CH Robinson maintains solid returns despite falling sales

US-based CH Robinson released first-quarter results last week that disappointed the market, although investors may have overreacted to the news, at least based on its earnings power and costs management.

In the three months ended on 31 March, C.H. Robinson reported revenues fell 6.9% to less than $3.1bn. The company’s top-line performance clearly contributed to the fall in its stock price from $75.7 to around $70 when trading resumed on Thursday last week.

While the results were a touch light in terms of total revenues, the drop in costs associated to those revenues – “purchased transportation and related services” and “purchased products sourced for resale” – was more pronounced, having fallen by 9.5% year-on-year.

As a result, quarterly net revenues surged to $563m, up 7.3% year-on-year, which testifies to a solid performance and good management.

Operating costs rose 6.2% year-on-year, reaching $364m (64% of net revenues), but nonetheless operating income rose 9.4% to $198m from $181m one year earlier.

C.H. Robinson’s fully diluted earnings per share rose 13.7% to $0.83 from $0.73 based on a mildly lower share count, which dropped 2% year-on-year.

Meanwhile, the company’s net income stood at $118m, up 11.7% from $106m one year earlier.

C.H. Robinson is properly managing its cost base. It noted that operating expenses as a percentage of net revenues decreased to 64.7% in the first quarter of 2016 from 65.4% in the first quarter of 2015.

“For the first quarter, personnel expenses increased 8.8% to $277.5m in 2016 from $255.1m in 2015 … our average headcount grew 5.5% compared to the first quarter of 2015. Additionally, we recognized additional payroll tax expense in the first quarter of 2016 related to the delivery of previously vested restricted equity awards,” it said.

Meanwhile, sales, general, and administrative (SG&A) expenses decreased 1.3% to $86.9m from $88m in 2015 – “this decrease was primarily due to a decrease in the provision for doubtful accounts, partially offset by an increase in travel expenses”.

The company’s core assets delivered a solid performance given that the truckload operations reported a respectable 7.8% rise in net revenues to $321m (57% of total net revenues), while less-than-truckload, the second-largest net revenue contributor, generated $91m (16% of total net revenues).

The strongest growth rate at group level on a reported basis was recorded by its ocean forwarding business, where net revenue rose 16.9% to $58m. Air and intermodal activities were the laggards, down 10.8% and 11.9%, respectively, in terms of net revenues.

On a call with analysts management was also upbeat about the Freightquote acquisition, which “will get a little less visibility just because the lapping of the year, but we feel very positive about that investment and now incorporating it into our LTL business”.

Finally, its rather small sourcing unit, which is not included in the core transportation business, recorded a 2.3% drop in revenue to $29.2m.

At almost 19x forwards earnings, its shares trade some 20% below mean based on trailing earnings multiples.

Source: Transport Intelligence, 4th May 2016

Author: Alessandro Pasetti