C.H. Robinson Worldwide, Inc. — Q3 2009 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2009; filed November 9, 2009. The company is a non-asset-based global transportation and logistics provider, with produce sourcing and information-services businesses. Amounts below are U.S. dollars; financial statement figures are in millions unless noted.
Financial performance
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Total revenue | $1,954.8 | $2,316.6 | $5,568.8 | $6,623.5 |
| Net revenue | $352.6 | $351.6 | $1,042.9 | $1,030.8 |
| Operating income | $154.8 | $148.6 | $442.1 | $429.2 |
| Net income | $95.5 | $93.6 | $273.1 | $270.3 |
| Diluted EPS | $0.57 | $0.54 | $1.61 | $1.56 |
| Operating income / net revenue | 43.9% | 42.3% | 42.4% | 41.6% |
| Net income / net revenue | 27.1% | 26.6% | 26.2% | 26.2% |
Because the company records most transportation and sourcing transactions gross, it identifies net revenue (total revenue less purchased transportation and sourced products) as its primary performance measure. Transportation revenue fell 20.0% in Q3, while transportation net revenue was nearly flat; the transportation net-revenue margin rose to 19.8% from 15.9%. Sourcing net revenue grew 9.3% in Q3, and Information Services net revenue declined 8.5%.
For the first nine months, operating cash flow was $242.4 million, versus $175.3 million a year earlier. Investing activities used $81.5 million, including $29.0 million of capital expenditures and $43.5 million for acquisitions. Financing activities used $276.7 million, including $177.0 million in share repurchases and $122.0 million in dividends. Cash declined $118.5 million from year-end 2008 to $376.3 million at September 30; available-for-sale securities were $11.9 million. Working capital was $614.3 million. The company reported no outstanding balance on its credit line; $3.5 million of borrowing capacity was available under a euro-denominated line. It reported compliance with the facility’s covenants.
Changes, outlook, and risks
- Demand and margins: Management attributed lower total revenue to recession-driven transportation demand and lower freight rates, including the effect of reduced fuel prices. Q3 net revenue growth and higher operating income reflected improved net revenue margins and lower operating expenses, despite weak transportation volumes.
- Costs and staffing: Q3 operating expenses fell 2.6%; average headcount was down approximately 7% year over year. Headcount had declined by 591 employees since December 31, 2008. Management cited reduced discretionary spending and variable compensation.
- Acquisitions: The company acquired Walker Logistics, ITC, and Rosemont/Quality Logistics during 2009. Acquisition cash paid at closing was $43.5 million; up to $20.5 million of contingent payments were possible, and management expected them to be fully earned. Goodwill increased by $37.7 million. The acquisitions added less than $0.01 to Q3 diluted EPS and did not materially affect reported results.
- Outlook: No specific near-term earnings or revenue guidance was provided. Management said the economic environment remained unpredictable and 2009 would remain challenging for growth. Its long-term target remained 15% compounded annual growth in net revenue, operating income, and EPS, but it acknowledged it did not achieve that goal in Q3 and that sustained volume growth is needed.
- Capital returns: The quarterly dividend increased 9% to $0.24 per share from $0.22. The board authorized an additional 10 million-share repurchase program, expected to be used over multiple years; 900,000 shares were repurchased during Q3.
- Contingency: A jury awarded $23.75 million in an accident case involving a contracted motor carrier and driver. The company was pursuing appeal and said its 2004 insurance program left it responsible for the first $5.0 million. It recorded no liability because, although multiple outcomes were reasonably possible, management did not believe any was probable. The insurer’s appeal of a separate gender-litigation coverage ruling remained pending; one individual lawsuit also remained, which the company was defending.
- Other risks: Disclosed risks include prolonged recession, reduced demand and pricing pressure, carrier capacity and relationships, competition, acquisition integration, international operations, regulation, fuel prices, and produce safety or contamination. Interest-rate and liquidity risks apply to cash and investments; the company reported no use of derivatives.
Key facts for investors to verify
- Whether transportation demand, shipment volumes, and net-revenue margins recover or remain under pressure; the elevated Q3 transportation margin was described as at the high end of its historical range.
- Cash conversion and working-capital trends, including the effect of receivables and changing freight and fuel conditions.
- Acquisition integration, contingent purchase-price payments, and the performance of the acquired businesses.
- Developments in the $23.75 million accident verdict and related insurance coverage, including potential cash exposure.
- Execution of the expanded repurchase authorization and dividend policy while maintaining liquidity and funding business needs.
Management stated that disclosure controls and procedures were effective as of quarter-end. It had not fully evaluated internal-control changes associated with the recent acquisitions.