C.H. Robinson Reports 2019 Second Quarter Results

C.H. Robinson Worldwide, Inc. ("C.H. Robinson") CHRW today reported financial results for the quarter ended June 30, 2019.

• Net revenues increased 3.5 percent to $695.2 million
• Income from operations increased 3.9 percent to $227.5 million
• Operating margin improved 10 basis points to 32.7 percent
• Diluted earnings per share (EPS) increased 8.0 percent to $1.22
• Cash flow from operations increased 85.0 percent to $199.6 million

"In the second quarter, we achieved 3.5 percent net revenue growth, solid performance versus the year-ago period where net revenues increased 17 percent. We delivered our fifth consecutive quarter of operating margin expansion and an 8 percent increase in earnings per share," said Bob Biesterfeld, Chief Executive Officer of C.H. Robinson. "We continued to make improvements in working capital, which combined with increased earnings, allowed us to generate nearly $200 million in cash flow from operations and increase cash returns to our shareholders. We are pleased with our second quarter results in this soft freight environment."

Second Quarter Results Summary

• Total revenues decreased 8.6 percent to $3.9 billion, driven by lower pricing across most transportation service lines.
• Net revenues increased 3.5 percent to $695.2 million, primarily driven by margin improvement in truckload services.
• Operating expenses increased 3.4 percent to $467.7 million. Personnel expenses decreased 0.5 percent to $338.9 million, driven primarily by declines in performance-based compensation, partially offset by a 3.2 percent increase in average headcount. Selling, general and administrative ("SG&A") expenses increased 15.2 percent to $128.8 million, due primarily to increases in purchased services, particularly commercial off-the-shelf software, and occupancy.
• Income from operations totaled $227.5 million, up 3.9 percent from last year due to growth in North American Surface Transportation ("NAST"), partially offset by declines in Global Forwarding and All Other and Corporate. Operating margin of 32.7 percent increased 10 basis points.
• Interest and other expenses totaled $6.6 million, which primarily consists of interest expense. The second quarter also included a $2.8 million favorable impact from currency revaluation.
• The effective tax rate in the quarter was 23.4 percent compared to 25.6 percent last year.
• Net income totaled $169.2 million, up 6.3 percent from a year ago. Diluted EPS of $1.22 increased 8.0 percent.

Year-to-Date Results Summary

• Total revenues decreased 6.6 percent to $7.7 billion, driven by declines across most transportation service lines.
• Net revenues increased 5.9 percent to $1.4 billion, primarily driven by margin improvement in truckload services.
• Operating expenses increased 4.0 percent to $921.9 million. Personnel expenses increased 1.5 percent to $679.0 million, driven primarily by a 2.5 percent increase in average headcount, partially offset by declines in performance-based compensation. SG&A expenses increased 11.5 percent to $242.9 million, due primarily to increases in purchased services, particularly commercial off-the-shelf software, and occupancy, partially offset by a reduction in bad debt expense.
• Income from operations totaled $452.1 million, up 10.1 percent from last year due to growth in NAST and Global Forwarding, partially offset by a decline in All Other and Corporate. Operating margin of 32.9 percent increased 130 basis points.
• Interest and other expenses totaled $23.8 million, which primarily consists of interest expense. The six-month period also included a $2.2 million unfavorable impact from currency revaluation.
• The effective tax rate for the first six months was 22.7 percent compared to 23.6 percent in the year-ago period.
• Net income totaled $331.0 million, up 9.8 percent from a year ago. Diluted EPS of $2.39 increased 11.7 percent.

North American Surface Transportation Results

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

Second quarter total revenues for C.H. Robinson's NAST segment totaled $2.9 billion, a decrease of 9.2 percent over the prior year, primarily driven by decreased pricing. NAST net revenues increased 5.8 percent in the quarter to $486.4 million. Net revenues in truckload increased 8.6 percent, less than truckload ("LTL") net revenues increased 2.8 percent, and intermodal net revenues decreased 33.8 percent versus the year ago period. Excluding the impact of the change in fuel prices, average North America truckload rate per mile charged to customers decreased approximately 11.5 percent in the quarter, while truckload transportation cost per mile decreased approximately 14.5 percent. Truckload volumes declined 2.5 percent in the quarter. LTL volumes grew 3.5 percent, and intermodal volumes declined 30.5 percent versus the prior year. Operating expenses increased 3.8 percent, due to increased SG&A expenses, partially offset by a decline in personnel expenses. NAST second quarter results include a contingent auto liability claim of $5 million. The prior year period also included a contingent auto liability claim of $4 million. Income from operations increased 8.8 percent to $204.7 million, and operating margin expanded 120 basis points to 42.1 percent. NAST average headcount was up 1.8 percent in the quarter. As a reminder, second quarter and year-to-date NAST results include Robinson Fresh transportation, which was previously reported under the Robinson Fresh segment.

Global Forwarding Results

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

Second quarter total revenues for the Global Forwarding segment decreased 4.1 percent to $592.5 million, primarily driven by lower pricing in ocean and air and a decline in air volume. Net revenues decreased 1.5 percent in the quarter to $141.9 million. The acquisition of The Space Cargo Group ("Space Cargo") contributed 3 percentage points of net revenue growth in the quarter. Ocean net revenues decreased 1.6 percent driven by pricing declines. Net revenues in air decreased 12.2 percent, as a decline in shipments more than offset margin expansion. Customs net revenues increased 12.0 percent, primarily driven by improved mix, partially offset by a modest decline in transaction volume. Operating expenses increased 0.9 percent, driven by increased investments in technology. Second quarter average headcount increased 0.7 percent, with Space Cargo contributing 3.5 percentage points to the growth. Income from operations decreased 10.6 percent to $26.6 million, and operating margin declined 190 basis points to 18.8 percent in the quarter.

All Other and Corporate Results

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

Second quarter Robinson Fresh net revenues decreased 4.3 percent to $31.2 million, driven by strategic decisions to exit unprofitable business. Managed Services net revenues were approximately flat this quarter. Other Surface Transportation net revenues increased 3.3 percent to $15.5 million, with the acquisition of Dema Service contributing 4 percentage points of net revenue growth.

Other Income Statement Items

The second quarter effective tax rate was 23.4 percent, down from 25.6 percent last year. We continue to expect our full-year effective tax rate to be between 24 and 25 percent in 2019.

Interest and other expenses totaled $6.6 million, which primarily consists of interest expense. The second quarter also included a $2.8 million favorable impact from currency revaluation.

Diluted weighted average shares outstanding in the quarter were down 1.7 percent, as share repurchases were partially offset by activity in our equity compensation plans.

Cash Flow Generation and Capital Distribution

Cash from operations totaled $199.6 million, up 85.0 percent versus the prior year, primarily due to improved working capital performance and increased earnings versus the year-ago period.

In the second quarter, $179.8 million was returned to shareholders, with $69.3 million in cash dividends and $110.5 million in share repurchases. This represents an increase of 32.0 percent over the prior year.

Capital expenditures totaled $17.7 million in the quarter. We continue to expect 2019 capital expenditures to be between $80 and $90 million, with the majority dedicated to technology.

Outlook

"We expect the soft freight environment to continue through the balance of 2019," Biesterfeld stated. "Despite the current freight environment, our long-term goals remain unchanged. We remain focused on taking market share, automating core processes while delivering industry-leading quality service to our customers and carriers, and improving operating leverage in our businesses."

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 124,000 customers and 76,000 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 such 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; changes in relationships with existing contracted 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, including contingent auto liability and insurance coverage; risks associated with operations outside of the United States; risks associated with the potential impact of changes in government regulations; risks associated with the produce industry, including food safety and contamination issues; fuel price increases or decreases, or fuel shortages; cyber-security related risks; the impact of war on the economy; changes to our capital structure; risks related to the elimination of LIBOR; 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 2019 Earnings Conference Call
Wednesday, July 31, 2019; 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

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)

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.

Our total revenues represent the total dollar value of services and goods we sell to our customers. Net revenues are a non-GAAP financial measure calculated as total revenues less the cost of purchased transportation and related services and the cost of purchased products sourced for resale. We believe net revenues are a useful measure of our ability to source, add value, and sell services and products that are provided by third parties, and we consider net revenues to be our primary performance measurement. Accordingly, the discussion of our results of operations often focuses on the changes in our net revenues. The reconciliation of total revenues to net revenues is presented below (in thousands):

⁽¹⁾ All cash and cash equivalents are included in All Other and Corporate.
⁽²⁾ Amounts have been reclassified to reflect the segment reorganization announced in the first quarter of 2019.

⁽¹⁾ All cash and cash equivalents are included in All Other and Corporate.
⁽²⁾ Amounts have been reclassified to reflect the segment reorganization announced in the first quarter of 2019.

Source: C.H. Robinson
CHRW-IR

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