As some of you may know, I was a trucker for many years. My outbound freight usually originated in the Minneapolis and St. Paul, Minnesota area. These loads paid well. The return loads, however, were another matter. The profit margin on some of these loads was so thin it only had one side. And if one of these loads happened to be brokered by C. H. Robinson (CHRW), the margin went from thin to transparent. As far as I was concerned, the more one dealt with C. H. Robinson the broker, the quicker one would become exactly that. Well, I've been off the road for a number of years and can now look at CHRW with a healthy dose of objectivity. At least, I think I can.
At first glance, an investment in CHRW has been nothing to toot your air horn about. Robinson stock purchased 5 years ago for $10,000 will now fetch around $11,500. That represents a 3% annual return. This mediocrity is uncharacteristic of CHRW when you consider the fact that the stock's 10 and 15 year returns are 14.5% and 17.5% respectively. Part of this lackluster return can be explained by the haircut the stock received from investors after they heard CHRW's latest earnings report. I used the term "investors" with great latitude in that last sentence and here is why. It seems that CHRW had a burp in earnings, missing estimates by a few pennies a share, and as a result its stock swooned from $67 to $56 a share. Investors? I think not. Presently, the stock is trading at around $58 a share. Did you ever notice that after an equity suffers a bout of irrational selling, the people still owning it are the ones who really deserve it? To those deserving few, and to those of you with even average olfactory senses, take a deep whiff. $58 a share has the bouquet of opportunity about it.
After the dust raised by fleeing day traders and short sellers had settled, the real CHRW investors were able to look at the numbers; and the numbers looked pretty good. Year over year, revenues increased 9.9% and net income jumped 37.6%. Robinson also made a pair of acquisitions in 2012. The first was Apreo, a freight forwarder based in Poland. This move was made to strengthen CHRW's presence in Europe. The second acquisition was another freight forwarder by the name of Phoenix International located in Chicago, Illinois. Robinson's footprint in the international freight forwarding business grew a few shoe sizes with the purchase of Phoenix.
Phoenix International didn't come cheap. The price tag was $571 million in cash and $63 million in newly issued stock. To pay for part of their shopping spree, Robinson did something out of character, they took on debt. Take a quick glance at their balance sheet and you'll discover $68 million of the nasty stuff. I abhor debt. It gives me a rash. Sometimes, however, it has to be used. And when you consider that last year Phoenix International racked up $807 million in gross revenue, $161 million in net revenues and $48 million in operating income, a little debt, in this deal at least, is going a long way.
That being said, a goodly part of the Phoenix purchase was paid for with cash on hand. Some $300 million of that cash was raised when CHRW sold T-Chek, their payment services business. A quick leap back in time is warranted here.
Every time I picked up a Robinson load, their dispatcher would ask me several times if I needed an advance. They seemed almost maternal in their concern for my monetary welfare. Sometimes I did need a few bucks. They would send the money, less a percentage, via T-Chek. I never put two and two together. Those sly devils!
Two factors blemished Robinson's numbers in 2012. The first was the outlay associated with the T-Chek divestiture and the Phoenix and Apreo acquisitions. CHRW's operating expenses soared 70% in the fourth quarter because of all this buying and selling. These expenses are non-recurring. Thank goodness for that. If you have to bite the bullet, make sure you bite it just once.
The second influence on the company's figures was the lateness of the two acquisitions. Both new members of the Robinson family need more that one fiscal quarter to show what they can do. A full year's performance should give investors an idea of how accretive to earnings these additions will be.
C. H. Robinson's mission is to grow earnings 15% annually. It's very important to remember that they are in a volatile industry and that a 15% growth rate might come in fits and starts. Another thing to bear in mind is the fact that CHRW isn't a trucking company. They don't have to nurse a huge fleet of money-swilling trucks. Maybe one last thing to hang onto is CHRW's durability. They've been around since 1905 and believe me, you don't last that long in the transportation industry unless you know your stuff.
Now, let's see if you know your stuff. Look into C. H. Robinson and let me know what you think.