C.H. Robinson Worldwide, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparisons are with Q1 2013 unless otherwise noted. C.H. Robinson is a global third-party transportation and logistics provider, with produce sourcing and fee-based payment services. Management emphasizes net revenue (total revenue less direct purchased transportation and product costs) as its primary performance measure.
Financial results
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Total revenue | $3.143 billion | $2.994 billion | +5.0% |
| Net revenue | $457.2 million | $455.7 million | +0.3% |
| Operating income | $157.0 million | $168.7 million | -7.0% |
| Net income | $93.2 million | $103.3 million | -9.8% |
| Diluted EPS | $0.63 | $0.64 | -1.6% |
| Operating cash flow | $14.4 million | $(58.1) million | Improved $72.5 million |
Transportation revenue rose 7.7%, while sourcing revenue fell 13.4% and payment-services revenue fell 5.0%. Net revenue by service line was $427.9 million for transportation (+1.6%), $26.8 million for sourcing (-15.7%), and $2.5 million for payment services (-4.3%). Total net revenue margin declined to 14.5% from 15.2%; transportation margin fell to 15.3% from 16.2%. Operating income as a share of net revenue decreased to 34.3% from 37.0%, and net income margin to 20.4% from 22.7%.
The effective tax rate was 38.2%, versus 37.9%. Investment and other expense was $6.1 million, mainly reflecting interest on notes issued in 2013. The filing reports no distinct adjusted or non-GAAP profit measure.
Balance sheet, cash flow and capital
- Cash and cash equivalents were $142.8 million at March 31, down from $162.0 million at year-end; $66.4 million was held outside the United States. Working capital was $442.6 million, up from $394.5 million.
- Total debt was $910 million: $410 million outstanding on the revolving facility, classified as current, and $500 million of long-term senior notes. The notes carry fixed rates of 3.97%–4.60%; the revolver rate was approximately 1.7% at quarter-end. The company reported compliance with debt covenants. The $500 million revolver has a $500 million accordion feature and expires in October 2017.
- Operating cash flow was positive $14.4 million, compared with cash use of $58.1 million a year earlier. Q1 2013 included $111.8 million of income tax payments, primarily related to the T-Chek divestiture. Q1 2014 receivables used $168.7 million of cash.
- Investing activities used $12.3 million, including $12.6 million of capital expenditures. Financing activities used $21.4 million; the company paid $52.4 million in dividends and had $35 million of net short-term borrowings.
- Cash declined by $19.2 million during the quarter. Management said available cash, expected operating cash flow, credit-facility availability and access to credit should meet anticipated working-capital, capital-expenditure and dividend needs, assuming no change in the business plan.
Material changes and management commentary
- Transportation costs and rates both rose, but truckload transportation costs in North America increased approximately 12% excluding estimated fuel effects, versus approximately 10% growth in customer rates. Management attributed lower truckload margins primarily to higher cost per mile.
- Severe weather constrained North American truck capacity and affected truckload growth, LTL growth and intermodal volumes. Total truckload volume grew approximately 4%; North American truckload volume grew approximately 3%.
- Sourcing declines reflected lower volume and revenue from a large customer. Management expected that customer’s revenue declines to continue throughout 2014; no quantified full-year guidance was provided.
- Operating expenses rose 4.6% to $300.3 million, and increased from 63.0% to 65.7% of net revenue. Personnel expense rose 3.6%, with average headcount up approximately 6%; other SG&A rose 7.5%, including a $4.0 million increase in bad-debt provision associated primarily with two customers whose credit had deteriorated.
- The accelerated share repurchase program was finally settled in February 2014, with approximately 1.2 million additional shares delivered. The company reclassified $75 million from additional paid-in capital to treasury stock. It reported 12.8 million shares remaining under its repurchase authorization at quarter-end; future repurchases depend on cash needs and market conditions.
Risks, contingencies and controls
Management cited economic conditions, service pricing and competition, freight demand, tight truck capacity and carrier costs, customer or carrier relationship changes, acquisition integration, international operations, regulation, fuel, produce safety and litigation among risks that could affect results. The company disclosed 17 contingent auto-liability cases and other routine litigation; accrued amounts were not material, and management did not expect resolution to materially affect results, while noting that reasonably possible additional losses could not always be estimated. A 100-basis-point interest-rate change was not expected to materially affect earnings. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Investor verification points
- Track whether sourcing revenue and net revenue continue to decline with the large customer, and assess the concentration and duration of that exposure.
- Compare transportation pricing with carrier-cost trends, particularly truckload margins and the effects of capacity, weather and fuel.
- Monitor receivables, the allowance for doubtful accounts, and exposure to the two customers with deteriorating credit.
- Review operating cash generation against working-capital needs, dividends, capital spending and total debt, including the variable-rate revolver and covenant headroom.
- Verify subsequent repurchases, dividend decisions and any further guidance; the filing gives no numerical full-year earnings or revenue forecast.