C. H. Robinson Worldwide, Inc. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. The company is a global transportation and logistics provider, with sourcing and payment-services businesses. Financial statement amounts below are in U.S. dollars; rounded figures are in millions unless otherwise noted.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $2,880.4 | $2,694.9 | $8,388.2 | $7,768.1 |
| Net revenue | $432.7 | $423.1 | $1,272.9 | $1,231.3 |
| Operating income | $187.3 | $184.0 | $541.7 | $520.8 |
| Net income | $116.3 | $114.3 | $337.4 | $322.4 |
| Diluted EPS | $0.72 | $0.70 | $2.08 | $1.95 |
- Q3 revenue grew 6.9%, net revenue 2.3%, operating income 1.8%, and net income 1.7% year over year. For the first nine months, the respective increases were 8.0%, 3.4%, 4.0%, and 4.7%.
- Net revenue margin (net revenue as a percentage of total revenue) fell to 15.0% in Q3 from 15.7%; for nine months it was 15.2% versus 15.9%. Transportation margin declined to 15.6% from 16.4% in Q3 and to 15.8% from 16.6% for nine months, chiefly as transportation and capacity costs rose. Operating income as a percentage of net revenue was 43.3% in Q3 versus 43.5%, and 42.6% for nine months versus 42.3%.
- Q3 transportation revenue rose 7.3%, but transportation net revenue grew only 2.2%; truckload volume increased about 8%, while truckload margin declined. Other logistics services net revenue grew 16.6%. Sourcing net revenue rose 2.0% in Q3 and 4.8% for nine months; the Timco acquisition contributed to growth. Payment Services net revenue increased 4.2% and 6.7%, respectively.
- Cash from operations was $267.2 million for nine months, down from $293.6 million. Investing used $38.7 million, including $38.9 million in capital expenditures and software. Financing used $328.5 million, including $167.1 million for repurchases and $163.3 million for dividends. Cash declined by $100.7 million to $273.0 million.
- At September 30, cash was $273.0 million, working capital was $788.1 million, and total liabilities were $952.4 million. The balance sheet reports no borrowings or debt balance. Receivables were $1,334.6 million; the doubtful-account allowance was $33.3 million.
Changes, outlook, and notable items
- Operating expenses rose 2.6% in Q3 and 2.9% for nine months. Personnel expense grew more slowly than net revenue; headcount was up 5.5% from December 2011. Other SG&A rose, including acquisition/disposition due diligence and travel costs in Q3, and travel and software amortization for the nine-month period.
- Management stated a long-term target of 15% compounded annual growth in net revenue, operating income, and EPS, while cautioning that results may vary. The filing gives no specific near-term earnings or revenue guidance. Management believed available cash, operating cash generation, and credit availability would meet anticipated working-capital, capital-expenditure, and dividend needs.
- After quarter-end, the company sold substantially all T-Chek operations on October 16 for $302.5 million in cash, subject to adjustments, and expected to record an approximately $280 million gain in Q4. T-Chek assets of $72.2 million and related liabilities of $87.3 million were classified as held for sale at September 30. Two ten-year service agreements with the buyer are expected to result in significant future cash outflows; the filing does not quantify them. The transaction was not treated as a discontinued operation.
- The company acquired Apreo Logistics on October 1 for approximately $26.5 million and acquired Phoenix International on November 1 for $635 million, subject to adjustments (90% cash and 10% newly issued stock). It entered into a $500 million unsecured revolver on October 29, with a $500 million accordion feature and a 2017 maturity, partly to finance Phoenix. These are subsequent events, not September 30 balance-sheet debt.
- Risks cited include economic and freight-market changes, pricing and capacity pressures, carrier and customer relationships, acquisition integration, fuel costs, international operations, regulation, produce-related food safety, and litigation. Routine litigation accruals were not material; additional reasonably possible losses could not be estimated, but management did not expect a material effect. Controls were reported effective.
Investor verification points
- Confirm the final T-Chek sale adjustments, Q4 gain, and ongoing cash costs under the EFS agreements.
- Review Phoenix financing, purchase-price adjustments, integration, and the effect of the share consideration; assess Apreo integration as well.
- Track transportation net revenue margins and capacity costs against shipment-volume growth, particularly in truckload and intermodal.
- Assess whether cash generation can sustain dividends, repurchases, capital spending, and acquisition-related obligations; verify revolver usage and terms.
- Monitor receivable quality, ordinary-course claims and litigation, and the risks identified in the company’s 2011 Form 10-K.