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A Dip in Net Revenue Growth Challenges C.H. Robinson Worldwide

By Asit Sharma - Apr 26, 2016 at 10:45PM

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The global third-party logistics provider posts positive "net" revenue in Q1 2016 versus the prior year, but at a pace that suggests top-line growth may be taking a breather.

Image source: C.H. Robinson Worldwide.

C.H. Robinson Worldwide's (CHRW 0.34%) first-quarter 2016 earnings, released Tuesday, revealed robust profitability, but also a weaker top line. "Net revenue," which can be thought of as total revenue minus the cost of subcontracted transportation and services, increased 7.3%, offsetting a total revenue decline. As we'll see, this improvement is a bit lackluster. Let's first take a bird's-eye view of the numbers, followed by a more detailed discussion of the quarter. 

C.H. Robinson Worldwide: The raw numbers

MetricQ1 2016 ActualQ1 2015 ActualYear-Over-Year Growth (Decline)
Revenue $3.07 billion $3.30 billion (6.9)%
Net income $118.9 million $106.5 million 11.7%
Diluted earnings per share $0.83 $0.73 13.7%

Data source: C.H. Robinson Worldwide 8K filing, April 26, 2016.

What happened with C.H. Robinson Worldwide this quarter?

  • Total revenue decreased by nearly 7% versus the prior year. Management traced the decline to lower truckload pricing and fuel costs. "Truckload" is the company's largest transportation revenue stream.
  • "Net revenue" (total revenue minus costs to fulfill contracted shipment services) increased by 7.3%. Net revenue margin -- that is, net revenue divided by total revenue -- increased to 19.7%.
  • However, the rate of net revenue growth slowed this quarter when compared to previous sequential quarters. In Q3 2015 and Q4 2015, net revenue climbed by 11.6% and 13.7%, respectively. This sequential decline may be an early warning signal that both total and net revenue are weakening.
  • Results among C.H. Robinson's various transportation segments were mixed. Truckload and less-than-truckload, or LTL, which together make up nearly three-quarters of C.H. Robinson's net revenue, both saw healthy volume growth during the quarter, of 4% and 10%, respectively. Ocean (16.9%), customs (4.5%), and "other logistics services" (21.4%) also enjoyed volume gains.
  • However, intermodal volume declined by 13%, and Air volume also weakened, by 10.8%.
  • Sourcing, C.H. Robinson's other major business outside of transportation, expanded by a modest 2%, to $360.2 million in net revenue. 
  • The company was able to successfully control costs during the quarter. C.H. Robinson posted an operating income margin of 6.5%, which resulted in $198.9 million of operating income. This is a roughly 100-basis-point improvement over Q1 2015. 
  • As has been the case in recent quarters, C.H. Robinson generated significant cash flow. Operating cash flow totaled $104.2 million, an extremely efficient result in relation to the net revenue total of $563.3 million. In other words, the logistics provider produced operating cash flow of more than $0.18 to every dollar of net revenue during the first three months of the year. 
  • Shareholder friendly actions included a quarterly dividend payment of $63.9 million, and share repurchases of $46.5 million. Together, these items exceeded previous year dividends and repurchases by $12.8 million, an increase in shareholder-related cash flows of more than 13%.

Looking forward 
In an investor slide presentation issued alongside C.H. Robinson's earnings release, management stated, "The North American truck market continues to have a high level of available capacity."  This supports an observation executives made last quarter that macroeconomic headwinds might crimp the company's ability to favorably raise prices. In fact, excluding fuel impacts, the shipper's average truckload rate per mile charged to North American customers dropped $0.05 in Q1 2016 against the prior year.

Because of tight pricing conditions, the company had also indicated last quarter that it would stay focused on net revenue improvements. So far in 2016, net revenue is still positive (as opposed to declining total revenue). But the sequential drop-off in the rate of net revenue growth may portend more moderate expansion ahead.

On Tuesday, the company disclosed that to date in April, net revenue growth is running at approximately 6%, versus April to date last year. If top-line pressure persists, investors will appreciate all the more C.H. Robinson's ability to keep wringing out significant earnings increases.

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