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C.H. Robinson Worldwide's(NASDAQ: CHRW)latest earnings report, issued Wednesday, revealed that the revenue weakness it experienced last quarter has persisted through the midpoint of the year. While shareholders weren't thrilled with another revenue drop, company executives offered up a tactical response to the top-line trend. We'll review management's thoughts after walking through highlights from the filing below:
C.H. Robinson Worldwide: The raw numbers
|Metric||Q2 2016 Actual||Q2 2015 Actual||Year-Over-Year Growth (Decline)|
|Revenue||$3.29 billion||$3.54 billion||(7.0)%|
|Net income||$143.1 million||$137.2 million||4.3%|
|Diluted earnings per share||$1.00||$0.94||6.4%|
Data source: C.H. Robinson Worldwide 8K filing, July 27, 2016.
What happened with C.H. Robinson Worldwide this quarter?
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- A slip in total Q2 2016 total revenue of 7% versus the prior year mirrors a Q1 2016 decline of 7%. Management cited lower pricing in truckload, air, and ocean services as a primary factor behind the softer numbers.
- The company managed an increase of 1.7% in "net revenue" -- that is, total revenue less the cost of contracted shipment services. Net revenue margin, an important company metric derived by dividing net revenue by total revenue, improved roughly 1.5 percentage points, to 18%.
- Truckload net revenue, which makes up about 55% of total net revenue, dipped 1.4% versus last year, to $329.7 million.
- Truckload volumes were actually positive, gaining 3%. But by the middle of the quarter, the decline in truckload price per mile was proceeding at a slower rate than the accompanying decline in transportation costs, resulting in the negative net revenue growth.
- In C.H. Robinson's second-largest transportation segment, "LTL," or Less-Than-Truckload, net revenue increased 9%, to $99.8 million, due primarily to appreciable volume expansion. Executives singled out temperature-controlled LTL services, which grew approximately 60% during the quarter, as a notable growth driver.
- "Global Forwarding Services," which includes ocean, air, and custom services, increased net revenue by 2.4%, to $91.8 million. Again, the company pointed to healthy volumes undercut by lower pricing power to explain the modest net revenue advancement.
- An increase of roughly 70 basis points in operating margin enabled C.H. Robinson to report higher net income despite the lower total revenue.
- The company continued to generate ample cash flow during the quarter. C.H. Robinson has produced $247.3 million in operating cash flow in the first six months of 2016.
- Management is maintaining cash allocations that are typical for the company so far this year. During the quarter, the organization paid out $63.6 million in dividends, and repurchased $24.9 million of its own shares, bringing year-to-date dividend and buyback totals to $127.5 million and $78.4 million, respectively. That equates to about 79% of net income, which is in the ballpark of management's plan to return 90% of net income to shareholders in 2016.
What management had to say
During C.H. Robinson's earnings call with analysts on Wednesday, CEO John Wiehoff broadly addressed the company's response to decelerating revenue. In essence, executives would like shareholders to focus on the value created by earnings per share (EPS) growth:
[W]e pride ourselves on maintaining great execution while we adjust to the market cycles; however, net revenue growth in truckload services is more challenging in this environment. If you look at our historical performance, we've been very consistent at delivering EPS growth that approximates or exceeds our net revenue growth. We achieve this through variable costs, productivity gains, and efficient capital management.
We continue to focus on all of these components of our business model, as we believe it's the right combination to motivate our team, serve customers and carriers more efficiently, and create shareholder value.
Very-recent trends suggest that the conditions referred to above will probably continue in the third quarter. In its investor presentation released alongside earnings, the logistics provider pointed out that, while July volumes have remained positive, total net revenue per day has declined roughly 2% during the month, setting up a "challenging" comparison for the back half of the year.
In line with Wiehoff's comments, the presentation indicated a focus on profitable growth moving forward. To that effect, shareholders looking ahead to Q3 will anticipate some compensation for a lagging top line in the form of further operating margin and net profit gains.
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Asit Sharma has no position in any stocks mentioned. The Motley Fool recommends C.H. Robinson Worldwide. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.