Amid somewhat softening demand for freight and transportation services resulting from lukewarm global economic activity, third-party logistics provider C.H. Robinson Worldwide (NASDAQ:CHRW) released third-quarter 2015 earnings on Oct. 27. Let's take a bird's-eye view of the quarter and then delve a bit deeper into the company's results.
C.H. Robinson Worldwide: The raw numbers
|Q3 2015 Actual||Q3 2014 Actual||Year-Over-Year Growth (Decline)|
|Revenue||$3.42 billion||$3.47 billion||(1.4)%|
|Net Income||$139.4 million||$125.0 million||11.6%|
What happened with C.H. Robinson Worldwide this quarter?
- Total revenue decreased by 1.4% this quarter versus the prior year, a moderate slowdown from the 1.2% revenue gain recorded in Q2 2015.
- Total "net revenue," however, a measure of total revenue less subcontracted transportation and services, expanded by 11.6%.
- Net revenue is growing faster than total revenue, in part because of lower fuel prices in 2015 compared with last year.
- Organic net revenue (i.e., net revenue excluding acquisitions) improved 6.5 percentage points during the quarter.
- The diluted earnings-per-share improvement of 13% was driven by both higher net revenue and improved operating efficiency, as the company increased its operating profit margin against the prior year's benchmark by 100 basis points, to 6.8%.
- The January acquisition of online freight broker Freightquote.com continued to burnish results, contributing three percentage points to the nearly 11% gain in "truckload net revenue." At $344.7 million, truckload net revenue is the company's largest revenue line item.
- LTL, or less-than-truckload net revenue, continued to race ahead this year, also primed by the Freightquote acquisition. LTL net revenue jumped 38.6% to $94.2 million. Freightquote business contributed 33 percentage points to this gain.
- Cash flow improved by more than 20%. The company generated $213.2 million in operating cash flow this quarter, versus $176.9 million last year.
What management had to say
In the company's earnings press release, CEO John Wiehoff singled out C.H. Robinson's competitiveness despite slight volume declines within its industry: "We are proud of our results across our global business in the third quarter...We were able to continue to take market share in the third quarter while maintaining discipline and focus on our customer service and efficiency initiatives."
During management's post-earnings conference call with analysts, Wiehoff touched on the importance of expanding C.H. Robinson's sales capability to improve volume growth, and signaled that the company would increase headcount in its sales and customer service teams in 2016. The executive team also plans to increase spending in technology, having earmarked $100 million toward IT investment next year.
Finally, Wiehoff pointed out during the call that the company has made two of its largest acquisitions in its 110-year history within the last three years (in addition to Freightquote, the company purchased freight forwarder Phoenix International in 2012). Management disclosed that it is actively looking for merger and acquisition opportunities, given the current availability of capital and low-interest-rate environment.
Shoring up sales capability to drive up volume and thus net revenue is a sound strategy, but executives' willingness to consider further M&A is quite intriguing. Currently, the company sports a debt-to-equity ratio of 0.9, and a debt-to-total assets ratio of just 0.31, so the balance sheet's certainly capable of supporting additional mergers of reasonable size. Judging by management's comments, shareholders shouldn't be surprised if C.H. Robinson moves on a strategic purchase or two in the near future.