Echo Global Logistics Squeaks Out An Earnings Win Against Tough Comparisons - C.H. Robinson Worldwide (NASDAQ:CHRW)

Echo Global Logistics ECHO reported its financial results for the first quarter of 2019 after the markets closed on April 24. Gross revenue and net earnings contracted against very tough year-over-year comparisons – the first quarter of 2018 was historically hot in terms of freight demand – but ECHO managed to widen net margins by 110 basis points to 18.4 percent.

ECHO reported non-GAAP earnings per share of $0.38. According to Barchart, Wall Street analysts' expectations for earnings averaged $0.29 per share. Gross revenue fell 6.8 percent to $538.1 million for the quarter, but net revenue dropped just 1.2 percent to $98.8 million.

Adjusted EBITDA fell 1.4 percent to $21.7 million while free cash flow increased 75.7 percent to $17.7 million.

"This was another strong quarter of profitability and cash flow for Echo," said Doug Waggoner, chairman and chief executive officer at Echo, in a statement. "In an environment with lower truckload spot business and lower truckload rates, we improved net revenue margin, reduced SG&A [selling, general & administrative expense] costs, and increased free cash flow compared to the prior year."

(Table: FreightWaves / Echo Global Logistics financial reporting)

Echo slightly softened its guidance for 2019 gross revenue.

"We expect revenue for the second quarter to be between $560 million and $600 million and we are updating our full year 2019 revenue guidance to be in the range of $2.3 billion to $2.5 billion," said Kyle Sauers, chief financial officer at Echo. During the company's previous quarterly earnings call, ECHO offered 2019 revenue guidance of $2.35 billion to $2.55 billion.

The profound collapse of the truckload spot market in the first quarter of 2019 likely meant that ECHO had to pivot even more sharply to contract freight, bid aggressively and accept lower revenues per load. The freight brokerages' contract-to-spot mix was not specified in the release but should be a topic of interest for the equities analysts on the earnings conference call.

(Chart: FreightWaves SONAR)

The chart above tracks the truckload spot market crash year-to-date. Carriers happy to accept re-priced contract freight stopped rejecting loads and the outbound tender rejection rate plummeted (OTRI.USA). As the demand for spot capacity evaporated, spot prices for trucks (DATVF.VNU) also took a dive. While trucking spot rates are often thought of as a cost for brokers, in Echo's book of business they account for about half of revenue as well.

In the fourth quarter of 2018, spot business represented 52 percent of ECHO's total revenues, down from 59 percent in the fourth quarter of 2017.

So far in 2019, shares of ECHO have outperformed C.H. Robinson CHRW, likely due to C.H.'s higher valuation (19x trailing 12 months earnings vs. 15.2x for ECHO).