C.H. Robinson Worldwide, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. C.H. Robinson is a global third-party logistics provider. Effective January 1, 2019, it combined Robinson Fresh transportation networks with North American Surface Transportation (NAST) and reclassified segment reporting; prior-period segment figures were recast.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $3.856 billion | $4.292 billion | $11.516 billion | $12.493 billion |
| Net revenue | $633.4 million | $694.0 million | $2.007 billion | $1.991 billion |
| Operating income | $201.1 million | $246.0 million | $653.2 million | $656.6 million |
| Net income | $146.9 million | $175.9 million | $477.9 million | $477.4 million |
| Diluted EPS | $1.07 | $1.25 | $3.45 | $3.39 |
| Operating margin on net revenue | 31.7% | 35.4% | 32.5% | 33.0% |
| Net revenue margin | 16.4% | 16.2% | 17.4% | 15.9% |
Q3 revenue fell 10.2% year over year, net revenue fell 8.7%, operating income fell 18.2%, and diluted EPS fell 14.4%. The decline chiefly reflected lower pricing and weaker volumes, particularly in truckload. For the first nine months, revenue declined 7.8%, while net income was nearly flat and diluted EPS increased 1.8%.
Q3 transportation net revenue margin improved overall, but truckload and LTL margins weakened; ocean and air margins expanded. NAST operating income declined 21.3% in Q3. Global Forwarding operating income rose 3.5%, while All Other and Corporate net revenue grew 5.6%.
Cash flow, balance sheet, and capital
- Nine-month operating cash flow was $623.9 million, up 18.0% from $528.9 million. Investing activities used $93.5 million; financing activities used $517.1 million. Cash increased $5.8 million to $384.4 million.
- At September 30, 2019, total debt was $1.253 billion, down from $1.346 billion at year-end 2018. Cash was $384.4 million; current assets exceeded current liabilities by approximately $1.25 billion. The company had no revolver borrowings against its $1 billion facility and had $160.9 million outstanding under its $250 million receivables securitization facility.
- Operating lease liabilities were $272.5 million. The company adopted the new lease standard in 2019, recognizing lease assets and liabilities; adoption did not materially affect reported earnings or cash flows.
- Nine-month cash dividends were $207.9 million and share repurchases were $241.3 million. Management said available cash, expected operating cash flow, and credit facilities should meet anticipated needs for at least 12 months. The company reported compliance with debt covenants.
Business trends, outlook, and risks
Management described softening North American truckload demand, excess capacity, and pricing and volume declines. Average truckload routing-guide depth was 1.2, which management said reflected soft demand and reduced pricing and costs. Global Forwarding faced excess capacity and lower demand amid tariff activity and macroeconomic uncertainty, particularly affecting air freight. Volumes continued to shift from spot to contractual business, and lower truckload pricing contributed to a shift from intermodal to truckload.
Management expected these market trends to continue for the next few quarters; the filing provides no specific earnings or revenue guidance. The company cited risks including economic and demand changes, pricing pressure, freight capacity and carrier relationships, competition, customer consolidation, acquisition integration, international operations, regulation, produce safety, fuel changes, cybersecurity, litigation, and LIBOR transition.
Notable items included a $5.8 million gain on the sale of a Chicago facility, which helped reduce Q3 SG&A; acquisitions of Space Cargo and Dema Service for $45.0 million and $14.2 million, respectively; and unfavorable foreign-currency effects on interest and other expense versus favorable effects in the prior-year comparable periods. Routine litigation, including contingent auto liability matters, was not expected to have a material financial effect; potential additional losses could not generally be estimated. The company was under IRS audit for tax years 2015–2017 and reported $39.7 million of unrecognized tax benefits and related interest and penalties.
Important facts for investors to verify
- Whether truckload demand, pricing, and margins stabilize, and whether the expected soft-market conditions persist.
- Whether continued investment in technology and acquisitions generate sufficient operating returns as revenue declines.
- Cash generation, debt reduction, and ongoing dividends and share repurchases relative to liquidity and covenant requirements.
- Potential changes in tax exposures, including the IRS audit and unrecognized tax benefits, and any material developments in litigation or other disclosed risks.