C.H. Robinson(CHRW) - 2023 Q2 - Quarterly Report

PART I - Financial Information Item 1. Financial Statements (Unaudited) This section presents C.H. Robinson Worldwide, Inc.'s unaudited condensed consolidated financial statements for Q2 2023 and the six months ended June 30, 2023 Condensed Consolidated Balance Sheets Total assets decreased to $5.41 billion from $5.95 billion at year-end 2022, primarily due to reduced receivables, while total liabilities also declined Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $3,051.5 | $3,589.2 | | Total assets | $5,405.3 | $5,954.6 | | Total current liabilities | $2,761.5 | $3,322.9 | | Total liabilities | $4,017.2 | $4,601.1 | | Total stockholders' investment | $1,388.1 | $1,353.4 | Condensed Consolidated Statements of Operations and Comprehensive Income Q2 2023 total revenues declined 35.0% to $4.42 billion, with net income decreasing 72.1% to $97.3 million and diluted EPS falling to $0.81 Q2 2023 vs Q2 2022 Performance (in millions, except per share data) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Total Revenues | $4,421.9 | $6,798.5 | | Income from Operations | $132.6 | $469.7 | | Net Income | $97.3 | $348.2 | | Diluted EPS | $0.81 | $2.67 | Condensed Consolidated Statements of Stockholders' Investment Stockholders' equity changes for H1 2023 include $212.2 million net income, $147.2 million in dividends, and $62.8 million in common stock repurchases Changes in Stockholders' Investment (Six Months Ended June 30, 2023, in millions) | Activity | Amount | | :--- | :--- | | Balance, Dec 31, 2022 | $1,353.4 | | Net Income (H1 2023) | $212.2 | | Dividends Declared | ($147.2) | | Repurchase of Common Stock | ($62.8) | | Balance, June 30, 2023 | $1,388.1 | Condensed Consolidated Statements of Cash Flows Net cash from operations significantly increased to $479.4 million from $251.3 million in H1 2023, while financing activities used $432.1 million for debt, dividends, and repurchases Cash Flow Summary (Six Months Ended June 30, in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $479.4 | $251.3 | | Net cash used for investing activities | ($51.3) | ($6.2) | | Net cash used for financing activities | ($432.1) | ($257.2) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies and financial items, including segment reporting, financing, stock-based compensation, and restructuring activities - The company's reportable segments are North American Surface Transportation (NAST) and Global Forwarding, with other activities grouped into All Other and Corporate[38] - As of June 30, 2023, the company had total debt of approximately $1.74 billion across various facilities, including a $1 billion revolving credit facility and a $500 million receivables securitization facility[23][198] - The company recognized restructuring charges of $14.1 million in Q2 2023, primarily related to workforce reductions, with actions expected to be complete by the end of 2023[124] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2023 financial performance, attributing revenue and profit declines to challenging market conditions, excess carrier capacity, and suppressed freight rates - Market conditions in Q2 2023 were characterized by plentiful carrier capacity relative to demand in North American surface transportation, suppressing rates, with the truckload routing guide depth falling to 1.1, its lowest level since Q2 2020[133] - In global forwarding, higher ocean vessel and air freight capacity than demand kept rates low, a trend that began in H2 2022, with weak consumer demand nearly eliminating port congestion and equipment shortages[107] Q2 2023 vs Q2 2022 Consolidated Performance | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $4,421.9M | $6,798.5M | (35.0)% | | Adjusted Gross Profits | $665.5M | $1,031.6M | (35.5)% | | Income from Operations | $132.6M | $469.7M | (71.8)% | | Diluted EPS | $0.81 | $2.67 | (69.7)% | North American Surface Transportation (NAST) Segment Results NAST segment income from operations fell 57.4% to $117.9 million in Q2 2023, driven by lower pricing and margins in truckload services due to excess capacity NAST Q2 2023 vs Q2 2022 Performance (in millions) | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $3,079.3 | $4,147.0 | (25.7)% | | Adjusted Gross Profits | $400.5 | $624.6 | (35.9)% | | Income from Operations | $117.9 | $276.5 | (57.4)% | - The average truckload linehaul rate charged to customers decreased by approximately 23.0%, while the cost per mile paid to carriers decreased by only 19.0%, compressing margins[179][134] Global Forwarding Segment Results Global Forwarding operating income dropped 82.3% to $29.6 million in Q2 2023, due to significantly lower margins and volumes in ocean and air freight services Global Forwarding Q2 2023 vs Q2 2022 Performance (in millions) | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $779.9 | $2,093.2 | (62.7)% | | Adjusted Gross Profits | $179.2 | $324.4 | (44.8)% | | Income from Operations | $29.6 | $167.6 | (82.3)% | - Volume declines in Q2 2023 vs Q2 2022 were significant: Ocean volumes decreased by 7.0%, air freight tonnage by 2.0%, and customs transactions by 14.5%[192][108] All Other and Corporate Segment Results All Other and Corporate segment reported a $14.9 million operating loss in Q2 2023, despite a 3.8% increase in adjusted gross profits driven by Robinson Fresh and Managed Services All Other and Corporate Adjusted Gross Profits (Q2, in millions) | Business Line | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Robinson Fresh | $37.9 | $35.0 | 8.3% | | Managed Services | $29.0 | $27.6 | 4.8% | | Other Surface Transportation | $18.9 | $20.0 | (5.7)% | | Total | $85.7 | $82.6 | 3.8% | - Growth in Robinson Fresh was driven by increased case volume and integrated supply chain solutions for foodservice customers, while Managed Services grew with existing and new customers[196][3] Liquidity and Capital Resources The company maintained strong liquidity, with cash from operations increasing to $479.4 million in H1 2023, sufficient for future needs despite debt repayments, dividends, and share repurchases - Cash flow from operations improved by $228.0 million in the first six months of 2023, despite a decrease in net income, due to changes in working capital from declining freight rates and lower volumes[169][189] - The company remains committed to its quarterly dividend and share repurchases to enhance shareholder value, though the pace of repurchases may be affected by debt reduction plans[216] - As of June 30, 2023, the company was in compliance with all debt covenants[217] Item 3. Quantitative and Qualitative Disclosures About Market Risk As of June 30, 2023, there were no material changes in the company's market risk compared to its 2022 Annual Report on Form 10-K - There were no material changes in market risk from those disclosed in the company's 2022 Annual Report on Form 10-K as of June 30, 2023[220] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023[221] - There were no changes in internal control over financial reporting during Q2 2023 that have materially affected, or are reasonably likely to materially affect, internal controls[222] PART II. Other Information Item 1. Legal Proceedings The company is not subject to any material pending or threatened litigation beyond routine business operations - The company reports no material litigation outside of routine proceedings from ordinary business operations, and any potential losses are not expected to have a material effect on financial results[224] Item 1A. Risk Factors This section updates risk factors, including the appointment of a new CEO and a new risk concerning the use of machine learning and artificial intelligence - A new risk factor was added regarding the use of machine learning and AI, citing risks of falling behind in technological development, as well as potential liabilities from regulatory, ethical, and security concerns[226] - The company appointed David Bozeman as its new President and Chief Executive Officer, effective June 26, 2023[207] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 329,256 common shares at an average price of $96.41 in Q2 2023, with 6,763,445 shares remaining authorized for future repurchases Share Repurchases in Q2 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2023 | 111,642 | $96.12 | | May 2023 | 110,469 | $100.69 | | June 2023 | 125,663 | $92.92 | | Q2 2023 Total | 347,774 | $96.41 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the new CEO's employment letter and Sarbanes-Oxley certifications - Key exhibits filed include the employment agreement with new CEO David Bozeman and Sarbanes-Oxley certifications[210]