Landstar System bringing in outsider Lonegro as CEO (Courtesy of the Jacksonville Daily Record) — Landstar System Inc. is going outside the company for its new CEO, a surprising move for the Jacksonville-based trucking company, based on its past.
Landstar has only had three chief executives in its 35-year history and in its previous two changes, it promoted longtime company executives into the CEO role.
However, the transition to new CEO Frank Lonegro is not expected to change the direction of Landstar, which has had a generally successful run since it was formed in 1988 and went public in 1993.
Landstar announced Dec. 4 that James Gattoni, CEO since the end of 2014, will retire in February and be succeeded by former CSX Corp. executive Lonegro.
Gattoni has been with Landstar since 1995 and he succeeded Henry Gerkens, who had been with the company since it was founded in 1988 and became CEO in July 2004.
Gerkens succeeded company founder Jeffrey Crowe in the role.
Crowe presided over the company as it went public and then moved its corporate headquarters from Shelton, Connecticut, to Jacksonville in mid-1997.
“Gattoni has been at the helm since 2014 and the firm’s execution under his watch has been impressive,” Morningstar analyst Matthew Young said in a Dec. 5 research note.
“Landstar’s returns on capital comfortably exceeded 30% over the past decade and its stock price has almost tripled,” he said.
Actually, the stock has been good to shareholders through all three chief executives.
The stock has been trading close to $180 recently after topping $200 earlier this year, more than 100 times its split-adjusted IPO price of about $1.60 in March 1993.
By comparison, the Dow Jones Industrial Average is about 10 times its 1993 level.
“At this point, we are expecting a relatively smooth transition and do not anticipate any major near-term changes to Landstar’s unique agent-based truck brokerage operating model,” Young said.
In Landstar’s model, the company does not own trucks but contracts with drivers who own their trucks to transport freight across the country.
It has been successful enough to make Landstar a Fortune 500 company with 2022 revenue of $7.44 billion.
However, Landstar will likely drop out of the Fortune 500 next year, as a slump in freight traffic is projected to drop its 2023 revenue to about $5.3 billion.
That trend is likely to continue in 2024. J.P. Morgan analyst Brian Ossenbeck initiated coverage of Landstar with a “neutral” rating Dec. 11, saying he doesn’t see an increase in the spot rates shippers pay the company coming quickly enough.
“We believe this setup limits the near-term upside for Landstar and merits a Neutral rating but we recognize the company is uniquely positioned to benefit from a truckload rate recovery given its high exposure to spot truckload rates and margin structure,” Ossenbeck said in his report.
He is projecting 2024 revenue of $5.4 billion for the company.
Ossenbeck also covers Jacksonville-based CSX so he is familiar with Lonegro, who spent 19 years with the railroad company before leaving in May 2019.
“We do not anticipate any material changes to Landstar’s strategy or priorities under his leadership,” Ossenbeck said.
Lonegro has been in a different industry as CFO of Beacon Roofing Supply Inc. since 2000, but Young said his previous work at CSX should have him prepared to take over at Landstar.
“This experience gives us confidence that he is familiar with the freight markets and is a seasoned, capable leader,” he said.
Landstar again paying special dividend
In addition to the leadership transition, Landstar also announced for the fifth straight December it will pay a special dividend to shareholders.
The company will pay a one-time $2-per-share dividend in January. That’s in addition to its regular quarterly dividend, which was increased from 30 cents to 33 cents a share in July.
“Landstar’s strong balance sheet and free cash flow generation enable us to continue to return value to our stockholders,” Gattoni said in a news release.
The company also announced an increase in the amount of shares it may buy under its repurchase program, which reduces the number of shares available in the market and makes the remaining shares more valuable.
The company has been repurchasing shares for years.
“Landstar’s asset-light operating model has helped fuel a buyback program that steadily reduced share count by about 40% over the last 20 years,” Ossenbeck said.
“The stock’s total return profile is further bolstered by a consistently growing dividend and now includes an increasingly regular ‘special’ dividend,” he said.
Landstar said it bought back about $54 million in stock in the first 11 months of this year and paid $117 million in cash dividends to shareholders.
The company had $497 million in cash and short-term investments on its balance sheet at the end of the third quarter.