In the fourth quarter of 2017, logistics and transportation provider C.H. Robinson Worldwide (NASDAQ:CHRW) exhibited vigorous top- and bottom-line growth, while delivering significantly better results in the crucial business metric of net revenue. Before delving into details of the company's year-end report released on Tuesday, let's review headline numbers directly below:
The raw numbers
|Metric||Q4 2017||Q4 2016||Year-Over-Year Change|
|Revenue||$3.96 billion||$3.41 billion||16.1%|
|Net income||$152.6 million||$122.3 million||24.7%|
|Diluted earnings per share||$1.08||$0.86||25.6%|
What happened with C.H. Robinson Worldwide this quarter?
Building on progress from the third quarter, the company posted double-digit improvement in both revenue and profit during the final three months of the year, as shown in the table above. For the full 2017 year, C.H. Robinson booked a revenue increase of 13.1%, to $14.9 billion, and a slight drop in net income of 1.7%, to $504.9 million.
For the second quarter in a row, the organization expanded net revenue, which is the difference between total revenue and the costs of outsourced logistics and transportation services. Net revenue increased by 12.5% over the prior year quarter to $631.8 million, marking the highest quarterly increase in this metric in two years.
North American Surface Transport (NAST), the organization's largest segment, turned in both revenue and net revenue gains of approximately 14%, as revenue rose to $2.6 billion, and net revenue hit $415.3 million. The company attributed the top-line showing to pricing power in its truckload business, supported by higher volumes in its less-than-truckload (LTL) service line. NAST operating income also advanced 14%, to $180.6 million.
In C.H. Robinson's second largest segment, Global Forwarding, revenue jumped 24% to $591.2 million, and net revenue climbed 12% to $127.9 million. Global Forwarding reported net revenue growth in each of its three business lines (Ocean, Air, and Customs), which management attributed to healthy volumes.
Operating income in Global Forwarding dropped 32% to $16.8 million, however. Higher personnel costs and increased selling, general, and administrative expenses dragged on the bottom line. Of a 19% increase in headcount within the segment, 7.5 percentage points resulted from the company's August 2017 acquisition of Canadian customs broker and freight forwarder Milgram & Company.
C.H. Robinson's third major segment, Robinson Fresh, provides for the shipping logistics and global transportation of perishables. Robinson Fresh experienced a tough 2017, posting a net revenue decline of 3.7% and a dip in operating income of nearly 30%. But the fourth quarter of the year was the segment's best showing in several reporting periods. A revenue advance of 12% against the prior year, to $594.6 million, was accompanied by net revenue progress of 4%, to $54.1 million.
Robinson Fresh was also able to eke out nearly flat operating income of $12.9 million in the fourth quarter, due to higher sourcing activity and increased net transportation revenue.
- Taking stock of the entire year, C.H. Robinson fared well despite difficult industry conditions. Contract renewal activity helped the company recover from a weak pricing environment in the first two quarters of 2017. Net revenue trends improved in the back half of the year, and net income could likely have ended slightly positive, but the company increased headcount by 7% during 2017, through acquisitions and hiring. Management has continued to bulk up company resources in advance of expected industry growth, which should pay off as commercial transportation rises in tandem with moderately higher U.S. and global economic expansion.
While both volume and pricing trends picked up for C.H. Robinson in the last six months, shareholders shouldn't leap to the conclusion that the company will enjoy unimpeded growth in 2018. Management reported on Tuesday that net revenue per day in January had increased but a modest 5% over January 2017. In addition, January truckload volumes have actually decreased by 7% year over year in January.
The inference is two-fold. First, pricing strength and efficient outsourcing are holding up net revenue despite a volume decline in the first weeks of 2018. And second, the company might again experience choppy progress this year, so shareholders should be prepared for some ebb and flow of revenue and operating income from quarter to quarter.