Non-Asset Based C.H. Robinson Keeps On Truckin'

Asset-lite trucking company C.H. Robinson (CHRW) reported earnings after yesterday's close. As we indicated in our earnings preview, they beat expectations of $0.38 in EPS, posting a $0.42 performance. Driving the performance, according to the company:

The increase in our Transportation gross profit margin in the first quarter was due to an increase in our truck transportation gross profit margins, which expanded due to more widely available truck capacity in the marketplace. We also had faster growth in our miscellaneous transportation management services business, which has a higher gross profit margin than our Transportation business overall.

The fact that their gross margin can improve when capacity is more widely available is one of the things we like about the non-asset based truckers such as C.H. Robinson and Landstar (LSTR). Trucking companies that own their own trucks either lose revenue when capacity is tight or are forced to reduce prices and lose margin when capacity is abundant. Since C.H. Robinson gets its capacity from independent contractors, abundant capacity makes it cheaper for the company to source capacity and it doesn’t have the fixed depreciation costs to contend with. By contrast, tight capacity still allows the company to raise prices, though they don’t get the margin expansion other truckers enjoy.

In a slowing economy, we think the non-asset based truckers are the way to go. In fact, the only time the asset-based truckers have a real investment edge is typically in the early phases of economic growth, when their margins can go from awful to fantastic over the course of a year or so.

Disclosure: author has a short position in Landstar put options at the time of publication.

CHRW 1-yr chart: