C.H. Robinson Worldwide, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The company is a global third-party logistics provider, with North American Surface Transportation (NAST), Global Forwarding, and All Other and Corporate operations. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $4,224.8 | $3,856.1 | $11,657.7 | $11,516.2 |
| Net revenue | $589.3 | $633.4 | $1,771.7 | $2,007.4 |
| Operating income | $168.2 | $201.1 | $466.5 | $653.2 |
| Net income | $136.5 | $146.9 | $358.6 | $477.9 |
| Diluted EPS | $1.00 | $1.07 | $2.63 | $3.45 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $337.0 | $623.9 |
- Q3 total net revenue margin was 13.9%, down 2.5 percentage points year over year; operating margin was 28.6%, down 310 basis points. The nine-month net revenue margin was 15.2%, down 2.2 points.
- Q3 operating income declined 16.3%, net income 7.1%, and diluted EPS 6.5%. For the first nine months, operating income fell 28.6%, net income 25.0%, and diluted EPS 23.8%.
- At September 30, cash and equivalents were $252.6, total debt was $1,153.1, and working capital was approximately $1.09 billion. The company reported $1.0 billion of unused revolving-credit capacity; the $250 million receivables securitization facility had $60.0 million outstanding and was scheduled to mature in December 2020. The company said it complied with debt covenants.
- Nine-month investing cash use was $258.0, including $223.2 for acquisitions; financing cash use was $275.0. Cash declined $195.3 from year-end 2019.
Material changes and operating drivers
- Revenue growth in Q3 reflected higher pricing in most service lines and higher volumes across many services. Net revenue fell as rising truckload transportation costs compressed margins, partly offset by stronger forwarding results and Prime Distribution contributions.
- NAST Q3 revenue increased 3.5%, but net revenue fell 15.2% and operating income fell 30.5%. Truckload net revenue declined 24.1%; truckload linehaul rates charged to customers rose about 10.5%, while truckload transportation costs, excluding fuel, rose about 16.5%. Truckload and LTL volumes increased 0.5% and 13.5%, respectively.
- Global Forwarding Q3 revenue rose 39.2%, net revenue 16.1%, and operating income 87.6%. Higher ocean and airfreight pricing more than offset lower airfreight volumes, which fell 19.0%; ocean volumes rose 1.5%.
- Cash from operations fell 46.0% year over year for the first nine months, primarily because of working-capital changes, including a $367.5 million increase in receivables associated with higher third-quarter pricing.
- Personnel expense declined 5.5% in Q3 amid cost reductions and lower average headcount. SG&A increased 5.7%, reflecting Prime Distribution costs, higher credit losses, and the prior-year period’s $5.8 million gain on a Chicago facility sale.
Outlook, risks, and unusual items
- The filing provides no numerical earnings or revenue guidance. Management said cash, expected operating cash generation, available credit, and market credit were expected to cover working capital, capital expenditures, and dividends for at least 12 months, assuming no change in the business plan.
- Management expected to resume opportunistic share repurchases in Q4 2020, subject to market conditions, liquidity needs, contractual restrictions, and other factors. Repurchases had been temporarily suspended near the end of Q1; no shares were bought under the public program in Q3.
- COVID-19 drove uncertain demand and volatile pricing. Management cited recovering demand and tight carrier and air/ocean capacity, which raised transportation costs and compressed contractual truckload margins. Further disruption, lower freight volumes, reduced carrier capacity, or higher carrier prices could materially affect results; the company said it could not estimate the pandemic’s future impact.
- Cost measures included reduced travel, temporary compensation and retirement-match reductions, furloughs, and workforce reductions. The company recorded $4.4 million of Q3 severance. It reported that over 80% of employees were working remotely at quarter-end and did not expect the work arrangements to adversely affect operations.
- Prime Distribution was acquired for $222.7 million in cash in March 2020, adding retail-consolidation and warehouse capabilities; $176.8 million of goodwill was recorded and is not tax deductible. Nine-month SG&A also included an $11.5 million loss on a data-center sale-leaseback.
- Routine litigation, including contingent auto-liability cases, was not expected to have a material financial effect, though possible losses in some matters could not be estimated. The company reported $39.0 million of unrecognized tax benefits, interest, and penalties, and an ongoing IRS audit of tax years 2015–2017.
Most important facts for investors to verify
- Whether truckload pricing and carrier-cost trends continue to compress NAST margins, and whether the company can maintain its customer commitments profitably.
- Whether Global Forwarding’s unusually high air and ocean pricing and capacity constraints persist, and how volumes and margins respond as capacity returns.
- Receivables growth, collections, expected credit losses, and operating cash conversion; also confirm the status and renewal terms of the receivables securitization facility due in December 2020.
- Prime Distribution integration, acquisition returns, and the effects of acquisition-related goodwill and intangible-asset amortization.
- How COVID-19 developments affect demand, carrier availability and pricing, workforce costs, and the company’s liquidity and planned share repurchases.