CH Robinson Worldwide (CHRW)

Q1 2011 Earnings Call

April 26, 2011 5:00 pm ET

Executives

Angela Freeman - Vice President of Investor Relations and Public Affairs

Chad Lindbloom - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

John Wiehoff - Chairman, Chief Executive Officer and President

Analysts

John Barnes - RBC Capital Markets, LLC

William Greene - Morgan Stanley

Justin Yagerman - Deutsche Bank AG

Ken Hoexter - BofA Merrill Lynch

Thomas Wadewitz - JP Morgan Chase & Co

Scott Malat - Goldman Sachs Group Inc.

Benjamin Hartford - Robert W. Baird & Co. Incorporated

Christopher Ceraso - Crédit Suisse AG

Edward Wolfe - Bear Stearns

Nathan Brochmann - William Blair & Company L.L.C.

Scott Flower - Macquarie Research

Alexander Brand - SunTrust Robinson Humphrey, Inc.

Matthew Brooklier - Piper Jaffray Companies

Presentation

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Operator

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Good afternoon, ladies and gentlemen, and welcome to the C.H. Robinson First Quarter 2011 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Tuesday, April 26, 2011. Now I'd like to turn the conference over to Angie Freeman, C.H. Robinson Vice President of Investor Relations. Please go ahead, Ms. Freeman.

Angela Freeman

Thank you. On our call today will be John Wiehoff, CEO; and Chad Lindbloom, Senior Vice President and, CFO. John and Chad will provide some prepared comments on the highlights of our first quarter performance, and we will follow that with a question-and-answer session.

I would like to remind you that comments made by John, Chad, or others representing C.H. Robinson may contain forward-looking statements, which are subject to risk and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. With that, I'll turn it over to John.

John Wiehoff

Thank you, Angie, and thanks to everybody for taking the time to listen to our first quarter conference call. I'd like to start by highlighting just a few of the key financial results on the press release that we sent out a little while ago.

For our first quarter ended March 31, 2011, our total revenues increased 14% to $2.4 billion. Our net revenues increased 17.4% to $390 million. Our operating income increased 15.2% to $157 million. Net income increased 15.5% to $97 million, and fully diluted EPS increased 18% to $0.59 per share.

In addition to these overall financial results, our press release gives more detailed growth percentages by our various service offerings.

In terms of overall highlights for the first quarter, we did achieve our long-term growth target of 15% in our key metrics. The growth of 21.9% in our truck net revenues for the quarter drove our earnings growth.

Compared to last year's first quarter, we experienced tighter Transportation markets or greater demand relative to supply versus a year ago. The tighter markets have generally led the price increases compared to a year ago in our Transportation services. We feel good overall about how we're adjusting to the changing market conditions. Our total Transportation gross margin of 17.2% was down slightly from 17.4% last year.

While our experience vary some by mode and service, overall, we were able to grow our Transportation volumes while adjusting the significant price increases and holding our gross margins relatively consistent with last year.

The last couple of years on these calls, we've discussed gross margin fluctuations quite a bit and how we accept them as part of our business model. Over the past 10 years, we've had reporting quarters with Transportation gross margins ranging from 15.4% to as high as 22.6%. All the variables driving that volatility: pricing, fuel, mix, seasonality et cetera, were still relevant but the net result for us overall was fairly constant gross margin percentages.

Our operating expenses grew faster than our net revenues. However, the drivers of that increase are our variable compensation incentive accruals and our litigation charge. The rest of our expenses are in line with our model and longer term expectations. Overall, we were happy with our execution and the results for the quarter.

Moving on to some prepared comments by mode or service offering, Truckload volume was up 7.5%. Excluding the estimated impacts of fuel, pricing was up 8% versus a year ago. When we discuss our results and the relationship between volume and price, it's important to remember that we are somewhat unique compared to many other Transportation businesses, and that our pricing and contractual commitments are made on a very decentralized, customer-specific basis for each of our 35,000-plus customer relationships. These percentages represent the aggregate decision-making of all those relationships versus any distinct single decision or company-wide practice.

The majority of our Truckload volume growth in the first quarter of 2011 came from existing customer relationships. The Truckload market has been tightening for several quarters now, and most in the industry are aware the challenges involved in adding additional capacity.

From account management standpoint, we've been working with our customers to adjust to the market and provide additional capacity to our current relationships. Our LTL volumes grew 18% in the quarter. Our approach of selling more outsourced solutions and automated process improvement has helped us to grow this mode of transportation. Our cost and customer pricing continue to both increase in this mode as the industry has reduced capacity in many areas, and is much more focused on efficiency, price increases and profit improvement.

Our Intermodal net revenues grew 13% for the quarter. However, our volume was down slightly. While we feel very good about our Intermodal service offering and our abilities to execute for our customers, we recognize that the Intermodal industry growth has exceeded our growth. We're committed to both quality service in Intermodal, as well as growing our business.

Our Intermodal activity includes a heavy focus on Western U.S. lanes that did not grow as much as some of the eastern activity. Weather did cause some of our multimodal place to go by truck, and we continue to work with our rail partners to ensure that we have adequate access to capacity and competitive pricing to grow this business.

Our Air, Ocean and Customs Forwarding business continues to grow and become a more relevant part of our global network of services. Ocean growth was very strong in the quarter. We continue to invest significantly in our continental leadership structures in Europe, Asia, and South America, as well as our navigator systems implementation to connect of all of our offices to 1 worldwide operating system. We feel good about the progress on these initiatives and continue to add some very good customers to our network as we grow these services. Global expansion of our network and services remains a high priority.

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