C.H. Robinson Worldwide, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed March 3, 2014. The company is a global third-party logistics provider, with fresh-produce sourcing and residual payment-services operations. Its 285-branch network handled about 12.7 million shipments for more than 46,000 active customers. The company reports as one operating segment.
Financial performance
| Metric | 2013 | 2012 | Change / context |
|---|---|---|---|
| Total revenue | $12.752 billion | $11.359 billion | Up 12.3% |
| Net revenue | $1.836 billion | $1.718 billion | Up 6.9% |
| Income from operations | $682.7 million | $675.3 million | Up 1.1% |
| Net income | $415.9 million | $593.8 million | Down 30.0% |
| Diluted EPS | $2.65 | $3.67 | 2012 included a large divestiture gain |
| Operating cash flow | $347.8 million | $460.3 million | Down 24.5% |
| Cash and cash equivalents | $162.0 million | $210.0 million | At year-end |
| Working capital | $394.5 million | $440.1 million | At year-end |
| Debt | $875.0 million | $253.6 million | $375 million revolving facility; $500 million senior notes |
Net revenue is management’s primary performance measure: total revenue less purchased transportation and related services and product costs. The total net-revenue margin fell to 14.4% from 15.1%; transportation margin declined to 15.3% from 15.8%. Operating expenses rose 10.7%, faster than net revenue; operating income as a share of net revenue declined to 37.2% from 39.3%. The effective tax rate was 38.2%.
Fourth quarter: 2013 revenue was $3.153 billion, operating income $155.1 million, and net income $93.0 million. Fourth-quarter 2012 net income was $256.4 million, lifted by the T-Chek divestiture gain; quarterly comparability is therefore materially affected by that one-time item.
Material changes and drivers
- Transportation net revenue increased 11.1% to $1.698 billion. Ocean, air, and customs grew substantially, primarily following the 2012 Phoenix acquisition. Truckload net revenue slipped 0.5% despite approximately 10% volume growth, as capacity costs pressured margins.
- Sourcing net revenue declined 7.0% to $127.0 million, primarily because of reduced business with a large customer and lower net revenue per case. Management expected declines with that customer to continue in 2014.
- Payment Services net revenue fell 79.7% to $10.8 million after the 2012 sale of substantially all T-Chek operations. 2012 included a $281.6 million gain on that divestiture; adjusted 2012 net income was $447.0 million versus reported $593.8 million.
- 2013 operating results included acquisition-related expense growth, including higher personnel costs, amortization, occupancy, and travel. Phoenix had a higher operating-expense-to-net-revenue ratio than the company’s historical level.
Liquidity, capital allocation, and outlook
- Operating cash flow was $347.8 million. Investing activities used $28.9 million; capital expenditures were $48.2 million. Management expected 2014 capital expenditures of approximately $40–$50 million.
- Financing activities used $364.9 million, including $757.3 million of share repurchases and $220.3 million of dividends, partly offset by borrowings. The company completed a $500 million accelerated share repurchase arrangement; the remaining settlement was completed in February 2014.
- The $500 million revolving credit facility matures in 2017; $375 million was outstanding at year-end. The $500 million fixed-rate notes mature in 2023, 2028, and 2033, at rates of 3.97%, 4.26%, and 4.60%. The company reported compliance with debt covenants and believed available cash, operating cash generation, facility capacity, and market credit would meet anticipated needs.
- Management’s stated long-term objective is 10% annual earnings-per-share growth; this is an objective, not a specific 2014 forecast. Quarterly dividend declarations remain at the board’s discretion.
Risks, contingencies, and other notable disclosures
- Results are sensitive to freight volumes, competition and pricing, carrier capacity and costs, fuel, customer credit, and the ability to recruit and retain employees. The company relies on independent carriers and has limited control over transportation availability and service execution.
- Other cited risks include cyberattacks or systems disruption, international operations and currency exposure, regulatory changes, catastrophic events, and produce supply, food-safety, recall, and product-liability exposures. Automobile liability claims may exceed insurance; the policy retention was $5 million per incident.
- Routine litigation included 15 contingent automobile-liability cases at year-end. Accrued amounts were not material; the company could not estimate a reasonably possible additional loss range. No material pending or threatened litigation was otherwise reported.
- Contractual obligations totaled $1.465 billion, including $375 million of revolving borrowings, $826.3 million of long-term-note principal and interest obligations, $167.0 million of operating leases, and $97.0 million of purchase obligations. The filing reported no off-balance-sheet arrangements.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Most important facts for investors to verify
- Assess underlying earnings trends using both reported 2013 results and adjusted 2012 results, excluding the T-Chek gain and specified transaction-related charges.
- Track transportation and total net-revenue margins, especially truckload and LTL carrier-cost pass-through, and whether pricing keeps pace with capacity costs.
- Monitor the anticipated continuation of sourcing declines from the large customer and the returns and integration costs of Phoenix and Apreo.
- Review cash conversion, working-capital needs, debt repayment and covenant headroom, and the sustainability of repurchases and dividends.
- Evaluate whether management’s long-term EPS-growth objective is supported by operating performance; the filing provides no specific 2014 earnings guidance.