Landstar System delivered solid revenue growth in the third quarter as demand for dry van and flatbed transportation strengthened, freight capacity remained tight and data center construction supported industrial activity. Yet, despite these favorable market conditions, rising insurance and claims costs significantly reduced the company’s earnings performance.
Speaking during the company’s third-quarter earnings call with analysts on Tuesday, Landstar President and CEO Frank Lonegro pointed to insurance expenses as the main factor overshadowing an otherwise encouraging set of results. He indicated that the financial picture would have been considerably stronger without the impact of the claims-related charges.
Landstar (NASDAQ: LSTR) reported earnings per share of $1.42, falling 24 cents short of analysts’ consensus estimate. The shortfall was primarily linked to $13 million in adverse adjustments to claims reserves, equivalent to 29 cents per share, and another $8 million, or 18 cents per share, stemming from unfavorable developments on two claims originating in previous years.
Despite missing market expectations, earnings per share were still 20 cents higher than the adjusted result recorded a year earlier. That prior-year comparison excluded several non-recurring expenses, including items discussed in the company’s earlier third-quarter outlook.
Revenue climbs as freight demand and pricing improve
Consolidated revenue reached $1.51 billion, representing a 25% increase year over year and coming broadly in line with analysts’ expectations.
Truck transportation revenue generated most of that growth, rising 29% to $1.41 billion. The increase reflected a 3% gain in load volumes combined with a 25% improvement in revenue per load. Higher diesel prices and stronger truckload pricing contributed to the increase in yields, while revenue per load also advanced 7.5% compared with the second quarter.
Performance was positive across Landstar’s main truckload segments. Dry van volumes rose 6% year over year, with revenue per load increasing 23%. Flatbed loads grew 4%, while revenue per load climbed 29%. The company also highlighted particularly strong demand for heavy-haul transportation.
The momentum has continued into October. Total truck loads were up 7% year over year during the month, while revenue per load increased 29%. Both measures were running slightly ahead of their usual sequential trends.
Landstar typically records a modest increase in truck revenue between the third and fourth quarters, with both load volumes and revenue per load generally rising by approximately 1%.
| Landstar System: | Q3/26 | Q3/25 | Y/Y Gross Change | Y/Y % Change |
|---|---|---|---|---|
| Revenue | $1,511.8 | $1,205.4 | $306.4 | 25.4% |
| Purchased Transportation | $1,182.0 | $936.5 | $245.6 | 26.2% |
| Commissions to Agents | $117.7 | $98.7 | $19.0 | 19.2% |
| Variable Contribution | $212.1 | $170.2 | $41.8 | 24.6% |
| Variable Contribution Margin % | 14.0% | 14.1% | -10 bps | -0.7% |
| Gross Profit | $126.5 | $111.1 | $15.5 | 13.9% |
| Gross Profit Margin % | 8.4% | 9.2% | -84 bps | -9.1% |
| Adjusted Operating Income | $65.5 | $56.4 | $9.1 | 16.1% |
| Operating Margin (% of variable contribution) | 30.9% | 33.1% | -224 bps | -6.8% |
| Dry Van: | ||||
| Revenue | $759.9 | $583.4 | $176.6 | 30.3% |
| Loads | 294,875 | 277,893 | 16,982 | 6.1% |
| Revenue per Load | $2,577 | $2,099 | $478 | 22.8% |
| Flatbed/Platform: | ||||
| Revenue | $518.6 | $386.0 | $132.6 | 34.3% |
| Loads | 128,398 | 123,254 | 5,144 | 4.2% |
| Revenue per Load | $4,039 | $3,132 | $907 | 29.0% |
| Other Truck (Power-Only) Transportation: | ||||
| Revenue | $103.7 | $96.0 | $7.7 | 8.0% |
| Loads | 47,543 | 45,421 | 2,122 | 4.7% |
| Revenue per Load | $2,181 | $2,114 | $67 | 3.2% |
| Total Truck Transportation: | ||||
| Revenue | $1,407.2 | $1,089.9 | $317.3 | 29.1% |
| Loads | 500,650 | 485,430 | 15,220 | 3.1% |
| Revenue per Load | $2,811 | $2,245 | $565 | 25.2% |
| BCOs: | ||||
| Revenue | $591.0 | $457.4 | $133.6 | 29.2% |
| Loads | 212,660 | 199,010 | 13,650 | 6.9% |
| Revenue per Load | $2,779 | $2,298 | $481 | 20.9% |
| Trucks provided by BCOs | 8,709 | 8,618 | 91 | 1.1% |
| BCO Loads/Truck | 24.4 | 23.1 | 1.3 | 5.7% |
| BCO Independent Contractors | 7,843 | 7,827 | 16 | 0.2% |
| Total Truck Capacity Providers | 75,758 | 75,292 | 466 | 0.6% |
| Adjusted EPS | $1.42 | $1.22 | $0.20 | 16.4% |
$ in millions except per-load metrics and EPS
Return to owner/operator capacity growth and more efficient carrier network
Landstar has been cutting back on its approved carrier network for several years now. The list has shrunk to nearly 68,000 carriers in the latest quarter from more than 100,000 carriers in 2022.
Most of the cuts came in 2023 and into 2024 as the company battled cargo theft. The reductions were also helped along by a softening truckload environment, especially for owner-operators who were facing tougher operating conditions. Then the approved carrier count sequentially increased by 5% in Q3.
Meanwhile Landstar has seen a strong rebound in the capacity of business capacity owners, or BCOs. These owner-operators almost exclusively haul for the company and are a key indicator of changes in the overall truckload market.
BCOs supplied 165 more trucks than the previous quarter, for a total of 8,709 trucks supplied. That was the largest sequential increase since the third quarter of 2021. That was 22 more trucks than at the end of the third quarter.
And retention went up too. BCO truck turnover rate at Landstar fell 480 basis points, or 26.6%, year-over-year.
This segment’s pricing initiatives are getting better and better. BCO revenue per mile, the company’s preferred measure of truckload pricing excluding fuel surcharges, rose 23% year-over-year for dry van shipments and 19% for flatbed freight. Revenue per BCO load also increased 10.9% sequentially during the quarter.
The developments indicate that better pricing conditions are exceeding a slow recovery in the availability and stability of owner-operator capacity.
Margin compression does not stop at higher revenue
Landstar’s variable contribution or net revenue increased 25% year-over-year to $212 million. The metric is the revenue left after subtracting purchased transportation costs and agent commissions.
But it didn’t translate that growth into higher margins. Its variable contribution margin was 14%, down 10 basis points from the same period last year.
Operating margin (variable contribution basis) decreased 220 basis points to 30.9% compared to the prior year.
A big driver of the deterioration was insurance and claims costs. These expenses increased to 9.4% of BCO revenue, up 220 basis points. Total insurance and claims expense rose to $55.3 million, up $22.3 million from the year-ago quarter, reflecting the negative claims developments that affected quarterly earnings.
Management identified adverse claims items totaling approximately $21 million. Landstar posted yet another improvement in accident frequency, but these charges hurt financial results. The company had 0.57 Department of Transportation-reportable accidents per million miles for the first nine months of the year.
Insurance liability remains a growing industry concern
The pressure on Landstar’s results reflects a broader challenge facing the transportation sector. An increase in exceptionally large jury awards, often referred to as nuclear verdicts, has materially raised insurance-related expenses across the industry in recent years.
The scale of the change is evident when compared with Landstar’s historical guidance: in 2016, the company projected insurance expenses equivalent to just 3.2% of BCO revenue, substantially below the 9.4% reported for the latest quarter.
The issue has taken on added importance following the U.S. Supreme Court’s broker-liability ruling, which has prompted renewed discussion about the responsibilities and potential exposure of freight brokers.
For Landstar, the third-quarter results illustrate the difficulty of translating stronger freight-market conditions into improved profitability when insurance costs remain unpredictable. Growing demand, improving truckload pricing and a recovery in owner-operator capacity provided a favorable operating backdrop, but adverse claims developments absorbed a substantial portion of those gains.
The central challenge for Landstar and other freight intermediaries will be to sustain operational improvements while managing insurance exposure in an increasingly demanding liability environment.
