C.H. Robinson Worldwide, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2010; filed August 9, 2010. The company provides multimodal transportation and logistics services, fresh-produce sourcing, and information services. It generally does not own transportation equipment and measures performance primarily by net revenues (revenue less purchased transportation and sourced-product costs).
Financial performance
| Metric | Q2 2010 | Q2 2009 | First half 2010 | First half 2009 |
|---|---|---|---|---|
| Total revenue | $2,454.0 million | $1,926.0 million | $4,528.6 million | $3,614.0 million |
| Net revenue | $364.6 million | $351.7 million | $697.2 million | $690.3 million |
| Operating income | $156.5 million | $149.9 million | $292.5 million | $287.3 million |
| Net income | $97.2 million | $92.3 million | $181.2 million | $177.6 million |
| Diluted EPS | $0.59 | $0.54 | $1.09 | $1.04 |
| Net revenue margin | 14.9% | 18.3% | 15.4% | 19.1% |
Q2 revenue rose 27.4%, but net revenue increased only 3.7%; operating income grew 4.4% and net income 5.4%. For the first half, revenue rose 25.3%, while net revenue increased 1.0%, operating income 1.8%, and net income 2.0%. Operating income was 42.9% of net revenue in Q2 and 41.9% in the first half.
- Q2 transportation net revenue rose 1.2% to $309.9 million, while its margin fell to 15.8% from 20.6%. Truck net revenue declined 2.4%, despite truckload volume growth of approximately 18%.
- Q2 sourcing net revenue rose 19.9% to $40.8 million, primarily reflecting the Rosemont acquisition; excluding Rosemont, it increased approximately 2%. Information Services net revenue rose 22.1% to $14.0 million.
- Higher transportation costs and fuel prices compressed transportation margins. Management said customer pricing increases partly offset the cost increases and characterized fuel costs as largely passing through the business.
Cash flow, balance sheet, and liquidity
- First-half operating cash flow was $9.9 million, down from $86.3 million in 2009, despite net income of $181.2 million. Receivables consumed $271.1 million of cash as revenue and transaction volumes grew; increased use of carrier quick-pay and advance-payment programs also limited the growth in accounts payable.
- Investing cash outflow was $15.5 million; financing cash outflow was $160.6 million, including $84.6 million of dividends and $89.1 million of share repurchases. Cash and cash equivalents fell $171.2 million from year-end to $166.1 million.
- At June 30, cash and cash equivalents were $166.1 million and available-for-sale securities were $49.4 million, for total cash and investments of $215.5 million. Working capital was $618.7 million. Management stated available cash and expected operating cash flow should cover anticipated working capital, capital expenditures, and dividends; it also said credit lines could be accessed if needed.
- Total assets were $1.922 billion and total liabilities $817.0 million. The balance sheet reports no borrowings or debt balance; current liabilities were primarily accounts payable and accrued expenses.
- Quarterly cash dividend increased 4% to $0.25 per share from $0.24. The company repurchased 358,800 shares in Q2 at an average $58.36 per share.
Outlook, risks, and notable items
- No specific near-term earnings or revenue guidance was provided. The company reiterated its long-term target of 15% compounded annual growth in net revenue, operating income, and EPS, while noting it missed that growth goal in Q2 because of margin compression and expects periods both above and below the target.
- Management did not expect to open new branches during the remainder of 2010. Headcount at June 30 was 1.2% above year-end 2009; the company combined two branches with existing branches during Q2.
- Key stated risks include uncertain economic recovery and customer demand; service-pricing pressure; freight demand, capacity availability and costs; carrier and customer relationships; acquisition integration; litigation and insurance coverage; international operations; regulation; and produce-industry food safety and contamination.
- A 2009 jury verdict of $23.75 million related to a 2004 accident remains under appeal. Under the relevant insurance program, the company said it would bear the first $5.0 million plus post-judgment interest. Because multiple outcomes were reasonably possible but none was considered probable, no liability was recorded. The filing says other routine litigation is not expected to have a material adverse effect.
- Acquisitions completed in 2009—ITC, Rosemont, and Quality Logistics—were included in results and were estimated to have contributed less than $0.01 to Q2 diluted EPS. The company had not fully evaluated related internal-control changes.
- Restricted-stock awards had $144.8 million of unrecognized compensation expense at June 30; future expense depends primarily on company performance and other award conditions. A hypothetical 100-basis-point interest-rate change was not expected to materially affect earnings.
Important facts for investors to verify
- Whether transportation pricing and capacity costs improve enough to stabilize net revenue margins, particularly given the sharp year-over-year margin decline.
- Whether receivables and carrier-payment programs continue to constrain operating cash conversion as volumes grow.
- The status and potential financial exposure of the Illinois verdict, including insurance coverage and post-judgment interest.
- The future earnings and cash-flow effects of acquisition integration, restricted-stock compensation, dividends, and share repurchases.
- That reported total revenue growth substantially exceeded net revenue growth, reflecting the pass-through nature of purchased transportation and sourced-product costs.