The C.H. Robinson second-quarter earnings report and call with analysts was a time to review another three months of weak performance and also introduce new CEO Dave Bozeman to the analyst and investor community.
Similar to the performance at 3PL rival RXO, C.H. Robinson (NASDAQ: CHRW) recorded a second quarter that was significantly worse than a year earlier. But unlike RXO, Q2 saw weakening from the first three months of the year.
In the key North American Surface Transportation (NAST) sector at C.H. Robinson, total revenues declined to $3 billion in the second quarter, down from $3.3 billion in the first. Adjusted gross profits fell to $400 million from $426.6 million, while income from operations slid to $117.9 million from $134 million.
The adjusted operating margin for the NAST sector was 29.4% in the quarter. During the question-and-answer portion of the call, CFO Mike Zechmeister said the target adjusted operating margin for NAST is 40%, “and it’s been out there for quite a while.”
“We feel really good about the progress that we’ve made on productivity,” Zechmeister said. He said C.H. Robinson’s goal was to improve shipments per day at NAST by 15% by the end of the year, and that figure already was up 12% halfway through 2023.
Breaking the results down by adjusted gross profit in individual service lines, the second quarter was worse than the first. Adjusted gross profits, a non-GAAP measure, declined to $261.1 million for truckload operations, down from $288.6 million in the first quarter. LTL adjusted gross profit was mostly flat at $137.2 million, down from $138.7 million.
Overall, the second quarter adjusted operating margin on $4.42 billion in revenue and $665.5 million in adjusted gross profit resulted in a 19.9% operating margin, down 360 basis points from the first quarter and down a whopping 2,560 bps from the second quarter of 2022.
Other year-on-year comparisons were universally bleak. Gross profits of $656.7 million, a GAAP measurement, were down 35.9% from a year ago. Income from operations at $132.6 million was lower by 71.8%. Cash generated by operations was down $40.4 million to $224.8 million.
But the Q&A part of the call, the first for Bozeman since the former Ford executive was named CEO, was an opportunity for analysts to probe him about some of his conclusions about the company since he took over the corner office on June 26.
Bozeman made an opening statement. “When I look at C.H. Robinson, I’m excited about the potential benefits from generative AI in conjunction with the machine learning and artificial intelligence that the company has already been utilizing,” he said.
C.H. Robinson has “more data in history to leverage than any other 3PL and we have opportunities to harness the power that these advanced technologies now offer to further capitalize on our information advantage.”
Bozeman, asked by several analysts about his long-term plans for the company, avoided specifics, instead laying down a more general philosophy.
He said he had been traveling throughout the C.H. Robinson network of offices and that what surprised him was that the company’s level of technology — reportedly an issue that helped lead to the ouster of his predecessor, Bob Biesterfeld — was far better than he expected.
“This is a company that is really on the leading edge with technology and then adding scale to it,” Bozeman said. But he added that his interactions had led him to “see the waste so you can fix [it], fix it fast and take this waste out.
“That’s why I feel so happy about where we are, and eventually when this upturn comes where we’ll be from a positioning perspective.”
He brought up the pace of change in answer to a separate question. “The focus is around driving waste out with the end game of profitable growth and really getting the organization to latch on to faster speed of decisions and speed of innovation,” Bozeman said. “And, ultimately, looking around corners to set itself up for what is going to be an eventual turnaround and that’ll put us in a very strong position with our scale and our balance sheet.”
The question of “speed” came up several times during Bozeman’s comments. “We’re going to be laser-focused on speed,” he said. “It is imperative.” Improving that “clock speed” will be possible as “the company continues to use technology as an enabler with its people.”
C.H. Robinson already has gone through rounds of layoffs this year and in late 2022. Zechmeister, in response to an analyst’s question, said head count at the 3PL is down 13% year over year, and that the cutbacks aren’t done. But he added that the second half of 2023 won’t see “nearly as dramatic reductions as we saw in the first half.”
Head count stood at 15,763 at the end of the second quarter.
Zechmeister, echoing Bozeman, said improvements could come from other areas. The cutbacks in personnel are an “accelerant,” he said, but the combination of machine learning and generative AI can “find the exceptions in the work that our people have been handling here historically.”
“Now with generative AI, we’ve got the ability to do that in a more automated way and really enable our folks,” Zechmeister said.
Reviewing the market conditions that C.H. Robinson faces, he said the company’s prices received in the quarter were down 23% while costs came down just 19%. “That’s margin compression for us,” he said, but added that “it’s not what we would expect going forward. But that’s the point in the cycle that we’re at right now.”
Ultimately, he said, “truckload price follows costs, and that gets right to the root of the issue for us here in the second quarter and probably in the third.”
While costs have been going down, the truckload line-haul cost per mile started to level off in May and June, Zechmeister said. The end result is that the cost per mile at the end of the quarter was just 2 cents less than where it was at the end of the first quarter.
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