The fourth-quarter (Q4) results of C.H. Robinson, which were released on 2 February, showed that the US 3PL is churning out cash and needs to find a way to spend it.
Management has publicly stated its intention to chase inorganic growth; as its level of indebtedness remains within targets and below recent trends, and the odds are that a new acquisition will be its preferred option by the end of 2016.
Total Q4 revenue dropped 4.4% to $3.2bn in the three months ended 31 December, but CH Robinson is good at managing its cost base, while its net revenue margin is a more critical value driver than total revenue.
True, its global headcount rose over 14% year-on-year, but most of that rise (9%) was due to the acquisition of Freightquote, whose integration is reported to be progressing smoothly. Better-than-expected earnings per share (+15.1% in 2015) were made possible by financial discipline, which combined with favourable trends for its operating profitability.
Its Q4 net revenue margin stood at 19%, which turned out to be the best fourth-quarter margin since 2006. Net revenue was boosted by lower input costs, given that it is calculated as total revenue minus purchased transportation and related services, including motor carrier, rail, ocean, air, and other costs for services and products that are outsourced.
Management at C.H. Robinson has acknowledged that the macroeconomic outlook remains very challenging, but has indicated a preparedness to innovate and disrupt a market where approximately 72% of its “customer shipments originate from either an electronic or digital transaction or is web or mobile-based”, it said in a call with analysts last week.
Elsewhere, operating cash flow was a key highlight, testifying a very healthy business. It surged 40% to $718m from $523m in 2015, while capital expenditures rose 51% to $44m from $29m, which implies a core free cash flow of over $650m, some 90% of which is distributed to shareholders via dividends and buybacks. Given its market cap of almost $10bn, C.H. Robinson’s free cash flow yield is over 6%.
Investors welcomed the company’s trading update, and in spite of broader volatility C.H. Robinson stock has appreciated by over 7% since 2 February. It trades on a forward P/E and EV/EBITDA multiples of 18x and 11x, respectively, which look a little overvalued based on its growth prospects and a forward yield in the region of 2.4%.
That said, its balance sheet is rock solid, net leverage is manageable, underlying returns are a benchmark in the industry, and management knows exactly what it is doing. According to consensus estimates from Thomson Reuters, its shares – which currently trade at $68, the mid-point of its 52-week range – offer upside in the region of 7%.
Source: Transport Intelligence, 10th February 2016
Author: Alessandro Pasetti