Any rebound in the fiscal performance at 3PL giant C.H. Robinson looks to be a ways off.
Earnings for the fourth quarter of 2023, released Wednesday, had little good news, whether the comparison was with the fourth quarter a year earlier or sequentially from the third quarter, when the company named its still relatively new CEO and President David Bozeman.
Income from operations came in at $107.4 million, down 34.5% from a year earlier. But that key figure also was down from the third quarter number of $113.5 million.
Down the line, the comparisons were all negative. That they were worse than the fourth quarter of 2022 was not a surprise, but Bozeman cited several statistics regarding C.H. Robinson’s fourth-quarter performance, as well as the normal seasonal changes between the third and fourth quarter reflected in Cass data, to show that sequentially the company’s performance showed signs of improvement.
Still, on an outright basis, the numbers were all negative sequentially and year on year. Gross profits in the fourth quarter were $609.3 million. That was down 20% from a year earlier and down from $626.6 million in the third quarter.
Investors’ first reaction to the earnings was negative. Per Barchart data, C.H. Robinson stock was down 3.77% at about 6:20 p.m., a decline of $3.17, to $80.92. The stock is down a little less than 13% for the 52 weeks.
A new head at NAST
The lagging performance of many months might have been the cause of a significant shakeup in the company’s leadership ranks. C.H. Robinson (NASDAQ: CHRW) used the occasion of the earnings release to announce a change in the top at its North American Surface Transportation unit, the core of its 3PL activities.
It stayed in-house in appointing Michael Castagnetto to president of NAST, effective immediately. His predecessor, Mac Pinkerton, was said by C.H. Robinson to be “transitioning from his current role.”
Castagnetto had been vice president of customer success at NAST. Prior to that, he was president of Robinson Fresh, a leading delivery service of fresh food. He joined the company in 2005.
In the latest earnings report, NAST revenues were just over $3 billion for the quarter, down 15.8% from a year ago. Adjusted gross profit fell 24.3% to $380.1 million, with income from operations falling more, down 41% to $96 million.
Sequentially, revenues at NAST in the third quarter were $3.086 billion, adjusted gross profits were $386.5 million and income from operations was $112 million.
Adjusted gross profits by mode of transportation were all lower sequentially, though not by enormous amounts. Truckload profits dropped to $243.9 million from $245.4 million. LTL transportation was down only slightly, to $136.6 million from $137.9 million. Ocean dropped about $5 million to $99.2 million. But compared to a year ago, adjusted gross profits for all modes of transportation fell to $618.6 million from $634.8 million, a drop of just 2.5%.
The adjusted operating margin for the quarter was 17.4%. A year earlier it was 400 basis points higher at 21.4%. It was also 50 bps less than the third-quarter margin of 17.9%.
Adjusted earnings per share of 50 cents, a non-GAAP measure, were down from 68 cents a share in the third quarter and down 52.8% from a year earlier.
But more significantly, according to SeekingAlpha, the 50-cents-per-share number for adjusted net income came in 31 cents less than the consensus on the company’s projected earnings.
CEO lays out the weak market the 3PL faces
Bozeman, in the prepared statement, was blunt in describing the situation the company faced at the close of 2023.
Saying the outcome “did not meet our expectations,” Bozeman said C.H. Robinson “continue[s] to battle through a poor demand and pricing environment.”
“Weak freight demand in an elongated market trough, combined with excess carrier capacity, continued to result in a very competitive market,” Bozeman said. “With this environment in play, we targeted more truckload volume in the spot market, where we could capture more profit due to seasonal market tension. This led to a sequential improvement in our overall truckload profit per load in October and November. However, in December, our profit per load declined as the cost of purchased transportation moved seasonally higher.”
Bozeman said truckload business at C.H. Robinson was about a 65%-35% contractual/spot mix in securing capacity in the fourth quarter, compared to a usual mix of 70%-30%.
Responding to an analyst question about why C.H. Robinson had shifted more of its freight purchases to the spot market, COO Arun Rajan said the shift to more use of the spot market to secure capacity was “opportunistic. Where we can get profitable demand, we’ll go, and there was opportunity in the spot market. So we went there.”
Rajan said the shift was part of “revenue management” and not a sign of a longer-term shift. “In the short term, we don’t see an inflection in the market,” Rajan said. “So we’re not really triggering any major repricing other than making sure we are trying to grab as much volume as we can in the spot market.” Changes could be made if that inflection develops, Rajan said, “but we don’t quite see that yet.”
One area where changes have had an impact is employee expenses. In the North American Surface Transportation sector at C.H. Robinson, the company said it had cut its operating expenses by 16.3%, “primarily due to cost optimization efforts, including lower average employee headcount, lower variable compensation, and lower technology expenses.” The average head count was 15.8% less than a year earlier.
Better productivity numbers reported
Bozeman has spoken frequently about a push to increase productivity rather than just waiting around for the freight market to bolster C.H. Robinson’s performance. He cited a 17% improvement in the North American Surface Transportation’s group shipments per person per day, which exceeded the goal of a 15% jump “as an indicator of the progress that we’ve made on removing waste and manual touches.”
Asked about the current market past the end of the quarter, Rajan said there had been some tightness in truckload capacity in areas that had been hit by the cold snap of January. The load-to-truck ratio increased the cost per mile in those markets, he said, but “now we’re starting to see that ease up and dissipate as the weather sort of dissipates.”
“From our perspective, everything that we see in the data suggests that any cost increases we saw in January are purely a function of weather.”
CFO Mike Zechmeister, answering an analyst’s question about the strength of C.H. Robinson relative to other 3PLs, said “it is a very stressed market. And one of the things that we believe may be an advantage to use in this stressed market is that we’re still investing.” Zechmeister said when the “inevitable” market improvement comes, “we’ll be stronger as we come out.”
Zechmeister’s retirement is set for May 31 at the latest. His successor has not been named.
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