C.H. Robinson Worldwide, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; comparisons are with the three months ended March 31, 2015, unless stated otherwise. The company is a global transportation and logistics provider and also sources fresh produce. Financial statements are unaudited. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total revenue | $3,073.9 million | $3,300.9 million | Down 6.9% |
| Net revenue | $563.3 million | $525.1 million | Up 7.3% |
| Operating income | $199.0 million | $181.9 million | Up 9.4% |
| Net income | $119.0 million | $106.5 million | Up 11.7% |
| Diluted earnings per share | $0.83 | $0.73 | Up 13.7% |
| Cash from operating activities | $104.2 million | $100.4 million | Up $3.8 million |
Net revenue is the company’s principal performance measure: total revenue less purchased transportation and related services and sourced-product costs. Transportation net revenue rose 7.9% to $534.1 million, while Sourcing net revenue fell 2.3% to $29.3 million. Net revenue margins were 18.3% overall (15.9% in Q1 2015), 19.7% for Transportation (16.8%), and 8.1% for Sourcing (8.5%). Operating income was 35.3% of net revenue versus 34.6%; net income was 21.1% versus 20.3%.
Balance sheet, liquidity and capital
- At March 31, 2016, cash and cash equivalents were $179.4 million, total assets $3,162.2 million, and working capital $333.7 million. Cash held outside the U.S. was $126.7 million.
- Total debt was $970 million: $470 million outstanding under the revolving credit facility, classified as current, and $500 million of long-term senior notes. The facility provides up to $900 million and expires in December 2019. Its quarter-end rate was approximately 1.4%; the quarter’s weighted-average borrowing rate was approximately 1.5%.
- The company reported compliance with its debt covenants. It said a hypothetical 100-basis-point interest-rate change would not materially affect earnings.
- Investing activities used $18.6 million, including $17.8 million of capital expenditures. Financing activities used $76.6 million, including $63.9 million in dividends and $21.2 million in share repurchases. Cash increased $11.2 million during the quarter.
- Management said available cash, expected operating cash flow, credit-facility availability and market credit were expected to be sufficient for foreseeable working-capital, capital-expenditure and dividend needs.
Material changes and management commentary
- Total revenue declined mainly because lower fuel costs reduced customer transportation rates; increased shipment volumes in most transportation modes partly offset the decline. Purchased transportation costs fell 11.1%.
- Lower transportation costs, including fuel, drove Transportation margin expansion and higher net revenue. North American truckload volume increased 4%; LTL volume increased approximately 10%. Truckload contractual freight grew while transactional freight declined amid readily available capacity and modest demand.
- Transportation net revenue gains included ocean up 16.9%, other logistics services up 21.4%, and truckload up 7.8%. Intermodal net revenue fell 11.9%, and air fell 10.8%.
- Sourcing revenue increased 1.9%, reflecting higher commodity costs and case volumes, but net revenue decreased as product costs rose, partly due to adverse weather.
- Personnel expense increased 8.8%, primarily reflecting a 5.5% average headcount increase and additional payroll-tax expense on delivery of previously vested restricted equity awards. Operating expenses as a share of net revenue improved to 64.7% from 65.4%.
- The effective tax rate decreased to 37.4% from 38.2%. The company’s decision to indefinitely reinvest foreign-subsidiary earnings reduced deferred taxes on undistributed foreign earnings by $1.2 million and lowered the effective rate.
Outlook, risks and other items
The filing provides no specific earnings or revenue guidance. Management described expected capital resources as sufficient for foreseeable needs. Forward-looking statements are subject to risks including economic conditions, demand and pricing, competition, freight capacity and costs, carrier and customer relationships, acquisition integration, litigation and contingent auto liability, international operations, regulation, produce safety, fuel, cybersecurity and other risks identified in the company’s 2015 Form 10-K.
- The company reported routine litigation, including 28 contingent auto-liability cases; accrued amounts were not material, and management did not expect proceedings to materially affect financial position, results or cash flows. It could not estimate reasonably possible additional losses for certain matters.
- No material change in internal control over financial reporting was reported; disclosure controls and procedures were concluded to be effective.
- The company adopted an indefinite-reinvestment assertion for foreign earnings in Q1. It had not determined the effect of newly issued lease and stock-compensation accounting standards.
Important facts for investors to verify
- Whether transportation margin gains from lower fuel and capacity costs are sustainable as freight demand, capacity and pricing change.
- How revenue and net revenue develop across transportation modes, particularly truckload, ocean, intermodal and Sourcing.
- Debt levels, variable-rate exposure, covenant headroom and the availability of the revolving facility.
- The impact of ongoing share repurchases, dividends, employee equity awards and related payroll taxes on cash and per-share results.
- Potential developments in contingent auto-liability and other litigation, as additional-loss estimates were not clear for certain proceedings.