C.H. Robinson Worldwide, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; comparisons are with the three months ended March 31, 2017 unless otherwise stated. C.H. Robinson is a global third-party transportation and logistics provider and produce sourcing business. Its reportable segments are North American Surface Transportation (NAST), Global Forwarding, Robinson Fresh, and All Other and Corporate. Financial statements are unaudited.
Financial performance
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Total revenue | $3.925 billion | $3.415 billion; up 14.9% |
| Net revenue¹ | $625.9 million | $568.6 million; up 10.1% |
| Income from operations | $191.6 million | $188.0 million; up 1.9% |
| Net income | $142.3 million | $122.1 million; up 16.6% |
| Diluted EPS | $1.01 | $0.86 |
| Operating income / net revenue | 30.6% | 33.1% |
| Net income / net revenue | 22.7% | 21.5% |
| Operating cash flow | $200.6 million | $92.7 million |
| Cash dividends declared per share | $0.46 | $0.45 |
Transportation revenue increased 17.3%; sourcing revenue fell 8.1%. Transportation net revenue rose 10.8%, while its net revenue margin declined to 16.4% from 17.3%, as purchased transportation costs, including fuel, grew faster than customer pricing. Sourcing net revenue declined 1.7% to $29.9 million, while its margin increased to 10.4% from 9.7%.
Operating expenses rose 14.1% to $434.3 million and increased to 69.4% of net revenue from 66.9%. Personnel expense rose 13.0%, reflecting 5.7% higher average headcount and increased variable compensation. Other selling, general and administrative expense increased 17.7%; the comparison includes a favorable $8.75 million legal settlement in Q1 2017, while Q1 2018 included higher bad-debt, occupancy, maintenance and depreciation expenses. The effective tax rate declined to 21.3% from 31.7%, supporting net income growth.
By segment, NAST net revenue increased 11.4% to $414.8 million and operating income rose 11.7% to $174.1 million. Global Forwarding net revenue rose 15.5% to $123.0 million, but operating income fell 49.3% to $8.2 million as operating expenses increased. Robinson Fresh net revenue declined 5.2% to $53.9 million and operating income fell 36.5% to $9.3 million. Milgram acquisition contributed to Global Forwarding growth.
¹The company’s non-GAAP measure, defined as total revenue less purchased transportation and related services and sourced-product costs.
Balance sheet, debt and liquidity
- At March 31, 2018, cash and cash equivalents were $349.8 million, total assets $4.308 billion, and working capital $596.6 million. Working capital was $523.5 million at December 31, 2017.
- Total debt was $1.401 billion: $651 million outstanding on the revolving credit facility, $250 million on the receivables securitization facility, and $500 million of senior notes. The revolving facility had $900 million total availability; the securitization facility had a $250 million limit.
- Net cash provided by operating activities was $200.6 million. Investing activities used $16.2 million, including $15.5 million of capital expenditures. Financing activities used $170.7 million, including $65.4 million in dividends and $47.7 million in share repurchases. Cash increased by $15.9 million during the quarter.
- The company reported compliance with its debt covenants at quarter-end. Management stated available cash, expected operating cash flow and borrowing capacity should meet anticipated needs for at least 12 months.
Changes, outlook and notable items
- Revenue accounting adoption: Effective January 1, 2018, the company adopted ASC 606 using the modified retrospective method, recording a $9.2 million cumulative increase to opening retained earnings. Transportation revenue is recognized over the shipment transit period. Certain sourcing contracts shifted from gross to net revenue presentation without affecting operating income. The company reported Q1 revenue $11.4 million lower and operating income $2.7 million higher than under the previous standard; prior-period figures were not restated.
- Management outlook: No specific full-year earnings or revenue guidance is provided in the filing. Management said that the effects of rapidly rising transportation prices—including margin pressure on committed-rate arrangements—were experienced in Q1 and expected to continue for the remainder of 2018.
- Debt after quarter-end: On April 9, 2018, the company issued $600 million of 4.20% senior notes due 2028, receiving $592.5 million net of original issue discount and before issuance expenses. Proceeds were used to pay down the revolving credit facility.
- Risks and contingencies: Key disclosed risks include carrier capacity and pricing, fuel costs, demand and competition, employee retention, technology or cybersecurity disruptions, international operations, and produce supply, food-safety and product-liability exposures. Litigation is described as routine and not expected to have a material effect; the filing notes 12 contingent auto liability cases. Unrecognized tax benefits and related interest and penalties totaled $36.5 million; the company expected that amount to decrease by approximately $1.8 million over the next 12 months.
- Other notable item: The 2017 comparison benefited from an $8.75 million legal settlement. Q1 2018 included a $0.8 million net tax expense from revised estimates of Tax Act transition taxes.
Investor facts to verify
- Whether transportation cost increases and margin compression continue as management expected, particularly in committed truckload arrangements.
- Whether Global Forwarding can convert revenue growth and Milgram-related expansion into improved operating profitability.
- How the $600 million note issuance and revolver repayment affect subsequent debt balances, interest expense and liquidity.
- How much of reported growth and margin movement reflects underlying business trends versus the ASC 606 accounting changes.
- Whether Robinson Fresh’s customer and volume pressures, and the disclosed supplier-advance write-off, persist.