C.H. Robinson Worldwide, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited fourth-quarter results. C.H. Robinson is a global third-party logistics provider, with North American Surface Transportation (NAST), Global Forwarding, and Robinson Fresh as its reportable segments.
Financial performance
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenues | $16.63 billion | $14.87 billion | +11.8% |
| Net revenues (non-GAAP) | $2.71 billion | $2.37 billion | +14.2% |
| Income from operations | $912.1 million | $775.1 million | +17.7% |
| Net income | $664.5 million | $504.9 million | +31.6% |
| Diluted EPS | $4.73 | $3.57 | +32.5% |
| Cash from operating activities | $792.9 million | $384.0 million | +106.5% |
| Cash and cash equivalents, year-end | $378.6 million | $333.9 million | +$44.7 million |
| Total debt, year-end | $1.35 billion | $1.47 billion | -$118.6 million |
Operating income was 33.7% of net revenues, compared with 32.7% in 2017; net revenue margin was 16.3%, versus 15.9%. The effective tax rate fell to 24.5% from 30.7%, and management attributed the lower rate primarily to an $83.1 million Tax Act benefit. Working capital was $1.32 billion, compared with $523.5 million. The company had a $1.0 billion revolving facility, with $5 million drawn, and reported compliance with its debt covenants. Cash, together with expected operating cash flow and available credit, was expected by management to cover anticipated needs for at least 12 months.
Fourth quarter: Revenue was $4.14 billion versus $3.96 billion; operating income was $255.5 million versus $210.9 million; net income was $187.2 million versus $152.6 million; and diluted EPS was $1.34 versus $1.08.
Material changes and business drivers
- Transportation net revenues rose 15.5%, led by truckload and LTL pricing; transportation net revenue margin edged up to 16.7% from 16.6%.
- NAST net revenues increased 17.3% and operating income rose 23.2%. Truckload volumes declined about 3%, while customer and carrier rates per mile, excluding estimated fuel effects, rose approximately 21.5% and 21.0%, respectively. LTL volume increased about 6%, but its margin declined as transportation costs outpaced customer pricing.
- Global Forwarding net revenues increased 12.1%, but operating income was nearly flat at $91.6 million. Higher ocean costs pressured margins; the Milgram acquisition contributed to growth.
- Robinson Fresh net revenues rose 3.5% and operating income increased 11.9%, although sourcing net revenues fell 8.9% amid lower revenue per case and lower case volumes.
- Operating expenses rose 12.6%, slower than net revenue growth. Cash from operations improved with higher earnings and better working-capital performance, including collections.
Outlook, risks and unusual items
- The filing gives no specific near-term earnings or revenue forecast. Management’s long-term objective is 10% EPS growth over time, not a promised annual growth rate. Expected 2019 capital expenditures were approximately $80–$90 million.
- The company adopted the new revenue standard in 2018 using the modified retrospective method. Prior periods were not restated. The change altered revenue presentation, including a $120.5 million reduction in sourcing revenue from certain principal-to-agent reclassifications; management reported no impact on operating income for those reclassified contracts. Overall, 2018 reported revenue was $66.9 million lower and operating income $6.9 million higher than it would have been without adoption, according to the filing’s reconciliation.
- Key risks include economic and freight-volume downturns, carrier capacity and cost pressures, competition and pricing, reliance on third-party carriers, customer credit and concentration, foreign exchange, cyber and operational disruption, transportation liability claims, and produce supply, food-safety and recall exposures. A hypothetical 10% U.S. dollar weakening would have reduced 2018 operating income by about $32 million, while a 10% strengthening would have increased it by about $26 million.
- Routine litigation, including contingent auto-liability matters, was not expected to materially affect results; the company could not estimate a range of reasonably possible additional losses. Its automobile liability policy has a $5 million retention per incident. The company reported no material goodwill impairment and effective internal controls; the auditor issued an unqualified opinion.
- John Wiehoff planned to retire as CEO and president at the 2019 annual meeting, with COO Robert Biesterfeld appointed to succeed him, subject to the stated meeting-related effective date.
Important facts for investors to verify
- How much of earnings growth is repeatable, given the lower tax rate and Tax Act benefit, and how margins respond to carrier-cost changes.
- Whether working-capital improvement and higher operating cash flow persist; review receivables, contract assets and collection trends.
- Segment trends, especially declining truckload volume, weaker LTL margin, Global Forwarding profitability and Robinson Fresh sourcing performance.
- The debt profile and variable-rate exposure, including the $250 million receivables securitization facility and LIBOR transition risk.
- The effects of revenue-standard presentation changes when comparing 2018 with prior periods, which were not restated.
- Potential exposure from carrier claims, produce recalls, cyber incidents, foreign currency movements and customer concentration.