C.H. Robinson Reports 2022 Third Quarter Results

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--Nov 2, 2022--

C.H. Robinson Worldwide, Inc. (“C.H. Robinson”) (Nasdaq: CHRW) today reported financial results for the quarter ended September 30, 2022.

Third Quarter Key Metrics:

• Gross profits increased 5.0% to $880.7 million and adjusted gross profits (1) increased 5.1% to $887.2 million
• Income from operations decreased 7.5% to $287.6 million
• Adjusted operating margin (1) decreased 440 basis points to 32.4%
• Diluted earnings per share (EPS) decreased 3.8% to $1.78
• Cash generated by operations improved by $699.0 million to $625.5 million

"On our second quarter earnings call in late July, I talked about a deceleration in demand that we expected to see in the second half of 2022 in three large verticals for freight, including weakness in the retail market and further slowing in the housing market. We’re now seeing those expectations play out, with slowing freight demand and price declines in the freight forwarding and surface transportation markets," said Bob Biesterfeld, President and Chief Executive Officer of C.H. Robinson. "Throughout the changes in the freight cycle, we have maintained our focus on continuing to improve the customer and carrier experience and scaling our digital processes and operating model to foster sustainable, profitable growth."

"Today, we believe that we are entering a time of slower economic growth where freight markets will continue to cool from their peaks and will operate more reliably and at more normalized rates, with fewer disruptions. These changes in market conditions, coupled with many successful endeavors on our digital roadmap directed at scaling our model to be more efficient, are allowing us to take actions to structurally reduce our overall cost structure," stated Biesterfeld.

"Compared to our third quarter operating expenses, the actions we’re currently taking are expected to generate $175 million of gross cost savings on an annualized basis by the fourth quarter of 2023. Inflation, other headwinds such as annual pay increases and tailwinds such as lower incentive compensation are expected to result in net cost headwinds of $25 million in 2023 that we expect will partially offset the gross savings, resulting in net annualized cost reductions of $150 million by the fourth quarter of next year."

Biesterfeld added, "We also continue to identify opportunities to accelerate our enterprise-wide digital and product strategy. To drive greater impact and speed of execution, Arun Rajan has been promoted to the role of Chief Operating Officer. Since joining C.H. Robinson in 2021, Arun has been a critical contributor to, and strategic leader of, our digital and product strategy. Arun is helping us think and act differently as we accelerate our pace of digital transformation and scale our operating model. In his new role, in addition to leading the product organization, Arun will have expanded direct responsibility for the technology and marketing organizations. Bringing these three critical functions together under a single vision and leadership structure will allow us to integrate these functions more deeply into single-threaded teams and put the needs of our customers and carriers at the center of our organizational design and ensure that we are positioned well to meet their needs while accelerating the impacts across the business units of C.H. Robinson. Arun's teams will work directly with the business unit presidents to operationalize these efforts."

Summary of Third Quarter Results Compared to the Third Quarter of 2021

• Total revenues decreased 4.0% to $6.0 billion, driven primarily by lower ocean and air pricing, partially offset by higher pricing in less-than-truckload ("LTL") and truckload.
• Gross profits increased 5.0% to $880.7 million. Adjusted gross profits increased 5.1% to $887.2 million, primarily driven by higher adjusted gross profit per transaction in truckload, partially offset by the lower adjusted gross profit per transaction in ocean.
• Operating expenses increased 12.4% to $599.6 million. Personnel expenses increased 9.4% to $437.5 million, primarily due to higher average employee headcount, which increased 13.0%. Selling, general and administrative ("SG&A") expenses of $162.0 million increased 21.3%, primarily due to increased legal settlements, higher purchased and contracted services and increased travel expenses.
• Income from operations totaled $287.6 million, down 7.5% due to the increase in operating expenses, partially offset by the increase in adjusted gross profits. Adjusted operating margin of 32.4% declined 440 basis points.
• Interest and other income/expense, net totaled $16.0 million of expense, consisting primarily of $20.8 million of interest expense, which increased $7.7 million versus last year due primarily to a higher average debt balance, partially offset by a $5.2 million favorable impact from foreign currency revaluation and realized foreign currency gains and losses.
• The effective tax rate in the quarter was 16.9% compared to 16.0% in the third quarter last year.
• Net income totaled $225.8 million, down 8.6% from a year ago. Diluted EPS of $1.78 decreased 3.8%.

Summary of Year-to-Date Results Compared to 2021

• Total revenues increased 18.2% to $19.6 billion, driven primarily by higher pricing across most of our services.
• Gross profits increased 23.0% to $2.8 billion. Adjusted gross profits increased 23.1% to $2.8 billion, primarily driven by higher adjusted gross profit per transaction across most of our services.
• Operating expenses increased 14.7% to $1.7 billion. Personnel expenses increased 15.3% to $1.3 billion, primarily due to higher average employee headcount, which increased 14.0%, and higher incentive compensation costs. SG&A expenses increased 13.0% to $426.6 million, primarily due to increases in purchased and contracted services, legal settlements, travel expenses, and warehouse expenses, partially offset by a $25.3 million gain on the sale-leaseback of our Kansas City regional center.
• Income from operations totaled $1.1 billion, up 38.8% from last year, primarily due to the increase in adjusted gross profits, partially offset by the increase in operating expenses. Adjusted operating margin of 39.0% increased 440 basis points.
• Interest and other income/expense, net totaled $57.5 million of expense, which primarily consisted of $52.3 million of interest expense, which increased $14.3 million versus last year due to a higher average debt balance. The year-to-date results also included a $6.6 million unfavorable impact from foreign currency revaluation and realized foreign currency gains and losses.
• The effective tax rate for the nine months was 19.2% compared to 18.5% in the year-ago period.
• Net income totaled $844.3 million, up 37.5% from a year ago. Diluted EPS of $6.50 increased 42.5%.

North American Surface Transportation ("NAST") Results

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

Third quarter total revenues for the NAST segment totaled $4.0 billion, an increase of 4.9% over the prior year, primarily driven by higher LTL and truckload pricing. NAST adjusted gross profits increased 22.5% in the quarter to $563.8 million. Adjusted gross profits in truckload increased 20.8% due to a 20.5% increase in adjusted gross profit per shipment and a 0.5% increase in truckload volume. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, decreased approximately 13.0% in the quarter compared to the prior year, while truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 17.0%, resulting in a 15.5% increase in truckload adjusted gross profit per mile. LTL adjusted gross profits increased 22.7% versus the year-ago period, as adjusted gross profit per order increased 24.5% and LTL volumes declined 1.5%. Operating expenses increased 13.1% primarily due to increased employee headcount, legal settlements, and technology expenses. Income from operations increased 42.2% to $211.9 million, and adjusted operating margin expanded 520 basis points to 37.6%. NAST average employee headcount was up 10.8% in the quarter.

Global Forwarding Results

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

Third quarter total revenues for the Global Forwarding segment decreased 23.6% to $1.5 billion, driven by lower pricing and volumes in our ocean and air services, reflecting softening market demand. Adjusted gross profits decreased 20.1% in the quarter to $248.4 million. Ocean adjusted gross profits decreased 25.6%, driven by a 24.0% decrease in adjusted gross profit per shipment and a 2.5% decline in shipments. Adjusted gross profits in air decreased 21.1%, driven by a 16.5% decrease in metric tons shipped and a 5.5% decrease in adjusted gross profit per metric ton shipped. Customs adjusted gross profits increased 9.5%, driven by a 5.5% increase in adjusted gross profit per transaction and a 4.0% increase in transaction volume. Operating expenses increased 11.5%, primarily driven by increased salaries and technology expenses. Third quarter average employee headcount increased 13.4%. Income from operations decreased 48.0% to $86.0 million, and adjusted operating margin declined 1,850 basis points to 34.6% in the quarter.

All Other and Corporate Results

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

Third quarter Robinson Fresh adjusted gross profits increased 3.8% to $27.7 million, driven by an increase in adjusted gross profit per case, which is primarily related to integrated supply chain and technology services. Managed Services adjusted gross profits increased 10.8% in the quarter, due to growth in adjusted gross profit per transaction. Other Surface Transportation adjusted gross profits decreased 10.5% to $17.7 million, primarily due to a 7.3% decrease in Europe truckload adjusted gross profits.

Other Income Statement Items

The third quarter effective tax rate was 16.9%, up from 16.0% last year. We expect our 2022 full-year effective tax rate to be near the low end of our previous guidance of 19% to 21%.

Interest and other income/expense, net totaled $16.0 million of expense, consisting primarily of $20.8 million of interest expense, which increased $7.7 million versus the third quarter of 2021 due to a higher average debt balance, partially offset by a $5.2 million favorable impact from foreign currency revaluation and realized foreign currency gains and losses.

Diluted weighted average shares outstanding in the quarter were down 4.7% due primarily to share repurchases over the past twelve months.

Cash Flow Generation and Capital Distribution

Cash generated from operations totaled $625.5 million in the third quarter, compared to $73.5 million cash used by operations in the third quarter of 2021. The $699.0 million improvement was primarily due to a $359.3 million sequential decrease in net operating working capital in the third quarter of 2022, compared to a $411.8 million sequential increase in the third quarter of 2021. The decrease in net operating working capital in the third quarter of 2022 resulted primarily from a $655.2 million sequential decrease in accounts receivable and contract assets, compared to a $295.9 million sequential decrease in total accounts payable and accrued transportation expense.

In the third quarter of 2022, cash returned to shareholders increased 156% versus last year to $606.7 million, with $535.7 million in repurchases of common stock and $71.0 million in cash dividends.

Capital expenditures totaled $31.3 million in the quarter. Capital expenditures for 2022 are expected to be at the high end of our previous guidance of $110 million to $120 million.

Outlook

"As inflationary pressures weigh on consumer discretionary spending and global economic growth, we continue to believe that our global suite of services, our growing digital platform, our responsive team of logistics experts, and our broad exposure to different industry verticals and geographies, supported by our resilient and flexible non-asset-based business model put us in a position to continue delivering strong financial results," Biesterfeld stated. "But we also need to continue evolving our organization to bring focus to our highest strategic priorities, including keeping the needs of our customers and carriers at the center of what we do and lowering our overall cost structure by driving scale. The work that our team is executing on related to scaling our digital processes and operating model, while working backwards from the needs of our customers and carriers, is focused on driving improvements in our customer and carrier experience, and in turn, driving market share gains and growth. We're also focused on improving productivity, which in turn reduces our long-term operating costs and increases profits, leading to continued strong returns to shareholders."

About C.H. Robinson

C.H. Robinson solves logistics problems for companies across the globe and across industries, from the simple to the most complex. With $28 billion in freight under management and 20 million shipments annually, we are one of the world’s largest logistics platforms. Our global suite of services accelerates trade to seamlessly deliver the products and goods that drive the world’s economy. With the combination of our multimodal transportation management system and expertise, we use our information advantage to deliver smarter solutions for our 100,000 customers and 85,000 contract carriers. Our technology is built by and for supply chain experts to bring faster, more meaningful improvements to our customers’ businesses. As a responsible global citizen, we are also proud to contribute millions of dollars to support causes that matter to our company, our Foundation and our employees. For more information, visit us at www.chrobinson.com (Nasdaq: CHRW).

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; fuel price increases or decreases, or fuel shortages; competition and growth rates within the global logistics industry; freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight; risks associated with significant disruptions in the transportation industry; changes in relationships with existing contracted truck, rail, ocean, and air carriers; changes in our customer base due to possible consolidation among our customers; risks with reliance on technology to operate our business; cyber-security related risks; risks associated with operations outside of the United States; our ability to identify or complete suitable acquisitions; 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 the potential impact of changes in government regulations; our ability to hire and retain a sufficient number of qualified personnel; risks associated with the changes to income tax regulations; risks associated with the produce industry, including food safety and contamination issues; the impact of war on the economy; changes to our capital structure; changes due to catastrophic events including pandemics such as COVID-19; 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 Third Quarter 2022 Earnings Conference Call
Wednesday, November 2, 2022; 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

CHRW-IR

View source version on businesswire.com:https://www.businesswire.com/news/home/20221102005255/en/

CONTACT: Chuck Ives, Director of Investor Relations

Email:chuck.ives@chrobinson.com

KEYWORD: MINNESOTA UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: TRUCKING RAIL MARITIME AIR LOGISTICS/SUPPLY CHAIN MANAGEMENT TRANSPORT OTHER TRANSPORT

SOURCE: C.H. Robinson

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