C.H. Robinson Worldwide, Inc. — Q2 2012 Form 10-Q
Business context and period. Global transportation and logistics provider, with sourcing of fresh produce and fee-based payment services. This unaudited filing covers the three and six months ended June 30, 2012; comparisons are with the corresponding 2011 periods. Amounts below are in millions unless noted.
Financial performance
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Total revenue | $2,955.7 | $2,707.7 | $5,507.8 | $5,073.1 |
| Net revenue | $425.5 | $417.9 | $840.3 | $808.2 |
| Income from operations | $184.9 | $180.1 | $354.5 | $336.8 |
| Net income | $114.6 | $111.0 | $221.1 | $208.1 |
| Diluted EPS | $0.71 | $0.67 | $1.36 | $1.26 |
| Operating income / net revenue | 43.5% | 43.1% | 42.2% | 41.7% |
- Revenue rose 9.2% in Q2 and 8.6% in the first half. Net revenue—the company’s primary performance measure—grew more slowly, up 1.8% and 4.0%, respectively.
- Q2 net revenue by business: transportation $369.0 million, up 0.3%; sourcing $40.2 million, up 15.1%; payment services $16.3 million, up 8.1%. Transportation’s net-revenue margin fell to 14.9% from 16.2%; sourcing’s increased to 8.7% from 8.2%. Overall net-revenue margin was 14.4% versus 15.4%.
- Q2 operating expenses were $240.6 million, up 1.2%; personnel expense declined 1.0%, while other selling, general and administrative expense rose 7.8%. For the first half, total operating expenses rose 3.1%.
- First-half operating cash flow was $110.0 million, versus $78.9 million. Investing activities used $24.8 million and financing activities used $215.9 million; cash declined $133.0 million from year-end to $240.6 million at June 30.
- At June 30, cash was $240.6 million, current assets $1,707.6 million, and current liabilities $949.3 million; reported working capital was $758.3 million. The filing reports no interest-bearing debt balance.
Changes, outlook and risks
- Drivers and margin pressure: Management attributed revenue growth mainly to higher volumes. Transportation net-revenue margin was pressured by higher transportation and capacity costs. Q2 truckload volumes rose approximately 10%, while truck net revenue declined 0.5%; excluding estimated fuel effects, customer pricing rose about 1% and truckload transportation costs about 3%.
- Sourcing and acquisition: Timco Worldwide, acquired in September 2011, was estimated to contribute about 7% of Q2 sourcing net-revenue growth and 5% of first-half growth.
- Capital allocation: First-half repurchases were $105.5 million and cash dividends $109.2 million. The quarterly dividend rate increased to $0.33 per share from $0.29. Management said available cash and expected operating cash flow should cover anticipated working capital, capital expenditures and dividends; credit lines were also available if needed.
- Outlook: No specific near-term earnings or revenue guidance was provided. Management reiterated a long-term target of 15% compounded annual growth in net revenue, operating income and EPS, while cautioning that results may vary above or below that target. Limited branch openings were planned for the remainder of 2012; $3.2 million remained to complete the purchase of intermodal containers in Q3.
- Risks and contingencies: Identified risks include economic and demand changes, pricing and competition, freight capacity and carrier relationships, fuel prices, customer consolidation, acquisitions, international operations, regulation, produce safety and litigation. Routine litigation, including contingent auto-liability matters, was accrued at an amount deemed probable and estimable; management said it did not expect resolution to materially affect results, but could not estimate reasonably possible additional losses.
- Other items: A $0.4 million distribution from a previously impaired investment contributed to higher investment and other income. A prior-year $5.9 million charge related to an Illinois court ruling affected the first-half comparison. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether transportation cost and capacity pressures continue to outpace customer pricing, and how that affects net-revenue margins.
- Whether volume growth converts into net-revenue and earnings growth, especially in truckload and intermodal services.
- Cash conversion and working-capital needs as receivables and payables grow with transaction volumes.
- The sustainability of repurchases and dividends relative to operating cash flow, and the company’s stated long-term growth target versus actual results.
- Any developments in routine litigation, produce-safety exposure, or other risks referenced in the company’s 2011 Form 10-K.