The annual results of CH Robinson confirmed challenging trends we have witnessed for well over a year for asset-light businesses operating in the transport and logistics world.
Investors were unforgiving this week following the release of the US-headquartered 3PL’s trading update with its shares closing at $91.5 – down 3.7% on the day, after a six-month rally that pushed the stock price to record highs of over $100 less than a week before, while at the end of July 2017 it traded in the mid-60s.
Group net revenue grew, but nowhere near enough to offset the rise in operating costs, forcing it to report falling operating income and lower earnings per share (EPS). Headline EPS looked stronger on a comparable basis, mainly thanks to buybacks.
Its three core divisions – North American Surface Transportation (NAST, $1.5bn net revenues), Global Forwarding (GF, $485m net revenues) and Robinson Fresh (RF, $226m net revenues) – enjoyed different fortunes, with growth achieved where it was least needed.
Forwarding activities saw a net revenue surge of over 20%, but the division remains only a third the size of NAST, while GF’s underlying operating profits are by far the lowest in CH Robinson’s assets portfolio – operating income margins for NATS, GF and RF stood at 41.1%, 18.7% and 23.4%, respectively.
While “total” – rather than net – group revenues climbed 13.1% to $14.8bn, net revenues rose only 4% to almost $2.4bn (including flat “sourcing” sales of $122m), hindered by a poor performance in its flagship truckload business, down 2.2% to $1.2bn on a net revenue basis. Truckload turns over just over 50% of group net sales.
Less-than-truckload (LTL) activities, the second-largest net revenue contributor with $407m, rose 6.6%, while both ocean and air forwarding were boosted by benign trading conditions, recording 19% and 22.6% growth rates, respectively. The two units combined, however, generated only 14% of group net sales, and their surge did little to shore up earnings. Meanwhile, the smaller intermodal division ($29m of net revenues) was under pressure, too (-13%), but customs-related sales (+40.5%) comfortably made up for the lower turnover of the former unit.
While group operating income, or EBIT, dropped 7.5% to $775m from $837m one year earlier, earnings per shares (EPS) held up and dropped much less than EBIT, mainly thanks to a lower share count from share buybacks.
EPS would have been almost 2% lower had the company not reduced its share count by about two million yearly, on a fully diluted basis. Moreover, interest and other expenses – the cost line between EBIT and net pre-tax income – almost doubled to $46.6m from $25.5m.
CH Robinson’s balance sheet remains rock-solid, with a rising cash pile of $333.8m (2016: 247m) and a manageable debt position, which means it has plenty of room to grow inorganically without harming its sound credit risk profile.
Notably, however, its annual operating cash flow (OCF) plunged 28% to $380m from $530m one year earlier, mainly due to changes in working capital, where a surge of receivables had a negative impact on OCF to the tune of $364m (2016: -$173m), which was only marginally offset by cash inflows from lower payables.
The company cut back on capex, which is seldom particularly heavy given the nature of its business ($40m in 2017 vs $73m in 2016).
Finally, cash outlays from dividends rose 5.3% to $258m, while net share repurchases stood at $165m against $190m one year earlier. Its forward dividend yield is about 2%.
Source: Transport Intelligence, February 1, 2018
Author: Alessandro Pasetti
