Landstar System - Q2 2016
July 21, 2016
Transcript
Operator (participant)
Good morning, and welcome to Landstar System Incorporated's second quarter 2016 earnings release conference call. All lines will be in listen-only mode until the formal question-and-answer session. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are Mr. Jim Gattoni, President and CEO, Mr. Kevin Stout, Vice President and CFO, Mr. Pat O'Malley, Vice President and Chief Commercial and Marketing Officer, 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.
James B. Gattoni (President and CEO)
Thank you, Olive. Good morning, and welcome to Landstar's 2016 second-quarter earnings conference call. This conference call will be limited to one hour. Due to a high level of participation on these calls, I am requesting that each participant have a two-question limit. Time permitting, we can circle back for additional questions. But before we begin, let me read the following statement. 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 2015 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. Industry fundamentals during the 2016 second quarter remained similar to those experienced in the 2016 first quarter, with soft demand and more readily available truck capacity. Those freight conditions, along with the lower diesel fuel prices, continued to put downward pressure on revenue per load on loads hauled via truck.
Considering the softness in demand, we executed relatively well during the quarter. In this low-growth environment, we increased the number of loads hauled via truck during the 2016 second quarter over the prior year, when excluding loads related to a now-completed special project for an automotive customer from the 2015 flatbed load count. Let me point out a few highlights from the quarter. New agent revenue exceeded $31 million, the highest quarterly revenue from new agents over the past five years. This key metric reflects the continued strength of the Landstar model in attracting quality agents to the network. The average number of trucks provided by BCOs in the 2016 second quarter increased approximately 300 trucks over the 2015 second quarter.
We ended the quarter with 9,462 trucks provided by BCOs, slightly lower than at the end of the 2016 first quarter. We believe the slight decrease in truck count is a result of the soft freight environment. We had a record number of truck brokerage carriers haul freight on Landstar, Landstar's behalf during the 2016 second quarter, as the model continues to attract quality truck capacity. The 2016 second quarter had the second-highest number of loads hauled via truck in any second quarter in Landstar history, behind only the 2015 second quarter, which included 13,000 loads hauled via flatbed trailers related to the now-completed project I previously referenced. As it relates to the second quarter guidance, Landstar provided initial second-quarter guidance, revenue, and earnings guidance on April twentieth.
That guidance forecasted revenue in a range of $770 million-$820 million, and diluted earnings per share guidance of $0.80-$0.85. At a publicly available webcast investor conference on June 8, I subsequently updated that guidance, indicating I was more comfortable at the lower end of the range for both revenue and diluted earnings per share. Second quarter revenue of $775 million was in line with our updated revenue guidance. Diluted earnings per share of $0.76 was below the low end of our guidance. Diluted earnings per share would have been in line with our updated guidance, except for higher-than-expected insurance and claims costs resulting from a severe accident that occurred at the end of the 2016 second quarter.
Revenue in the 2016 second quarter was 11% lower than revenue in the 2015 second quarter. The decrease in revenue as compared to the 2015 second quarter was almost entirely due to a decrease in revenue per load across all modes. In particular, Landstar experienced a 9% decrease in revenue per load on loads hauled via truck. We also saw lower revenue per load on loads hauled via rail, air, and ocean cargo carriers. Revenue per load on loads hauled via van equipment was 8% below prior year second quarter, and revenue per load on loads hauled via unsided platform equipment was 9% below prior year second quarter. Overall, truck capacity continues to be more readily available than it was in 2015, putting downward pressure on spot market pricing.
Additionally, revenue per load has been negatively impacted by a lower cost per gallon of diesel, which is almost 20% lower in the 2016 second quarter as compared to the 2015 second quarter. Seasonally, we typically experience an increase in revenue per load on loads hauled via truck from June to July. 2015 was the only year in the past eight years where revenue per load on loads hauled via truck decreased from June to July. During that eight-year period, excluding 2015, revenue per load on loads hauled via truck increased from June to July in a range from 1.1%-4.3%.
During the first few weeks of July, revenue per load on loads hauled via truck has increased compared to June at the approximate midpoint of the eight-year range, indicating the spot market has probably returned to more normal seasonal patterns. I believe we will maintain this normal seasonal uptick in pricing as we move through the third quarter, leaving the third quarter revenue per load slightly higher than revenue per load in the 2016 second quarter. Thus far, the price of fuel has been fairly stable, and truck capacity, although clearly more readily available than during 2015, seems to be holding at a consistent level. The number of loads hauled via van equipment during the 2016 second quarter was generally equal to the 2015 second quarter, while unsided platform loadings decreased 9%.
We continue to experience increased demand for services requiring Landstar-provided trailing equipment. The number of loads hauled via Landstar-controlled trailing equipment, mostly van equipment hauled by BCOs in drop and hook operations, was 34% of truck loadings in the 2016 second quarter and increased 6% over the prior year quarter. Overall, we have maintained stable unsided platform volumes in a difficult flatbed environment. Heading into the third quarter, our quarter-over-quarter comparison of volumes on unsided platform equipment gets more difficult as we hauled approximately 20,000 loads via flatbed equipment in the 2015 third quarter under the special project I referenced toward the beginning of my comments. That project concluded at the end of 2015. Landstar has a highly diverse customer base in a wide range of industries, primarily operating in the U.S. manufacturing sector.
The company's top 100 customers accounted for 38% of revenue in the 2016 second quarter. From an industry standpoint, revenue from the automotive sector was 31% below the 2015 second quarter, mostly due to the $27 million in revenue in the 2015 second quarter, driven by the project I previously referenced. Also, freight relating to the energy sector, which was approximately 3% of revenue in the 2016 second quarter, decreased over 30% compared to the 2015 second quarter. Other sectors showing notable revenue declines over the 2015 second quarter were machinery, metals, and foodstuffs, which was consistent with the 2016 first quarter.
The foodstuff sector revenue decrease was driven primarily from one customer, as revenue in that sector has a less diversified customer base as compared to many of our other sectors. The machinery and metals revenue decrease were, however, mostly driven by overall market conditions and not related to any specific account, as the company's customer base in those sectors is highly diversified. Gross profit decreased 7% compared to the 2015 second quarter on an 11% quarter-over-quarter decrease in revenue. Gross profit margin expanded 50 basis points in the 2016 second quarter compared to the 2015 second quarter. Lower diesel fuel prices and the favorable impact of more readily available capacity drove down the cost of purchased transportation paid to truck brokerage carriers in the quarter, helping to increase the gross profit margin.
Notably, the gross profit margin on loads hauled via truck broker carriers under variable cost arrangements expanded 60 basis points over the 2015 second quarter. I expect softer capacity conditions to persist through the 2016 third quarter, and therefore, expect gross profit margin to exceed the 2015 third quarter at a level somewhat similar to the margin expansion experienced in the 2016 second quarter over the 2015 second quarter. Here's Kevin with his review of other second quarter financial information.
L. Kevin Stout (VP and CFO)
Thanks, Jim. Jim has covered certain information on our 2016 second quarter, so I will cover various other financial information included in the press release. Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, decreased 7% to $121 million and represented 15.6% of revenue in the 2016 second quarter, compared to $131 million, or 15.1% of revenue, in 2015. The cost of purchased transportation was 76% of revenue in the 2016 quarter versus 76.9% in 2015. The rate paid to truck brokerage carriers in the 2016 second quarter was 100 basis points lower than the rate paid in the 2015 second quarter.
The decrease in the cost of purchased transportation was mostly due to the effect lower diesel fuel costs have on revenue and the cost of purchased transportation on freight hauled via truck brokerage carriers and more readily available capacity. Commissions to agents as a percentage of revenue were 30 basis points higher in the 2016 quarter as compared to 2015 due to an increased net revenue margin, revenue less the cost of purchased transportation, on loads hauled by truck brokerage carriers. Other operating costs were $6.6 million in the 2016 second quarter compared to $8 million in 2015. This decrease was primarily due to increased gains on the sale of used trailing equipment and decreased trailer rental costs.
The company has increased its company-controlled trailer fleet to 10,985 trailers, an 11% increase over prior year, as the number of BCOs hauling Landstar trailer equipment has increased with the increased demand for drop and hook services. Insurance and claims costs were $16.1 million in the 2016 second quarter, compared to $12.3 million in 2015. Total insurance and claims costs for the 2016 quarter were 4.3% of BCO revenue, compared to 3.1% in 2015. The increase in insurance and claims compared to the 2015 period was due to increased severity of commercial trucking accidents in the 2016 second quarter as compared to the 2015 quarter.
Selling, general, and administrative costs were $36.9 million in the 2016 second quarter, compared to $37.7 million in 2015. The decrease in SG&A costs was primarily attributable to reduced incentive compensation expense and a lower provision for customer bad debt, partially offset by the effect of the timing of the company's annual agent convention, which was held in the first quarter of 2015, but in the second quarter of 2016. SG&A expense as a percent of gross profit increased from 28.9% in the prior year to 30.5% in 2016.
Included in SG&A costs are costs of $1.3 million in the 2016 second quarter, and $500,000 in the 2015 second quarter, related to the company's multiyear project that we believe will increase efficiencies, primarily through technology, and improve the processing of transactions from order to delivery at both the agent's office and at Landstar. Depreciation and amortization was $8.7 million in the 2016 second quarter, compared to $7 million in 2015. This increase was due to the increase in the number of company-owned trailers. As it relates to operating leverage, operating income was $53.1 million, or 43.9% of gross profit in the 2016 quarter, versus $66 million or 50.5% of gross profit in 2015.
Operating income in the 2016 quarter was impacted by elevated insurance and claims costs, primarily related to a severe accident that occurred at the end of the second quarter. Operating income decreased 20% year-over-year. The effective income tax rate was 38.1% in 2016 second quarter, compared to 38% in 2015, which are in line with our historical effective income tax rate of 38.2%. Now, looking at our balance sheet, we ended the quarter with cash and short-term investments of $215 million. Cash flow from operations for the 2016 period was $105 million. Cash capital expenditures were $9 million, and the company acquired $18 million in trailing equipment financed under capital leases.
During the 2016 period, we purchased 423,000 shares of Landstar common stock at a total cost of $26 million, and there are currently 1.4 million shares available for purchase under the company's stock purchase program. Back to you, Jim.
James B. Gattoni (President and CEO)
Thanks, Kevin. I expect the current freight environment to continue throughout the third quarter. Although we have experienced a normal seasonal uptick in pricing into the first few weeks of July, I expect revenue per load on loads hauled via truck in the 2016 third quarter to be lower than the 2015 third quarter in a mid-single-digit % range. Excluding the 20,000 loads related to the completed automotive project from the 2015 third quarter, I expect our number of loads hauled via truck in the 2016 third quarter to increase over the prior year third quarter in a low single-digit % range. Based on the continuation of recent revenue trends, I currently anticipate 2016 third quarter revenue to be similar to the revenue in the 2016 second quarter.
In comparing the 2016 third quarter diluted earnings per share guidance with the third quarter of 2015, the 2015 third quarter included approximately $0.07 in diluted earnings per share attributable to the project for the automotive customer. Based on the range of revenue estimate and assuming insurance and claim costs are approximately 3.2% of BCO revenue, we anticipate 2016 third quarter diluted earnings per share to be in a range of $0.79-$0.84. The first half of 2016 experienced a soft operating environment. With that said, however, the model performed well in the current low-growth environment. We continue to add agents and capacity to the network and are well positioned when the market improves. With that, Olive, we will open to questions.
Operator (participant)
Thank you very much, sir. At this time, we will begin the question-and-answer session. If you would like to ask a question, please press star and number one on your touchtone phone. Once again, that is star and number one to ask a question. And to cancel your request, you may press star and number two. Our first question comes from Rob Salmon of Deutsche Bank. Your line is open.
Robert Salmon (Analyst)
Hey, good morning, and thanks for taking the question. Jim, in your prepared remarks, you'd mentioned. Could you just repeat what the new agent revenue contribution was in the second quarter? And, you know, what does the pipeline look like, and what are you guys contemplating as we look out to the third quarter with regard to new agent revenue?
Patrick J. O'Malley (VP and Chief Commercial and Marketing Officer)
Rob, this is Pat. The new agent revenue in the quarter was $31 million. And, as we've stated in previous conference calls, we feel very good about the current pipeline of agent prospects, and, I can't give you an estimate on what the revenue will be in the quarter. But, to answer your question, we feel very comfortable about where we're at on the new agent revenue.
Robert Salmon (Analyst)
Got it. And then, and then with regard to the, the capacity side of the equation, could you talk a little bit more about what you're seeing? It sounds like the sequential decline in independent contractors, your, your BCOs were that was entirely related to, just people, basically kind of, moving to the sidelines in the weaker revenue per load environment. But we're also seeing kind of an uptick in, in terms of broker carriers. What, what do those new broker carriers look like who are coming onto the Landstar platform as well?
Patrick J. O'Malley (VP and Chief Commercial and Marketing Officer)
Yeah, Rob, Joe Beacom here. The decline in the BCO count is kind of as we stated, mostly attributable to just the loading environment. We're seeing an increased number of adds, but also an increased number of terminations, and so you saw the slight decline in the quarter. And the carrier count grows as you would think about it, more carriers looking for better loading opportunities.
... coming to Landstar. So that's where you see the carrier count growing and the active carrier count growing, and then the BCO count just slid slightly in the quarter.
L. Kevin Stout (VP and CFO)
Got it. Appreciate the color.
James B. Gattoni (President and CEO)
Yep.
Operator (participant)
Thank you. Our next question comes from Alex Vecchio of Morgan Stanley. Your line is open.
Alexander Vecchio (Analyst)
Hey, Alex. Hey there. Hey, Jim. Good morning. Thanks for taking the questions. I just wanted to follow up again on the BCO count. Jim, I think, you know, on the last quarter call, you mentioned you had expected that to grow your BCOs for the full year in 2016, albeit to a lesser extent relative to 2015. Just considering how, you know, the market backdrop still remaining relatively soft, is that still the right way to think about it? Or maybe at this point, it's fair to think about that BCO count maybe even declining the next few quarters as well. How should we sort of think about that?
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
Hey, Alex, this is Joe. I think, you know, kind of what we said on the environment, it's going to be kind of more of the same. I think you're going to see kind of a flattish look to our BCO count as far out as we can see into the third quarter. There's really nothing that I can point to that would significantly change that at this point.
Alexander Vecchio (Analyst)
Okay. And then just, as a follow-up, on the insurance side, it... You know, the last two quarters, insurance has been a bit higher than, you know, the historical trend. I think it's been roughly, you know, 4, call it 4, 4 and change% of BCO revenues. Is there any—so how, I realize you're guiding to, you know, 3 points, going back to the long-term average and 3.2, but, is there sort of risk to that number? And how should we sort of think about that longer term, just considering kind of some of the trends we've seen, the last two quarters?
James B. Gattoni (President and CEO)
There's always risk to that 3.2%. And the reason we use the 3.2%, because it's over a longer term, because we do believe that over the longer term, we'll hold to that 3.2%. As you know, we're self-insured up to $5 million per occurrence, and unfortunately, this year we've had, you know, two events that we would think that kind of blew up the quarter, each quarter. So I would say that the 3.2% holds, and we'll continue to use that. It's, I wouldn't say this is an unusual, it's just very unpredictable, you know, of when you're going to have a severe accident and the cause of that accident.
And as you know, what we do is when we have an accident, we are quick to put up a provision if we find that there's one necessary. So that, that's really, you know, how the, how the quarter, the year, the, the two quarters have worked out. It's, you know, when you, when you're self-insured up to $5 million per occurrence, you have this volatility in that line item. But I don't think the fundamentals of that insurance and claims line has changed much about, about the, the accidents and, and how we handle them. What I will say, though, is, you know, we did just renew our, what we refer to as our policy over our $5 million.
And that environment, that market's getting very tight and very, I wouldn't say very costly, but the increase in the premiums that we're paying there are probably up 15%-20% over prior year. That, you know, will drive that line up a little bit. You know, I'm talking maybe $1 million over the, you know, year-over-year, starting May 1. But from an accident standpoint, as I said, it's highly unpredictable, but I don't think the conditions have changed. I think it's just the fact that we are subject to $5 million per loss, and we just had 2 that, you know, the fact patterns aren't favorable.
Alexander Vecchio (Analyst)
Yeah. No, I realize. Is there anything you can do from your end to kind of reduce the risk of that? I realize, you know, it is unpredictable and accidents happen, but is there any sort of company-specific initiative that you can take to kind of reduce that risk of the accidents over the next, or, you know, few quarters, or is it kind of just at the whim of the market?
James B. Gattoni (President and CEO)
Well, I think we have some of the strongest safety programs in the industry. I mean, we've been running Safety Thursday calls to remind everybody about safety, and we actually have one today, since 1993, right? We, you know, and we do all sorts of programs. We, I don't know how many Landstar Safety Officer meetings we have every year, but there's, it seems like they're almost every week. You know, where BCOs participate, and we're constantly pushing that safety message. But as you said, accidents are accidents. Sometimes, you know, they're unavoidable, and even those can kind of flip on us. But we do everything we can to be safe.
But, you know, we pride ourselves on being a safety-first company, and we do have a rather large safety department to make sure that we are safe. So we are constantly working on programs to avoid the situations that we get into, but again, like, they're unpredictable.
Alexander Vecchio (Analyst)
Got it. Makes sense. Okay, thanks very much for the time.
James B. Gattoni (President and CEO)
Yep.
Operator (participant)
Thank you. Our next question comes from Jack Atkins of Stephens. Your line is open.
Jack Atkins (Analyst)
Hey, guys. Good morning. Thank you for the time.
James B. Gattoni (President and CEO)
Hey.
Jack Atkins (Analyst)
So, you know, Jim, I guess first off, you know, when you think about, and I guess, you know, Kevin, maybe this is a question for you as well, but, you know, the decreased comp, incentive comp accruals in the second quarter, can you maybe walk us through what those would have looked like on a more normalized basis as we kind of think about how the comps go into next year, I guess? We're just trying to normalize that out as we look forward for the insurance issues.
L. Kevin Stout (VP and CFO)
Hey, Jack, this is Kevin. If you're modeling the incentive comp, the best way to look at it is about $2 million per quarter. If we hit right on our targets, it's going to be about $8 million for the full year. So that's how I would model that.
Jack Atkins (Analyst)
Oh, okay, gotcha. So it's, so it's $8 million a year, $2 million a quarter, roughly. And so for the last two quarters, you've accrued essentially zero. Is that the right way to think about it?
L. Kevin Stout (VP and CFO)
Close to that, right. We have some programs that pay out that aren't based on the, you know, the EPS and the operating income. But, yeah, basically, it's close to zero.
Jack Atkins (Analyst)
Okay. Okay, great. And then-
L. Kevin Stout (VP and CFO)
We aren't expecting anything in the third quarter either, so.
Jack Atkins (Analyst)
Okay. Okay, that's helpful. And then, last, just as a follow-up, you know, when we think about, you know, demand for wind, wind power, products, I know that in the past, that's been a decent source of, you know, incremental business for you guys at times. I think we're seeing some orders being placed here and there for some larger wind power projects.
... Could you maybe give us an outlook for, you know, how you see that portion of the business trending over the course of the next several quarters? Do you see some opportunities there that could provide a little, you know, a boost on that piece of the business?
Patrick J. O'Malley (VP and Chief Commercial and Marketing Officer)
Jack, this is Pat, and you know, given the site preparation and the complexity of these moves, we generally have a fairly good line of sight into the traffic opportunities in that segment, and we don't see any really big modifications to what we've experienced so far this year.
Jack Atkins (Analyst)
Okay. Okay, Pat. Thanks, thanks very much for the time.
Patrick J. O'Malley (VP and Chief Commercial and Marketing Officer)
You're welcome.
Operator (participant)
Thank you. Our next question comes from Jason Seidel of Cowen. Your line is open.
Matt Frankel (Analyst)
Hey, good morning, guys. It's actually Matt Frankel on for Jason.
James B. Gattoni (President and CEO)
Hey, Matt.
Matt Frankel (Analyst)
Hey, a couple questions for you. One, just bigger picture, if I'm not mistaken, I believe the IT project is well underway at this point in terms of, or just the beginning of the rollout, should have started or is about to start. I was wondering if you can just give an update on that project. I know it's going to be a big part of recruiting, and hopefully, you know, will be, you know, operational to help you guys improve over the long term. But if you can comment on that, I'd appreciate it.
James B. Gattoni (President and CEO)
Yeah, we're kind of moving along on it. We have one agent on it right now, and we are still working on integrations between the new system and our core systems. We're hoping we complete all those integrations by the end of the year and start launch next year. We are probably a couple months behind schedule, but it is moving along nicely, as a matter of fact, and I think we're getting a lot of favorable inputs from some of our focus group agents. So we're still looking forward to a launch. It's just, you know, it's looking now probably beginning of the year. One of the things we do is we generally don't launch new technologies in the fourth quarter from an internal control perspective.
So if we don't launch it prior to the end of September, and we don't think we're going to hit that, you know, we're going to have to launch it sometime, you know, January.
Matt Frankel (Analyst)
Okay. And what's your expectation on the pace of that rollout?
James B. Gattoni (President and CEO)
It'll be rather slow, because as you know, we're very decentralized, and every independent agent we have out there kind of does their own, you know, they work and use their own methods to dispatch, take orders, and then dispatch trucks. So, you know, it's at the beginning, it's going to be pretty slow as we roll out two or three agents at a time, and as we build momentum, then we can take more on. But it's going to be a slow, progressive, a slow process. And the rollout, I'm gonna, I would guess, is going to take two to three years to get to hit every agent.
Matt Frankel (Analyst)
Understood. Thanks, guys. And one last thing here, just trying to get a better understanding of the capacity in the marketplace. You guys have been talking about a bit of oversupply in the flatbed market for some time now. Some of that may be due to some guys coming from the energy, the oil fields into driving now. I'm curious, with fuel prices picking up, we've heard of some oil projects or nat gas, specifically projects, having picked up recently, with what pricing has done in that market. Can you talk about your expectation for capacity over the next, call, you know, six months or so?
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
Matt, this is Joe. I'm not aware of any natural gas-related projects that we're aware of that are on the horizon for us that are going to move the needle in the flat platform capacity area.
Matt Frankel (Analyst)
Well, I didn't mean you specifically.
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
Oh.
Matt Frankel (Analyst)
I just mean broader in the marketplace in terms of drivers potentially going back into the oil fields, going back into that work, you know, potentially, you know, having capacity squeeze a little bit from where it is today.
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
If it's happening, we haven't been able to detect it. I hope you're right, but at this point, the softness there continues.
Matt Frankel (Analyst)
Okay. Thanks, Joe.
Operator (participant)
Thank you. Our next question comes from Scott Schneeberger of Oppenheimer. Your line is open.
Scott Schneeberger (Analyst)
Hi, guys. It's Daniel in for Scott. Could you guys discuss how flatbed trended month-by-month, excluding the auto contract year-over-year in the quarter? What the expectations are for the back half, as well as if you can discuss how your conversations are going with your industrial customers, and kind of get us a feel for the outlook as we look out a couple of quarters.
L. Kevin Stout (VP and CFO)
I can give you this is Kevin. I can give you the month-to-month changes without the automotive contract from last year. The volumes were positive 2%, flat in May, and then positive 3% in June. Daniel, this is Pat. We really haven't had much change from the industrial base in terms of their expectations for the third quarter. As Jim said, we think it's going to be kind of like seasonally consistent, and to quote Joe, "More of the same.
Scott Schneeberger (Analyst)
Thanks, guys.
Operator (participant)
Thank you. Our next question comes from Matt Brookelier of Longbow Research. Your line is open.
Matthew Brookelier (Analyst)
Hey, thanks. Good morning. First question, the decline in truck brokerage volume during second quarter, can you provide a little bit more color in terms of what drove that? Was it just a function of a weaker market? Was there potentially any customer losses, sales agent losses? Just trying to get a sense for the step down.
James B. Gattoni (President and CEO)
Overall, probably about 50% of that automotive project was on brokers. All right, so you're talking 6,000 or 7,000 loads there, and it's really just the environment. I mean, what tends to happen is, you see more stability in the BCO loadings. As we have 9,500 BCOs, they're generally going to haul 1.8 loads per week, regardless of the environment. And then if it's soft, what you see is you see a little softness on the broker truck side.
Matthew Brookelier (Analyst)
Okay. So outside of a softer environment and just the comp from a year ago, was-
James B. Gattoni (President and CEO)
The only specific, yeah, the only specific is that I know of is that automotive project. Other than that, it's no specific industry, no specific customer. It's just the general softness in the little bit of the demand that's out there.
Matthew Brookelier (Analyst)
Is it a similar breakout in terms of the percentage of auto volume in the upcoming quarter, i.e., like, 50% of that was with truck brokers, and 50% of it was with your BCOs, roughly?
James B. Gattoni (President and CEO)
I think brokerage was less. Brokerage actually slowed down a little bit as a percent, but it's not, you know, maybe it might have dropped to 40%-45% in the back half, but it's, it's still, you know. It's close to half.It's close to half.
Matthew Brookelier (Analyst)
So I guess my question, I was trying to clarify the amount of loads that you hauled for auto, that auto contract last year, how much of that was with BCOs, and how much of that was with truck brokers?
James B. Gattoni (President and CEO)
Yeah, it was about 45%. It was still close to about half.
Matthew Brookelier (Analyst)
Okay. Then can you talk to, you, you mentioned that your truck brokerage net revenue margin expanded by 60 basis points during 2Q. Do you have the month-by-month breakout on that?
James B. Gattoni (President and CEO)
I do not. Yeah, we don't. If you call me, I can get. I just don't have them right at my fingertips.
Matthew Brookelier (Analyst)
Okay, I can follow up. Thank you.
James B. Gattoni (President and CEO)
Yeah.
Operator (participant)
Thank you. Our next question comes from Todd Fowler of KeyBanc Capital Markets. Your line is open.
Todd Fowler (Analyst)
Great. Thanks. Good morning. Jim, just to, Jim, with the third quarter guidance, you know, expecting revenue to be somewhat similar, you know, when I try and normalize for the insurance, but also thinking about the agent convention costs in the second quarter, not recurring in the third quarter, it feels like maybe that there's something else, you know, on the cost side or something sequentially into the third quarter, that the earnings guidance should be a little bit higher. Is it something with equipment gains, or is there something else in the third quarter from the cost side that's coming in as to why the EPS guidance wouldn't be a little bit higher given the insurance and the agent costs in the second quarter?
James B. Gattoni (President and CEO)
Well, we have the agent convention in the second quarter, but we do a BCO All-Star event in the third quarter. So from an SG&A standpoint, they're relative. But look, the agent's a little more money than the BCO event, but because there's more people there, but it's, you know, those kind of wash. So that on an SG&A standpoint, you're looking at similar.
Todd Fowler (Analyst)
Okay, that helps. And then on the brokerage gross margins, you know, your comments about expecting brokerage gross margins in the third quarter to be, to show a similar sort of year-over-year increase, that 60 basis points as what you saw in the second quarter. You know, help me think about, you know, if the spot market's a little bit more seasonal than what we saw in the second quarter, at least that's your expectation for the third quarter. How do you maintain those gross margins or that gross margin expansion with what you saw in the second quarter? Just how does that kind of work with a more seasonal spot market into the third quarter?
James B. Gattoni (President and CEO)
Well, I think you just look at the comps, right? Since I think what we're saying is seasonally, the gross profit expansion, we expect the third quarter to look like the second quarter. So, it's really if there's a seasonal... I don't think we saw anything unusual seasonally in last year's third quarter when it comes to the PT rates, and I think we're just going to be consistent with that as we flow into this third quarter. So seasonally, I thought the PT rates looked, you know, consistent with where we were last year in the second quarter. Third quarter, I expect to be similar this year.
It was, what really drove it last year was, you know, your revenue per load is, is really where the seasonal unusual stuff was from last year, not necessarily in what the rates were paying the capacity.
Todd Fowler (Analyst)
Got it. Okay, that helps. So that just kind of fits into your, your view that the, you know, the, the second half looks a little bit like the first half, no big change in kind of the capacity environment and, and, you know, getting back to kind of more of a normal environment just from the trend standpoint, month over month or, or sequentially into the third quarter.
James B. Gattoni (President and CEO)
Yes, that would be true.
Todd Fowler (Analyst)
Okay. Thanks a lot for the time this morning.
James B. Gattoni (President and CEO)
Yeah.
Operator (participant)
Thank you. Our next question comes from Kelly Dougherty of Macquarie. Your line is open.
Kelly Dougherty (Analyst)
Good morning, guys. I got a bit of a strategic question for you. Just wondering if there's any way or any plans to maybe pivot the business more towards e-commerce, which is, you know, obviously a brighter spot in the economy, and it just reduced the outright industrial exposure a bit. I don't know if growing the drop and hook business help you to do that, or if there's some reason that's just not a focus for Landstar, I don't know, maybe from a length of haul perspective or something like that.
James B. Gattoni (President and CEO)
Well, we don't, you know, e-commerce in my brain is a lot of small package type stuff, business to consumer, or maybe some business to business, but where we play in that market is as people open more and more warehousing and distribution centers, you know, we refer to it as substitute line haul, right? So as they're filling truckloads of this B2C or this B2B in a small package, you know, we do a lot of that for some of the large carriers, you know, some of the large LTL carriers or some of those. So we play in that relatively well, where we refer to as substitute line haul. We haul the truckload, and we step in, especially during peak, is where we jump in.
But we also provide some of that services during throughout the year with some of those e-commerce type customers, whether it be, you know, the... Well, you know who they are, so I don't get it. But it is a pretty good niche for us, actually.
Kelly Dougherty (Analyst)
Okay, but maybe not e-commerce specifically, but just any, any plans to kind of try to shift, I don't know if you can do it through hiring different agents or kind of incenting them a, a different way or pushing them to, to kind of shift away from the industrial exposure a bit? Or I guess, do you feel that, hey, look, we've been through a pretty rough patch from an industrial perspective, and, you know, hopefully, it should get better soon, so, you know, we're in a, we're in a spot for when the economy starts to improve?
James B. Gattoni (President and CEO)
We're constantly looking for opportunities, whether it be the last mile or e-commerce or stuff like that. But at this point, I, you know, as we're looking, we don't see opportunities for us to jump in at this point. We do, we do a little bit of all of it, right? But most of it, we are, you know, moving us off of that 80%-90% reliance on industrial base, that, you know, that through the agent model, we haven't had an opportunity to jump in there, but we're constantly keeping an eye on it. We're, you know, but am I looking at something that relates specifically to e-commerce at this point? No.
Kelly Dougherty (Analyst)
Okay, great. Fair enough. And then just a quick one on CapEx. So it looks like, you know, it was up pretty meaningfully from the, the first quarter to the second quarter and also versus the first half last year. I assume that's the, the trailer investment, and maybe you can help us just think about,... what your CapEx plans are for the year, how that rolls into depreciation, and then how you kind of decide between cap- cash CapEx, and then what you do through the leases?
James B. Gattoni (President and CEO)
Yeah. We basically finance all our trailer purchases through capital leases, and that actually doesn't show up in your cash CapEx from an accounting standpoint. So when you look at our cash flow, that $18 million Kevin referred to in trailer acquisitions this year, actually won't show up in the cash flow. What's in the cash flow this year is we are building a facility in Laredo, Texas, for to improve our cross-border Mexican business and business operations, where for the first time in we have a little cross-dock operation down there now, but it can handle about 1 truck at a time. We're building a Laredo facility that's got 30 doors, and that should be ready by the end of December. That's what's in the cash CapEx, the land purchase in the beginning of that project.
We're expecting, you know, $20 million-$25 million for that project this year to hit our cash flow. But going forward, you know, that's our significant cash outflow, that and IT equipment. And, Kevin, do you know how many more capital leases we're going to add this year?
L. Kevin Stout (VP and CFO)
Uh-
James B. Gattoni (President and CEO)
Thirty million?
L. Kevin Stout (VP and CFO)
Thirty.
James B. Gattoni (President and CEO)
Yeah, I would guess that we're trying to add about another $30 million of capital leases this year, in addition to the $18 million for trailer equipment. You know, there's a little bit of backorder and waiting on trailers to come in, so I'm not sure we're going to hit that.
Kelly Dougherty (Analyst)
Okay, great. So then the CapEx should kind of go back to a more normal level, the cash CapEx-
James B. Gattoni (President and CEO)
Next year.
Kelly Dougherty (Analyst)
more normal level next year. Okay, great.
L. Kevin Stout (VP and CFO)
Yeah, that's-
Kelly Dougherty (Analyst)
Thanks very much.
L. Kevin Stout (VP and CFO)
Kelly, that's about $5 million-$6.7 million annually.
Kelly Dougherty (Analyst)
Yeah, that's kind of what I was thinking, and then all of a sudden, it was nine. I just wanted to make sure we were thinking about it correctly.
James B. Gattoni (President and CEO)
Mm-hmm. Yes.
Kelly Dougherty (Analyst)
Thanks, guys.
Operator (participant)
Thank you. Our next question comes from Scott Group of Wolfe Research. Your line is open.
Scott Group (Analyst)
Hey, thanks. Morning, guys. So I think I heard the monthly flatbed volumes. I don't think I heard dry van. Can you give those? And just, while we're just talking about volume, Jim, you seem to be saying that a lot of this is just normal kind of seasonality pick up in June. Why do you think this is just seasonality and not more of a true inflection?
James B. Gattoni (President and CEO)
Because I don't want to commit to saying it's more than that in the short period of time we're dealing with, honestly. I mean, that's a fact of it. And what we're seeing – when I see it. When I say it's normal seasonality, because I have about 10 years of data that I look at based on our trends, and the growth rate from May to June or June to July is, excluding last year, which was an anomaly, is consistent with what I've seen, right? So it's not – I, for example, if revenue per load from June to July historically went up 2%, and I'm looking at 4%, I'd say, "Hey, there's some industry stuff in there. The fundamentals are getting better.But that's not what I'm seeing.
I'm seeing the normal seasonality.
Scott Group (Analyst)
Okay. And then do you have, do you have the monthly dry van volumes?
L. Kevin Stout (VP and CFO)
Yes. Those were from April to June, +1, -1, +1.
Scott Group (Analyst)
July is?
L. Kevin Stout (VP and CFO)
It's running in the low single digits.
Scott Group (Analyst)
Up or down?
L. Kevin Stout (VP and CFO)
Up.
Scott Group (Analyst)
Okay. The IT rollout, what's the... I think you had been saying 5-10, $0.05-$0.10. What's the number now that you're seeing for this year, and you have a view on next year?
James B. Gattoni (President and CEO)
I'm expecting it to be more the $0.10, and I would, at this point, although we haven't prepared our 2017 plan yet, I would expect at this point that it's going to be similar to that higher end of the $0.10.
Scott Group (Analyst)
Okay. And then just last quick question: Are you hearing anything from the agents where they're telling you customers want more truckers, want more of the trucks to have ELDs now, or anything from the customer that says that they care about ELDs yet?
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
Scott, this is Joe. No, to this, to that question, we really haven't heard much from our customer base that they're, that interested or requiring it or mandating it or, or anything like that. To this point, I think, you know, we try to get ahead of it and, you know, tell them about the rule and when it's effective and, and how we'll get there, within the BCO fleet. But, to this point, there's really been no pressure from customers to, to meet any artificial, deadline in advance of, December of next year.
Scott Group (Analyst)
Okay. All right. Thank you, guys.
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
Yep.
Operator (participant)
Thank you. Our next question comes from John Larkin of Stifel. Your line is open.
John Larkin (Analyst)
Yes. Good morning, gentlemen. Thanks for taking the question.
James B. Gattoni (President and CEO)
Hey, John.
John Larkin (Analyst)
Had a question on the $18 million of leases, I think, that you entered into, which I guess presumably is for incremental dry van equipment. Is that correct?
James B. Gattoni (President and CEO)
It's mostly replacement, as opposed to incremental. We're getting rid of some '07s and-
L. Kevin Stout (VP and CFO)
'08s
James B. Gattoni (President and CEO)
'08s trailers. But there is some additional, you know, we might be adding about 300-500 this year, but it's mostly just replacing the old, swapping out the old fleet.
John Larkin (Analyst)
Okay.
James B. Gattoni (President and CEO)
Actually, what we're doing, some of those old trailers are heading down to Laredo for the, for some cross-border work.
John Larkin (Analyst)
So the $30 million or so of incremental capital leases will mostly be replacement, maybe $300-$500 incremental. Is that the way to think about it?
James B. Gattoni (President and CEO)
Yeah. The other thing I didn't say, which is what we're also doing, if you look at last year's other operating costs, including a bunch of short-term rentals as we reacted to market conditions, and we didn't have the assets. So there's a little bit of, you know, short-term rental costs coming down. So we are adding some trailers to replace those short-term rentals. And to tell you the truth, John, I don't have the numbers, so that maybe we are adding a little bit more than 500 to replace some of the rentals that we had in the system. But it's not actually growing the fleet, it's shifting it from short-term rentals to owned.
John Larkin (Analyst)
But during the Analyst Day, you talked a lot about how the demand for drop-and-hook style, dry van business was really a growth driver, and I guess I was surprised to see that that only grew, if I read the press release correctly, at about 1% in the second quarter?
James B. Gattoni (President and CEO)
... I think I commented that the demand for our trailers, the revenue there grew 6%.
John Larkin (Analyst)
Oh, okay. So that's growing nicely, and you expect that to continue even though the overall market is soft?
James B. Gattoni (President and CEO)
Yes.
John Larkin (Analyst)
Okay. And then, just on the insurance side, and I know this is kind of a perennial question and really probably one for actuaries more so than we normal humans. But in a world where the cost of insurance is rising, where settlements and severe accidents seem to be rising at a pretty astronomical clip, there seems to be no talk of tort reform or anything like that in the presidential campaign. At what point does it make sense to maybe reconsider the $5 million self-insured retention, to maybe bring that down to create a little less volatility in the earning stream as a result of severe accidents?
James B. Gattoni (President and CEO)
To be honest with you, John, that below the $5 million is getting so expensive, the cost benefit isn't there. Look, it creates so much volatility in our line item. I'm sure the uncertainty in our insurance line creates a little concern for some of the analysts and investors. But from a financial standpoint, over a period of time, we look at it over a period of time, and when we look at it now, to ensure to drop our insurance coverage, so we're, you know, only $1 million exposed, the cost there wouldn't be worth the benefit we'd get from, you know, occasionally have an accident, but over time, you could see that we're better off self-insuring the $5 million, strictly from a financial perspective.
From a volatility perspective, clearly, we'd be better off, insuring up to the first, over the first $1 million, but I, I think economically and financially, that doesn't make sense. And, and if we hold to this 3.2%, and we, we kind of get back to a percentage of BCO revenue, then, you know, then that's where we want to be. We've been self-insured to $5 million since 2000 and maybe 1 or 4. I, I forget where we did that.
John Larkin (Analyst)
You can tell from somewhere-
James B. Gattoni (President and CEO)
That volatility, it's built in. That volatility has been built in over the years.
John Larkin (Analyst)
Got it. And then just maybe just a real quick one on the share repurchase activity. It looked like in the first quarter, that the pace was pretty high early in the quarter, then it slowed. But then overall, the pace of share repurchase in the second quarter looked faster than the overall pace in the first quarter, even though the share price was, you know, call it order of magnitude, $10 higher on average. Normally, you would expect, you know, an opportunistic share repurchaser to maybe slow things down as the price recovered. Was there something in there that I was not seeing in the press release that caused you to behave a little differently than we normally might expect you to?
James B. Gattoni (President and CEO)
I think the variance between the first and second quarter is only 70,000 shares. So, you know, you could see that we're clearly behind last year's pace, right? So if you compare to last year, we were pretty, a little bit more aggressive last year. And toward the end of the quarter, we did slow it down, because as you could see, the stock price climbed, and generally, we wait for it to settle into a range, and we were comfortable with where it settled during the first half of the second quarter, and then it kept climbing, so we pulled back. But that, that's kind of how the quarter rolled out. And the price in the second quarter was a little higher than the price in the first quarter.
But again, like I said, we wait for it to settle into range. We were comfortable with the range, and that's where we were.
John Larkin (Analyst)
Got it. Thanks very much for answering the questions.
James B. Gattoni (President and CEO)
Bye, John.
Operator (participant)
Thank you. Our next question comes from Tom Albrecht of BB&T. Your line is open.
James B. Gattoni (President and CEO)
Hey, Tom.
Thomas Albrecht (Analyst)
Hey, guys. I think one of the things that is intriguing to me is the growth in the refrigerated fleet. Could you run through those numbers again, the size of the trailer fleet there and what kind of growth you had?
James B. Gattoni (President and CEO)
Anything we do on refrigerated is mostly brokerage, and I don't think we talked about refrigerated, did we?
Thomas Albrecht (Analyst)
I thought, Kevin gave a refrigerated trailer number.
James B. Gattoni (President and CEO)
No, no, I don't, I don't think so.
Thomas Albrecht (Analyst)
Okay.
L. Kevin Stout (VP and CFO)
That's the total, total trailers, the 11,000. That's our total trailers.
Thomas Albrecht (Analyst)
Right. Right. Okay. I thought you had mentioned within that a growth component of reefer trailers, but I might have misunderstood you. And my second-
James B. Gattoni (President and CEO)
We talked about the drop and hook growth to 6%, which is just-
Thomas Albrecht (Analyst)
Yeah.
James B. Gattoni (President and CEO)
Those are just normal van trailers.
Thomas Albrecht (Analyst)
Right.
James B. Gattoni (President and CEO)
Mostly.
Thomas Albrecht (Analyst)
My second question also relates to, I just want to clarify something that I heard. I think, Jim, you were talking about the revenue per load change from June to July. Initially, I thought I heard that it was down versus the prior 8 years, but then you ended up giving some numbers that the range has been +1.1-4.3%, and you're right in the middle of that. So you're saying that the revenue per load in July has increased from June? Is that correct?
James B. Gattoni (President and CEO)
Yeah, Tom, the down was last year.
Thomas Albrecht (Analyst)
Okay.
James B. Gattoni (President and CEO)
What I think my comment was that the, for the first time in, I go back to probably 2007, we hadn't had a decrease in revenue per load from June to July, and the only time it happened was last year, in 2015. This year, we're seeing that normal up, normal seasonal uptick within that 1.1%-4.3% range from June to July. That, that's what it was. So there was a down, but it was last year, it wasn't this year.
Thomas Albrecht (Analyst)
Okay. I appreciate that. And then, even though the sequential drop in BCO trucks was modest, I think it was about 35 units. I mean, do you get a sense at the corporate headquarters, what happens to those individuals? Do they just park trucks? Are you aware of personal bankruptcy filings? I mean, just any color that you might have, because we're all trying to figure out what's temporarily going to the sidelines versus what might be more of a permanent impact to capacity, not just at your organization, but across the industry.
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
Yeah, Tom, this is Joe. I think it's, it's truly, to the extent that we have visibility into it, it's a mixed bag. I mean, you have some-
BCOs that will retire. You have some that choose to go and lease their truck to somebody to stay closer to home, and get something a little bit more predictable. You have others that they've paid off their truck, they don't have a truck payment, they don't really like the environment right now, so they'll park it for some period of time until, in their view, things improve, and then they'll come back. I mean, it's really a pretty good mix of all of the above. There is no one or two things. It's truly a mixed bag, and it depends on the individual.
Thomas Albrecht (Analyst)
Okay, great. That's all I had. Thank you.
Operator (participant)
Thank you. Our next question comes from Ben Hartford of Robert Baird. Your line is open.
Benjamin Hartford (Analyst)
Hey, good morning, guys. Jim, the margins, as we look into 2017, are you still targeting 50% EBIT margins as a percentage of net revenue ex the workflow project?
James B. Gattoni (President and CEO)
I'm targeting it. Is it getting a little more difficult to hit? Absolutely. And that was the- And again, we put out that 50% target four years ago or three years ago-
Benjamin Hartford (Analyst)
Sure.
James B. Gattoni (President and CEO)
It was before we got into this agent workflow project. So that 50% was before that. But I think with, you know, with the gross profit being downward as this year, and that wasn't anticipated, it is clearly getting difficult. I don't – we haven't prepared our 2016-2017 plan yet, but it's sitting here today, it's gonna be difficult to hit that.
Benjamin Hartford (Analyst)
Right. Understood. And then another question, just about the current environment. I mean, if you guys, your truck data tends to correlate very closely with some of the PMI metrics, specifically the Chicago PMI. And I think what stands out here, what we've seen year to date, is that sequential improvement in the PMI, well above seasonal, but your description of normal seasonal trends through the quarter, which I think is consistent with what we've been hearing across the industry. Any reason why the data now seems not to hold, whereas in the past it might have? In other words, that sequential improvement in some of these PMI readings, above seasonal doesn't appear to be occurring from an underlying demand perspective. I'm just wondering if you have any perspective as to why that may be the case.
James B. Gattoni (President and CEO)
I don't have any perspective on relating that back to that PMI. Again, I think, like what I said, it's been such a, you know, I'm dealing with a 3-to-6-week period where we're seeing that seasonal uptick. And could there be some industry fundamentals in there, improvement in PMI? Yeah, but I think right now I'm sticking with the normal seasonal patterns.
Benjamin Hartford (Analyst)
Sure. Okay, thanks.
Operator (participant)
Thank you. Our next question comes from Matt Young of Morningstar. Your line is open.
Matthew Young (Analyst)
Good morning, guys. Just wanted a quick, quick question on the ELD front. I think last quarter you actually mentioned that you haven't seen much of a difference in the productivity when BCOs add ELDs. Just wondering why you think that might be. Would it be because your BCOs are choosing freight that doesn't run up against the hours of service rules?
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
Yeah, I, Matt, this is Joe. I think, yeah, that we had done a pretty good job, I believe, in monitoring hours of service, even when it was on paper. So, going to the ELDs really didn't change the game for them all that much. And they're typically not pushing up against their hourly limits as a rule. So that's, that's the large, that's the predominant way I would look at it.
Matthew Young (Analyst)
Okay. So overall, you still don't expect any impact in the year ahead when the other BCOs add ELDs?
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
I wouldn't think so, no. I would not think so.
Matthew Young (Analyst)
Okay. And I think you talked about it, but just wanted to clarify if you think that the increased gross profit margin on broker carrier business thus far in the third quarter is more from the lower fuel dynamic or more the benefit of the lower PT rates?
James B. Gattoni (President and CEO)
We believe it's PT.
Matthew Young (Analyst)
Okay. I would guess fuel at this point is probably abating the benefit.
James B. Gattoni (President and CEO)
Yeah, it just creates a lower denominator, right?
Matthew Young (Analyst)
Yeah. Yeah, you get the mathematical increase.
James B. Gattoni (President and CEO)
Yeah.
Joseph J. Beacom (VP and Chief Safety and Operations Officer)
Yeah, Matt, the fuel price of diesel was down about 30% in the first quarter and 20% in the second quarter. We're modeling about 6% in the third quarter.
Matthew Young (Analyst)
Okay, great. All right. Hey, thanks.
Operator (participant)
Thank you. Our next question comes from Alex Vecchio of Morgan Stanley. Your line is open.
Alexander Vecchio (Analyst)
Hey there. Thanks for taking the follow-up. Sorry if I missed it earlier. Jim, did you mention how much you expect the IT cost, expense to be in the third and fourth quarters of this year?
James B. Gattoni (President and CEO)
I did not.
Alexander Vecchio (Analyst)
Do you mind providing us with that?
James B. Gattoni (President and CEO)
Oh, yeah. We're running about... What Kevin is about-
L. Kevin Stout (VP and CFO)
Million five.
James B. Gattoni (President and CEO)
It's about $1.5 million per quarter, and I would think that that's kind of gonna continue.
Alexander Vecchio (Analyst)
Okay, and then how about in 2017?
James B. Gattoni (President and CEO)
Like I said, we haven't prepared our plan yet, but I would kind of stick with that $1.5 million per quarter, and we'll update you later. Well, I'm thinking it's still gonna be about $0.10 next year, but we still have a lot of work to do to figure out, you know, whether that holds. It, you know, so we'll update you. Well, I'll probably have a better idea of that when I get in toward the end of the third quarter.
Alexander Vecchio (Analyst)
Okay, so but $0.10 is what we should, would think about for 2017 as a whole, as the impact?
James B. Gattoni (President and CEO)
At this point, yes, specifically.
Alexander Vecchio (Analyst)
Okay. And, and then just one more clarification. I thought I heard you guys note that July volumes were running up low single digits. A, did I hear that right? And then, B, presumably, that's excluding the impact of the auto contract?
L. Kevin Stout (VP and CFO)
Yes, that's excluding the impact of the auto.
Alexander Vecchio (Analyst)
Okay, got it.
L. Kevin Stout (VP and CFO)
And we guided to Jim's comments that we're gonna be low single digits, so that's-
Alexander Vecchio (Analyst)
Right, for the full quarter, right. Okay, that's all I had. Thanks very much.
Operator (participant)
Thank you. Our last question comes from Todd Fowler of KeyBanc Capital Markets. Your line is open.
James B. Gattoni (President and CEO)
Hey, Todd, you there?
Operator (participant)
Please check your mute button. Your line is open.
Todd Fowler (Analyst)
Hey, Jim, can you hear me?
James B. Gattoni (President and CEO)
Yes.
Todd Fowler (Analyst)
Okay. Sorry about that. Hey, thanks for taking the follow-up. Did you provide, and if you did not provide, could you provide what the amount of equipment gains were here in the second quarter, and what you think that they'll be for the second half of the year?
L. Kevin Stout (VP and CFO)
They were about $1 million in the second quarter, and that's what we've modeled for the third quarter. I haven't done anything on the fourth quarter yet, but it's probably less than $1 million.
James B. Gattoni (President and CEO)
We're feeling a little softness in selling into the market right now. I think that the trailer market is softening up a little bit there.
Todd Fowler (Analyst)
Okay.
James B. Gattoni (President and CEO)
So that's why the fourth quarter is a little unpredictable at this point.
Todd Fowler (Analyst)
But your volumes can be pretty consistent, and then this is the big trailer replacement year, so you wouldn't expect to be selling as much current equipment next year. Is that, is that the right way to think about it as well?
James B. Gattoni (President and CEO)
Yes, that is true.
Todd Fowler (Analyst)
Okay, good. Thanks a lot for the follow-up, guys, and have a good day.
James B. Gattoni (President and CEO)
Yep.
Operator (participant)
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.
James B. Gattoni (President and CEO)
Thank you, Olive. Thank you, and I look forward to speaking with you again on our 2016 third quarter earnings conference call, currently scheduled for October 20th. Have a good day.
Operator (participant)
Thank you for joining the conference call today. Have a good morning. Please disconnect your lines at this time.