The first bullet point in the earnings report of C.H. Robinson (NASDAQ: CHRW) was that the 3PL hit its mid-cycle operating margin targets “while the freight market is still in the trough of the demand cycle.”
The adjusted operating margin rose 360 bps from the corresponding quarter a year ago to 34.7%. Adjusted gross profit was up 6.5% for the company as a whole to $738 million.
At North American Surface Transport, which houses the company’s core brokerage operations, the adjusted operating margin was 40.9%. Adjusted gross profits were up 8.6% from a year earlier.
Total revenue at C.H. Robinson was up 19.3% to $4.9 billion, “primarily driven by higher pricing in our truckload, less than truckload (“LTL”), air and ocean services,” the company said in its earnings statement released Wednesday afternoon.
The significant jump in revenues did not result in anything close to a corresponding increase in profitability.
Rising freight rates that contribute to higher revenue, especially when they come rapidly, can be a significant burden for 3PLs. Contract business booked at a lower number often will be supplied by spot capacity that has risen in price.
That trend is likely to have resulted in gross profits being up just 2.7% to $1.4 billion. Adjusted gross profits, a non-GAAP measurement, rose 2.4%, “primarily driven by higher adjusted gross profit per transaction in our LTL and air services.”
The difference in truckload and LTL profitability was stark, a complete reversal of the performance of TFI International, which had a banner second quarter in truckload but not LTL. Admittedly one is a carrier and the other is a broker but the difference was notable.
Truckload adjusted gross profits at C.H. Robinson were down 1.4% from a year earlier. Meanwhile, LTL was up 21.8%.
Air also had a strong performance with adjusted gross profits up 22.9%.
Ocean was down 2.7% and Customs was down 9.4%.
Job reductions at C.H. Robinson continued in the quarter. In his few remarks in the company’s earnings statement, CEO Dave Bozeman referred as he consistently does to the company’s “Lean AI strategy, which has enabled us to identify and remove waste and to automate manual processes in the quote-to-case lifecycle of an order.”
‘The result has been evergreen productivity improvements of over 60% since the end of 2022 in both NAST and Global Forwarding,” Bozeman said. “The execution of our strategy has also enabled us to build a scalable model with significant operating leverage, which contributed to the 20% year-over-year increase in our adjusted operating income.”
According to SeekingAlpha, C.H. Robinson’s non-GAAP EPS of $1.61 beat Wall Street consensus estimates by 9 cents. Revenue of $4.93 billion beat forecasts by $580 million.
C.H. Robinson’s stock, which for several years has been subject to big aftermarket swings when its earnings were released, was up less than 1% at approximately 5:15 p.m. EDT.
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