Summary
C.H. Robinson, the leading third-party logistics provider at nearly $8 billion in revenue, posted $95.5 million in third-quarter net profit despite a 15.6 percent decline in revenue to $1.95 billion. Its core trucking business rose 2.1 percent as the nation's industrial base began its economic recovery, although its ocean shipping business was off nearly 22 percent and its intermodal revenue decline 30 percent, although it was a small percentage of its overall business.
Analysis
The headline on this third-quarter earnings report by C.H. Robinson is really misleading. While "weak demand" did affect CHR's overall revenue, its quarterly profit actually rose by 3 cents a share compared with the comparable period a year ago. It also exceeded some analysts' expectations.
Not bad, considering:
1. The nation's industrial base is just now emerging from the sharpest economic downturn in more than half a century.
2. Overcapacity in the truckload sector hurt everyone's profit margins in the trucking business, which provides the lion's share of CHR's revenue.
3. Pricing in truckload has been brutal, as shippers and third-parties continue to bargain for rock-bottom rates.
All in all, CHR's performance is actually pretty impressive, in my opinion. CHR's business model is second to none. Its executive suite -- and more importantly, its operations units -- are stocked with top-flight executives from the trucking industry. They know where to hunt for bargains, and operational efficiencies. That's why shippers of all stripes -- especially small LTL shippers whose loads can easily be transformed into more efficient TL moves -- continue to flock to CHR to obtain efficiencies they could not do by themselves.
I recall talking with a small Ohio-based distributor of sporting goods recently. This transportation manager was a sharp guy, using a half-dozen or so LTL carriers and thought he was managing his transportation spend most efficiently.
The CHR rep called him one day and asked if he could review his business. What the heck, my source recalled. CHR came back two weeks later with a comprehensive business plan, consolidating loads and reducing the number of overall shipments, while reducing this shipper's transportation costs by 18 percent in the first year. The savings are continuing, I should add.
These types of scenarios are being played out daily throughout the transportation spectrum. It's not just C.H. Robinson taking advantage of these opportunities. Other well-known 3PL's such as Ryder System, Menlo Logistics, Schneider National Logistics and others that are taking hold in the market place.
Some analysts seemed concerned with CHR's gross margins in the most recent quarter. True, they are down. But considering where the overall market has been, and the overcapacity available, I believe these margins are actually quite acceptable, given the overall market conditions right now.
CHR has proven that its business model worked well in good times such as the period from 2002 through 2006. Its performance recently has also proven that its business model can be tweaked to provide value even in poor economic conditions.
If there's any hint of tightening capacity as the nation enters its economic recovery, look for trucking rates to increase as shippers try to lock in capacity. That will only enhance CHR's value to customers seeking not just value but space.
