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C.H. Robinson Makes the Most Out of a Weak Freight Environment

By Asit Sharma - Jul 31, 2019 at 4:50PM

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The provider of freight, global forwarding, and customs services was also up against a difficult prior-year comparison.

C.H. Robinson Worldwide ( CHRW -0.76% ) managed to generate positive net revenue under unfavorable conditions for third-party logistics (3PL) companies during the second quarter of 2019. Tight capacity in the trucking market this time last year has essentially reversed, and at present, excess capacity is pressuring the volumes of 3PLs with significant trucking freight revenue streams like C.H. Robinson.

Various cargo shipping methods including barges and a plane.

Image source: Getty Images.

As we delve into the quarter below, note that all comparative numbers are presented against those of the prior-year quarter.

C.H. Robinson: The raw numbers

Metric Q2 2019 Q2 2018 Change
Revenue $3.91 billion $4.28 billion (8.6%)
Net income $169.2 million $159.2 million 6.3%
Diluted earnings per share $1.22 $1.13 8%%

Data source: C.H. Robinson Worldwide.

What happened with C.H. Robinson this quarter?

  • The organization faced a tough comparison with the prior-year quarter, in which revenue jumped more than 15% and net revenue (revenue less the cost of outsourced services) rose 17%. While current-quarter revenue declined by roughly 9% year over year, net revenue increased by 3.5% to $695.2 million. Management attributed the net revenue advance to margin improvement in truckload services.
  • In North American Surface Transport (NAST), revenue dropped by 9.2% to $2.9 billion, while net revenue ticked up by 5.8% to $486.4 million. Strength in truckload and less-than-truckload (LTL) net revenues offset a decline in intermodal net revenue.
  • Excluding fuel prices, the average truckload rate per mile that C.H. Robinson charged customers dropped by 11.5% during the quarter. However, the company's average costs per truckload mile decreased by 14.5%.
  • In the global forwarding business, revenue declined by 4.1% to $592.5 million, while net revenue dipped by 1.5% to $142 million. Net revenue in air services fell 12.2%, as softer volume offset margin expansion. Ocean net revenue slipped 1.6% on weaker pricing, while customs net revenue rose 12% due to improved mix.
  • In C.H. Robinson's new "all other and corporate" segment, Robinson Fresh net revenue fell 4.3% to $31.2 million as the company exited certain businesses for strategic reasons. Managed services net revenue was flat at $20 million, and other surface transportation net revenue gained approximately 3% to $15.5 million.
  • Operating margin was nearly flat, increasing by 10 basis points to 32.7%.
  • The company repurchased $110.5 million worth of its shares during the quarter, pushing repurchases in the first half of the year to $186.3 million.

Management's perspective

In C.H. Robinson's earnings release, new CEO Bob Biesterfeld (who took over the reins of the company in May, following the retirement of John Wiehoff) focused on the organization's broader picture when assessing its rather meager quarter:

In the second quarter, we achieved 3.5 percent net revenue growth, solid performance versus the year-ago period where net revenues increased 17 percent. We delivered our fifth consecutive quarter of operating margin expansion and an 8 percent increase in earnings per share. We continued to make improvements in working capital, which combined with increased earnings, allowed us to generate nearly $200 million in cash flow from operations and increase cash returns to our shareholders. We are pleased with our second quarter results in this soft freight environment.

Looking forward

C.H. Robinson doesn't issue quarterly or yearly financial guidance. However, the company does provide an initial reading of current-quarter conditions with each earnings release, via its supplemental investor presentation. From the beginning of July through the release date of July 30, net revenue per day has dropped by 8% against the comparable 2018 period, while truckload net revenue per day has decreased by 6%.

Such performance looks set to be the norm for the next two quarters. In the earnings press release, Biesterfeld forecast a weak freight environment for the remainder of the year. However, Biesterfeld also reiterated the organization's overarching strategic principles for the benefit of potentially antsy shareholders: "Despite the current freight environment, our long-term goals remain unchanged. We remain focused on taking market share, automating core processes while delivering industry-leading quality service to our customers and carriers, and improving operating leverage in our businesses."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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