The beginning of the back half of the current year brought some relief to C.H. Robinson Worldwide (NASDAQ: CHRW), as the logistics specialist's third-quarter 2017 earnings filing showed evidence of both volume growth and pricing power within its operations. Before diving into details of the company's performance over the last three months, let's review the big-picture numbers.
The raw numbers
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What happened with C.H. Robinson Worldwide this quarter?
- The organization's double-digit revenue increase was accompanied by a rise in net revenue. Net revenue, which is calculated by subtracting the cost of shipment services from total revenue, increased 6.3% to $598.6 million.
- Net revenue had declined by a total of 1.3% in the first six months of the year, so shareholders were likely pleased to see improvement in this important metric, which gauges the company's ability to profitably price against outsourced logistics and transportation services.
- C.H. Robinson's largest segment, North American Surface Transport (NAST), turned in a mixed performance. Revenue rose 9.6% to $2.5 billion, while net revenue was virtually flat at $377.4 million. The company attributed the revenue improvement to better pricing power.
- NAST's operating income, however, fell 11.8% to $151.4 million, because of higher personnel expenses, and higher general, administrative, and selling expenses.
- Global Forwarding, the company's second largest segment, enjoyed an extremely strong quarter, with revenue leaping 41.3% to $552.1 million, net revenue advancing 39.1% to $130.0 million, and operating income climbing nearly 83% to $31.1 million.
- Each of Global Forwarding's three business lines, Ocean, Air, and Customs, booked double-digit net revenue gains. The company attributed approximately 18 percentage points of total segment net revenue performance to the acquisitions of APC Logistics in August 2016, and Canadian customs brokerage and freight forwarder Milgram & Company in August 2017. The rest of net revenue expansion derived from organic volume growth.
- Robinson Fresh is the company's third major segment, providing shipping logistics and transportation for the global movement of perishables. This revenue stream struggled in the first half of 2017 and continued to experience weakness in the third quarter. Robinson Fresh's revenue rose just 4% to $613.6 million, while net revenue dropped by 5% to $54.3 million. Operating income tumbled nearly 38% to $11.6 million.
- The company stated that lower net transportation revenue, and a slight decline in perishables sourcing revenue, were primarily responsible for Robinson Fresh's under-performance.
- Overall, as I discussed in both the first and second quarters of the year, firmer pricing is essential for C.H. Robinson to revitalize its net revenue. The company typically derives a higher percentage of revenue from short-term contractual relationships than from jobs priced on the spot market. Management had indicated to investors in recent quarters that the organization would begin to implement price increases as contracts came up for renewal in 2017, and apparently, new negotiations have been successful. The company reported firmer third quarter pricing in its three major transportation segments of trucking, air, and ocean.
C.H. Robinson doesn't provide specific quarterly earnings guidance. However, in the company's third quarter investor presentation, management highlighted its priorities for the coming quarter. These include a focus on growth and operating efficiency, as well as the integration of the recent Milgram & Company acquisition. Management emphasized that discipline at the account level (i.e., managing customer relationships) would be critical for success next quarter, while warning that the company could see some price volatility during the next three months.
So far, the fourth quarter has started off in a similar fashion to the third quarter. Per management, truckload volume growth was virtually flat in the month of October, while total net revenue per day in October increased 8% year-over-year. Shareholders will be pleased if the final two months of the year follow October's lead in producing a healthy net revenue increase.
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