C.H. Robinson Worldwide Inc. (CHRW), a leading third party logistics company in North America, reported mixed financial results for the first quarter of 2011 on April 26.
While earnings per share (EPS) of 59 cents missed the Zacks Consensus Estimate by a penny, revenues of $2,365.5 million breezed pass our expectation of $2,293.0 million on solid pricing and volume expansion. On a year-over-year basis, both earnings and revenue grew 18% and 14%, respectively.
First Quarter Highlights
Despite soaring crude prices and tighter transportation markets, C.H. Robinson’s earnings primarily grew on solid revenues from the Transportation segment. The capacity constraints in the truck market worked in favor and led to higher prices.
Additionally, C.H. Robinson’s “one stop shop” solution for all transportation and logistics services aided volume growth. C.H. Robinson successfully tapped shippers’ requirements for overall transportation services like truck, intermodal, ocean and air freight at lower prices and managed to garner higher demand for such services.
Total revenue in the first quarter increased primarily on the strength in the Transportation segment, which remained driven by better pricing and volume growth. However, operating expenses rose year over year as a result of increased personnel as well as selling, general and administrative expenses. In the first quarter, the company registered higher incentive compensation expenses due to increased headcount.
(Read our full coverage on this earnings report: C.H. Robinson Misses by a Penny)
Agreements of Analysts
Following the first quarter earnings release, analysts are more inclined toward the positive side in estimate revisions for the second quarter and fiscal 2011 and 2012. This trend was noticed over both the last 7 and 30 days.
For the second quarter, only 1 analyst out of 26 revised the estimate upward over the last 7 days, while no analysts made a downward revision. The last 30 days have seen 10 analysts revising upward whereas only 5 moved south.
A similar trend was noticed for fiscal 2011 and 2012: out of 27 and 25 analysts, respectively, only 1 made an upward revision while none moved downward in the last 7 days.
In the last 30 days, sixteen analysts made upward revisions while only 3 analysts made downward revisions for fiscal 2011. Similarly, for 2012, sixteen analysts provided upward revisions and only 1 revised downward.
We believe the positive outlook of analysts stems from an improving economy that supports favorable volume and pricing trends. The present supply chain dynamics remain profitable for non-asset based logistics providers like C.H. Robinson as the company can efficiently cater to shippers by utilizing its pool of network carriers to lower transportation costs.
Analysts remain optimistic for the company’s network and service capabilities in freight services, which are expected to strengthen and foster its presence in the global freight market. Further, C.H. Robinson’s broad-based growth opportunities, like internal growth, bode well for its long-term growth target of 15% in terms of gross profit (net revenue), income from operations and earnings per share.
C.H. Robinson has remained committed to shareholders for more than 25 years through dividend payments. The company currently pays a quarterly dividend of 29 cents, which was increased by 16% from 25 cents in 2010. Additionally, the company will also invest approximately $40 million, mostly toward developing information technology services.
In addition, C.H. Robinson remains focused on adding headcounts at an accelerated rate, which indicates higher demand for services. Though the increase in crew capacity is essential to support business growth, it remains critical to the company’s costs structure and is expected to adversely impact margins in the near term. However, higher pricing and volume growth above the current levels are expected to counter such expenses.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the second quarter remained static at 69 cents over the last 30 days, but grew a penny over the last 7 days. The estimate represents a sound 16.30% increase year over year.
For fiscal 2011, the Zacks Consensus Estimate inched up a penny to $2.72 over the last 30 days, but showed no variation over the last 7 days. The estimate represents annual growth of 16.94%.
Similarly, for full-year 2012, the Zacks Consensus Estimate grew by 5 cents to $3.19 over the last 30 days, but no change was registered in last seven days.
Earnings Surprises
With respect to earnings surprises, the company’s fairly good track record is expected to persist in the coming quarters. Though C.H. Robinson delivered a negative earnings surprise of 1.67% in the last quarter, it generated an average positive earnings surprise of 2.41% over the last four quarters.
Neutral Recommendation
We believe C.H. Robinson is likely to benefit from its growing Intermodal and International freight forwarding businesses. The company remains focused on expanding its network globally through key investment plans. Additionally, the company remains well positioned to achieve its long-term growth target given its strong financial position. Furthermore, the cash-rich balance sheet with no debt and increasing shareholder returns make it more attractive for long-term investment.
However, C.H. Robinson remains challenged by regulatory pressures from various government bodies, higher carrier costs and competitive threats from logistics services companies such as Expeditors International of Washington Inc. (EXPD).
Thus, we are currently maintaining our long-term Neutral recommendation on C.H. Robinson supported by a Zacks #3 (Hold) Rank.
About Earnings Estimate Scorecard
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