Market Overview

C.H. Robinson Reports 2018 Second Quarter Results

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C.H. Robinson Worldwide, Inc. ("C.H. Robinson") (NASDAQ:CHRW) today
reported financial results for the quarter ended June 30, 2018.

  • Total revenues increased 15.3 percent to $4.3 billion
  • Net revenues increased 17.0 percent to $671.5 million
  • Income from operations increased 20.5 percent to $219.0 million
  • Diluted earnings per share (EPS) increased 44.9 percent to $1.13
  • Cash flow from operations increased 88.3 percent to $107.9 million

"We are pleased with our enterprise financial results this quarter. We
delivered double-digit increases in both net revenue and operating
income and a 90-basis point increase in operating margin. Both pricing
and volume trends improved across most of our service lines in the
second quarter," said John Wiehoff, Chairman and Chief Executive Officer
of C.H. Robinson. "Combined with the benefits of U.S. tax reform, our
strong performance enabled us to increase our operating cash flow by
nearly 90 percent and increase our cash returns to shareholders by
nearly 30 percent in the quarter."

Second Quarter Results Summary

  • Total revenues increased 15.3 percent to $4.3 billion, driven
    by growth across all transportation service lines.
  • Net revenues increased 17.0 percent to $671.5 million, driven
    primarily by growth in truckload, less than truckload ("LTL"), air,
    ocean and customs services.
  • Operating expenses increased 15.4 percent to $452.5 million. Personnel
    expenses
    increased 19.8 percent to $340.6 million, driven
    primarily by higher variable compensation expense and a 4.2 percent
    increase in average headcount. Selling, general and administrative
    ("SG&A") expenses
    increased 3.8 percent to $111.8
    million, due primarily to increases in occupancy, purchased services
    and equipment rental and maintenance, partially offset by decreases in
    allowance for doubtful accounts and travel and entertainment expenses.
  • Income from operations totaled $219.0 million, up 20.5 percent
    from last year due to growth in North American Surface Transportation
    ("NAST") and Global Forwarding, partially offset by declines in
    Robinson Fresh and All Other and Corporate. Operating margin of
    32.6 percent increased 90 basis points.
  • Interest and other expenses decreased by $4.2 million, driven
    primarily by an $8 million favorable impact from currency revaluation,
    partially offset by higher interest expense due to higher debt levels
    and an increase in variable interest rates.
  • The effective tax rate in the quarter was 25.6 percent compared
    to 35.6 percent last year, driven primarily by an $18.4 million
    benefit from the Tax Cuts and Jobs Act of 2017.
  • Net income totaled $159.2 million, up 43.3 percent from a year
    ago. Diluted EPS of $1.13 increased 44.9 percent.

Year-to-Date Results Summary

  • Total revenues increased 15.1 percent to $8.2 billion, driven
    by growth across all transportation service lines.
  • Net revenues increased 13.6 percent to $1.3 billion, driven
    primarily by growth in truckload, LTL, air, ocean and customs services.
  • Income from operations totaled $410.6 million, up 11.0 percent
    from last year due to growth in NAST, partially offset by declines in
    Global Forwarding and Robinson Fresh. Operating margin of 31.6
    percent decreased 80 basis points.
  • The effective tax rate in the first six months was 23.6 percent
    compared to 33.6 percent last year, driven primarily by a $35.5
    million impact from the Tax Cuts and Jobs Act of 2017.
  • Net income totaled $301.5 million, up 29.3 percent from a year
    ago. Diluted EPS of $2.14 increased 29.7 percent.

North American Surface Transportation ("NAST")
Results

Summarized financial results of our NAST segment are as follows (dollars
in thousands):

   
Three Months Ended June 30, Six Months Ended June 30,
2018   2017   % change 2018   2017   % change
Total revenues (1) $ 2,878,904 $ 2,381,551 20.9% $ 5,541,915 $ 4,640,803 19.4%
Net revenues 436,813 359,906 21.4% 851,582 732,346 16.3%
Income from operations 184,566 140,284 31.6% 358,644 296,161 21.1%
 
(1) Excludes intersegment revenues.
 

Second quarter total revenues for C.H. Robinson's NAST segment totaled
$2.9 billion, an increase of 20.9 percent over the prior year, primarily
driven by increased pricing. NAST net revenues increased 21.4 percent in
the quarter to $436.8 million. Net revenues in truckload increased 22.9
percent driven by higher pricing. LTL net revenues increased 17.8
percent, and intermodal net revenues increased 17.3 percent, both driven
by higher pricing and volumes. Excluding the impact of the change in
fuel prices, our average North America truckload rate per mile charged
to customers increased approximately 20.5 percent in the quarter, while
our truckload transportation costs increased approximately 19.5 percent.
Truckload volume declined 4.5 percent in the quarter. LTL and intermodal
volumes grew 6 percent and 3.5 percent, respectively. Operating expenses
increased 14.9 percent in the quarter, primarily due to increased
variable compensation. Income from operations increased 31.6 percent in
the quarter, and operating margin expanded 330 basis points to 42.3
percent. NAST average headcount was down 0.7 percent in the quarter.

Global Forwarding Results

Summarized financial results of our Global Forwarding segment are as
follows (dollars in thousands):

   
Three Months Ended June 30, Six Months Ended June 30,
2018   2017   % change 2018   2017   % change
Total revenues (1) $ 617,597 $ 528,820 16.8% $ 1,171,351 $ 997,608 17.4

%

Net revenues 144,031 121,023 19.0% 267,068 227,569 17.4

%

Income from operations 29,788 27,675 7.6% 38,009 43,881 (13.4 )%
 
(1) Excludes intersegment revenues.
 

Second quarter total revenues for the Global Forwarding segment
increased 16.8 percent to $617.6 million driven primarily by volume
growth across all service lines. Net revenues increased 19.0 percent in
the quarter to $144.0 million. Ocean net revenues increased 18.5
percent. Net revenues in air increased 17.4 percent. Customs net
revenues increased 27.5 percent. The acquisition of Milgram & Company
added approximately 4.5 percentage points to the net revenue growth in
the quarter. Operating expenses increased 22.4 percent, primarily driven
by a 17.8 percent increase in average headcount and higher variable
compensation. Milgram added approximately 7.5 percentage points to the
Global Forwarding average headcount. Income from operations increased
7.6 percent to $29.8 million, and operating margin declined 220 basis
points to 20.7 percent in the quarter.

Robinson Fresh Results

Summarized financial results of our Robinson Fresh segment are as
follows (dollars in thousands):

   
Three Months Ended June 30, Six Months Ended June 30,
2018   2017   % change 2018   2017   % change
Total revenues (1) $ 621,024 $ 657,003 (5.5)% $ 1,171,493 $ 1,207,448 (3.0)%
Net revenues 55,537 60,846 (8.7)% 109,407 117,683 (7.0)%
Income from operations 9,232 14,249 (35.2)% 18,539 28,901 (35.9)%
 
(1) Excludes intersegment revenues.
 

Second quarter total revenues for the Robinson Fresh segment declined
5.5 percent to $621.0 million. Segment net revenues declined 8.7 percent
to $55.5 million in the quarter. Sourcing net revenues decreased 10.3
percent. Case volumes declined 6 percent, primarily driven by lower
levels of customer promotional activity and higher purchased
transportation costs. Transportation net revenues decreased 6.6 percent,
primarily driven by truckload volume declines. Robinson Fresh operating
expenses decreased 0.6 percent driven by a 7.2 percent reduction in
average headcount, partially offset by increased variable compensation.
Robinson Fresh second quarter results also include a contingent auto
liability claim of $4 million. Income from operations declined 35.2
percent, and operating margin declined 680 basis points to 16.6 percent
in the quarter.

All Other and Corporate Results

Net revenues for Managed Services and Other Surface Transportation are
summarized as follows (dollars in thousands):

   
Three Months Ended June 30, Six Months Ended June 30,
Net revenues 2018   2017   % change 2018   2017   % change
Managed Services $ 20,074 $ 18,164 10.5% $ 38,391 $ 35,357 8.6%
Other Surface Transportation 15,028 13,850 8.5% 30,960 29,400 5.3%
 

Second quarter Managed Services net revenues increased 10.5 percent to
$20.1 million, driven by a combination of selling additional service
lines to existing customers and new customer wins. Other Surface
Transportation net revenues increased 8.5 percent to $15.0 million,
primarily due to increased pricing in Europe.

Other Income Statement Items

The second quarter effective tax rate was 25.6 percent, down from 35.6
percent last year. The lower tax rate was primarily driven by the impact
of the Tax Cuts and Jobs Act passed in December 2017. We continue to
expect our full year effective tax rate to be between 24 and 25 percent
in 2018.

Due to the adoption of ASU 2014-09 ("Revenue from Contracts with
Customers"), in-transit shipments are now included in our financial
results as of January 1, 2018. We do not expect this new policy to have
a material impact on our overall operating results.

Interest and other expenses decreased approximately $4.2 million in the
quarter driven primarily by an $8 million favorable impact from currency
revaluation, partially offset by higher interest expense due to higher
debt levels and an increase in variable interest rates.

Diluted weighted average shares outstanding in the quarter were down 0.7
percent, as share repurchases were partially offset by activity in our
equity compensation plans.

Cash Flow Generation and Capital Distribution

Cash from operations totaled $107.9 million, up 88.3 percent from the
prior year, primarily due to increased earnings from the year-ago period.

In the second quarter, $136.2 million was returned to shareholders, with
$65.2 million in cash dividends and $71.0 million in share repurchases.
This represents an increase of 29.8 percent over the prior year.

Capital expenditures totaled $14.6 million in the quarter. We continue
to expect 2018 capital expenditures to be between $60 and $70 million,
with the majority dedicated to technology.

Outlook

"While we did see a slight moderation in the rate of increase of both
price to customers and cost to carriers in our North America truckload
business this quarter, both price and cost increased sequentially for
the fifth consecutive quarter," said John Wiehoff. "We believe that the
current freight market fundamentals will remain in place for the
remainder of the year. With a healthy economy, demand for freight will
remain strong."

John continued, "We will leverage our digital transformation to provide
our people with an expanding set of insights and capabilities to
increase the value of the supply chain expertise we deliver to our
customers and carriers. We will remain focused on operating cost
efficiency, driving higher levels of service execution for our employees
and increasing returns to our shareholders."

About C.H. Robinson
At C.H. Robinson, we believe in
accelerating global trade to seamlessly deliver the products and goods
that drive the world's economy. Using the strengths of our knowledgeable
people, proven processes, and global technology, we help our customers
work smarter, not harder. As one of the world's largest third-party
logistics providers (3PL), we provide a broad portfolio of logistics
services, fresh produce sourcing and managed services for more than
120,000 customers and 73,000 active contract carriers through our
integrated network of offices and more than 15,000 employees. In
addition, the company, our Foundation and our employees contribute
millions of dollars annually to a variety of organizations.
Headquartered in Eden Prairie, Minnesota, C.H. Robinson (CHRW) has been
publicly traded since 1997. For more information, visit www.chrobinson.com.

Except for the historical information contained herein, the matters
set forth in this release are forward-looking statements that represent
our expectations, beliefs, intentions or strategies concerning future
events. These forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially
from our historical experience or our present expectations, including,
but not limited to such factors as changes in economic conditions,
including uncertain consumer demand; changes in market demand and
pressures on the pricing for our services; competition and growth rates
within the third party logistics industry; freight levels and increasing
costs and availability of truck capacity or alternative means of
transporting freight, and changes in relationships with existing truck,
rail, ocean, and air carriers; changes in our customer base due to
possible consolidation among our customers; our ability to successfully
integrate the operations of acquired companies with our historic
operations; risks associated with litigation and insurance coverage;
risks associated with operations outside of the U.S.; risks associated
with the potential impacts of changes in government regulations; risks
associated with the produce industry, including food safety and
contamination issues; fuel prices and availability; risks of unexpected
or unanticipated events or opportunities that might require additional
capital expenditures; the impact of war on the economy; and other risks
and uncertainties detailed in our Annual and Quarterly Reports.

Any forward-looking statement speaks only as of the date on which
such statement is made, and we undertake no obligation to update such
statement to reflect events or circumstances arising after such date.
All remarks made during our financial results conference call will be
current at the time of the call, and we undertake no obligation to
update the replay.

Conference Call Information:
C.H.
Robinson Worldwide Second Quarter 2018 Earnings Conference Call

Wednesday,
August 1, 2018; 8:30 a.m. Eastern Time

Presentation
slides and a simultaneous live audio webcast of the conference call may
be accessed through the Investor Relations link on C.H. Robinson's
website at
www.chrobinson.com.
To
participate in the conference call by telephone, please call ten minutes
early by dialing: 877-269-7756

International callers dial
+1-201-689-7817

Callers should reference the conference ID,
which is 13680838

We invite call participants to submit questions in advance of the
conference call, and we will respond to as many of the questions as we
can in the time allowed. To submit your question(s) in advance of the
call, please email
adrienne.brausen@chrobinson.com.

 

Summarized Financial Results
($ in thousands,
except per share data)

 
  Three Months Ended June 30,   Six Months Ended June 30,
2018   2017   % change 2018   2017   % change
Total revenues

$

4,276,037 $ 3,710,018 15.3 %

$

8,201,364

$

7,125,143 15.1 %
 
Net revenues:
Transportation
Truckload $ 341,442 $ 282,718 20.8 % $ 671,733 $ 586,840 14.5 %
LTL 119,189 102,213 16.6 % 231,333 199,836 15.8 %
Intermodal 9,181 8,308 10.5 % 15,513 15,800 (1.8 )%
Ocean 87,035 73,438 18.5 % 155,879 136,313 14.4 %
Air 30,905 25,820 19.7 % 59,788 47,637 25.5 %
Customs 20,794 16,311 27.5 % 41,449 32,389 28.0 %
Other logistics services   31,397     29,832   5.2 %   60,286     57,983   4.0 %
Total transportation 639,943 538,640 18.8 % 1,235,981 1,076,798 14.8 %
Sourcing   31,540     35,149   (10.3 )%   61,427     65,557   (6.3 )%
Total net revenues 671,483 573,789 17.0 % 1,297,408 1,142,355 13.6 %
 
Operating expenses   452,475     391,969   15.4 %   886,815     772,577   14.8 %
Income from operations 219,008 181,820 20.5 % 410,593 369,778 11.0 %
Net income $ 159,163   $ 111,071   43.3 % $ 301,460   $ 233,151   29.3 %
Diluted EPS $ 1.13 $ 0.78 44.9 % $ 2.14 $ 1.65 29.7 %
 

This table of summary results presents our service line net revenues
consistent with our historical presentation and is on an enterprise
basis. The service line net revenues in the table differ from the
service line net revenues discussed within the segments as our segments
have revenues from multiple service lines.

   

Condensed Consolidated Statements of Income
(unaudited,
in thousands, except per share data)

 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
 
Revenues:
Transportation $ 3,953,139 $ 3,319,995 $ 7,590,779 $ 6,422,038
Sourcing   322,898     390,023     610,585     703,105  
Total revenues   4,276,037     3,710,018     8,201,364     7,125,143  
Costs and expenses:
Purchased transportation and related services 3,313,196 2,781,355 6,354,798 5,345,240
Purchased products sourced for resale 291,358 354,874 549,158 637,548
Personnel expenses 340,630 284,220 668,927 574,724
Other selling, general, and administrative expenses   111,845     107,749     217,888     197,853  
Total costs and expenses   4,057,029     3,528,198     7,790,771     6,755,365  
Income from operations 219,008 181,820 410,593 369,778
 
Interest and other expense   (5,128 )   (9,368 )   (15,828 )   (18,670 )
Income before provision for income taxes 213,880 172,452 394,765 351,108
Provisions for income taxes   54,717     61,381     93,305     117,957  
Net income $ 159,163   $ 111,071   $ 301,460   $ 233,151  
 
Net income per share (basic) $ 1.14 $ 0.79 $ 2.16 $ 1.65
Net income per share (diluted) $ 1.13 $ 0.78 $ 2.14 $ 1.65
 
Weighted average shares outstanding (basic) 139,464 141,061 139,745 141,229
Weighted average shares outstanding (diluted) 140,611 141,587 140,960 141,713
 
           

Business Segment Information
(unaudited, dollars in
thousands)

 
NAST

Global
Forwarding

Robinson
Fresh

All
Other and
Corporate

Eliminations

Consolidated

Three Months Ended June 30, 2018
Revenues $ 2,878,904 $ 617,597 $ 621,024 $ 158,512 $ $ 4,276,037
Intersegment revenues (1)   135,317     14,875     50,131     3,891     (204,214 )    
Total revenues   3,014,221     632,472     671,155     162,403     (204,214 )   4,276,037  
Net revenues 436,813 144,031 55,537 35,102 671,483
Income from operations 184,566 29,788 9,232 (4,578 ) 219,008
Depreciation and amortization 6,085 8,753 1,144 8,256 24,238
Total Assets 2,470,743 861,080 445,926 675,535 4,453,284
Average headcount 6,957 4,736 909 2,627 15,229
 
NAST

Global
Forwarding

Robinson
Fresh

All
Other and
Corporate

Eliminations Consolidated
Three Months Ended June 30, 2017
Revenues $ 2,381,551 $ 528,820 $ 657,003 $ 142,644 $ $ 3,710,018
Intersegment revenues (1)   112,243     7,440     39,669     3,670     (163,022 )    
Total revenues   2,493,794     536,260     696,672     146,314     (163,022 )   3,710,018  
Net revenues 359,906 121,023 60,846 32,014 573,789
Income from operations 140,284 27,675 14,249 (388 ) 181,820
Depreciation and amortization 5,706 8,099 1,198 7,943 22,946
Total Assets 2,189,711 741,443 455,214 579,521 3,965,889
Average headcount 7,003 4,021 980 2,616 14,620
 

(1) Intersegment revenues represent the sales between our segments
and are eliminated to reconcile to our consolidated results.

 
           

Business Segment Information
(unaudited, dollars in
thousands)

 
NAST

Global
Forwarding

Robinson
Fresh

All
Other and
Corporate

Eliminations Consolidated

Six Months Ended June 30, 2018

Revenues $ 5,541,915 $ 1,171,351 $ 1,171,493 $ 316,605 $ $ 8,201,364
Intersegment revenues (1)   258,862     24,239     98,477     10,190     (391,768 )    
Total revenues   5,800,777     1,195,590     1,269,970     326,795     (391,768 )   8,201,364  
Net revenues 851,582 267,068 109,407 69,351 1,297,408
Income from operations 358,644 38,009 18,539 (4,599 ) 410,593
Depreciation and amortization 12,218 17,662 2,317 16,282 48,479
Total Assets 2,470,743 861,080 445,926 675,535 4,453,284
Average headcount 6,921 4,743 913 2,600 15,177
 
NAST

Global
Forwarding

Robinson
Fresh

All
Other and
Corporate

Eliminations Consolidated

Six Months Ended June 30, 2017

Revenues $ 4,640,803 $ 997,608 $ 1,207,448 $ 279,284 $ $ 7,125,143
Intersegment revenues (1)   213,397     15,583     73,009     10,548     (312,537 )    
Total revenues   4,854,200     1,013,191     1,280,457     289,832     (312,537 )   7,125,143  
Net revenues 732,346 227,569 117,683 64,757 1,142,355
Income from operations 296,161 43,881 28,901 835 369,778
Depreciation and amortization 11,296 16,119 2,344 15,618 45,377
Total Assets 2,189,711 741,443 455,214 579,521 3,965,889
Average headcount 6,926 3,977 971 2,580 14,454
 

(1) Intersegment revenues represent the sales between our segments
and are eliminated to reconcile to our consolidated results.

 
   

Condensed Consolidated Balance Sheets
(unaudited,
in thousands)

 
June 30, 2018 December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 310,575 $ 333,890
Receivables, net 2,202,460 2,113,930
Contract assets 182,247
Other current assets   63,374     63,116  
Total current assets   2,758,656     2,510,936  
 
Property and equipment, net 228,325 230,326
Intangible and other assets   1,466,303     1,494,572  
Total assets $ 4,453,284   $ 4,235,834  
 
Liabilities and stockholders' investment
Current liabilities:
Accounts payable and outstanding checks $ 1,133,837 $ 1,096,664
Accrued expenses:
Transportation expense 140,231
Compensation 99,279 105,316
Income taxes 18,393 12,240
Other accrued liabilities 66,987 58,229
Current portion of debt   66,000     715,000  
Total current liabilities   1,524,727     1,987,449
 
Long term debt 1,341,054 750,000
Noncurrent income taxes payable 25,364 26,684
Deferred tax liability 42,779 45,355
Other long-term liabilities   1,201     601  
Total liabilities   2,935,125     2,810,089  
 
Total stockholders' investment   1,518,159     1,425,745  
Total liabilities and stockholders' investment $ 4,453,284   $ 4,235,834  
 
 

Condensed Consolidated Statements of Cash Flow
(unaudited,
in thousands, except operational data)

 
Six Months Ended June 30,
2018   2017
Operating activities:
Net income $ 301,460 $ 233,151
Stock-based compensation 44,704 16,842
Depreciation and amortization 48,479 45,377
Provision for doubtful accounts 9,055 7,669
Deferred income taxes (9,014 ) (4,988 )
Excess tax benefit on stock-based compensation (7,502 ) (10,583 )
Other 668 536
Changes in operating elements, net of acquisitions:
Receivables (214,620 ) (244,682 )
Contract assets (34,483 )
Prepaid expenses and other 5,326 (9,646 )
Other non-current assets and liabilities 3,243 (1,016 )
Accounts payable and outstanding checks 101,770 135,130
Accrued transportation expenses 45,420
Accrued compensation (7,381 ) (23,353 )
Accrued income taxes 12,068 10,185
Other accrued liabilities   9,277     (4,611 )
Net cash provided by operating activities 308,470 150,011
 
Investing activities:
Purchases of property and equipment (20,569 ) (24,105 )
Purchases and development of software (9,514 ) (8,865 )
Acquisitions, net of cash (1,315 ) (1,780 )
Other   (1,546 )   (1,095 )
Net cash used for investing activities (32,944 ) (35,845 )
 
Financing activities:
Proceeds from long-term borrowings 591,012 250,000
Borrowings on line of credit 2,418,000 4,282,000
Repayments on line of credit (3,067,000 ) (4,430,000 )
Net repurchases of common stock (138,390 ) (90,120 )
Proceeds from stock issued for employee benefit plans 35,846 19,814
Cash dividends   (130,559 )   (128,806 )
Net cash used for financing activities (291,091 ) (97,112 )
Effect of exchange rates on cash   (7,750 )   8,462  
 
Net change in cash and cash equivalents (23,315 ) 25,516
Cash and cash equivalents, beginning of period   333,890     247,666  
Cash and cash equivalents, end of period $ 310,575   $ 273,182  
 
As of June 30,
Operational Data: 2018 2017
Employees 15,357 14,807
 

Source: C.H. Robinson

CHRW-IR

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