C.H. Robinson easily beats the Street, outlook ‘uncertain’

On Tuesday, July 28, after trading ended, C.H. Robinson (NASDAQ: CHRW) reported its financial results for the second quarter of 2020. 

Robinson reported earnings per share of $1.06, handily beating Wall Street’s expectations of $0.61/share. That came on gross revenues that were 7.2% lower year-over-year ($3.6 billion, beating the consensus estimate $3.46 billion) and net revenues that were 11.6% lower year-over-year. Net income fell 14.9% to $143.9 million compared to the year-ago period.

Lower revenues were the result of lower contract rates and lower volumes; gross margins got pinched by purchased transportation costs that did not fall as much as the rates paid to Robinson by shippers.

North American Surface Transportation (NAST), the largest Robinson division, includes truckload and less-than-truckload (LTL) brokerage as well as intermodal. NAST net revenue margins compressed by 160 basis points year-over-year to 15.3%, which was still much stronger than the first quarter’s 13.1% margin. Net revenues in truckload fell 28.5%; in LTL net revenues fell 13.2%; and in intermodal net revenues grew by 26%.

“Despite a volatile environment, we were able to deliver solid performance across all of our business units due to the tireless efforts of the C.H. Robinson team members around the world and our diversified portfolio of logistics services,” said Bob Biesterfeld, Chief Executive Officer of C.H. Robinson, in a statement. “We also continued to make progress on our strategic, long-term initiatives around market share gains and productivity improvements.”

Freight volumes and rates were highly volatile in the second quarter, plummeting from a COVID-related surge through the month of April, bottoming, and then beginning a steady climb that has not yet stopped. Capacity tightened as enterprise carriers found their networks increasingly imbalanced and rejected freight; spot rates rose on a lag compared to capacity, as carriers gained confidence in the volume rally.

In a quarter that contained a near-total shutdown of the American economy for at least a few weeks, Robinson’s truckload volumes were only down 4.5%; LTL volumes were down just 2%.

NAST’s headcount, on the other hand, was down 7.6% compared to a year ago, suggesting that Robinson’s freight brokers are more productive (more volume per employee) than a year ago. 

Global Forwarding, which includes Robinson’s ocean container and air cargo business, knocked it out of the ballpark as the third-party logistics provider (3PL) was able to exploit much tighter air cargo capacity while passenger fleets were grounded. Forwarding gross revenues were up 19.5% year-over-year, net revenues were up 14.8%, and income from operations were up 120.8%. 

“Second quarter total revenues for the Global Forwarding segment increased 19.5% to

$707.8 million, primarily driven by higher pricing in air due to reduced air cargo capacity, increased charter flights and larger shipment sizes,” Robinson reported.

Consider the fact that net revenues in air more than doubled (increasing by 104.4%), while air shipments were down 35.5%. The ocean was a different story, where containership lines were better able to rationalize capacity to meet demand. Ocean volumes were down 8.5% and net revenues were down 7.8% compared to the second quarter of 2019.

During the quarter Robinson invested just $10.3 million in capital expenditures against a planned $60-$70 million capex spend for the whole year, making the final year’s total likely to come in at the bottom of the range, the company said.

Management’s guidance in the release vaguely invoked “uncertainty in the freight market and the broader economy.” On tomorrow morning’s conference call with analysts, listeners should hear management speak to July trends and what freight looks like going forward.