C.H. Robinson’s model increasingly validated with another solid quarter

When Bozeman took over as CEO in June 2023, his first earnings call was at the start of August. There was an undercurrent of skepticism from analysts about whether the former Ford executive could transform the brokerage company that had been struggling by virtually every metric and had fired its previous CEO at the start of the year.

One questioner on that August call referred to Bozeman’s “background in some of the other maybe more disruptive parts of the brokerage industry that have shown an ability to take quite a bit of share in very short periods of time.” That appeared to be a reference to Bozeman’s time with Amazon, where he was involved in freight operations.

And then the question that hung over that meeting: “What’s different about them versus what Robinson’s been doing recently?”

There was nothing like that on Wednesday’s earnings call. Virtually every analyst question was prefaced with congratulations for the third-quarter performance. 

When questions arose about “the model,” Bozeman’s shorthand for the Lean system-based changes at C.H. Robinson (NASDAQ: CHRW), there was no sense of irony or skepticism. As Ken Hoexter of Bank of America Merrill Lynch asked Bozeman in reference to a market “inflection” when the freight recession turns bullish, “When it approaches, how do you think that impacts the business in the new operating model?”

Numbers supporting the model

If the model is being accepted by the analyst community, it’s because once again C.H. Robinson posted earnings that backed up the boasting.

The most significant number in the earnings to reflect how far C.H. Robinson has come may have been the adjusted gross profit margin for the company’s transportation operations. The North American Surface Transportation (NAST) segment is the bulk of that, but activities such as the Global Forwarding business are in there too.

Adjusted gross profit margin, a non-GAAP measurement, was 16.4% in transportation in the third quarter. It had not been that high since a 16.9% figure was posted in the third quarter of 2019. During that same year, the first two quarters came in at 18.6% and 18.3%.

But 2019 was a weak year in trucking. Brokerages benefited from that because contractual business they had secured in 2018, a strong market, could be supplied with spot capacity from the 2019 sliding truckload market.

The 16.4% figure for the third quarter of 2024 had no such benefit. Spot rates were mostly higher for the quarter, so to claw back to a 16.4% margin from 15.4% in the first quarter and 15.8% in the second took more than just the market breaking the right way for C.H. Robinson.

The bottom-line number for C.H. Robinson is that its non-GAAP earnings per share of $1.28 beat consensus forecasts by 13 cents, according to SeekingAlpha. Revenue of $4.64 billion beat consensus by $100 million.

Year-on-year gains starting to emerge

Improvements in the stock price at C.H. Robinson since the company’s surprising first-quarter report, which set off a sharp run-up, have come mostly on the strength of sequential improvements. For the first two quarters, the year-on-year comparisons were poor.

But the third-quarter figures began to show some notably better numbers compared to a year earlier, even as some of the sequential numbers were only modestly improved from the first two earnings reports of 2024.

For example, the adjusted operating margin for the company as a whole was 24.5% in the third quarter. That was better than a year earlier by 660 basis points but had actually slid from the 25.9% posted in the second quarter.

And while total revenue was down, “the model” was seen as driving improvements in gross profits across the company’s sectors. Truckload gross profit was up 12.2% from a year earlier; LTL was up 3.7%; ocean was up 36.25% – admittedly helped by “pull forward” business in anticipation of a port strike; and gains also came in the air and customs business.

Compared with the second quarter, truckload had only a small improvement sequentially, LTL had a slight decline, and ocean, air and customs posted solid gains in profitability.

Bozeman, in his opening remarks on the call, said the results “reflect continued improvement in our execution as we continue to deploy our new operating model. We are raising the bar even in an historically prolonged freight recession, with strong execution and disciplined volume growth across divisions while delivering exceptional service for our customers and carriers.”

The recent history of C.H. Robinson stock is that when the shockingly good first-quarter earnings were released at the end of April, shares added about $9 to a price near $72 pre-earnings. A subsequent earnings shock for the second quarter added about $11 to a stock that at the time had been near $89. The recent 52-week high was $113.10; C.H. Robinson closed Wednesday at $109.64 and was up about 30 cents in post-close trading, after the earnings came out. 

Among other freight-related discussions from the earnings call:

• Michael Castagnetto, the president of NAST, was asked about reports of a shift in the market away from brokers and toward asset-based carriers. “Traditionally, you see movement in the low end of the cycle toward the asset-based, but we feel really good about how we’re competing in the marketplace,” Castagnetto said. C.H. Robinson “feels really good” about gains in what Castagnetto called “wallet share gains in the contractual space,” a concept discussed during the call that boils down to not chasing volume for the sake of volume. “I think we’ve been pretty honest about how we’re attacking the transactional space and being disciplined,” he said. Castagnetto said during the call that “routing guides are performing incredibly well,” which would mean contract freight is likely to stick with the carrier that signed it up in the first place. “There’s not a lot of freight that’s flowing out of that into the transactional spot market, and in that spot market, it’s incredibly competitive.” C.H. Robinson is focused on “winning the right freight for us,” Castagnetto said.

• Arun Rajan, chief strategy officer, reprised his comments from previous conference calls about C.H. Robinson’s increasing use of technology and generative AI. He ascribed the improved average gross profit performance in part to “the rigor and discipline in our pricing and procurement efforts,” which now feature annual generation of more than 2 million “algorithm-driven spot rates across truckload and LTL. We’re performing more frequent price discovery and enhancing the quality of the pricing that we deliver.” Generative AI at C.H. Robinson is being used, according to Rajan, to “automate customer coding, order entry, low tenders, appointment scheduling or other manual tasks.”

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