegro(CEO)

Contradiction Point 5

BCO Population and Capacity Exit

It involves expectations regarding the owner-operator (BCO) population and capacity exit, which are critical factors for the trucking industry's dynamics and Landstar's business model.

What are your observations on the truckload market's capacity exits and current regulatory impacts? - Reed Seay (Stephens Inc.)

2025Q3: We're pleased with the first sequential increase in BCO count since 2022. - Frank Lonegro(CEO)

Where are we in the cycle, and how will it progress this year? - Scott Group (Wolfe Research)

2024Q4: We do expect some capacity to exit the system. - Frank Lonegro(CEO)