C.H. Robinson Worldwide, Inc. — Q2 2020 Form 10-Q
Business context and reporting period
Global third-party logistics provider; the quarter and six-month period ended June 30, 2020. Results were significantly affected by COVID-19, which drove uneven demand, freight-volume changes, and volatile transportation pricing. The company reports North American Surface Transportation (NAST), Global Forwarding, and All Other and Corporate.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $3,627.8 million | $3,908.8 million | $7,432.9 million | $7,660.1 million |
| Net revenue | $614.5 million | $695.2 million | $1,182.4 million | $1,374.0 million |
| Operating income | $188.8 million | $227.5 million | $298.2 million | $452.1 million |
| Net income | $143.9 million | $169.2 million | $222.1 million | $331.0 million |
| Diluted EPS | $1.06 | $1.22 | $1.64 | $2.39 |
Year over year, Q2 revenue fell 7.2%, net revenue 11.6%, operating income 17.0%, and net income 14.9%. Q2 total net-revenue margin was 16.9%, down from 17.8%; transportation net-revenue margin was 17.5%, down from 18.3%. The company’s stated operating margin, calculated against net revenue, was 30.7%, down 200 basis points. For the first half, total net-revenue margin was 15.9%, down from 17.9%; net income declined 32.9%.
- Cash flow: Six-month cash from operations was $505.6 million, versus $456.5 million. Investing used $242.7 million, including the Prime Distribution acquisition; financing used $343.3 million. Cash declined $85.6 million to $362.2 million.
- Liquidity and debt: Working capital was $930.5 million, down from $1.1 billion at year-end 2019. Debt totaled $1,092.9 million, with no current portion reported. The $1 billion revolving facility and $250 million receivables securitization facility had no borrowings at quarter-end; the securitization facility was due to expire in December 2020 unless extended. The company reported compliance with debt covenants.
- Capital returns: Six-month cash dividends were $137.1 million. The company temporarily suspended share repurchases near the end of Q1; first-half repurchases were $68.6 million.
Material changes and segment results
- NAST: Q2 revenue fell 13.8% and net revenue fell 22.0%; operating income declined 33.2% to $136.8 million. Truckload and LTL margin pressure drove the decrease. Truckload and LTL volumes fell 4.5% and 2.0%, respectively, despite industry freight volumes declining about 21%.
- Global Forwarding: Q2 revenue rose 19.5%, net revenue 14.8%, and operating income to $58.8 million from $26.6 million. Higher airfreight pricing and margins more than offset a 35.5% decline in air volumes; ocean volumes declined 8.5%.
- All Other and Corporate: Q2 net revenue increased 7.6% to $71.9 million, while the segment reported a $6.8 million operating loss. Managed Services and Other Surface Transportation net revenue grew; Robinson Fresh net revenue declined.
- Acquisition: Acquired Prime Distribution Services on March 2 for $222.7 million in cash, adding retail consolidation and warehouse capabilities. The acquisition added $176.7 million of goodwill, which is not tax deductible.
Outlook, commentary, risks, and unusual items
Management gave no quantified full-year earnings or revenue guidance and said it could not estimate COVID-19’s impact for the remainder of 2020. It warned that effects could be material, depending on outbreak severity and duration, demand, carrier capacity, and pricing. Management expects available cash, operating cash flow, and credit access to cover anticipated working capital, capital expenditures, and dividends for at least 12 months. It said it expected to resume opportunistic share repurchases in Q4 2020.
- Cost actions included travel restrictions, executive and board cash-retainer reductions, suspension of the U.S. and Canadian retirement-plan match, reduced work hours, and furloughing about 7% of U.S. and Canadian employees. Subsequent position eliminations were expected to result in approximately $4.5 million of severance in Q3.
- An $11.5 million loss on the sale-leaseback of a company-owned data center partly offset SG&A savings in Q2. The lower Q2 effective tax rate of 19.4% (versus 23.4%) included a 4.5-percentage-point benefit from share-based awards, including a one-time deferred stock award for the former CEO.
- The company increased its receivables credit-loss provision under the new expected-loss accounting standard; adoption had no material reported overall impact. Management considered COVID-19 in its credit-loss estimate. Goodwill impairment indicators were assessed, and no additional impairment test was required at June 30.
- Routine litigation, including contingent auto-liability cases, was not expected to have a material effect; reasonably possible additional losses could not be estimated. The filing identifies COVID-19, freight demand and pricing, carrier capacity, customer credit, acquisitions, cybersecurity, and international operations among relevant risks.
Important facts for investors to verify
- Whether truckload and LTL margins recover as freight demand and carrier pricing change.
- How COVID-19 affects freight volumes, customer collections, credit-loss allowances, and full-year results.
- Whether the receivables securitization facility is extended or replaced before its December 2020 maturity.
- Prime Distribution integration, expected contribution, and the company’s subsequent severance costs.
- Whether share repurchases resumed as anticipated in Q4 and whether the dividend remains supported by cash generation.