C.H. Robinson Worldwide, Inc. — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019. The filing also provides unaudited fourth-quarter results. C.H. Robinson is a global third-party logistics provider, with North American Surface Transportation (NAST), Global Forwarding, and All Other and Corporate operations. It handled approximately 18 million shipments for more than 119,000 customers in 2019.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenue | $15.310 billion | $16.631 billion | -7.9% |
| Net revenue | $2.586 billion | $2.705 billion | -4.4% |
| Income from operations | $790.0 million | $912.1 million | -13.4% |
| Net income | $577.0 million | $664.5 million | -13.2% |
| Diluted EPS | $4.19 | $4.73 | -11.4% |
| Operating cash flow | $835.4 million | $792.9 million | +5.4% |
| Net revenue margin | 16.9% | 16.3% | +0.6 percentage points |
| Operating margin on net revenue | 30.5% | 33.7% | -3.2 percentage points |
Net revenue is a non-GAAP measure defined as total revenue less purchased transportation and related services and the cost of products sourced for resale. Transportation revenue fell 7.7%; sourcing revenue fell 11.5%. Personnel expense declined 3.4%, while other SG&A rose 10.7% to $497.8 million, mainly due to purchased services, software, and occupancy costs. The effective tax rate was 22.3%, versus 24.5%.
Fourth quarter: Revenue was $3.793 billion versus $4.138 billion a year earlier; operating income was $136.8 million versus $255.5 million; net income was $99.1 million versus $187.2 million; diluted EPS was $0.73 versus $1.34. These reported quarterly figures indicate a substantial year-over-year decline in profitability.
Cash, liquidity, and debt
- Cash and cash equivalents were $447.9 million at year-end, including $405.1 million held outside the United States. Working capital was $1.084 billion, down from $1.320 billion.
- Cash from operations was $835.4 million; capital expenditures were $70.5 million. Operating cash flow less capital expenditures was approximately $765.0 million.
- Total debt carrying value was $1.235 billion, comprising $142.9 million current and $1.092 billion long-term. The $1.0 billion revolving credit facility had no balance outstanding; $142.9 million was drawn under the $250 million receivables securitization facility.
- Cash dividends paid were $277.8 million and common-stock repurchases were $309.4 million. The company reported compliance with, or waivers of, its debt covenants.
Material changes and management commentary
- Management attributed weaker results to a softening freight market, excess carrier capacity, lower prices and volumes, and trade-tariff and macroeconomic uncertainty. North American truckload routing-guide depth averaged 1.2 in 2019, compared with 1.7 in 2018.
- Truckload net revenue declined 7.3% in NAST; intermodal net revenue declined 15.3%. Global Forwarding net revenue declined 1.8%, with lower air and ocean results partly offset by customs growth and the Space Cargo acquisition.
- Pricing and costs moved differently during the year: contractual business initially supported margin expansion as spot carrier costs fell, but margin compression emerged in the second half as spot-cost declines slowed relative to customer contract-price declines.
- Space Cargo, acquired in February 2019, expanded freight-forwarding operations in Spain and Colombia; Dema Service, acquired in May, expanded European road transportation in Italy. Combined acquisition cash outlays were $59.2 million.
- The company reorganized its transportation network in 2019, combining NAST and Robinson Fresh transportation networks under NAST; segment comparisons were reclassified. Adoption of the revenue-recognition standard changed revenue timing and presentation, so some comparisons with 2017 are not directly comparable.
Outlook, risks, and unusual items
- Management’s long-term objective is 10% annual EPS growth over time; this is not presented as an annual forecast. Expected 2020 capital expenditures were approximately $60–70 million.
- In January 2020, the company agreed to acquire Prime Distribution Services for approximately $225 million in cash, subject to customary closing conditions, including regulatory approval. It expected to use cash and existing financing arrangements.
- The filing identified the emerging coronavirus outbreak in China as a potential risk to results, with the impact uncertain as of the filing date. Other key exposures include economic and freight-market cycles, pricing and capacity, reliance on third-party carriers, customer credit, competition, cyber incidents, foreign exchange, regulation, and cargo or produce liability.
- The company recorded $13.9 million of fourth-quarter 2019 tax expense related to foreign withholding taxes after changing its assertion on reinvestment of foreign earnings; tax benefits partly offset the charge. The auditor identified revenue recognition for in-transit shipments as a critical audit matter; $132.9 million of such revenue was recorded at year-end based on management estimates.
- The company adopted lease accounting in 2019, recording $310.9 million of right-of-use assets and $320.7 million of lease liabilities at year-end. The auditor issued unqualified opinions on the financial statements and internal control; management also concluded controls were effective.
- Routine litigation and contingent auto-liability claims were disclosed; accrued amounts were not material, and the company could not estimate reasonably possible additional losses. No material adverse effect was expected based on historical experience.
Important facts for investors to verify
- Whether freight pricing, shipment volumes, and truckload margins stabilized after the second-half 2019 compression.
- How Q4’s pronounced operating-income and EPS declines compare with subsequent results and management’s long-term growth objective.
- Prime Distribution Services’ closing, financing, integration costs, and contribution to earnings and cash flow.
- The performance and cash-generation impact of the 2019 acquisitions and ongoing technology and SG&A investment.
- The implications of the $142.9 million receivables-facility balance, its December 2020 maturity, and foreign-held cash for liquidity and capital allocation.
- Revenue cutoff estimates for in-transit shipments, tax exposures, and any effects from the coronavirus outbreak or other disclosed risks.