Eden Prairie's C.H. Robinson prepares for what could be a tough year

A slowing economy and softening demand for transportation services caught up with C.H. Robinson, as fourth quarter profits dropped 58%.

As one of the largest third-party logistics firms in the world, the Eden Prairie-based company said in its earnings report it would need to continue to focus on lowering its costs to produce long-term profitable growth. It already announced a round of layoffs in November.

"The current point in the cycle is one of shippers managing through elevated inventories amidst slowing economic growth, causing unseasonably soft demand for transportation services. At the same time, prices for ground transportation and global freight forwarding are declining due to the changing balance of supply and demand," said Scott Anderson, the company's interim chief executive who took over after its former CEO was pushed out at the end of the year.

C.H. Robinson officials knew the pandemic effect — increasing demand, and thus, costs for all types of products and shipping — would end, Anderson said. But "the speed and magnitude of the correction in only two quarters was unexpected, with ocean rates on some trade lanes already back to pre-pandemic levels."

Therefore, operating costs were not aligned, he said.

C.H. Robinson works with customers to find the least expensive shipping options. So when costs are lower, Robinson gets a lower cut, too.

It wasn't just global freight prices either. The bills for truckload shipping, minus fuel surcharges, were down 21%, said Mike Zechmeister, the company's chief financial officer.

Net income was $96.2 million, or 80 cents a share, down from $230.1 million, or $1.74 a share in last year's third quarter. Revenue fell 22.1% to $5.1 billion.

Adjusted earnings were $1.03, off 40.8% from last year's fourth quarter and missing analyst expectations of $1.38 a share.

At the beginning of the year, Bob Biesterfeld resigned as chief executive. Anderson, a long-time board member who spent the past three years as C.H. Robinson's chair, was named interim CEO. The board, led by new chair Jodee Kozlak, has started a search for a new CEO.

"This is not a shift in strategy for the company. This is really a shift in sort of accelerating performance and moving at a faster pace," Anderson told analysts about the CEO change.

For the full year, C.H. Robinson's earnings and revenue grew but also fell short of analyst expectations. Net income of $940.5 million was up 11% on revenue that grew 7% to $24.7 billion.

On the company's earnings call with analysts, company officials said they were focused on building a "scalable operating model." That will translate into increasing customer service while reducing overall expenses.

In November, C.H. Robinson announced it would layoff 650 employees. Zechmeister said on the earnings call that most of those employees were gone by early January, but he expects employee headcount to continue to decrease throughout 2023.

Zechmeister said the company is aiming to cut $150 million in annual costs by the end of this year.

The company will continue to invest in automation technology but also said it will end some technology and software projects that are not aimed at the scalable operating model.

C.H. Robinson released results after the market closed on Wednesday. Shares were up 2% on Thursday. Over the past 52 weeks, shares have ranged between $86.57 and $121.23 a share.