C.H. Robinson Worldwide, Inc. — Q3 2011 Form 10-Q
Business and period: Global multimodal freight, logistics, fresh-produce sourcing, and payment-services provider operating through 235 offices. This unaudited report covers the quarter and nine months ended September 30, 2011; comparisons are with the corresponding 2010 periods unless noted. Amounts below are in U.S. dollars.
Financial results
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $2,694.9m (+11.3%) | $2,420.4m | $7,768.1m (+11.8%) | $6,949.0m |
| Net revenue* | $423.1m (+10.6%) | $382.6m | $1,231.3m (+14.0%) | $1,079.8m |
| Operating income | $184.0m (+10.6%) | $166.3m | $520.8m (+13.5%) | $458.8m |
| Net income | $114.3m (+11.4%) | $102.6m | $322.4m (+13.6%) | $283.9m |
| Diluted EPS | $0.70 | $0.62 | $1.95 | $1.71 |
| Net revenue margin | 15.7% | 15.8% | 15.9% | 15.5% |
| Operating income / net revenue | 43.5% | 43.5% | 42.3% | 42.5% |
| Net income / net revenue | 27.0% | 26.8% | 26.2% | 26.3% |
*Net revenue, defined as total revenue less purchased transportation and related services and sourced-product costs, is management’s primary performance measure.
- Service lines: Q3 transportation revenue rose 12.5%, sourcing 5.0%, and payment services 10.0%. For nine months, transportation rose 16.2% and payment services 10.4%, while sourcing declined 7.5%. Nine-month net revenue grew 16.5% in transportation and 10.4% in payment services, but declined 6.2% in sourcing.
- Margins and expenses: Q3 transportation net revenue margin slipped to 16.4% from 16.6%; total net revenue margin was 15.7% versus 15.8%. For nine months, transportation margin improved to 16.6% from 16.5%. Operating expenses were 56.5% of net revenue in Q3 (unchanged) and 57.7% for nine months versus 57.5%. Nine-month personnel expense rose 15.0%; stock-based compensation increased to $32.1m from $22.6m.
- Cash flow and liquidity: Nine-month operating cash flow was $293.6m, compared with $137.1m; investing cash outflow was $14.6m and financing cash outflow was $292.7m. Cash and equivalents were $382.7m at September 30, 2011, versus $398.6m at year-end 2010 and $249.4m at September 30, 2010. Working capital was reported at $760.0m, versus $677.5m a year earlier. Current assets were $1,656.7m and current liabilities $896.7m.
- Debt and capital returns: The balance sheet does not show a debt line; the filing describes access to credit lines if needed but gives no amount. Nine-month dividends were $146.3m and share repurchases $161.5m. The quarterly dividend increased 16% to $0.29 per share from $0.25. At quarter-end, contingent acquisition consideration was a $13.6m liability.
Changes, outlook, and notable items
- Growth was led by transportation volumes, pricing, and higher fuel costs. Q3 truckload volume rose about 4%; excluding estimated fuel effects, customer pricing increased about 4% and transportation costs about 3%. Nine-month truckload volumes rose about 5%, with rates up about 14% including fuel effects.
- Management said sourcing revenue and net revenue could decline over the next several quarters following a major customer’s change in sourcing strategy; the transition is expected initially to reduce more business than new opportunities replace. Excluding that customer, nine-month sourcing net revenue increased about 6%.
- Management’s long-term growth target remains 15% compounded annual growth in net revenue, operating income, and EPS; it expects periods both above and below target. No specific near-term earnings guidance is provided. Management believes cash and expected operating cash generation will fund working capital, capital spending, and dividends under its current plan.
- Planned investments included approximately $7.5m for 500 intermodal containers, $6.0m for a U.S. phone system, and an aircraft purchase of approximately $11.5m before a $4.0m trade-in allowance. Management anticipated additional capital spending in Q4.
- A September 26 acquisition of Timco Worldwide, a melon-category provider, added approximately $2.4m of goodwill and intangible assets and less than $0.01 to quarterly diluted EPS; management said it was not material to results or financial position.
- A 2009 Illinois accident verdict of $23.75m was affirmed on appeal. The company recorded a $6.2m charge for its $5.0m insurance deductible plus accrued interest; the insurer was responsible for the remainder. Payments were made and judgments satisfied on October 14, 2011.
- Key risks identified include economic and customer demand uncertainty, pricing and competition, freight capacity and cost, carrier/customer relationships, acquisition integration, litigation and insurance, international operations, regulation, produce safety, and fuel prices. The company said market risks from interest rates and foreign exchange were not material; a hypothetical 100-basis-point rate change was not expected to materially affect earnings.
Important facts for investors to verify
- Whether transportation growth and pricing can offset capacity and fuel-cost pressures without further net revenue margin compression.
- The scale and duration of the large-customer sourcing decline, and whether replacement business offsets it.
- Cash conversion and working-capital trends, including receivables and payables, alongside planned capital spending and shareholder returns.
- Future expense from restricted equity awards: $137.2m of unrecognized compensation expense remained at September 30, 2011; actual expense depends partly on performance and future awards.
- Implementation of Timco-related internal-control changes; the filing says the acquisition’s controls had not yet been fully evaluated.