C.H. Robinson Worldwide, Inc. — Q1 2010 Form 10-Q
Reporting period: Three months ended March 31, 2010; unaudited. C.H. Robinson provides multimodal transportation and logistics services, fresh-produce sourcing, and information services. It generally does not own the transportation equipment used to move customers’ freight.
Financial performance
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Total revenue | $2,074.6 million | $1,688.0 million | +22.9% |
| Net revenue | $332.6 million | $338.6 million | -1.8% |
| Operating income | $136.0 million | $137.4 million | -1.0% |
| Net income | $84.0 million | $85.4 million | -1.6% |
| Diluted EPS | $0.50 | $0.50 | Unchanged |
| Operating margin on net revenue | 40.9% | 40.6% | +0.3 percentage points |
| Net income margin on net revenue | 25.3% | 25.2% | +0.1 percentage points |
Management identifies net revenue—total revenue less purchased transportation and sourced-product costs—as its primary performance measure. Total net revenue margin fell to 16.0% from 20.1%. Transportation net revenue declined 4.3% to $284.9 million, while sourcing net revenue rose 14.3% to $34.9 million and information-services net revenue increased 23.1% to $12.7 million. Transportation net revenue margin dropped to 17.4% from 22.6%; sourcing margin eased to 8.3% from 8.5%.
Personnel expense decreased 4.2% to $146.8 million, partly reflecting average headcount about 4.8% lower year over year. Other selling, general and administrative expense increased 3.8% to $49.8 million. The effective tax rate was 38.4%, compared with 38.1%.
Cash flow, liquidity and capital
- Operating cash flow was $3.9 million, down from $58.7 million. A $119.1 million increase in receivables during the quarter, associated with revenue and transaction-volume growth, was the main working-capital drag.
- Investing cash outflow was $6.5 million, including $4.4 million in capital expenditures. Financing cash outflow was $102.9 million, including $68.2 million of share repurchases and $42.4 million of dividends.
- Cash and cash equivalents were $229.6 million at March 31, 2010, versus $337.3 million at December 31, 2009 and $449.7 million at March 31, 2009. Working capital was $567.4 million; it was $644.5 million at March 31, 2009.
- Cash and investments totaled $283.3 million at March 31, 2010, including $53.6 million of available-for-sale securities. The balance sheet lists $52.7 million of current available-for-sale securities; the filing’s market-risk disclosure includes short- and long-term securities.
- The filing reports no borrowings or debt balance. Total liabilities were $779.1 million, primarily current operating liabilities. Management said cash and expected operating cash generation should cover anticipated working capital, capital expenditures and dividends, and that credit lines could be used if needed.
Material changes and management commentary
- Revenue growth reflected increased transportation volumes, higher fuel prices and acquisitions. Transportation revenue rose 24.3%, but purchased transportation costs increased 32.7%; management cited higher costs, fuel and lower customer pricing as drivers of margin compression.
- Truckload volumes increased approximately 22%, but truck net revenue fell 5.7%. Excluding estimated fuel effects, truckload customer pricing declined approximately 3% and transportation costs rose approximately 3%. Management said strong North American truckload volume growth and margin compression continued into April 2010.
- Acquisitions made in 2009—Walker, ITC, Rosemont and Quality Logistics—were included in the quarter’s results. Management estimated they added less than $0.01 to diluted EPS and did not materially affect results or financial position.
- The company repurchased 1,250,500 shares for approximately $68.2 million in Q1. The quarterly dividend increased 4%, to $0.25 per share from $0.24.
- Management’s long-term growth target is 15% annually for net revenue, operating income and EPS. The company did not meet that target in Q1 2010 and gave no specific near-term financial guidance.
Risks, contingencies and unusual items
- A jury verdict of $23.75 million in an Illinois accident case was under appeal. Under the applicable insurance program, the company could be responsible for the first $5.0 million plus post-judgment interest. Management had not accrued a liability because multiple outcomes were reasonably possible but none was considered probable.
- A contingent acquisition purchase-price liability measured at fair value was $15.46 million at March 31, 2010, up from $14.66 million at year-end; $0.80 million of unrealized losses were included in earnings.
- Unrecognized compensation expense related to previously granted restricted equity was $152.2 million; future expense depends primarily on company performance and other conditions.
- Management identified risks including economic conditions, demand and pricing pressure, freight capacity and carrier relationships, competition, acquisitions, international operations, regulation, fuel, produce safety and litigation. It reported that a hypothetical 100-basis-point interest-rate change would not materially affect earnings; a rate increase could reduce investment fair values.
Most important facts for investors to verify
- Whether transportation pricing and costs continue to compress net revenue margins, particularly in truckload.
- Whether receivables growth and weak quarterly operating cash flow reverse as volumes and collections develop.
- The status and potential financial exposure of the Illinois verdict and appeal.
- The earnings and cash-flow effects of acquisition-related contingent payments, restricted-stock compensation and ongoing repurchases and dividends.
- Whether management’s long-term growth target remains achievable; the filing provides no specific near-term guidance.