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Landstar System Inc  (NASDAQ:LSTR)
Q4 2018 Earnings Conference Call
Jan. 31, 2019, 8:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning and welcome to Landstar System Incorporation's Year-end 2018 Earnings Release Conference Call. All lines will be in a listen-only mode until the formal question-and-answer session. Today's call is being recorded. If you have any objection, you may disconnect at this time. Joining us today from Landstar are Jim Gattoni, President and CEO; Kevin Stout, Vice President and CFO; Pat O'Malley, Vice President and Chief Commercial and Marketing 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.

Jim Gattoni -- President and Chief Executive Officer

Thank you (inaudible). Good morning and welcome to Landstar's 2018 fourth quarter earnings conference call. Before we begin let me read the following statements. The following is a safe harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies, and expectations. Such information is, by nature, subject to uncertainties and risks including but not limited to the operational, financial, and legal risks detailed in Landstar's Form 10-K for the 2017 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's record financial performance during the first three quarters of 2018 continued through the 2018 fourth quarter. Fourth quarter revenue, gross profit, operating income and diluted earnings per share each set fourth quarter records. During our third quarter earnings conference call, we provided 2018 fourth quarter guidance -- fourth quarter revenue guidance to be in the range of $1.180 billion to $1.230 billion. Revenue in the 2018 fourth quarter was $1.182 billion, approximately 12% above our 2017 fourth quarter.

My prepared remarks during the 2018 third quarter earnings conference call included our anticipated gross profit margin for the 2018 fourth quarter to be in the range of 14% to 14.3%. Actual gross profit margin in the 2018 fourth quarter was 14.3%. Our fourth quarter guidance called for diluted earnings per share to be in a range of $1.56 to $1.62. Actual fourth quarter diluted earnings per share was $1.68.

Turning to 2018 fourth quarter guidance -- the 2018 fourth quarter guidance reflected income taxes and effective tax rate of 24.5%. The 2018 fourth quarter included certain tax items not anticipated in our fourth quarter guidance, which favorably impacted diluted earnings per share by $0.09. Our 2018 fourth quarter revenue guidance anticipated a number of loads hauled via truck to be in an 8% and 10% above the prior year fourth quarter.

2018 fourth quarter truckload volume increased 4% over the 2017 fourth quarter. During the 2018 fourth quarter, truckload has increased over the prior year month by 6%, 3% and 4% in October, November and December respectively. Our fourth quarter guidance anticipated revenue per load on loads hauled via truck to exceed prior year in an upper single-digit range. Revenue per load on loads hauled via truck in 2018 fourth quarter increased 7% over the 2017 fourth quarter.

As mentioned in our 2018 third quarter earnings release. Truck revenue per load in the first few weeks of October was trending slightly below normal seasonal patterns. Nevertheless, truck revenue per load was 10%, 8% and 4% above October, November and December 2017 respectively. The slowing rate of growth as we moved through the quarter was attributable to more difficult year-over-year comparisons and continued seasonal softness.

The number of loads hauled via rail, air, and ocean carriers was 1% above the 2017 fourth quarter. The slight increase in rail, air and ocean loads was driven by 6% increase in air and ocean loads, almost entirely offset by 1% decrease in rail loads. Revenue per load on loads hauled via air and ocean carriers increased 22% over the 2017 fourth quarter.

Revenue from new agents defined as agents who joined last or within the past two year was $149 million in fiscal year 2018, the highest annual revenue from new agents since 2011. New agents added $22.1 million of revenue to the 2018 fourth quarter. We continue to attract qualified agent candidates to the model and the agent pipeline remains full. In fact, during 2018 we had a record 608 agents generate $1 million or more of Landstar revenue.

We ended the quarter with a record 10,599 trucks provided by business capacity owners, 903 trucks above our year-end 2017 count. That increase -- the net increase of a number of BCO trucks in fiscal 2018 was our highest ever annual net increase. We had a record number of third-party carriers operate on our behalf during the 2018 fiscal year. Our network is strong and continues to attract qualified owner operators and other third-party truck capacity. Gross profit increased $19 million or 13% compared to the 2017 fourth quarter.

Here's Kevin with his review of other fourth quarter financial information.

Kevin Stout -- Vice President and Chief Financial Officer

Thanks, Jim. Jim has covered certain -- excuse me. Jim has covered certain information on our 2018 fourth quarter, so I will cover various other fourth quarter financial information included in the press release.

Gross profit defined as revenues less the cost of purchase transportation and commissions to agents increased 13% to $168.9 million and represented 14.3% of revenue in the 2018 fourth quarter, compared to $149.7 million or 14.2% of revenue in 2017. The cost of purchased transportation was 77.1% of revenue in the 2018 quarter versus 77.5% in 2017. The decrease in purchased transportation as a percent of revenue was primarily due to decreased rates paid to truck brokerage carriers. The rate paid to truck brokerage carriers in the 2018 fourth quarter was 137 basis points lower than the rate paid in the 2017 fourth quarter.

Commissions to agents was 8.6% of revenue in the 2018 fourth quarter versus 8.2% in 2017. The increase in commissions to agents as a percent of revenue as compared to 2017 was 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 $7.6 million in the 2018 fourth quarter compared to $6.2 million in 2017. This increase was primarily due to increased trailing equipment costs and increased contractor bad debt.

Insurance and claims costs were $18 million in the 2018 fourth quarter compared to $16.2 million in 2017. Total insurance and claims costs was 3.7% of BCO revenue in both periods. The increase in insurance and claims as compared to 2017 was primarily due to increased severity of claims in the 2018 period.

Selling, general and administrative costs were $47.3 million in the 2018 fourth quarter compared to $47.4 million in 2017. The slight decrease in SG&A cost was mostly attributable to a decrease in the provision for bonuses under the company's incentive compensation plans, partially offset by an increase in stock compensation expense and increased wages.

Stock compensation expense was $5.3 million and $4.1 million in the 2018 and 2017 fourth quarters respectively with the increase mostly due to the impact of increased earnings on our performance-based equity compensation arrangements. The provision for incentive compensation was $4.6 million in the 2018 fourth quarter compared to $6.9 million in the 2017 fourth quarter. Quarterly SG&A expense as a percent of gross profit decreased from 31.7% in the prior year to 28% in 2018.

Depreciation and amortization was $11.1 million in the 2018 fourth quarter compared to $10.6 million in 2017. This increase was primarily due to the increase in the number of Company-owned trailers. Operating income was $86.1 million or 51% of gross profit in the 2018 quarter versus $70 million or 46.8% of gross profit in 2017. The increase in operating margin was driven by increased gross profit. Operating income increased 23% year-over-year.

The effective income tax rate was 19.8% in the 2018 fourth quarter compared to 6.9% in 2017. The effective income tax rate was favorably impacted in both periods by resolution of certain tax items, tax benefits resulting from equity compensation arrangements and the Tax Cuts and Jobs Act enacted in December of 2017. The Act reduced the federal income rate from 35% to 21% effective for 2018, favorably impacting the 2018 fourth quarter as compared to 2017. Additionally, the 2017 quarterly provision for income taxes was significantly favorably affected by the revaluation of the deferred tax liabilities as a result of the enactment of the Tax Act.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $240 million. Cash flow from operations for 2018 was $298 million and cash capital expenditures were $10 million. There are currently 2 million shares available for repurchase under the Company's stock purchase programs.

Back to you Jim.

Jim Gattoni -- President and Chief Executive Officer

Thanks, Kevin. Seasonally we generally experience a sequential decrease in truck revenue per load from the fourth quarter to the first quarter. In the 2015, 2016 and 2017 first quarters, truck revenue per load decreased in a range of 4% to 9% from the immediately preceding fourth quarter. The 2018 first quarter was an anomaly from the seasonal trend with truck revenue per load growing almost 3% from the 2017 fourth quarter.

During the first few weeks of the 2019 first quarter, revenue per load on loads hauled via truck show signs of the normal seasonal pattern, consistent with the trends experienced in the first quarters of 2015, 2016 and 2017. Assuming current trends continue through the 2019 first quarter, I expect truck revenue per load to be below the 2018 first quarter in the low-single digit percentage range.

With respect to truck volume, Landstar achieved significant year-over-year (ph) truckload volume growth in both the 2017 and 2018 first quarters. In fact, 2018 first quarter truckload volume was 23% greater than the 2016 first quarter volume. I expect the lower rate of volume growth in 2019 first quarter as demand is not as strong as compared to the 2017 and 2018 first quarters and year-over-year comparisons have become more difficult.

During the first few weeks of January, year-over-year truckload volume growth was slightly higher than the load volume growth experienced in the comparable period of 2018. Assuming there are no significant freight flow disruptions from severe weather during the remainder of 2019 first quarter, I anticipate the number of loads hauled via truck in the 2019 first quarter to exceed the 2018 first quarter in a low-single digit percentage range.

Based on the continuation of recent revenue trends, I currently anticipate 2019 first quarter revenue to be in the range of $1.025 billion to $1.075 billion. I expect a more normalized provision for incentive comp in the 2019 first quarter, which will be lower than the 2018 first quarter by approximately $2 million.

Our guidance assumes insurance and claims will be 3.6% of BCO revenue and I expect our first quarter effective tax rate to be 21.1%, which is lower than our estimated annual effective tax rate due to the anticipated excess tax benefits on stock-based compensation arrangements specific to the 2019 first quarter. Based on those revenue and cost assumptions, I anticipate 2019 first quarter diluted earnings per share to be in the range of $1.51 to $1.57.

2018 was another historic year for Landstar, highlighted by many financial and operational records. Revenue, gross profit, operating income, net income and diluted earnings per share were all annual financial records. While a number of loads hauled via truck, truck revenue per load and a number of trucks provided by BCOs were all annual operational records.

Revenue grew $969 million over 2017, while gross profit grew $123 million. During 2018, 71% of incremental gross profit was passed through to operating income, resulting in an operating margin of over 50% when excluding approximately $8 million of incremental costs related to our technology initiatives. Once again, 2018 demonstrated that Landstar's light-asset based business model generate significant cash flow and outstanding returns in most economic environments. At December 29, the Company had a strong balance sheet with cash and short-term investments of $240 million and borrowings available under revolving credit facility totaling $216 million. During 2018 we purchased 2 million shares of common stock for a total cost of $208 million.

2019 follows the back-to-back-record financial performance as 2017 and 2018. It will be difficult to expect the overall environment in 2019 to be as robust as we experienced during 2018 at its exceptionally highs. We believe truck capacity has been more readily available in the marketplace and spot market pricing once again appears to be moving in line with historical seasonal trends.

With that said, the overall environment for Landstar continues to be strong by historical standards. We expect 2019 to be another successful year of Landstar's. We remain focused on profitable load volume growth, increasing our available capacity to haul those loads, investing in technology and delivering value to our stockholders via share buybacks and dividends.

And with that, we will take questions.

Questions and Answers:

Operator

Thank you very much, sir. At this time, we'll begin the question-and-answer session. (Operator Instructions) Our first question comes from Jason Seidl of Cowen & Company.

Adam Kramer -- Cowen & Company -- Analyst

Hi. This is Adam on for Jason. Thank you for taking our question.

Jim Gattoni -- President and Chief Executive Officer

Yes, sure Adam.

Adam Kramer -- Cowen & Company -- Analyst

First question is, I guess just kind of simply a spot -- spot rate has been following kind of now through the last four or so months, hasn't been harder for you guys to recruit BCOs just given this environment that we're in?

Joseph Beacom -- Vice President and Chief Safety & Operations Officer

Adam this is Joe. No, not really. I think both our recruiting initiatives as well as our retention initiatives have really been impacted by in 2018 the market and early in 2019 we've not seen any impact due to what's happening in the way of rates in the last few weeks. But clearly the rate environment is a big win for BCOs as they're paid on a percentage and that's been a large part of the attraction to the model in 2017 and 2018 (inaudible).

Jim Gattoni -- President and Chief Executive Officer

To put it in perspective, we had -- there was a record revenue per BCO in 2018 of $197,000. I mean, that's a record. I think a little pullback is not going to deter the BCOs from coming on board or staying with us.

Adam Kramer -- Cowen & Company -- Analyst

Got it. Thank you guys for that. And then I guess maybe just a quick follow-up here as well. I guess just broadly, what do you guys see in terms of expectations for pricing in 2019? How bid season in looking from your guys' vantage point? Just maybe a little bit on -- higher level on pricing what you guys see?

Jim Gattoni -- President and Chief Executive Officer

Our assumption -- and you know the volatility in spot pricing, but our assumption now is that we would be in a low-single digit throughout the remainder of the year based on what we're looking at coming into January. As we said, we had seen some seasonal softness going into October, November, December where historically you would see an uptick in the rates and it wasn't picking up as high it was, but as we pull into January it looks like it's more consistent on a month-to-month for the January rate. And if we hold that consistency, we still think we'll be -- we're going to be below the 2018 rates, but somewhere maybe low-to-mid single-digits what the expectation would be.

Adam Kramer -- Cowen & Company -- Analyst

Got it. Thank you guys so much for the time.

Operator

Thank you. Our next question comes from Jack Atkins of Stephens. Your line is now open.

Jack Atkins -- Stephens -- Analyst

Jim, Kevin, Pat, Joe, good morning, guys. Thanks for the time.

Jim Gattoni -- President and Chief Executive Officer

Sure, Jack.

Kevin Stout -- Vice President and Chief Financial Officer

Good morning, Jack.

Joseph Beacom -- Vice President and Chief Safety & Operations Officer

Good morning, Jack.

Jack Atkins -- Stephens -- Analyst

Joe let me just kind of start with a macro question if I could, Jim and Pat I love to get you to way in on as well in terms of what you're seeing on the customer side. But Jim, what are you feeling out there from a freight perspective, obviously, things are moderating versus the strong levels we saw in 2019 (ph) but there was lot of concern, I mean, going into the year about our freight pull forward. Have you seen any indications of that? And then, I would just be curious to get a feel for specific customer verticals where you're seeing particular strength and perhaps maybe some weakness?

Jim Gattoni -- President and Chief Executive Officer

Clearly demand has softened than it was, right. And we think it's more of a demand than a supply side. We do expect that there is probably more capacity in the system today, moving freight. But we're very diverse, so it's very hard to point to a specific industry or specific customer that drives our decelerating growth rate I would say. So I don't really have anything real specific on what's driving the slowdown other than overall economic trends, but we still feel like we can put some volume through and then we're coming off a tough comps. So from a industry standpoint and geographic standpoint, Pat may have maybe more deeper dive, but typically we're more of a -- we're so diverse based on the way the agents are geographically dispersed around the country and all the different industries. It's kind of an overall economic and industrial production effect.

Patrick O'malley -- Vice President and Chief Commercial & Marketing Officer

Jack, I would agree with Jim that this is more of a demand-driven than a supply driven case here. I would also say that, again, to echo what Jim said, if you think about the diverse nature of our agent base, it's kind of difficult to say what particular industry. Again, if you look at what the comps are and if you look at -- I think Jim in his opening remarks, I think said very well about this quarter versus 2017 -- excuse me, 2018 versus 2016 quarter, we are up 23% in that two-year period. So if you think about it, it was a little softer, it's still a pretty robust market.

Jack Atkins -- Stephens -- Analyst

Yeah. And you're still driving volume growth even think aren't as robust just for a backdrop. Okay. All right, that's great. Second question, Jim, you mentioned technology in your prepared comments, but could you just give us an update on your technology initiatives, sort of where we are in terms of the rollout of the new operating system for your agents? And what's the initial feedback been on that thus far?

Jim Gattoni -- President and Chief Executive Officer

It's all positive. I mean, it's taking longer than we anticipated -- we're doing -- I would break down our technology into about four or five separate categories. And the operating system or the TMS that we call it as one specific area that we're investing in. And that project was one of the first thing we jumped on about three or four years ago to convert our 1980s legacy systems into a more robust order entry to delivery system. That is going well. I mean, the agents -- we have about 100 agents using today and it's mostly positive feedback.

Clearly you get some negative feedback, but I think it's really mostly positive because it have got some capabilities that our current order entry system and delivery system doesn't have. And we anticipate it's probably going to take -- we originally launched this as a three or five-year project, year five is over 2019, but it's looking probably going to take another two -- two to three years to get all the agents on the system.

It's just the complexity putting an agent on and putting the customer on. It was probably a little more complex than we thought it would be. But there is all the other things (inaudible) looking, tools we're working on and the tools that we delivered over the past year and a half is load boards and pricing tools and agent analytics for -- so agents can better manage their business.

It's the whole suite of tools we're rolling out that -- where we say we spending $8 million to $10 million on. And so some of those tools are to us more important than the TMS. So it's -- we've got a lot of balls in the air right now and getting very positive feedback. And I tell you the truth for the first time ever I heard one of our capacity guys say that, maybe the reason that the BCOs are staying longer or recruiting more is because we rolled out better available load tools and are left are maximizer.

Jack Atkins -- Stephens -- Analyst

Okay. That makes sense. That's definitely good to hear. One last -- if I could squeeze one last quick one in for Kevin. Kevin, could you give us a sense for where free cash flow ended for 2018? And any preliminary thoughts on free cash flow for 2019?

Kevin Stout -- Vice President and Chief Financial Officer

The free cash flow for '18 was about $244 million if you take out the capital lease payments that we made in '18. So, $250 million is probably the low end for 2019. I'd say $250 million to $275 million as sitting here in January as a guess for 2019.

Jack Atkins -- Stephens -- Analyst

Okay. That's great to hear. Thanks again for the time.

Jim Gattoni -- President and Chief Executive Officer

Sure, Jack.

Operator

Thank you. Our next question comes from Ravi Shanker of Morgan Stanley. Your line is now open.

Shaked Atia -- Morgan Stanley -- Analyst

Hi. This is actually Shaked here for Ravi. I wanted to ask a quick question about loads per BCO. What exactly drove the deceleration on loads per BCO? Is it just seasonality or something else?

Patrick O'malley -- Vice President and Chief Commercial & Marketing Officer

It's -- I don't think it's necessarily seasonality. I think it's a function of the very strong year. I think you heard Jim mentioned $197,000 per BCO truck in the year. I think it was a function of the fact that they had a very good year and the things just -- they just slowed down toward the back half of the year.

Shaked Atia -- Morgan Stanley -- Analyst

Got it. And another question about the rev per load. It was very strong as you noted, even though spot rates for both drive-in and flatbed decelerated this quarter. Considering that you're entirely spot, can you explain why there's a lag in your pricing versus market rates? And can we expect that into 1Q?

Jim Gattoni -- President and Chief Executive Officer

We tend to be not be as volatile, although we're spot. We are spot market, we access our capacity in the spot market. We do have contracts with customers that have contract rates. And they -- some of them tend to hold longer into a cycles even if there is a downturn in price. We have about 30% of our business as drop and hook. So we have a trailer -- we have trailers in locations at shippers and they tend to not just kick us out of there, because they want to get -- drop there price by an nickel or $0.10.

So we're a little more sticky when it comes to the pricing than true spot market, heavy haul to some of that special stuff, the rates stay a little more firm into a cycle that we're in right now. So that's why it's not -- yes, we're a spot business, but we're also a little bit of a mix of -- we have contracts with a lot of our customers that stick a little bit longer into downturn cycle.

Shaked Atia -- Morgan Stanley -- Analyst

Did you say how much of your business is contract?

Jim Gattoni -- President and Chief Executive Officer

I would guess 60% to 70% of our customer contracts have some pricing mechanism, but in our world we don't guarantee a truck, right? So that's why people refer us be at a 100% spot. We don't dedicate capacity at a price, where that -- regardless of what happens in the environment, $2 a mile will do it for 12 months. We'll give you a price, but if the truck is not going to haul, the shipper generally goes and gets a different carrier in there.

Shaked Atia -- Morgan Stanley -- Analyst

I see. It make sense. Thank you for your time.

Jim Gattoni -- President and Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from Todd Fowler of KeyBanc Capital Markets. Your line is now open.

Todd Fowler -- Keybanc Capital Markets -- Analyst

Great. Hey, good morning, everyone.

Jim Gattoni -- President and Chief Executive Officer

Good morning.

Todd Fowler -- Keybanc Capital Markets -- Analyst

Jim I was just hoping you can talk a little bit about the volume growth that you've been experiencing. And you made some comments at the end of your prepared remarks about being focused on profitable load growth in 2019. I guess a couple of things. First, I mean, do you think that you're taking share in the market? And then secondly, as you think about focusing on volume growth into 2019? How do you incentivize the agents or what's the mechanism that you're able to kind of in force to put that into place?

Patrick O'malley -- Vice President and Chief Commercial & Marketing Officer

Todd, this is Pat. A couple of things. If you think about the volume growth and the obligation that we have and the mechanisms that we have, there are certain things that we can do from a field management and a sales management perspective to make sure that we are maximizing the opportunity in each one of these accounts. Jim talked about the agent analytics tools that we now have. The agents are able to look inside their business better to identify where the opportunities are to grow their business.

And I would say to you that I think in certain markets we are taking market share. Whether that's on the platform side, whether that's on some dedicated van business. If you think about those accounts, where there is -- our expertise and execution is valued. We do very well with those accounts. And if you look at the commodity list in the exhibits, in the release, you'll note that, for example, in the automotive world, we're taking market share there, because of the requirements that are inside that industry that we are able to do very well.

Jim Gattoni -- President and Chief Executive Officer

There is another thing too this. One thing that we get concerned about when pricing starts turning down is that the agents don't act fast enough, they don't realize what's going on and shippers are looking for better deals. We're doing a much better job, we rolled out a pricing tool 12 months ago to give them information more readily available. Here is the trends we're seeing, so they can react in this environment.

They're not holding their $2 a load, they're seeing what's going on in the industry and they can react. So instead of losing the load you renegotiate the price in your haul for less. So there's -- we got a little bit of confidence there too based on the information we've been sharing. And so that pricing tool we rolled out to get them better data, so they can react to changing market conditions.

Todd Fowler -- Keybanc Capital Markets -- Analyst

Got it. Okay. So you're not saying, hey, you've got to go after volume, it's giving them the tools in place to manage the business better and one of the byproducts of that becomes the volume growth that you've been experiencing?

Patrick O'malley -- Vice President and Chief Commercial & Marketing Officer

Correct. Better knowledge about the marketplace allows them to grow and capture market share.

Todd Fowler -- Keybanc Capital Markets -- Analyst

Okay, got it. And then just for my follow-up. Jim, I think you usually give some comments on your expectations for gross profit margins on a quarterly basis. It feels like in the fourth quarter there was a little bit of a mix shift. There was probably a higher net revenue margin on some of the broker freight and that pushed up agent commissions. What would your thought be for first quarter gross profit margins? And then, maybe some expectations if you wanted to share on for how that should trend throughout 2019?

Jim Gattoni -- President and Chief Executive Officer

The first quarter we're probably sitting about 14.9% to 15.2%.

Todd Fowler -- Keybanc Capital Markets -- Analyst

Okay.

Jim Gattoni -- President and Chief Executive Officer

(inaudible) because I think there's a little more BCO business that cycles a little bit softer in the first quarter and the broker carriers are charged little bit less. So from that point on, it generally tends the cycle little bit down after the first quarter. I don't have the -- but I would guess that if you follow the history, I wouldn't -- if you are going from 49 to 52 in the first quarter, follow the historical trends from that point for the rest of the year. I don't expect anything that would change, unless the capacity loosens up even more, you might see that rate -- that gross margin holding for a little while, maybe into the second quarter.

Todd Fowler -- Keybanc Capital Markets -- Analyst

Okay. Yeah, that make sense. I was just looking for something little bit more directional for the rest of the year. So that helps. Stay warm guys.

Jim Gattoni -- President and Chief Executive Officer

It was 37 here this morning, we're freezing.

Todd Fowler -- Keybanc Capital Markets -- Analyst

See you. Thanks a lot.

Jim Gattoni -- President and Chief Executive Officer

Yeah. Sure, Todd.

Operator

Thank you. Our next question comes from Stephanie Benjamin of SunTrust. Your line is now open.

Stephanie Benjamin -- Suntrust -- Analyst

Hi. Good morning. Thank you for the question. I was really just hoping if you could provide an update just on your e-commerce related loads during 4Q and really how that performance compared to the 2017 fourth quarter or just kind of your expectations any color there would be great? Thanks.

Patrick O'malley -- Vice President and Chief Commercial & Marketing Officer

Stephanie, this is Pat. Our fourth quarter peak business was not as robust as it was in 2017.

Stephanie Benjamin -- Suntrust -- Analyst

Got it. And do you think that's just the nature of tougher comps or did you see any kind of shift or any change for that?

Patrick O'malley -- Vice President and Chief Commercial & Marketing Officer

It was more of a shift in one account.

Stephanie Benjamin -- Suntrust -- Analyst

All right. Great. Well, thank you so much for your question -- for the question.

Operator

Thank you. Our next question comes from Matt Brooklier of Buckingham. Your line is now open.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Hi. Thanks, good morning. So your revenue per load guidance for first quarter expected to be I think down low-single digits. I'm assuming there's some impact from fuel surcharge also being down. Do you have that number when you ex out fuel surcharge?

Kevin Stout -- Vice President and Chief Financial Officer

No, Matt, we don't have that. We wouldn't have assumed very much of a change with respect to fuel. I think barrel is what $54 to $60, somewhere in that range. Yeah, we wouldn't have assumed any delta from Q4 to Q1 on that.

Jim Gattoni -- President and Chief Executive Officer

And if you remember, fuel is excluded from the BCO freight. So, half of the freight doesn't even have fuel in it.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Right, but included on the brokerage side?

Jim Gattoni -- President and Chief Executive Officer

Yeah. We didn't anticipate a big change from the fourth quarter to first quarter.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay. It just looks like fuel per some projections -- price year-over-year is expected to be down. So I was just trying to get a sense for maybe how much that's potentially weighing on your yield guidance if it's maybe taking a little bit way. So it just seems like a pretty drastic shift, right, in terms of what you put up in the fourth quarter and then going to negative in the first quarter if fuel's contributing to that? And then second question. Jim, you mentioned that we're still in the midst of this IT rollout, did you talk to the expected expenses around that program in 2019. I think in 2018 it was something like $8 million?

Jim Gattoni -- President and Chief Executive Officer

Yeah. We're looking about $8 million to $10 million again this year. It's probably going to go on for a little while. We have a lot of good things going on here that we just want to keep advancing our technology and the tools for the agents and the BCO. So $8 million to $10 million is what we plan for '18 -- '19, I'm sorry.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay. Great. Appreciate the time.

Operator

Thank you. Our next question comes from Scott Group of Wolfe Research. Your line is now open.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks. Good morning, guys. So, big picture, if this quarter flattish revenue, mid-single digit profit, double-digit earnings growth, if that sort of revenue environment continues all year of flat revenue, maybe even slightly negative revenue, do you think you can maintain sort of -- that sort of profit growth the rest of the year?

Kevin Stout -- Vice President and Chief Financial Officer

Yes. And the reason why is I think there's a whole bunch of tailwinds we have in '19, whether be incentive comp or equity comp. And I don't -- we don't count on insurance, but in 2018 we had $14 million of unfavorable development in 14 -- in '18 that -- hope you don't have pushed through into 2019 again. It's unpredictable, but -- so I see -- our share count is down about 3% so you got some of that. So when you drive all those things through and you think we're going to be flat on the gross profit line, we can still drive the operating income and EPS growth through the model, just because -- for people who understand our model, we're a variable cost business model and if we go -- if the agents aren't making a lot of money neither do we and the bonuses kind of fade away.

So we kind of -- the variability of the model goes right through the comp line too. So in a good year like 2018, we have a lot of equity comps and incentive comp and if 2019 slows down that number comes down. So that's where you get the benefit and that's how the model works. But just to note, First Call has a consensus out and we're comfortable with the consensus of the First Call -- the analyst estimates for the year.

Scott Group -- Wolfe Research -- Analyst

Okay. That's helpful. And then I know it's very early, but maybe can you talk what sort of impact you're seeing from the weather out there? Do you think this is a sort of event that can have a more prolonged impact on the market?

Jim Gattoni -- President and Chief Executive Officer

We're believers, unless the plant shut down, the freight comes back, the freight is going to sitting, but in this environment I think plants might be shut down. So there might be some freight opportunities being lost and pushed may be later into the quarter. But since it -- it's happening right now, it's actually this week. We get daily load reports and it is impacting our load volumes. Clearly in this week right now, which wasn't included in our opening comments was that we're a couple of thousand load short in the first couple of days this week because of the weather. And if it eliminated some planned production, it could affect the quarter. But we always anticipate those plants get back up and running and by the end of -- we still have a month and a half to make up on volume. So I don't think we're thinking that the couple of thousand loads we lost in the last couple of days isn't going to come back.

Scott Group -- Wolfe Research -- Analyst

And I was thinking maybe from the other way. Do you think it's -- this is enough to like really recycling the market and have a prolonged impact in terms of higher rates?

Jim Gattoni -- President and Chief Executive Officer

I don't know if it's prolonged, but I do think there's probably a short-term impact, because some of that freight probably in the spot market, you got to go and get trucks and when the guys who are on schedule routes now are hauling their schedule route, but there's more freight sitting on the sideline because it didn't get moved for a couple of days. I don't believe it's long term, but short-term affect the quarter possibly on spot rates maybe.

Scott Group -- Wolfe Research -- Analyst

Okay. Thank you for the time guys.

Operator

Thank you. Next is from Amit Mehrotra of Deutsche Bank. Your line is now open.

Amit Mehrotra -- Deutsche Bank -- Analyst

Thank. Good morning, guys. How are you?

Jim Gattoni -- President and Chief Executive Officer

Good.

Amit Mehrotra -- Deutsche Bank -- Analyst

It's five degrees in New York today, so we'll take 38 any day.

Jim Gattoni -- President and Chief Executive Officer

(inaudible) fabulous.

Amit Mehrotra -- Deutsche Bank -- Analyst

I wanted to go back to the gross profit question and maybe come at it more conceptually. Obviously, the beauty of the Landstar model is really the variability of the cost structure as you said, but wondering how we should think about it as how that maybe evolves as volume growth slows? How the mix in that environment, whether it's your broker carriers or the rate you pay to the broker carriers, maybe a little bit less that allows you to take that gross profit toward that mid-15% level where it was back in 2016 in a weaker volume environment. So, maybe that could have offset some of the possible gross revenue headwinds. Any thoughts here, just conceptually how we can think about that?

Jim Gattoni -- President and Chief Executive Officer

I'd actually prefer to have a 14% gross margin because that means we're driving more brokerage revenue through the system and the BCOs are still hauling. We don't really focus so much on that margin to tell you the truth. If you look at 2009, our margin was 16.7%, our gross profit margin and that's because the BCOs hauled more of our freight. In an environment that we're dealing with now, the way the gross margin work, if we can put more brokerage business over to model, we'll see the 15% go to 14.5% or 14%. But that's OK, because there's not a lot of infrastructure costs for the brokerage freight.

Yeah. So when we're doing third-party truck freight, you basically pay the truck, you pay the agent and then we have some receivables flow, but there's not a lot of infrastructure here to excess cost below that gross profit line. So that's kind of how we look at it. And depending on -- most of the time when you see the margin move, it's because of mix. How much was BCO and how much was brokerage. So the extent we can push more brokerage and maintain our BCO fleet or grow our BCO fleet, you'll continue to see that margin drop, but in a good way, because that mean gross profit is climbing from a dollar standpoint.

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay, right. And does the volume environment and the mix in that at all change the way you guys think about incremental EBIT margins. I think you've talked about 70% of net revenue. Does that change at all in terms of our expectations of that, I assume the lower it goes the higher that could go just based on what you just said?

Jim Gattoni -- President and Chief Executive Officer

Our expectation now is 70%. It kind of moves of the year, right, because it's comparative to prior year. In 2018 we had significant amount of incentive comp and equity comp. It should -- or 70% in 2019 should be significantly higher because you're taking some of those costs out with -- even with a flat gross profit we should be able to push about 80% to 90% of that growth in operating income -- not growth in operating income, but our operating margin should climb.

Amit Mehrotra -- Deutsche Bank -- Analyst

Got it. OK. And then another question, maybe more conceptually is one of the things that we're hearing from people that are maybe a little bit more bullish on the sustainability of the trucking market is the fact that ELDs have maybe structurally rerated the spot market a little bit higher because the thought being in prior cycles independent owner operators would maybe drive more miles to make up the lower rate per mile and go in excess of their hours of service rules and now, obviously, they can't do that with the ELD. I mean, obviously, maybe we have to see it to believe it over our cycle, but does that thesis kind of makes sense to you? And are you maybe seeing some of that in the marketplace?

Joseph Beacom -- Vice President and Chief Safety & Operations Officer

Hi, Amit, this is Joe. I think the impact from ELDs and its impact on productivity, we probably saw that in 2018. I don't think you'd see any more exaggeration of the pricing impact of ELDs. The only thing that's forthcoming that could play any kind of role, and I think it would be very minimal is the movement from AOBRDs to ELDs at the end of this year, which does change some of the personal conveyance rules, it does affect productivity just a little bit. But I wouldn't think that, that would be a real material change in productivity or its impact on price.

Amit Mehrotra -- Deutsche Bank -- Analyst

I guess my point was not a change in the prospective tightness of the market, it's just that do ELDs now kind of raise the floor (Technical Difficulty) trough rates could be relative to what they were in the past cycles. Maybe that's too big of a statement and we just haven't seen enough evidence yet, but that's really what the question was about.

Joseph Beacom -- Vice President and Chief Safety & Operations Officer

Conceptually I see what you're saying. I guess we'll have to wait and see.

Jim Gattoni -- President and Chief Executive Officer

I think it did raise some awareness as to the impact of declining productivity. And I think so that to the extent, yes, maybe it did raise the -- what the expectations of purchased transportation should be.

Amit Mehrotra -- Deutsche Bank -- Analyst

Can I ask one last question before I hop off on the volume environment. And you might have addressed this, because I hopped on a little bit late, but you talked about volumes in the fourth quarter, they end -- where they ended up versus kind of the 8% to 10% that you would expected I mean the implication you talked about in October, I believe. So there seems like there was a big drop-off in November and December relative to maybe your expectations. Can you just give us the cadence of volume growth in the quarter if you haven't already? And what drove that seemingly maybe large deceleration over the last couple of months of the year?

Jim Gattoni -- President and Chief Executive Officer

October was 6% and November was 3% and December was 4%. And I think our anticipation going into the quarter that we would have a stronger e-commerce environment and plus there was one customer that cost about 30% of our miss. We hit 4%, our low end was 8%, 30% led (ph) to the bottom range was one customer that dropped off, not dropped off just the load. So it's a combination of that demand on the e-commerce that we've had for the last three or four years was not near as strong as we anticipated, plus a single customer.

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay. That's very helpful. Thank you very much, guys. I appreciate it.

Operator

Thank you. Our next question comes from Bruce Chan of Stifel. Your line is now open.

Scott Group -- Wolfe Research -- Analyst

Yes. Good morning, gentlemen. Just a quick follow-up here on the drop and hook question from earlier. Jim, I think you said that percentage of truck business was floating around 31% right now, which I think is roughly sequentially flat over the third quarter. And I know the returns on that business generally seem to be pretty good. I'm wondering if you guys have a target mix of drop and hook in mind as you sort of plan the business. And whether as the capacity environment loosens that affects your strategy as far as how you're deploying that trailing capacity?

Jim Gattoni -- President and Chief Executive Officer

Our drop and hook business really ties to customer demand and then how many BCOs we have that haul our trailers, not all of our BCOs haul drop and hook. And Kevin, do you have the number 7,000, 8,000 ?

Kevin Stout -- Vice President and Chief Financial Officer

About 6000.

Jim Gattoni -- President and Chief Executive Officer

It was about 6000 of our BCOs who haul the drop and hook freight. So you've got the customer demand on one side, but then you have the capacity availability on the other side. So we have 2,000 -- we have two trailers for every one of those BCOs on freight, we got 12,000 trailers in the network. We'd love to add more to that if we can push more BCOs to the drop and hook business and get more shipments. So, yeah, we don't have a planned mix, but it is -- it's a part of our business and we try and get more BCOs to haul and drop and hook freight and get more drop and hook opportunities, but there is no -- it is our best -- it is our highest margin business, because we're actually providing -- we're providing little bit more value when you put a trailer in it and you coordinate trailers, but there is no targeted percent of revenue.

Scott Group -- Wolfe Research -- Analyst

Okay. Great. I appreciate that. That's helpful. And then, just back to the technology side. You talked about the TMS and how the deployment is going there, but you also mentioned that you got a few other buckets. And I'm wondering if you can remind us especially on the back-office side, is there anything meaningful that you have coming up that we should be looking at, especially as it relates to corporate margins?

Jim Gattoni -- President and Chief Executive Officer

I wouldn't say it's related to corporate margins. We only have 1,200 employees, so there's not a lot of flexibility in our -- we can build efficiencies within the network, but as we grow we probably still need the same number of people, right? So, that's not we're attacking. What we're really attacking is the front-end, the customer experience, the agent experience and the capacity experience and the tools that they used to access our systems and the way we share information is really what we're attacking.

And we've always had load boards and we've always had dashed up, we're putting our better tools and better products to make them more effective for the BCOs to better identify the loading opportunities they want as opposed to seeing all loads. Saying, hey, we see you like this -- it's kind of like, we see you like this load, you may like this one too. So we're building out -- it's almost like that artificial intelligence stuff to push better data up to the -- not just the BCOs but even share information with the agents too and give the agents tools where they can watch their business, simply see stats on their business on a day-to-day and what capacity they're using, what customers -- what happened with our customers yesterday, did 10 loads yesterday, how come none today? That kind of things. That's what we're dealing with.

Scott Group -- Wolfe Research -- Analyst

Okay, great. And you did mention that pricing tool to agents. Is that or has that been deployed networkwide or are there still some that still need to be?

Jim Gattoni -- President and Chief Executive Officer

It was fully deployed by the beginning of 2018, but it started off with just the basic sales side (inaudible) and then you're building confidence level. So we're constantly working on all that stuff to get better and better tools.

Scott Group -- Wolfe Research -- Analyst

Perfect. Appreciate the time.

Operator

Thank you. Our next question comes from Bascome Majors of Susquehanna. Your line is now open.

Bascome Majors -- Susquehanna -- Analyst

Yeah. Thanks for taking my question here. Jim, you've talked over the years about targeting low-to-mid teens EPS growth for the Landstar business over time. As you acknowledged in some of the questions and your closing remarks, 2018 was really exceptional for the business. As we look to 2019, are your annual incentive comp thresholds aligned with that longer-term kind of low-double digit growth expectation? Or would flattish earnings get you to a threshold payout acknowledging how you need 2019 -- I'm sorry, 2018 really was?

Jim Gattoni -- President and Chief Executive Officer

They are aligned with the longer-term goals.

Bascome Majors -- Susquehanna -- Analyst

All right.

Jim Gattoni -- President and Chief Executive Officer

We don't have -- we don't plan flat and then pay significant bonuses.

Bascome Majors -- Susquehanna -- Analyst

That's great news guys. Well, we hope you get there. Thank you.

Jim Gattoni -- President and Chief Executive Officer

This might be great for you.

Bascome Majors -- Susquehanna -- Analyst

We'll talk in 3Q, OK.

Operator

Thank you. (Operator Instructions). Our next question comes from Matt Brooklier of Buckingham.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Yeah. So, just a follow-up question. The e-commerce customer, you indicated that that customer, it sounded like they shifted some volumes away from you. Just trying to get a sense for when that shift happened. I think I can make a guess given for the monthly numbers that you gave us. And then is there any way to just talk about how much the impact was for the entire quarter from a revenue perspective?

Jim Gattoni -- President and Chief Executive Officer

We can tell you that they in source so if that gives you an idea of who it is.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay.

Jim Gattoni -- President and Chief Executive Officer

And just give me a sec. We generally don't share individual customer information.

Matthew Brooklier -- Brooklier of Buckingham -- Analyst

It just seems like it was more impactful as we're kind of going through the call and asking questions. I mean you guys are talking about the overall environment moderating, it sounds like they are a pretty big contributor to that? And I can get the number offline if that's easier.

Jim Gattoni -- President and Chief Executive Officer

No, no. It was -- why we don't talk about customers so much, because we're so diverse. But that one customer dropped $10 million year-over-year. So it would have impacted the quarter and it generally happened in November, December year-over-year.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

$10 million was the total --

Jim Gattoni -- President and Chief Executive Officer

The change, the reduction from the prior year.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay. Got it. Thank you.

Operator

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

Jim Gattoni -- President and Chief Executive Officer

All right. Thank you, and I look forward to speaking with you again on our 2019 first quarter earnings conference call. It's currently scheduled for April 25. Have a good day.

Operator

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

Duration: 50 minutes

Call participants:

Jim Gattoni -- President and Chief Executive Officer

Kevin Stout -- Vice President and Chief Financial Officer

Adam Kramer -- Cowen & Company -- Analyst

Joseph Beacom -- Vice President and Chief Safety & Operations Officer

Jack Atkins -- Stephens -- Analyst

Patrick O'malley -- Vice President and Chief Commercial & Marketing Officer

Shaked Atia -- Morgan Stanley -- Analyst

Todd Fowler -- Keybanc Capital Markets -- Analyst

Stephanie Benjamin -- Suntrust -- Analyst

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Scott Group -- Wolfe Research -- Analyst

Amit Mehrotra -- Deutsche Bank -- Analyst

Bascome Majors -- Susquehanna -- Analyst

Matthew Brooklier -- Brooklier of Buckingham -- Analyst

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