C.H. Robinson Worldwide, Inc. — Q2 2009 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2009; filed August 10, 2009. C.H. Robinson is a non-asset-based global transportation and logistics provider, with additional produce-sourcing and information-services businesses.
Financial performance
| Metric | Q2 2009 | Change vs. Q2 2008 | Six months 2009 | Change vs. 2008 |
|---|---|---|---|---|
| Total revenue | $1.926 billion | -17.0% | $3.614 billion | -16.1% |
| Net revenue | $351.7 million | +3.1% | $690.3 million | +1.6% |
| Operating income | $149.9 million | +3.7% | $287.3 million | +2.4% |
| Net income | $92.3 million | +2.0% | $177.6 million | +0.5% |
| Diluted EPS | $0.54 | +3.8% | $1.04 | +2.0% |
Margins: Q2 net revenue margin rose to 18.3% from 14.7%, and operating income was 42.6% of net revenue versus 42.4%. For the first half, net revenue margin was 19.1% versus 15.8%, and operating income was 41.6% versus 41.3%. Transportation net revenue margin increased to 20.6% in Q2 from 15.4%; management attributed the improvement largely to lower fuel prices and capacity costs.
Business-line trends: Q2 transportation revenue fell 22.8%, while transportation net revenue increased 2.9%. Truck net revenue grew 5.6%, despite truckload volume declining about 5%; LTL shipment volume rose about 25%. Sourcing revenue grew 12.1% and net revenue 12.4%, primarily on volume growth. Information Services revenue and net revenue each declined 14.8%, reflecting fewer transactions and lower fuel prices.
Cash, liquidity, and capital
- Cash and cash equivalents were $356.9 million at June 30, 2009, down from $494.7 million at December 31, 2008. Available-for-sale securities were $0.6 million; working capital was $626.8 million.
- Operating cash flow for the first half was $86.3 million, compared with $63.2 million in 2008. Investing activities used $30.3 million, including $20.0 million in capital expenditures and $12.4 million for acquisitions. Financing activities used $190.4 million, including $80.8 million in dividends and $126.9 million in share repurchases.
- No credit-line borrowings were outstanding. The company had a €3.5 million discretionary credit line and reported compliance with its covenants. Management said cash, expected operating cash generation, and the facility should meet anticipated working-capital, capital-expenditure, and dividend needs.
- The quarterly dividend increased 9% to $0.24 per share. The company repurchased 1.38 million shares during Q2; approximately 3.6 million shares remained authorized for repurchase.
Developments, outlook, and risks
- Management cited recession-driven transportation demand declines, lower freight rates, and lower fuel prices as principal causes of the revenue decline. It described 2009 as challenging and the environment as unpredictable. The company did not meet its long-term 15% growth target in Q2; it said sustained volume growth is needed to achieve that target over time.
- Headcount fell by 649 employees in the first half compared with year-end 2008, as staffing was adjusted to lower demand. Management said the changes preserved flexibility to pursue sales and market share. Limited branch openings were planned for the rest of 2009.
- The June acquisition of Walker Logistics strengthened UK and air-freight capabilities and had no material reported impact on results. The July 7 acquisition of International Trade & Commerce, a U.S. customs brokerage business, was not expected to have a material impact.
- A jury awarded $23.75 million in an accident case involving the company and a contracted carrier. The company was pursuing post-trial relief and appeal; it said multiple outcomes were reasonably possible but none was probable, and therefore recorded no liability. Its 2004 insurance program made it responsible for the first $5.0 million of claims of this type.
- Other identified risks include continued weak demand and pricing pressure, carrier capacity and relationships, acquisitions and integration, international operations, litigation and insurance coverage, regulation, fuel availability and prices, and produce-related food-safety issues.
Key facts for investors to verify
- Whether transportation volumes and margins recover, and whether higher margins can persist as fuel prices, capacity costs, and freight demand change.
- Receivables and cash conversion: receivables rose $91.8 million from year-end, while first-half operating cash flow was $86.3 million.
- Outcome and potential financial exposure of the $23.75 million accident verdict, including the company’s stated $5.0 million initial responsibility under its insurance program.
- Execution and integration of Walker and ITC, and planned data-center spending (about $2 million expected in the remainder of 2009 after $10.2 million spent in the first half).
- Effect of continued dividends and repurchases on cash balances; the filing provides no specific earnings or revenue forecast.