C.H. Robinson Worldwide, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual filing; selected fourth-quarter figures are included below. Amounts are in U.S. dollars.
Business context
C.H. Robinson is an asset-light third-party logistics provider, arranging freight through a network of contracted transportation companies. It also sources fresh produce and provides carrier payment services. In 2011, it operated 235 branches, served more than 37,000 active customers, worked with about 53,000 transportation providers, and handled approximately 10 million shipments. Management identifies net revenue—total revenue less purchased transportation and product costs—as its primary performance measure.
Financial results and liquidity
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Total revenue | $10.336 billion | $9.274 billion | +11.5% |
| Net revenue | $1.633 billion | $1.468 billion | +11.2% |
| Operating income | $692.7 million | $622.9 million | +11.2% |
| Net income | $431.6 million | $387.0 million | +11.5% |
| Diluted EPS | $2.62 | $2.33 | +12.4% |
| Cash from operations | $429.7 million | $344.8 million | +24.6% |
- Net revenue margin was 15.8% in both years. Operating income was 42.4% of net revenue in both years; net income was 26.4% of net revenue in both years.
- Transportation net revenue rose 13.4% to $1.444 billion; sourcing net revenue fell 7.8% to $128.4 million; payment services net revenue increased 8.7% to $60.3 million.
- Cash and cash equivalents were $373.7 million at year-end, down from $398.6 million. Working capital was $734.9 million, up from $710.2 million. The company reported no long-term debt and no available-for-sale securities at year-end.
- Capital expenditures were $52.8 million. Financing activities used $415.1 million, including $194.7 million of dividends and $240.9 million of share repurchases. The annual dividend was $1.20 per share.
- Selected Q4: Total revenue was $2.568 billion versus $2.325 billion in Q4 2010; net income was $109.2 million versus $103.2 million; diluted EPS was $0.67 versus $0.62.
Material changes versus the prior year
- Transportation growth reflected higher shipment volumes and customer pricing, including the effects of higher fuel costs. Truckload volumes rose about 5%; LTL volumes rose about 15%.
- Transportation net revenue margin declined to 16.5% from 16.8%, primarily because of higher transportation and fuel costs. Management said fuel is generally a pass-through cost in truckload, but higher fuel prices reduce reported margin percentage.
- Sourcing revenue and net revenue declined as a large customer changed its sourcing strategy and eliminated some business.
- Personnel expense increased 10.2%; average headcount rose approximately 7%. Other selling, general and administrative expense rose 14.4%, partly due to claims, travel, temporary services, and depreciation.
- Cash from operations increased faster than net income, while cash declined after substantial dividends and repurchases. The company repurchased 3.54 million shares during 2011.
Outlook, risks and unusual items
- Management’s long-term growth objective is 15% compounded annual growth in net revenue, operating income, and EPS. It stated that 2011 growth fell short of that objective and cautioned that results may vary. No specific 2012 earnings or revenue guidance is provided.
- Management planned limited branch openings in 2012 and projected 2012 capital expenditures of approximately $40–45 million. It believed cash and expected operating cash flow would cover anticipated working capital, capital expenditures, and dividends.
- Key risks include economic downturns and reduced freight volumes; pricing pressure and higher carrier costs or capacity shortages; fuel-price changes; dependence on third-party carriers; customer credit and collection risk; competition; employee retention; technology outages or security breaches; international and regulatory risks; and produce supply, food-safety, contamination, and recall exposure.
- Automobile liability coverage had a $5 million per-incident retention. The company reported five contingent auto-liability cases among routine litigation; accrued amounts were not material, and management did not expect the proceedings to have a material effect, while noting it could not estimate reasonably possible additional losses.
- Beginning in 2012, the company carried $50 million of product-recall insurance with a $5 million retention per incident. It received a $1.2 million distribution in 2011 from a previously impaired cost-method investment.
- Contractual commitments totaled $179.5 million, primarily operating leases ($142.5 million) and purchase obligations ($37.0 million). The company reported no off-balance-sheet arrangements.
- Auditors gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether transportation volume and pricing gains can continue without further erosion in transportation net revenue margins.
- The scale and duration of the sourcing customer loss, and whether sourcing results stabilize.
- Receivables and working-capital trends, including customer payment behavior and credit exposure.
- Cash allocation among repurchases, dividends, acquisitions, and planned capital expenditures; the 2009 repurchase authorization had 5.06 million shares remaining at year-end.
- Potential exposure from auto-liability claims, produce contamination or recalls, and uncertain tax positions; the filing reported $10.5 million of unrecognized tax benefits and related interest and penalties.