C.H. Robinson(CHRW) - 2024 Q3 - Quarterly Results

Financial Performance Overview The company achieved strong Q3 and YTD 2024 financial performance, with significant profitability and income growth Third Quarter 2024 Highlights C.H. Robinson reported a significant year-over-year increase in profitability for the third quarter of 2024, driven by strong execution and disciplined growth. Gross profits rose 15.5% to $723.8 million, and income from operations surged 58.7% to $180.1 million. Adjusted EPS increased by 45.5% to $1.28, reflecting a substantial improvement in operating leverage and productivity Q3 2024 Key Financial Metrics (YoY) | Metric | Q3 2024 | YoY Change | | :--- | :--- | :--- | | Gross Profits | $723.8 million | +15.5% | | Income from Operations | $180.1 million | +58.7% | | Adjusted Operating Margin | 24.5% | +660 bps | | Diluted EPS | $0.80 | +17.6% | | Adjusted EPS | $1.28 | +45.5% | | Cash from Operations | $108.1 million | -$97.2 million | - The decrease in cash generated by operations was attributed to an increase in net operating working capital related to higher ocean rates[2] Management Commentary CEO Dave Bozeman attributed the strong Q3 results to improved execution from the new operating model, which focuses on disciplined volume growth, yield optimization, and increased efficiency. He emphasized the cultural shift towards proactive problem-solving and accountability, noting that while the company is early in its journey, the operating model is enhancing strategic execution and performance - The company is deploying a new operating model focused on strong execution, disciplined volume growth, and delivering exceptional service[3] - Management highlighted improved quality of volume and expanded NAST gross profit margin due to a focus on testing market conditions and optimizing yield[3] - The company remains on track to deliver over 30% compound growth in productivity from the end of 2022 to the end of 2024[3] Summary of Third Quarter of 2024 Results In Q3 2024, total revenues increased by 7.0% to $4.6 billion, primarily due to higher pricing and volume in ocean services. Adjusted gross profits grew 15.8% to $735.3 million. Despite a 6.5% rise in operating expenses, which included a $57.0 million loss on a planned divestiture, income from operations increased by 58.7% to $180.1 million. Net income rose 18.6% to $97.2 million Q3 2024 Financial Performance vs. Q3 2023 | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $4.6 billion | $4.3 billion | +7.0% | | Gross Profits | $723.8 million | $626.6 million | +15.5% | | Adjusted Gross Profits | $735.3 million | $634.8 million | +15.8% | | Income from Operations | $180.1 million | $113.5 million | +58.7% | | Net Income | $97.2 million | $81.9 million | +18.6% | | Diluted EPS | $0.80 | $0.68 | +17.6% | - Operating expenses increased 6.5% to $555.1 million, mainly due to a $57.0 million loss on the planned divestiture of the Europe Surface Transportation business and higher variable compensation, despite a 9.6% decline in average employee headcount[6] - The effective tax rate was 32.4%, a significant increase from 11.7% in Q3 2023, driven by higher pre-tax income and non-recurring discrete items[9] Summary of 2024 Year-to-Date Results For the first nine months of 2024, total revenues rose 1.2% to $13.5 billion. Adjusted gross profits increased 4.8% to $2.1 billion. Income from operations grew 19.2% to $485.3 million, and net income increased 7.6% to $316.4 million. The results reflect higher profitability in ocean and truckload services, partially offset by a $57.0 million loss on a planned divestiture YTD 2024 Financial Performance vs. YTD 2023 | Metric | YTD 2024 | YTD 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $13.5 billion | $13.4 billion | +1.2% | | Gross Profits | $2.0 billion | $2.0 billion | +4.4% | | Adjusted Gross Profits | $2.1 billion | $2.0 billion | +4.8% | | Income from Operations | $485.3 million | $407.2 million | +19.2% | | Net Income | $316.4 million | $294.2 million | +7.6% | | Diluted EPS | $2.63 | $2.46 | +6.9% | - Operating expenses for the nine-month period increased by 1.0%, primarily due to the $57.0 million loss on the planned divestiture of the Europe Surface Transportation business[13] - Average employee headcount declined by 10.5% year-to-date, reflecting ongoing cost optimization efforts[13] Segment Performance Global Forwarding and NAST segments showed strong Q3 profitability, despite NAST revenue declines, while other segments reported mixed results North American Surface Transportation (NAST) The NAST segment's Q3 revenues decreased 4.9% to $2.9 billion due to lower truckload pricing. However, profitability improved significantly, with adjusted gross profits up 8.8% to $420.7 million and income from operations increasing 32.7% to $148.8 million. This was driven by a 21.5% increase in truckload adjusted gross profit per mile and a 10.9% reduction in average employee headcount NAST Q3 2024 Financial Results (in thousands) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2,934,617 | $3,086,970 | (4.9)% | | Adjusted Gross Profits | $420,664 | $386,510 | 8.8% | | Income from Operations | $148,767 | $112,121 | 32.7% | - Truckload adjusted gross profits increased 16.6%, driven by a 21.0% increase in adjusted gross profit per shipment, despite a 3.5% decrease in truckload shipments[19] - LTL adjusted gross profits increased 3.7%, driven by a 2.5% increase in LTL volume and a 1.0% increase in adjusted gross profit per order[19] - Adjusted operating margin for NAST expanded by 640 basis points to 35.4%[19] Global Forwarding The Global Forwarding segment delivered exceptionally strong Q3 results, with revenues increasing 58.7% to $1.1 billion, driven by higher pricing and volume in ocean services. Adjusted gross profits grew 38.1% to $234.6 million. Income from operations reached $88.1 million, a dramatic increase from $3.5 million in the prior year, leading to a 3,550 basis point expansion in adjusted operating margin to 37.6% Global Forwarding Q3 2024 Financial Results (in thousands) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1,141,190 | $719,045 | 58.7% | | Adjusted Gross Profits | $234,636 | $169,893 | 38.1% | | Income from Operations | $88,115 | $3,491 | N/M | - Ocean adjusted gross profits surged 57.4%, driven by a 47.0% increase in adjusted gross profit per shipment and a 7.0% increase in shipments[21] - Air adjusted gross profits increased 11.4%, driven by a 20.0% increase in metric tons shipped[21] - Operating expenses decreased 11.9%, primarily due to prior-year restructuring expenses and current-year cost optimization efforts, including a 10.4% reduction in average employee headcount[21] All Other and Corporate In Q3, this segment saw mixed results. Robinson Fresh adjusted gross profits increased 18.1% to $36.7 million. However, Managed Services adjusted gross profits decreased 5.0% due to lower volume, and Other Surface Transportation adjusted gross profits fell 14.7%, primarily due to weakness in Europe truckload All Other and Corporate Adjusted Gross Profits Q3 2024 (in thousands) | Service Line | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Robinson Fresh | $36,708 | $31,083 | 18.1% | | Managed Services | $27,949 | $29,427 | (5.0)% | | Other Surface Transportation | $15,296 | $17,936 | (14.7)% | - The increase in Robinson Fresh adjusted gross profits was attributed to growth in integrated supply chain solutions for retail and foodservice customers[23] - The decrease in Other Surface Transportation was primarily driven by a 17.0% decrease in Europe truckload adjusted gross profits[23] Financial Details and Outlook The company reported increased interest and foreign currency expenses, a higher effective tax rate, and decreased operating cash flow despite capital returns Other Income Statement Items Interest and other expenses for Q3 totaled $36.3 million, including $22.1 million in interest expense and a $15.1 million net loss from foreign currency. The effective tax rate rose to 32.4% from 11.7% last year. The company updated its full-year 2024 effective tax rate guidance to a range of 18% to 20% - Interest and other income/expense, net was a $36.3 million expense, which included a $15.1 million net loss from foreign currency revaluation[24] - The Q3 effective tax rate was 32.4%, up from 11.7% in Q3 2023[25] - The company now expects its full-year 2024 effective tax rate to be between 18% and 20%[25] Cash Flow and Capital Distribution Cash from operations in Q3 was $108.1 million, a decrease from $205.2 million in the prior year, primarily due to a $190.0 million decline in cash provided by changes in net operating working capital. The company returned $77.1 million to shareholders through dividends and stock repurchases. Capital expenditures for 2024 are now expected to be between $75 million and $85 million Q3 2024 Cash Flow & Capital Allocation | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Cash from Operations | $108.1 million | $205.2 million | | Cash Dividends | $73.0 million | - | | Stock Repurchases | $4.1 million | - | | Total Returned to Shareholders | $77.1 million | - | | Capital Expenditures | $17.3 million | - | - The decrease in operating cash flow was mainly due to a $165.5 million sequential increase in net operating working capital in Q3 2024, compared to a $24.5 million decrease in Q3 2023[27] - Updated 2024 capital expenditure guidance is now $75 million to $85 million[28] Financial Statements and Reconciliations The company presents non-GAAP reconciliations and consolidated financial statements, detailing income, balance sheet, and cash flow for performance and position GAAP to Non-GAAP Reconciliation The company provides non-GAAP metrics such as adjusted gross profit, adjusted operating margin, and adjusted EPS to offer a clearer view of core performance. These adjustments primarily exclude items like amortization of certain software, restructuring costs, and losses on divestitures. For Q3 2024, adjusted operating margin was 24.5%, and adjusted EPS was $1.28, significantly higher than their GAAP counterparts due to a $57.0 million loss on a planned divestiture Q3 2024 GAAP vs. Non-GAAP Reconciliation | Metric | GAAP | Adjustments | Non-GAAP (Adjusted) | | :--- | :--- | :--- | :--- | | Gross Profit | $723.8M | +$11.4M | $735.3M | | Income from Operations | $180.1M | +$61.5M | $241.6M | | Operating Margin | 3.9% | - | 24.5% | | Net Income | $97.2M | +$58.3M | $155.5M | | Diluted EPS | $0.80 | +$0.48 | $1.28 | - Adjusted gross profit is calculated by excluding the amortization of internally developed software used to directly serve customers and carriers[37] - Adjustments for Q3 2024 included a $57.0 million pre-tax loss on the planned divestiture of the Europe Surface Transportation business and $4.4 million in pre-tax restructuring costs[43] Consolidated Financial Statements The consolidated financial statements provide a detailed view of the company's financial position and performance. The income statement shows a 19.2% year-to-date increase in operating income. The balance sheet indicates total assets grew to $5.61 billion from $5.23 billion at year-end 2023. The cash flow statement reveals a decrease in cash from operations for the nine-month period, from $684.6 million in 2023 to $241.2 million in 2024 Condensed Consolidated Statements of Income For the nine months ended September 30, 2024, total revenues were $13.54 billion, a 1.2% increase YoY. Income from operations rose 19.2% to $485.3 million, and net income increased 7.6% to $316.4 million, resulting in a diluted EPS of $2.63 Condensed Income Statement - Nine Months Ended Sep 30 (in thousands) | Account | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $13,540,300 | $13,374,556 | 1.2% | | Total Costs and Expenses | $13,054,958 | $12,967,378 | 0.7% | | Income from Operations | $485,342 | $407,178 | 19.2% | | Net Income | $316,384 | $294,156 | 7.6% | | Diluted EPS | $2.63 | $2.46 | 6.9% | Condensed Consolidated Balance Sheets As of September 30, 2024, the company had total assets of $5.61 billion, up from $5.23 billion at the end of 2023. Total liabilities increased to $3.97 billion from $3.81 billion, and total stockholders' investment grew to $1.64 billion from $1.42 billion over the same period Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $131,704 | $145,524 | | Total Current Assets | $3,338,986 | $2,880,694 | | Total Assets | $5,613,355 | $5,225,280 | | Total Current Liabilities | $2,240,837 | $2,051,993 | | Total Liabilities | $3,973,289 | $3,806,583 | | Total Stockholders' Investment | $1,640,066 | $1,418,697 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash provided by operating activities was $241.2 million, a significant decrease from $684.6 million in the prior-year period. Net cash used for investing activities was $59.1 million, and net cash used for financing activities was $184.2 million, which included $220.3 million in cash dividends Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $241,154 | $684,615 | | Net Cash used for Investing Activities | ($59,099) | ($66,651) | | Net Cash used for Financing Activities | ($184,244) | ($651,519) | | Net Change in Cash | ($2,842) | ($40,263) |