Robinson results under microscope

  • Article by: STEVE ALEXANDER
  • Star Tribune
  • October 22, 2011 - 6:14 PM

Investors in troubled times often look to C.H. Robinson Worldwide for steadiness.

But Robinson, one of the nation's largest and most stable transportation and logistics firms, wasn't offering much hope over the summer, when the markets were retreating and speculation was growing about a second recession. The Eden Prairie firm saw its $80.25 stock price plummet about $17 a share in July and August, after it reported slower growth in its trucking business.

Some analysts viewed the second-quarter results as evidence that C.H. Robinson might be losing its competitive edge. Others saw it as a troubling sign that the trucking industry was hitting rough times, a bellwether that overall economic activity may be slowing.

"People pay attention to trucking volume trends because they want to see how the economy is flowing, whether inventories are full, whether people are buying things," said Matt Young, an analyst for Morningstar in Chicago.

On Tuesday, C.H. Robinson will release third-quarter financials, and investors and analysts will be watching with various expectations. Is it a growing firm in a slowing market, or a firm with slowing growth that mirrors its industry? And what does that mean for the U.S. economy?

"You get swings in the market when the larger economy affects expectations," Young said. "And expectations for economic growth are all over the board, so Robinson's results may or may not meet people's expectations."

Ben Hartford, an analyst at Robert W. Baird in Milwaukee, is more interested in C.H. Robinson's competitiveness.

"The second-quarter weakness meant that C.H. Robinson's market share gains had slowed to virtually nothing," Hartford said. "That caused concerns because this is a premium-priced stock. What investors will look for in the third quarter is that limited market share gains were an anomaly and not a trend."

C.H. Robinson, which is within the federally mandated quiet period preceding its earnings release, declined to comment for this story.

Attractive business model

Last month, C.H. Robinson CEO John Wiehoff conceded that the company's market share gains had diminished.

"We continue to take market share, maybe not as aggressively or as well as we have in every period," Wiehoff said at the RBC Capital Markets' Global Industrials Conference. "But we really don't see anything that's fundamentally different in our business model or our approach or the competitive landscape that we think is of concern or is of a significant shift in terms of what we're about."

Despite the scrutiny, analysts like the C.H. Robinson business model: The company doesn't own any trucks, preferring instead to hire others to deliver its freight loads at the lowest available prices. Because the company lacks fixed equipment costs, it can weather economic downturns better than trucking firms that own trucks, analysts say.

"They are the quintessential non-asset-based carrier," said Jon Seltzer, a marketing instructor at the University of St. Thomas in St. Paul. "And that puts them in the enviable position of being basically a buyer and seller of transportation services. That gives me underlying confidence that they can weather downturns in the economy."

No trucks, but it's big

Size also helps the firm weather ups and downs. C.H. Robinson, which calls itself one of the world's largest third-party logistics firms, had 2010 revenue of $9.3 billion and last year handled 9.2 million shipments for more than 36,000 customers. In addition, the firm continues to be in the fresh-produce business, which it started when it was founded in 1905. It buys, sells, markets and often transports produce for grocery stores, restaurants, wholesalers and food-service distributors.

But C.H. Robinson's financial results have to be read with caution, Young said. Because Robinson has other business interests in logistics, it's not a pure play trucking company and therefore not the best indicator of how the trucking market is faring. Trucking has suffered from weak demand while logistics has been growing, he said.

Analysts that have published research notes on the company have been fairly positive.

"Despite an anemic economy, we believe C.H. Robinson will continue to take [market] share in the third quarter, particularly in the less-than-truckload area where we have volumes rising 11 percent year over year," wrote Raymond James analyst William Fisher in an Oct. 13 research note.

"We expect C.H. Robinson to remain on a path of solid earnings per share growth in the second half of 2011," wrote J.P. Morgan analyst Thomas Wadewitz in a Sept. 13 research note. However, the company may gain transportation market share at a slower rate than before, he said.

In the second quarter, C.H. Robinson earned 67 cents a share on revenue of $2.7 billion. Fisher and Wadewitz predict Robinson will earn 68 cents a share in the third quarter, and Hartford predicts 69 cents. The Wall Street consensus is 70 cents. The stock closed Friday at $75.

"Our view is that there is plenty of opportunity for Robinson to take market share," Hartford said. "Their business model continues to operate well."

Steve Alexander • 612-673-4553

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