CHRW – Decent yield but not your best bet with transportation

C.H. Robinson is one of the world’s largest logistics companies with nearly $20 billion in freight under management and 18 million shipments annually. It provides freight transportation and logistics, outsources solutions, produces sourcing, and information services through a network of offices in North America, South America, Europe, Asia, and Oceania. The company serves more than 119,000 customers and 78,000 contract carriers through its multi-modal transportation management system. It is known for its innovative solutions and a flexible, adaptable supply chain. 

C.H. Robinson operates through North American Surface Transportation (accounting for ~70% of revenues), Global Forwarding (~15%), and All Other and Corporate segments. The company maintains a leading position in many of the markets it serves, including truckload and less than truckload services in North America, ocean services from China to the U.S. C.H. Robinson generates more than 10% of its net income from operations outside the U.S. Its managed services spans the globe. In addition, it also provides sourcing services of fresh fruits, vegetables, and other value-added perishable items under the trade name Robinson Fresh.

Investment Data

Revenue Growth & Market Exposure

C.H. Robinson enters into contractual relationships with transportation companies. The company caters to customers of all sizes ranging from small businesses to some of the largest global companies. It derives nearly 20% of its revenues from customers in the food & beverage industry 16% from the manufacturing industry, followed by industrial (13%), chemicals (12%), retail (12%), and others (27%). C.H. Robinson has exclusive licensing agreements to distribute fresh and value-added products under recognized consumer brand names. 

As one of the world’s largest logistics platforms, C.H Robinson is gaining market share in both truckload and less than truckload service lines in the NAST segment. It operates the largest truckload network in North America and is a leading LTL 3PL in the U.S. The company expanded its Global Forwarding network with the acquisition of The Space Cargo Group, a leading provider of freight forwarding, customs brokerage, and other logistics services in Spain and Columbia. Over the years, C.H. Robinson has developed strong ties with over 70,000 carriers, providing its shipping customers with greater supply chain flexibility.

C.H. Robinson currently accounts for a low single-digit market share that provides ample opportunity for it to grow its business across services. The company continues to spend increasingly on technology and services related to accelerating its growth and cost savings initiatives. Its proprietary platform, Navisphere is one of the most powerful supply chain platforms in the industry, with nearly 200,000 companies using it every year. C.H. Robinson added 4,000 new carriers in the quarter and made good progress on Prime Distribution integration.

Dividends

C.H. Robinson is a Dividend Achiever and has distributed regular dividends for more than twenty-five years. It returned nearly $600 million to shareholders through dividends and share repurchases in 2019. The company has consistently increased its dividend at a CAGR of 7.6% in the last decade. C.H. Robinson last raised its dividend payout by more than 10%. It currently sports a current annual dividend yield of 2.6% and has a payout ratio of 56%. Its EPS has also grown at a rate of 6.9% CAGR in the last decade.

C.H. Robinson’s asset-light business model is capable of generating consistent free cash flow. The company ended the quarter with over $1.2 billion in liquidity. It incurred $14.7 million in capital expenditures and is expecting FY2020 capital expenditures to be $60-70 million. The company made two acquisitions and reduced its overall debt balance in 2019. The acquisition of Prime Distribution is expected to expand C.H. Robinson’s retail consolidation business and bring additional scale, capabilities and expertise to its portfolio. C.H. Robinson returned over $152 million to shareholders in dividends and share repurchases during the quarter. Its cash from operations, however, declined in the latest quarter YoY, driven by changes in working capital and lower net income.

As online shopping increases, freight volumes are expected to grow. The company is in a good position to gain from the growth of global transportation management systems and global trade. Given its large scale and global footprint, C.H. Robinson continues to add shipping customers and transportation companies to its database.

Competition

The transportation services industry is highly competitive. C.H. Robinson competes against many logistics companies, trucking companies, property freight brokers, carriers offering logistics services, NVOCCs, IACs, and freight forwarders. The freight technology industry is growing with the entrance of new companies attempting to disrupt the competitive landscape. C.H. Robinson faces fierce competition from technology-based service companies like Amazon and Uber, as well. With more than a century’s experience, the company has gained expertise in providing a mix of local touch and regional competence, as well as multiple global logistics options to its customers. It has built strong relationships, scale, extensive network, and technology infrastructure for efficient customer services.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
NYSE:UPSUPSUnited Parcel Service Inc.IndustrialsIntegrated Freight & Logistics0.65142.76100.5228.9125.424.940.02832.830.817844.040.100086Consumable - DiscretionaryNONONONOUSA1
NYSE:FDXFDXFedEx CorporationIndustrialsIntegrated Freight & Logistics0.64168.4044.1134.3625.424.900.01541.540.530642.600.2098105Consumable - DiscretionaryYESYESNONOUSA1
NASDAQ:EXPDEXPDExpeditors International of Washington Inc.IndustrialsIntegrated Freight & Logistics0.5984.5114.0625.5625.423.310.01231.230.314221.040.089586Consumable - DiscretionaryYESYESYESNOUSA1
NASDAQ:CHRWCHRWCH Robinson Worldwide Inc.IndustrialsIntegrated Freight & Logistics0.5693.7212.6227.3025.423.430.02182.180.594842.040.071076Consumable - DiscretionaryNOYESNONOUSA1

Bottom Line

Global slowdown, trade wars, and tariffs are big headwinds for companies in the logistics business. The global COVID-19 pandemic will further change the face of global commerce but C.H. Robinson as a leading logistics solutions provider is well-positioned to adapt to that change. The company has been rewarding its shareholders with higher dividends each year since it went public in 1997. Given its sheer size, the company should be able to steer well through this environment than its competitors.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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