First-quarter results for C.H. Robinson were a sea of down arrows, as had been expected at the giant brokerage company.
Declines in key benchmarks were well into the double digits at C.H. Robinson (NASDAQ: CHRW). Gross profits were down 24.7%. Income from operations declined 53.4%. Diluted earnings per share dropped 53.2% and adjusted EPS declined 52.2%.
Although the figures were negative, bottom-line earnings of 98 cents per share on a non-GAAP basis was considered in line with analyst forecasts, according to SeekingAlpha. That EPS for the quarter was down 52% from a year ago.
“Our first-quarter financial results reflect the softening market conditions that have transpired in the freight transportation market over the past 12 months,” interim CEO Scott Anderson said in a prepared statement. “With shippers continuing to manage through elevated inventories amidst slowing economic growth, the balance of supply and demand has shifted from a tight market a year ago to one that is now oversupplied.”
During the earnings call with analysts and in an accompanying slide presentation, management presented other benchmark numbers that reflected the weak truckload market: The price per mile for loads contracted by C.H. Robinson was down 27.5% from the first quarter of 2022, the cost per mile was down 28.5%, and the adjusted gross profit was down 21.9%, declining to $261.5 million. Truckload volume was down 3.5%.
The truckload operations are housed in the North American Surface Transport segment of C.H. Robinson, a group that also includes its LTL operations.
Total revenues at NAST dropped 19.7% to $3.3 billion from $4.11 billion. Total adjusted gross profit, a non-GAAP measurement, was down 15.7%, to $426.7 million at NAST. The NAST adjusted gross profit margin actually rose slightly, to 12.9% from 12.3% in the corresponding quarter of 2022.
CFO Mike Zechmeister, asked by an analyst when the market might rebound, would only say C.H. Robinson expects higher rates by the end of the year. For now, he gave a recap of the current market that is still highly competitive.
More recently, Anderson said, the market in March was weaker than in January and February, and April has been as weak as March.
“On the bids we’ve been involved with, we’ve been able to maintain our win percentage,” Zechmeister said. “What we’re seeing inside those bids is reduced total demand so customers are not just seeing the volumes.”
From C.H. Robinson’s perspective, capacity is exiting the market, Zechmeister said. New carrier signups are down about 15% year over year and about a third sequentially from the fourth quarter. “That is usually an indication of things slowing down,” Zechmeister said.
Anderson’s statement echoed a similar sentiment heard frequently in the market in recent weeks: The freight cycle may be at a bottom, just because conditions are so bad for smaller fleets and independent owner-operators that capacity should be leaving the market.
“As spot rates approach the breakeven cost per mile to operate a truck, the market is likely at or near the bottom of the industry cycle, which typically results in capacity exiting the market,” Anderson said. He added that contract rates also are declining “as transportation providers adjust to the changing market.”
After a significant round of layoffs late last year, some comments on the call could be interpreted as suggesting head count reductions are still possible.
Anderson said in his prepared remarks that the 3PL was “executing on the restructuring plan that was initiated in November.”
That plan has been successful enough that Anderson said the company’s estimated personnel spend for 2023 is being reduced by a range with a midpoint of $100 million. That figure includes the layoffs already made and “additional opportunities to further reduce our own costs.”
Anderson said on the call that C.H. Robinson ended the first quarter with staffing levels down about 100 workers from their level at the end of the fourth quarter and about 1,500 down from where staffing levels were at the end of the third quarter.
“I think we’ve done a decent job of right-sizing for some of the expenses that rose when the market was hot,” he said. “We had to correct for that and our long-term structure needs to be competitive.”
The call might have been Anderson’s final as interim CEO, as he said C.H. Robinson expects to name a new CEO by the end of the second quarter to replace ousted chief Bob Biesterfeld, who was dismissed at the start of 2023. Anderson took over on an interim basis.
In other highlights from the earnings report, the company said it had a better market for its LTL activities than truckload, with adjusted gross profits down 9.1% from a year ago, on a 5% drop in volume and a 4.5% drop in adjusted gross profit per order.
In the company’s Forwarding business, ocean adjusted gross profits were down just over 50% at $110 million and air was down almost as much, a 49% decline to $31.3 million. Customs service adjusted gross profits dropped 15.1% to $23.3 million.
For all of its struggles, C.H. Robinson stock has not been pummeled. It is down roughly 8.75% in the past 12 months, closing Wednesday at $92.50, a $3.36 decline and a 3.5% drop for the day.
C.H. Robinson does not have many pure-play 3PL peers in the stock market. RXO (NYSE: RXO), a recent entrant to the fray after its spinoff from XPO Logistics (NYSE: XPO), has not been trading long enough for a 12-month comparison. But over the past three months, its stock is down 1.65%, per Barchart data, while C.H. Robinson is down 5.1% during that time.
Landstar (NASDAQ: LSTR), whose model is a 3PL with some physical assets, is up 10.1% in the past 12 months and down 0.5% in the past three months.
The S&P 500 is down approximately 2.8% in the past 12 months.
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