Two-thirds of C.H. Robinson Worldwide's trucking business is contracted, which means that when expenses go up more than expected, profits get squeezed.
As a result, the Eden Prairie-based third-party logistics company missed earnings expectations by 12 cents per share for the second quarter.
"EPS results were disappointing and finished below our expectations," John Wiehoff, chairman and chief executive, said in the company's earnings release.
"Our results were significantly impacted by truckload margin compression. Purchased transportation costs increased significantly during the quarter, while much of our customer pricing is committed at relatively flat prices."
The company earned 78 cents per share for the quarter ended June 30, but analysts were expecting 90 cents per share. In the same quarter last year, EPS was $1 a share. Net income was $111.1 million, a 22.4 percent decrease from the same period a year ago.
The company grew revenue to $3.7 billion, a 12.4 percent increase over the second quarter of 2016.
C.H. Robinson reported earnings after markets closed Wednesday. On Thursday, the company's shares closed down more than 5 percent at $65.01. Shares of the company are down 11.3 percent this year.
The company's biggest business segment is North American Surface Transportation, which includes its trucking business. Total revenue for the segment increased 10.3 percent in the quarter to $2.4 billion, but income from operations for the segment dropped 23.2 percent to $140.3 million because of the increased expenses vs. contract set prices.
The company's Robinson Fresh business that buys, sells and markets fresh fruit and vegetables and also transports them, saw a 48 percent decrease in income from operations during the quarter.
Much of that attributed to the margin compression in truckload services. Wiehoff told analysts on the company's earnings conference call that it remains committed to the long-term industry trend of utilizing contractual pricing.
C.H. Robinson's Global Forwarding business was the bright spot.
The segment provides logistics services through offices in North and South America, Asia, Europe and Australia. Total revenue for the segment was up 48 percent in the second quarter to $528.8 million and operating income increased 23.6 percent to $27.7 million.