C.H. Robinson Worldwide, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. C.H. Robinson is a global third-party logistics provider. Comparisons are with Q1 2019 unless noted.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $3,805.0 million | $3,751.2 million | +1.4% |
| Net revenue | $568.0 million | $678.8 million | -16.3% |
| Income from operations | $109.4 million | $224.6 million | -51.3% |
| Net income | $78.1 million | $161.8 million | -51.7% |
| Diluted EPS | $0.57 | $1.16 | -50.9% |
| Operating cash flow | $58.5 million | $256.9 million | -77.2% |
- Total net revenue margin declined to 14.9% from 18.1%; management reported operating margin of 19.3%, down 1,380 basis points.
- Personnel expense fell 2.9% to $330.2 million, while other selling, general and administrative expense rose 12.4% to $128.3 million, principally due to technology spending and purchased services.
- Effective tax rate was 17.1%, versus 22.0%. Lower share-based payment tax expense and foreign tax impacts contributed to the decrease.
- Cash and cash equivalents were $294.6 million at quarter-end, down from $447.9 million at year-end 2019. Working capital fell to $801.9 million from $1.1 billion.
- Total debt was $1,413.6 million, including $320.9 million classified as current and $1,092.7 million long-term. The company reported compliance with debt covenants. Its $1 billion revolving credit facility had $71 million drawn; the $250 million receivables facility had $249.9 million drawn and expires in December 2020 unless extended.
- Operating cash flow was pressured by lower earnings and working capital changes, particularly an increase in receivables. Investing cash outflow was $238.3 million, including the Prime Distribution acquisition. Financing cash inflow was $37.0 million, including $178 million in net debt borrowings; dividends paid were $69.9 million and share repurchases were $68.6 million.
Material changes and business developments
- Transportation revenue increased 1.1%, but transportation net revenue margin fell to 15.3% from 18.6%, chiefly due to truckload margin compression. Truckload and LTL volumes each grew 7.5% in NAST, while NAST net revenue fell 23.4% and operating income fell 53.4%.
- Global Forwarding revenue declined 1.3%; net revenue increased 0.8%, but operating income declined 15.8%. Ocean and customs volumes weakened; airfreight pricing rose amid supply-chain disruption and reduced commercial-flight capacity.
- On March 2, 2020, the company acquired Prime Distribution Services for $223.1 million in cash. The acquisition added $176.4 million of preliminary goodwill, which is not tax-deductible. Its results were included in NAST from March 1.
- Foreign currency adjustments drove a $32.2 million other comprehensive loss, compared with $5.3 million of other comprehensive income in Q1 2019.
Outlook, risks and contingencies
- The filing provides no numerical earnings or revenue guidance. Management said the duration and financial effects of COVID-19 could not be estimated and could be material. The pandemic was causing uneven demand across sectors and regions, freight-volume declines, and volatile pricing.
- Management described high-single-digit industry freight-volume declines and continued pricing and volume pressure. It warned that further production slowdowns or reduced carrier capacity and higher carrier prices could reduce opportunities and net revenue margins.
- After quarter-end, the company announced cost measures including eliminating non-essential travel, temporary executive and board cash-compensation reductions, suspending the company retirement-plan match for U.S. and Canadian employees, and furloughing approximately 7% of U.S. and Canadian employees. It also temporarily suspended share repurchases.
- Management believed cash, expected operating cash generation, available credit facilities and market credit would cover anticipated working capital, capital expenditure and dividend needs for at least 12 months, assuming no change in its current business plan.
- Risks include COVID-19 and other catastrophic events, economic and freight-market weakness, pricing and carrier-capacity changes, customer credit and collections, acquisition integration, litigation including contingent auto claims, and international, regulatory, cyber-security and LIBOR-transition risks. Routine litigation accruals were not material; additional loss ranges were often not estimable.
Important facts for investors to verify
- How COVID-19 affected demand, pricing, carrier availability and credit collections after March 31, and whether the expected effects became material.
- Whether the sharp decline in net revenue, operating income and operating cash flow continued, and how receivables and credit-loss allowances developed.
- Prime Distribution’s final purchase accounting, integration, and contribution to NAST results.
- Liquidity and debt-facility availability, particularly the receivables securitization facility’s December 2020 maturity, and compliance with applicable covenants.
- Whether the announced cost actions and share-repurchase suspension changed cash needs, margins or capital returns.