C.H. Robinson did much better than a year earlier but slowed somewhat sequentially. (Photo: C.H. Robinson)
For the first look at the C.H. Robinson earnings, please go to this article.
The focus on C.H. Robinson’s financial performance over much of 2024 was not so much the usual comparison of year-on-year results, but how the giant brokerage was doing sequentially as it implemented sweeping change under CEO Dave Bozeman, on the job since mid-2023.
The fourth-quarter earnings report for C.H. Robinson (NASDAQ: CHRW) released late Wednesday showed what was expected: vast improvement year on year by virtually every metric. But whereas sequential gains had been strong in the first three quarters of 2024, the report showed areas of slowdown in the fourth.
Profitability in C.H. Robinson’s operations continued to improve sequentially in most key metrics. The adjusted operating margin for the company as a whole was better by 230 basis points, rising to 26.8%, and was up 940 bps from a year ago.
But adjusted gross profits in its various segments were mostly lower sequentially even as they blew away numbers from the fourth quarter of 2023. Truckload adjusted gross profit was down 6.45%, less-than-truckload AGP declined a little less than 1%, and ocean declined 22.15%. But the air segment rose 21.57%. The total transportation average gross margin was down 7.1% sequentially.
The earnings release for the fourth quarter was the first since the investors day meeting in New York in December, during which the company’s stock price shot up as analysts liked what they heard.
And in his presentation on the earnings call with analysts, Bozeman wanted to keep the focus on those long-term goals. “In what continues to be a historically prolonged freight recession with market growth in 2024 that did not materialize as had been projected, the difference in our execution versus last year is stark,” he said on the call.
Year-on-year numbers soar
Those year-to-year numbers were enormously higher than the fourth quarter of 2023. Income from operations at North American Surface Transportation (NAST) at C.H. Robinson, which handles the core brokerage activities of the company, was up 41.2% from a year earlier even as revenues declined 6.6%. Global Forwarding had a 24.7% increase in revenue, an almost 130% increase in income from operations and a 25.6% increase in adjusted gross profit.
Increases in the cost of moving freight were a headwind for C.H. Robinson in the quarter, according to Bozeman, though the line item for purchased transportation was $3.22 billion in the fourth quarter versus $3.5 billion in the third quarter, and it was $3.4 billion a year ago. However, that is for the company as a whole.
“In a trucking environment, where the cost of purchased transportation increased in Q4 due to a decline in industry capacity, our dynamic costing and pricing tools, our revenue management practices and our cost of higher advantage enabled us to provide greater value to our customers and at the same time, improve our NAST gross margin both year over year and sequentially,” Bozeman said.
His remarks focused more than usual on the company’s Global Forwarding segment. Year on year, revenues at Global Forwarding rose 24.7%, and income from operations was up 129.6%. But compared to the third quarter, those two line items were down 22.5% and 41.2%, respectively.
Bozeman told analysts that volumes of ocean and air shipments grew every quarter on a year-on-year comparison and were both up more than 5% for all of 2024. “Through improvements in process standardization and automation and embracing the rigor of our operating model, the forwarding team decoupled head count growth from volume growth, reduced their average head count for the year more than 10% and achieved productivity improvement of greater than 15% for the full year,” he said.
The end result of the improved profitability at C.H. Robinson, which clearly didn’t come from a stronger freight market, is that net income per share in the fourth quarter was $1.21. It was 88 cents a year earlier and 81cents in the third quarter.
Stock reaction Thursday is negative
The surging stock price at C.H. Robinson began when the company’s first-quarter 2024 earnings were released. They showed the earliest results of the technology-driven efficiency push Bozeman had begun to implement.
C.H. Robinson’s stock price at the end of April, when the earnings came out, was just under $68. It began to surge immediately after the release of the earnings and hit a 52-week high of $114.82 in December for a gain of approximately 69% between early May and mid-December. That 52-week high came a day after Bozeman spoke at the investors day meeting.
But the stock market reaction to the earnings was decidedly negative Thursday. After being slightly down and then even up in post-market trade Wednesday and into Thursday morning, the price of C.H. Robinson dropped. At approximately 10:45 a.m., C.H. Robinson stock was down 5.8%, or $5.51, to $102.13.
Michael Castagnetto, the president of NAST, noted on the call that “the market continues to be in a prolonged freight recession.”
But he also said the company’s linehaul cost per mile, excluding fuel, was higher because of a decline in industry capacity. (Landstar (NASDAQ: LSTR)released its earnings the same day as C.H. Robinson. That company’s figures on capacity, represented by the number of business capacity owners and “approved and active” independent contractors it used in the quarter, continued to show further declines.)
“Due to a seasonal decline in capacity, the dry van load-to-truck ratio and spot rates experienced some upward pressure during the holiday season and the subsequent winter storm similar to last year,” Castagnetto said on the call.
Bozeman had said earlier in the call that the upturn was not likely to be sustained. “The load-to-truck ratio and spot rates are expected to return to preholiday levels once the storms abate,” he said.
Jason Seidl of TD Cowen said in a report after the earnings release that C.H. Robinson’s dour outlook on the prospect for higher trucking rates “differs from what we heard on some truckload carrier earnings calls that spoke to a more optimistic pricing environment.”
Castagnetto said volumes at NAST were down about 1% year over year, which he noted was a stronger performance than what has been reported in the closely watched Cass Index. But the decline was the sum of a 2.5% increase in LTL volume and a 6.5% decrease in truckload.
Bozeman has touted the use of generative AI as a core part of C.H. Robinson’s technical transformation. Arun Rajan, the company’s chief strategy officer, said on the earnings call that it is not just talk: “We are already doing it for thousands of global customers.”
One use case has been using generative AI to read thousands more incoming emails per day, Rajan said, with the result that about 10,000 transactions a day can be automated.
But tackling one of the big questions in brokerage today – how many jobs will be eliminated by AI? – Rajan spoke of still-needed human involvement.
“A digital-only approach has proven to be ineffective in the logistics industry due to the level of complexity and variation in freight characteristics that necessitate human expertise,” he said. “The active role that our people play from a human-in-the-loop perspective leverages their deep domain expertise and drives feedback to our algorithms on a regular basis.”
