C.H. Robinson has weak quarter as expected, but productivity rises
The quarterly numbers for C.H. Robinson came in as one might expect for a 3PL operating in the midst of a weak freight market that has been particularly brutal for brokerages.
Total revenues were down 27.8% from the third quarter of last year. Gross profits were down almost 29%. Income from operations was down 60.5%. Adjusted operating margin was down 1,450 basis points to 17.9%.
But there was enough in the report to encourage Wall Street investors. In the first hour after the release of the earnings, the post-market price of C.H. Robinson (NASDAQ: CHRW) was up almost 4%. It recently has been trading at or near a 52-week low.
One positive: According to SeekingAlpha, the company’s non-GAAP earnings per share of 84 cents beat consensus estimates by 4 cents per share. But total revenue of $4.34 billion was short of consensus by $20 million.
C.H. Robinson President and CEO Dave Bozeman earlier has made references to faster speed and fewer “touches” to get a transaction done. He reiterated those themes:
“As has been well documented by many industry participants and observers, global freight demand continued to be weak in the third quarter,” Bozeman said in the company’s earnings release, the first that has come after a full quarter with Bozeman in the company’s top job. “We are staying focused on what we can control, by providing superior service to our customers and carriers, executing on our plans to streamline our processes by removing waste and manual touches, and delivering tools that enable our customer- and carrier-facing employees to allocate their time to relationship building and exception management.”
Bozeman also said that though he is “pleased” with the team’s efforts, “I’ve challenged them to increase our class speed on decision making and improvement efforts.”
Those cost-cutting efforts were obvious in other data in the earnings. Total operating expenses were down 13.1%. Personnel expenses were lower by 21.5%, and average head count was down 13.7%.
But Amit Mehrotra of Deutsche Bank saw little that was encouraging in the report. After parsing the numbers, he said reductions in expenses didn’t have the impact that might be expected with gross revenue and net revenue down the same percentage. There were restructuring charges taken by the company as part of its cost-cutting efforts, which Mehrotra described as “notable.” But beyond the equal drop in net and gross revenue, he pointed out that adjusted profits were down roughly double the rate of those drops in revenue, which would not be the case if the cost cuts were having a significant impact on profitability.
In C.H. Robinson’s North American Surface Transportation (NAST) results, the heart of the company’s brokerage business, total revenues were down 22.9% to just over $3 billion, down about $915 million. But the decline in adjusted net profits was greater at 31.4%, down to $386.5 million from $563.8 million. Income from operations took an even bigger hit, dropping 47.1% to $112.1 million.
In its release, C.H. Robinson said the drop in revenue was “primarily driven by lower truckload pricing, reflecting an oversupply of truckload capacity compared to soft freight demand.”
Other data from NAST: The group experienced a 6% decline in truckload shipments. The average linehaul rate per mile, excluding fuel, was down about 16.5% from the prior quarter compared to 2022. Costs were down 13.5%. Adjusted gross profit per mile in truckload activity was down 34% from the prior year.
In its LTL operations, C.H. Robinson saw its shipments decline 2%. LTL adjusted gross profit per order was down 13.5%.
Although the discussion of the recent failure of digital brokerage Convoy was brief, with no indication that its collapse had led to any meaningful uptick in business for C.H. Robinson, Bozeman did suggest that the turmoil among some digital brokers was going to benefit the company. “During my many discussions with customers over the past four months, it’s clear that they prefer partners who have financial strength and can invest through the cycles in the customer experience,” he said.
With a stronger freight market not likely to ride to the rescue of C.H. Robinson — or anybody for that matter — anytime soon, Bozeman since his first earnings call has focused consistently on the need for productivity improvements.
And in the third-quarter earnings call, he said the company is getting them. He cited several statistics: an 18% year-to-date increase in shipments per person per day. He said the target for the year was 15% so C.H. Robinson is on track to hit that goal.
The increase in productivity and getting ready for what Bozeman described as “the eventual freight market rebound” is going to need a key component, he said: “growing volume without adding head count. … We believe our team’s continuous efforts to streamline our processes and remove manual touches gets us there.”
CFO Mike Zechmeister said when asked about October trends that even in the wake of the Convoy collapse, “the trends that we’re seeing have been pretty consistent.” Zechmeister also said that C.H. Robinson would have thought that more carrier capacity would have exited the market by now, but pricing has been “at or near the breakeven cost for the carriers. So the exits have been a little slower.”
Asked by an analyst on the call whether the head count cuts have been too deep to have C.H. Robinson ready to take advantage of a recovery, Bozeman said the company believes it has “sufficient capacity for what would be a normal recovery.” But he said capacity is something “we execute on each day, and we’re building ourselves up for the eventual rebound of the market. We need to have the capacity while keeping our head count in check.”
Zechmeister said the company is currently moving a mix of 70% contract and 30% spot freight, a ratio he said is “unusually tilted toward contract for where we are in the cycle.” By contrast, for three quarters of the strong 2021 market, the split was 55% contract and 45% spot.
Separately, COO Arun Rajan said C.H. Robinson has started to use generative AI to “fill in the blanks where there’s incomplete and unstructured information in an automated process.” The result is that the company has been able to cut the time needed to generate a quote to counterparties from about five minutes to less than one minute. It’s been utilized enough that Rajan said in the last week of the third quarter, more than 10,000 “transactional quotes” were created using a generative AI “agent.”
Expanding the offerings will eventually allow quotes to be generated 24 hours per day, Rajan said.
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