C.H. Robinson Worldwide, Inc. — Q3 2010 Form 10-Q
Business context and period. Global multimodal transportation and logistics provider, with produce sourcing and information services. This unaudited report covers the quarter and nine months ended September 30, 2010; comparisons are with the same 2009 periods. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Total revenue | $2,420.4 (+23.8%) | $1,954.8 | $6,949.0 (+24.8%) | $5,568.8 |
| Net revenue | $382.6 (+8.5%) | $352.6 | $1,079.8 (+3.5%) | $1,042.9 |
| Operating income | $166.3 (+7.4%) | $154.8 | $458.8 (+3.8%) | $442.1 |
| Net income | $102.6 (+7.5%) | $95.5 | $283.9 (+3.9%) | $273.1 |
| Diluted EPS | $0.62 | $0.57 | $1.71 | $1.61 |
| Net revenue margin | 15.8% | 18.0% | 15.5% | 18.7% |
| Operating income as % of net revenue | 43.5% | 43.9% | 42.5% | 42.4% |
| Net income as % of net revenue | 26.8% | 27.1% | 26.3% | 26.2% |
Transportation revenue rose 29.6% in Q3, while transportation net revenue grew 8.6%; sourcing revenue was nearly flat, and information services revenue increased 18.7%. For the first nine months, transportation net revenue grew 1.9%, sourcing net revenue 12.8% (primarily including Rosemont), and information services net revenue 21.2%.
Cash flow, liquidity and capital
- Nine-month operating cash flow was $137.1, down from $242.4 in 2009. The $267.9 increase in receivables—attributed to business growth and greater use of the Quick Pay program—was the main working-capital cash drain; accounts payable increased $64.9.
- Investing activities used $9.2, versus $81.5 in 2009. Capital expenditures, including software, were $21.7; net sales and maturities of available-for-sale securities provided $17.5.
- Financing activities used $214.0, including $126.7 in dividends and $110.1 in share repurchases. The quarterly dividend rate rose 4% to $0.25 per share.
- At September 30, cash and cash equivalents were $249.4 and available-for-sale securities were $34.1; working capital was $677.5. Current assets were $1,466.9 and current liabilities $789.5.
- The balance sheet reports no borrowings or debt balance. Management said cash and expected operating cash generation should cover anticipated working capital, capital expenditures and dividends; credit lines were also available if needed.
Changes, outlook and risks
- Revenue growth substantially exceeded net revenue and profit growth as purchased transportation costs rose faster than customer pricing. Management attributed margin compression largely to higher transportation and fuel costs. In Q3 truckload volume increased about 14%; excluding estimated fuel effects, customer pricing rose about 8% while transportation costs rose about 12%.
- Through October 25, Q4 transportation volume growth had slowed slightly versus Q3, while total net revenue per business day had grown in the mid-teens. Management cautioned that this early-quarter trend was not necessarily indicative of full-quarter results.
- The company’s long-term target is 15% compounded annual growth in net revenue, operating income and EPS. Management said Q3 results did not meet that target, citing net revenue margin compression. The filing does not provide formal numerical full-year or Q4 guidance.
- Sourcing net revenue excluding Rosemont fell about 11% in Q3 as a large customer changed its sourcing strategy. Management expected sourcing volumes and net revenue could decline over the next few quarters during the transition.
- Limited intermodal container capacity constrained volume growth; the company entered a two-year lease for 300 containers, approximately 10% of anticipated capacity needs.
- A jury awarded $23.75 million in an Illinois accident case involving the company, a contracted motor carrier and its driver. The company was appealing; it said its 2004 insurance program left it responsible for the first $5.0 million plus post-judgment interest. No liability was recorded because management considered multiple outcomes reasonably possible but none probable.
- Other disclosed risks include uncertain economic recovery and demand, pricing and competition, carrier capacity and costs, acquisition integration, international operations, regulation, litigation and insurance, and produce-industry food safety. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether transportation capacity costs and fuel-related margin pressure persist, and whether pricing catches up.
- Receivables, Quick Pay usage and operating cash flow, given the substantial working-capital outflow.
- The large-customer transition in Sourcing and its effect on upcoming net revenue.
- Developments in the Illinois litigation, potential insurance recovery and any resulting liability.
- Future capital returns, including dividend commitments and share repurchases, relative to cash generation and liquidity.