C.H. Robinson Worldwide, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; unaudited. The company provides transportation and logistics services globally, alongside produce sourcing and a smaller remaining payment-services business. Management identifies net revenue (total revenue less direct transportation and sourced-product costs) as its primary performance measure.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $3,288.3 million | $2,955.7 million | $6,282.5 million | $5,507.8 million |
| Net revenue | $472.6 million | $425.5 million | $928.3 million | $840.3 million |
| Operating income | $182.5 million | $184.9 million | $351.2 million | $354.5 million |
| Net income | $111.9 million | $114.6 million | $215.2 million | $221.1 million |
| Diluted earnings per share | $0.70 | $0.71 | $1.34 | $1.36 |
- Q2 total revenue rose 11.3% and net revenue rose 11.1% year over year. Net revenue margin was 14.4%, unchanged; operating income as a share of net revenue fell to 38.6% from 43.5%.
- For the first half, total revenue rose 14.1% and net revenue rose 10.5%. Net revenue margin declined to 14.8% from 15.3%; operating income as a share of net revenue fell to 37.8% from 42.2%.
- Q2 Transportation net revenue increased 16.8%, led by international forwarding, LTL and other logistics services. Sourcing net revenue declined 3.6%, reflecting lower margin and a weather-related shift in commodity and service mix. Payment Services net revenue fell 83.4%, primarily following the T-Chek divestiture.
- Personnel expense and other SG&A rose faster than net revenue. Management cited acquisition-related costs, higher headcount, Phoenix’s higher operating-expense ratio, and increased intangible amortization. First-half personnel expense also included approximately $3 million of payroll taxes related to delivery of previously vested restricted awards.
Cash flow, debt and liquidity
- Cash from operations was $58.3 million for the first half, down from $110.0 million. Management attributed much of the decline to $111.8 million of income-tax payments in Q1, primarily related to the T-Chek sale gain.
- Cash and cash equivalents were $150.0 million at June 30, 2013, compared with $210.0 million at December 31, 2012. Working capital was $452.0 million, versus $440.1 million.
- Investing activities used $3.3 million, including $22.6 million of capital expenditures, offset in part by $19.1 million received from Phoenix post-closing cash and working-capital adjustments.
- Financing activities used $111.2 million. The company paid $113.0 million in dividends and repurchased $96.4 million of shares, while recording $112.0 million of net borrowings during the period.
- Debt under the $500 million revolving credit facility was $365.0 million at June 30 and classified as current. The quarter’s weighted-average borrowing rate was approximately 1.3%; the period-end rate was approximately 1.2%. The company reported compliance with covenants. Management said cash, expected operating cash flow and available credit should meet anticipated needs.
Material changes, outlook and risks
- Phoenix, acquired in November 2012 for approximately $677.3 million, expanded international forwarding and materially contributed to growth in ocean, air and customs net revenue. Acquisition-related amortization was $5.0 million in Q2 versus $1.0 million a year earlier. Purchase accounting remained preliminary, with no expected material impact from further revisions.
- The October 2012 sale of substantially all T-Chek operations reduced Payment Services revenue and removed operating income relative to the prior-year comparison. The company expected approximately $3 million of Payment Services revenue per quarter from its remaining carrier cash-advance option.
- The company recorded a $5.0 million Q2 charge to settle a contingent auto-liability claim, representing its retained insurance risk. It reported eleven contingent auto-liability cases and other routine litigation; it could not estimate a range of reasonably possible additional losses, but did not expect these matters to materially affect results.
- No quantitative earnings or revenue guidance was provided. Management’s stated capital priorities include business investment and potential acquisitions, while continuing dividends and share repurchases. It began construction of an Eden Prairie office building expected to cost approximately $18 million, with completion anticipated in Q1 2014; $6.2 million had been spent through June 30.
- Principal disclosed risks include economic and freight-market changes, pricing and capacity pressures, competition, carrier and customer relationships, acquisition integration, contingent auto liability and insurance coverage, international operations, regulation, produce safety, fuel prices, and geopolitical events.
Important facts for investors to verify
- Whether acquired-business growth, particularly Phoenix forwarding, translates into improved operating leverage and margins as integration proceeds.
- Whether net revenue growth can offset higher personnel and SG&A costs, and the continued decline in sourcing margins.
- Cash conversion and working-capital trends, including the effect of taxes paid following the T-Chek sale.
- Debt repayment plans and the balance among dividends, share repurchases, acquisitions and capital spending.
- Final Phoenix purchase accounting, future acquisition-related amortization, and developments in auto-liability claims or insurance recoveries.