C.H. Robinson Worldwide, Inc. — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; comparisons are with Q1 2010 unless noted. C.H. Robinson is a global multimodal transportation and logistics provider, with produce sourcing and information services businesses. The company measures performance primarily by net revenues—total revenues less purchased transportation and sourced-product costs.
Key financial results
| Metric | Q1 2011 | Prior period / change |
|---|---|---|
| Total revenues | $2,365.5 million | $2,074.6 million; up 14.0% |
| Net revenues | $390.3 million | $332.6 million; up 17.4% |
| Income from operations | $156.7 million | $136.0 million; up 15.2% |
| Net income | $97.0 million | $84.0 million; up 15.5% |
| Diluted EPS | $0.59 | $0.50; up 18.0% |
| Net revenue margin | 16.5% | 16.0% |
| Operating income as % of net revenues | 40.1% | 40.9% |
| Net income as % of net revenues | 24.9% | 25.3% |
| Cash from operations | $52.6 million | $3.9 million |
Transportation revenue rose 21.5% to $1,991.0 million, while Sourcing revenue fell 14.8% to $360.0 million; Information Services revenue grew 13.3% to $14.4 million. Transportation net revenues increased 20.3% to $342.9 million. The effective tax rate was 38.2%, versus 38.4%.
Liquidity, cash flow and capital
At March 31, 2011, cash and cash equivalents were $359.3 million, available-for-sale securities were $1.0 million, working capital was $730.3 million, and total assets were $2,096.3 million. Cash was $398.6 million at December 31, 2010 and $229.6 million at March 31, 2010. The balance sheet presented does not show a debt balance; it lists total liabilities of $868.8 million, primarily current liabilities.
Operating cash flow was $52.6 million, including a $142.1 million use from receivables, partly offset by higher accounts payable. Investing activities used $1.3 million, including $9.6 million in property, equipment, and software spending, offset by net security maturities and sales. Financing activities used $89.5 million, including $48.9 million of dividends, $45.5 million of share repurchases, and $3.9 million of contingent acquisition consideration. The quarterly dividend increased 16% to $0.29 per share.
Material changes and management commentary
- Management attributed transportation growth to higher volumes in nearly all modes and increased customer pricing, including fuel-related increases. Truckload volumes rose approximately 7.5%; truckload customer pricing, excluding estimated fuel effects, rose approximately 8%, while transportation costs rose approximately 6% on the same basis.
- Transportation net revenue margin edged down to 17.2% from 17.4%, reflecting higher transportation and fuel costs, partly offset by customer pricing. Company-wide net revenue margin increased mainly because the lower-margin Sourcing business declined as a share of revenue.
- Sourcing net revenues declined 5.5% to $33.0 million, primarily due to a large customer changing its sourcing strategy. Management expected Sourcing volumes and net revenues could decline over the next several quarters as the transition initially produces more losses than new opportunities.
- Operating expenses rose 18.8% to $233.6 million; personnel costs increased 19.3%. Stock-based compensation increased to $12.5 million from $4.7 million. Personnel expense growth reflected incentive compensation and headcount growth.
- A $5.9 million first-quarter charge followed an Illinois appellate court decision affirming a $23.75 million jury verdict. The charge represents the company’s $5.0 million insurance deductible plus accrued post-judgment interest on that amount; the insurer is responsible for the remainder and related interest. The company and insurers intended to continue legal recourse.
Outlook, risks and contingencies
Management reiterated its long-term target of 15% compounded annual growth in net revenues, operating income, and EPS, while noting that performance may vary over time. It planned limited branch openings during the remainder of 2011. Management said available cash and expected operating cash generation should cover anticipated working capital, capital expenditures, and dividends, and that credit lines could be accessed if needed. No specific quarterly or full-year earnings guidance is provided in the filing.
Risks cited include economic recovery and uncertain demand, pricing and competition, freight volumes and truck capacity, fuel costs, carrier relationships, customer consolidation, acquisition integration, international operations, regulation, produce safety and contamination, and litigation and insurance coverage. The company reported that a hypothetical 100-basis-point interest-rate change would not materially affect earnings; foreign-exchange risk was described as not material. Disclosure controls were assessed as effective, with no material quarterly changes in internal control over financial reporting.
Important facts for investors to verify
- Whether the large Sourcing customer transition causes the expected further declines, and whether new business offsets them.
- The status and ultimate cost of the Illinois litigation, including the insurer’s coverage of amounts beyond the deductible.
- Whether higher fuel and capacity costs continue to pressure transportation margins despite customer pricing increases.
- The sustainability of operating cash flow given receivables growth, and the cash impact of dividends and repurchases.
- The effect of elevated stock-based compensation and other operating-cost growth on margins and per-share results.