C.H. Robinson posted a second consecutive quarter that exceeded expectations, sent its stock higher in post-market trading and is starting to indicate that Dave Bozeman, roughly one year on the job as CEO, is making changes that are having an impact on the giant brokerage.
When C.H. Robinson (NASDAQ: CHRW) released its first-quarter earnings at the end of April, management’s focus on the subsequent call with analysts was on how the 3PL did sequentially, because comparisons to the corresponding quarter a year earlier remained weak. And although sequential comparisons are almost always considered less important in the stock market, it sent C.H. Robinson’s share price higher, enough that the stock price of $72.09 on the May 1 close, when the earnings were released post-market, was closing in on $88 by the end of May.
A similar reaction occurred in the market Wednesday. By approximately 5:50 p.m., even as C.H. Robinson’s earnings call with analysts continued, its price had risen about 11% to $98.85.
But the key difference between the two quarters is that while the good news three months ago might have been mostly sequential, year-on-year comparisons this time around were mostly positive also.
Profit measure up at NAST
The North American Surface Transportation segment, which conducts the company’s truck, ocean and air brokerage activities, reported a 3% decline in revenue from a year ago. But the segment’s adjusted gross profit (AGP) was up about 4.5%.
Within NAST, truckload gross profits were about 4.75%, LTL was up about 5.9% and ocean gross profits rose 7.9%. Only air gross profits declined, dropping 9.1%.
Sequential comparisons for the individual segments within NAST also were higher. For example, truckload AGP was up 6.1%. Truckload is the largest segment within NAST.
Without providing numbers, Bozeman said the company’s truckload operations gained market share for the fourth consecutive quarter, “and we took share the right way, with margin improvement in mind.”
The adjusted operating margin for the company as a whole exclusive of restructuring costs rose 600 basis points to 28.1% from 22.1% a year earlier. Adjusted income from operations for the company as a whole was up almost 32%.
The bottom-line number of non-GAAP earnings per share of $1.15 beat consensus forecasts by 19 cents a share, according to SeekingAlpha. Total revenue of $4.48 billion was short of consensus forecasts by $40 million.
The year-on-year improvements at C.H. Robinson match Bozeman’s tenure almost exactly; he started as CEO on June 26, 2023, and the second quarter of 2024 ended on June 30.
Explaining the model
Bozeman referred on the call to the “new Robinson operating model.” In his opening remarks, he discussed some of the principles of that model in significant detail, notably different from some earlier earnings calls on which analysts seemed to be scratching their heads over what the philosophy that Bozeman was espousing actually entailed.
C.H. Robinson implemented a “balanced scorecard for the enterprise that cascades down to strategy maps and scorecards for each division for the functional support areas,” Bozeman said. The scorecards contained “key metrics,” he added.
“These metrics may be related to driving growth, meeting customer expectations, optimizing AGP, optimizing cost, managing our talent, improving our cash conversion cycle through a regular cadence of operating reviews on at least a monthly basis,” Bozeman said. “But in some cases, weekly or even daily scorecard metrics are reviewed. And there’s a binary view of whether they are on track.”
Red or green but no yellow
That binary choice is whether the metrics are on track and “green,” Bozeman said, or “red if they’re not on track.”
“There is no yellow,” the CEO added.
When the process yields a red signal, according to Bozeman, change is needed. “This may show up in improvements such as more disciplined pricing, better decisions on the volume that we’re seeking, or how we’re servicing our customers and carriers,” he said. “These operating reviews prosecute the problem and not the person, as we want our people to embrace the red as an opportunity for improvement.”
The improvement in NAST’s AGP was not consistent through the quarter. Michael Castagnetto, the president of NAST, said AGP per day was down 5% in April, up 1% in May and then up 15% in June.
Some of it was business-related, Castagnetto said, citing a growth in seasonal produce though adding that the same market feature would have been in place a year earlier.
But “number one, obviously” he said, is that “our operating model is still coming into its own. I would expect that as time passes, we get better and the performance should reflect that.”
Separately, in response to an analyst question, Castagnetto said C.H. Robinson is “really starting to see the leverage of the tools related to our dynamic pricing and costing come to life over the last couple of quarters.”
The improvement in AGP at NAST was not on the back of significant volume. Castagnetto said truckload volume in NAST was up 1.5% sequentially as well as year over year, though he noted that even that small level of growth topped most other carriers during the quarter.
Staff size discussed
Pushing back against reports of significant cutbacks in its sales team, Castagnetto said C.H. Robinson is “actively growing our sales team.”
But there have been changes in operations, he said. “What we did during the quarter was really changed the methodology and the process through our operating model to make sure that we’re putting the right sales process in place and doing it with the right folks with the right customers,” Castagnetto said.
He said there had been “some changes in how we manage that group” but that the “anticipation is that we’re going to continue to add to that growth and pursue growth opportunities.”
Bozeman said C.H. Robinson head count is down 10% year over year.
A day earlier, Werner Enterprises (NASDAQ: WERN) CEO Derek Leathers said on his company’s conference call that the market might be starting to turn more positive for carriers but had not truly roared ahead. Castagnetto said something similar Wednesday.
“From a market balance perspective, we continue to be in a drawn-out stage of capacity oversupply,” he said. “Although carrier attrition is occurring, it remains at a slower pace and not enough to materially impact the overall market.”
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