Robinson stanches margin compression with focus on profitable freight
C.H. Robinson posted second-quarter adjusted earnings per share of $1.44, handily beating the Street’s consensus estimate of $1.31/share. Gross revenue for the second quarter came in at $5.5 billion, up 52.5% from the freight market trough during the depths of COVID lockdowns a year ago.
Robinson (NASDAQ: CHRW), the leading North American non-asset third-party logistics provider, reported its financial and operating results for the second quarter of 2021 on Tuesday after markets closed.
It wasn’t just funky year-over-year comparisons that worked in C.H. Robinson’s favor this quarter. The company has gone after new business, particularly more profitable less-than-truckload and ocean freight, and grew revenue substantially compared to the first quarter of 2021. Gross revenues were up 14.5% sequentially, for instance, and earnings per share were up 12.5% quarter-over-quarter.
A comment by Robinson CEO Bob Biesterfeld put a new emphasis on selling into higher-margin opportunities. “Overall we’ll stay the course with our strategy of pursuing market share gains that align with our profitability expectations,” Biesterfeld said in a statement. Robinson management often discusses taking market share but has not historically emphasized, at least in earnings presentations, balancing profitability with growth. This language from Biesterfeld may be meant to tone down growth expectations for truckload freight, for instance, where thinner margins may be part of a secular trend.
(Charts: C.H. Robinson. Robinson emphasized its technology investments by naming Arjun Rajan, formerly of Zappos, the company’s Chief Product Officer.)
About three quarters of Robinson’s revenue is generated by its North America Surface Transportation (NAST) division, which includes truckload, LTL and intermodal freight brokerage. The remainder comes from Robinson’s Global Forwarding division, which arranges international ocean and air shipments.
In the second quarter, NAST posted revenues of $3.6 billion, up 44.9% year-over-year and up 12.5% since the first quarter. Income from operations totaled $151 million, up 10.4% compared to the year-ago period and up 11% from the first quarter.
NAST adjusted gross profit margins compressed from 13.1% in the first quarter of 2021 to 12.2% in the second quarter. It appears that NAST’s gross margins were wider in the first quarter due to a temporarily looser capacity environment in January and February that reversed itself in March and then stayed tight through the second quarter.
Truckload volume was up 6% year-over-year, while LTL volumes grew 23.5%.
Global Forwarding was the standout in the quarter, recording revenues of $1.45 billion, up 105% year-over-year and 31.8% higher than the previous quarter. Income from operations came in at $108 million, up 84.1% year-over-year and 19.3% higher than the previous quarter.
Global Forwarding’s adjusted gross profit margin narrowed to 16.5% in the second quarter from 18.5% in Q1.
Ocean freight was far more profitable for C.H. Robinson in the second quarter of 2021 than in the second quarter of 2020. While volumes were up 29% year-over-year, adjusted gross profit grew 91.7%, nearly doubling. Those year-over-year comparisons are very similar to the same numbers seen in Q1 (93.9% adjusted gross profit growth on 27% more shipments), suggesting that ocean markets are still in turmoil, with rates inflating just as rapidly this year as they did when the COVID recovery began in the middle of 2020. Ocean adjusted gross profit grew 11.5% quarter-on-quarter.
Robinson management expects strong demand and capacity constraints to keep freight markets hot through at least the rest of the year.
“Given the current structural constraints around expansion of supply, coupled with a continued reopening of the economy and other factors, we expect the current market conditions to persist through 2021,” Biesterfeld said in a statement. “Within NAST, we expect to grow our truckload and LTL volume during the remaining quarters of this year. Within our Global Forwarding business, there continues to be a robust pipeline of business and, as we move toward the peak holiday season, we expect ocean and air demand to remain strong into early 2022.”