Despite a revenue decline, C.H. Robinson Worldwide (NASDAQ:CHRW) delivered higher earnings versus the prior-year quarter in its fourth-quarter 2015 results released on Feb. 2. The company benefited from higher "net revenue," a measure of total revenue less subcontracted transportation and services. Below, let's review key numbers and highlights from the company's earnings filing, as well as management's perspective on the quarter.
C.H. Robinson Worldwide: The raw numbers
|Q4 2015 Actual||Q4 2014 Actual||Year-Over-Year Growth (Decline)|
|Revenue||$3.21 billion||$3.36 billion||(4.4)%|
|Net Income||$126.6 million||$112.9 million||12.1%|
|Diluted Earnings Per Share||$0.88||$0.77||14.3%|
What happened with C.H. Robinson Worldwide this quarter?
- Total revenue decreased by 4.4% in Q4 against the prior year. Management attributed the drop-off to the company's lowering of fuel surcharges as the price of oil declined, as well as some pricing pressure caused by weakening demand in the fourth quarter.
- "Net revenue" (total revenue minus costs to fulfill contracted shipment services) expanded by 12.1%. The company cited lower fuel costs, a business mix that reflected more short-haul transportation, and efficiencies from its acquisition of online freight broker Freightquote last year.
- Organic net revenue (i.e., net revenue excluding acquisitions) grew at the healthy rate of 7.3%.
- The write-off of an indemnification asset related to the 2012 acquisition of Phoenix International Freight Services resulted in a one-time $0.02 decrease in earnings per share.
- Truckload net revenue, which typically accounts for about 60% of total company net revenue, increased 13.4% to $338.9 million.
- LTL, or less-than-truckload net revenue, the company's second largest business, increased 41.4% to $89.6 million. Much of this leap -- 32 percentage points -- can be attributed to the Freightquote acquisition. This is the last quarter in which Freightquote will cause such outsized comparisons, as in 2016 the Jan. 2015 acquisition will be "lapped," and its results fully included in comparative numbers.
- As net revenue expands, C.H. Robinson is adding more employees: Total head count increased 14.1% in Q4 2015 versus the prior year. This is a vigorous implied growth rate of 5%, after removing roughly 9 percentage points of personnel additions due to Freightquote.
What management had to say
During the company's conference call with analysts, CEO John Wiehoff discussed what may become a meaningful issue in 2016: pricing weakness due to macroeconomic factors.
When you look through the [earnings presentation slide] deck...you'll see a lot of down arrows on pricing. We talked, in our last call, about softening markets and softening pricing, and I don't think it's any surprise to anyone that, over the last quarter -- pretty much in all of our services -- that demand has been softening and that has resulted in price declines.
... If you look at the last couple years now, of 2014 and 2015, last year, we had some pretty meaningful price increases in all of our services, particularly in the truckload area, and now this year, we are seeing a more typical cycling or turning down of some of those prices.
So far, C.H. Robinson's management has been able to navigate the beginning of what could very well be a cyclical downturn in economic activity. While Wiehoff's comments don't constitute an earnings warning for future quarters, they do add a practical perspective of caution. The domestic as well as global economies are clearly slowing, which directly affects the top-line potential of third-party logistics providers like C.H. Robinson. For now, the company is signalling that it will continue to shoot for net revenue improvements, and increased bottom-line results, despite economic headwinds that may increase this year.