C.H. Robinson’s aggressive selling grew Q1 revenue at the expense of margin

North America’s largest third-party logistics provider grew volumes and revenue in the first quarter of 2020 by slashing prices to its customers, but saw margins narrow in March as trucking capacity tightened unexpectedly.

C.H. Robinson (NASDAQ: CHRW) reported its operating and financial results for the first quarter of 2020 after the close on Tuesday.

Robinson reported total revenues of $3.8 billion, up 1.4% year-over-year, and net income of $78.1 million, down 51.7% year-over-year. Diluted earnings per share were down 50.9% from a year ago, to 57 cents, lower than Wall Street’s consensus estimate of 71 cents per share.

“Since the beginning of the COVID-19 pandemic, C.H. Robinson has focused on three key pillars as guideposts for our decision making: ensuring the health and safety of our employees, providing supply chain continuity for our customers and carriers, and protecting the economic security of our people to the greatest extent possible,” CEO Bob Biesterfeld said in a statement.

Biesterfeld reassured investors that with $1.2 billion in total liquidity ($294 million of cash and cash equivalents), Robinson had a strong enough balance sheet to weather the COVID-19 pandemic; he also said Robinson remained committed to its quarterly dividend payments.

Of Robinson’s three business units, North American Surface Transportation (NAST, which includes truckload brokerage, less-than-truckload [LTL] brokerage and intermodal), Global Forwarding, and All Other and Corporate, NAST is by far the largest.

NAST grew its total revenues by 1% against the year-ago period to $2.82 billion, but total net revenues fell by 23.4% to $372 million. Income from operations was just $98.5 million, 53.4% lower than the first quarter of 2019.

NAST’s overall net revenue margin compressed to 13.19%, an 81-basis-point quarter-on-quarter deterioration. The earnings call Wednesday morning should break out margins for truckload, LTL and intermodal.

Robinson cut prices to its shippers more steeply than it could push down its costs in the form of trucking spot rates. Truckload prices per mile Robinson charged to customers were 8.5% lower than a year ago, but the rates Robinson’s brokers paid to trucks were only 2.5% lower. That strategy yielded 7.5% growth in both truckload and LTL volumes, while intermodal volumes grew 8% over the period year.

Global Forwarding total revenues were trimmed by 1.4% year-over-year to $530 million, while net revenues increased slightly by 0.8% to $128 million. Income from operations fell by 15.8% to $11.9 million. Growth in operating expenses outpaced revenue at 2.9% year-over-year; Robinson noted the rise in opex was largely due to increased selling, general and administrative expenses.

As the coronavirus took hold, airlines grounded planes and container shipping dried up, Global Forwarding saw lower air and ocean volumes. Ocean net revenues fell 2.3% on 3% lower volumes, while air net revenues increased 2.8% due to higher pricing, but were offset by an 8% decline in shipments. Robinson said customs net revenue fell by 3.1% due to a 2.5% reduction in the number of transactions.

In All Other and Corporate, total revenues grew by 8.2% to $450 million. Managed Services grew net revenues by 10.9% to $22.5 million, while Robinson Fresh net revenues fell 4.2% to $27.4 million. 

Understandably, guidance provided in the release was vague — we believe the conference call Wednesday will yield more insights into April numbers and Robinson’s discussions with its customers.

“While the situation remains fluid, one thing is certain: we are committed to our vital role in the global supply chain by delivering critical and essential goods and services — especially in this time of crisis,” Biesterfeld said.