Post-Biesterfeld analyst call at C.H. Robinson: Tough quarter, more layoffs

Interim CEO Anderson says cost savings target is $150 million by the end of the year; Global Forwarding drags down Q4 earnings.

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With the dismissal of CEO Robert Biesterfeld about a month ago, the earnings call for 3PL giant C.H. Robinson on Wednesday took on particular significance as the first time the interim management could address the analyst community as well as any employees who might be listening in to figure out what their future might hold.

On the latter front, even as the company is just coming off a layoff of about 650 employees, it was made clear that after another tough quarter, there are more to come. 

Much of the financial drag at C.H. Robinson (NASDAQ: CHRW) is coming out of its Global Forwarding unit, as opposed to its North American Surface Transportation (NAST) segment, which houses its traditional truck brokerage operations. 

Total revenues in that group were down 52.7%, adjusted gross profits dropped 39% and income from operations declined 80.8%. The specific numbers: total revenues down to $1 billion from $2.14 billion; adjusted gross profits declining to $188.7 million from $309.6 million; and income from operations falling to $28.2 million from $146.8 million.

The decline was on the water and in the air: Ocean adjusted gross profits were down 42.7%, air adjusted gross profits were down 51.5% and customs adjusted gross profits declined 3.3%. All three segments reported lower shipments and transaction volumes.

“The magnitude of the decline in the forwarding market was unexpected,” interim CEO Scott Anderson said on the earnings call. “As a result, our operating costs were misaligned.”

The C.H. Robinson target for cost reductions is $150 million by the end of the fourth quarter of this year on an annualized basis, Anderson said, a number that was reiterated several times during the call.

CFO Mike Zechmeister confirmed that the layoffs in November were approximately 650, with more than 600 departing the company in January.

“We expect headcount to decline through 2023,” Zechmeister said, anticipating that personnel expenses will be down about 7% year on year in 2023 compared to 2022.

The strategy is not new. So why, analyst Jack Atkins of Stephens asked, was Biesterfeld shown the door?

Anderson said the C.H. Robinson board was “unanimous in our decision.” The dismissal of Biesterfeld was an “inflection point in the performance, and new leadership was part of that.”

The strategy of increasing digitalization is “solid,” Anderson said, but needed “new eyes. A new CEO will give perspective to that. Strategically we are absolutely in a spot with global supply chains becoming more complex that we want to be a go-to partner in the future. So this is no shift in strategy. This is a shift in accelerating our performance and moving at a faster pace.”

Jodee Kozlak, C.H. Robinson’s chairwoman of the board, is leading the search effort, Anderson said. She was the top human resources official at Target Corp. earlier in her career and has been on the board since 2013.

Anderson gave no indication of a timeline on hiring a new CEO. He said C.H. Robinson was “going to take our time going forward, we’re going to be thorough and broad in terms of the types of qualities we’re looking at.” The new CEO is somebody, Anderson said, who would have “sharp strategic thinking and who can really take C.H. Robinson to the next level.”

With the focus on digitalization, Jeffrey Kaffman of Vertical Research asked a question of COO Arun Rajan about what constitutes a truly digital transaction at C.H. Robinson, and what percentage of transactions fits that current description.

Rajan would not give a specific percentage but said if there is a “manual touch” in the transaction, it could not be defined as digital. And defining the percentage of it within the company’s billions of interactions is not the measurement C.H. Robinson will use. Rather, he said, it will be measuring productivity internally and the full experience of C.H. Robinison’s customers.

As far as the company’s financials, the end results came in worse than projected. According to SeekingAlpha, C.H. Robinson’s non-GAAP earnings of $1.03 per share came up 31 cents less than consensus, while its revenue of $5.1 billion was below consensus by $490 million.

Initial reaction on markets was negative. At approximately 6:35 p.m. EST, C.H. Robinson stock in the aftermarket was down just over 4% to $98.02. At the time of the day’s close, Barchart reported the stock was up 2.34% for the prior 12 months, but with an increase of 11.53% in the past month.

In ground transportation, C.H. Robinson did reasonably well. NAST saw its revenues drop 8.5% to $3.6 billion, but adjusted gross profits were up 5.7% to $502.3 million. 

In a falling market, brokers tend to benefit from that shift in market structure, and C.H. Robinson was no different. In its quarterly report, it said that its average linehaul rate per mile charges to customers excluding fuel was down about 21% in the quarter, but its linehaul costs per mile dropped 24%.

Adjusted gross profits in Truckload were up 2.2% to $346.84 million from $339.51 million because of a 6.5% increase in adjusted gross profit per shipment, but the 4% drop in truckload shipments muted much of the impact of that. Adjusted gross profits in NAST overall rose to $502.26 million from $475.1 million.

LTL’s profits rose at a steeper pace than truckload, climbing 7.1% to $149.37 million from $139.46 million.

Among the areas where C.H. Robinson posted significantly worse results in the fourth quarter of 2022 compared to a year earlier:

— Total revenues were down 22.1% to $5.1 billion, “driven by lower pricing and volume across most of our services,” the company said in its prepared statement accompanying the earnings release.

— Gross profits were down 10.5% to $761.5 million. Adjusted profits were down 10.3% to $768.2 million.

— Costs were significantly higher. Total operating expenses rose 6.2% to $604.1 million. Personnel expenses held relatively in check, up 1.7% to $427.3 million, but that included $21.5 million of restructuring-related costs. Selling, general and administrative costs were up 18.7% to $176.8 million, but those too were impacted by a one-time charge for restructuring of $15.2 million.

— Income from operations was $164 million, down 42.9%. The adjusted operating margin of 21.4% was down 1,220 basis points.

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