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Size of C.H. Robinson’s miss surprises Wall Street analysts

“So bad, it’s bad,” wrote Deutsche Bank analyst Amit Mehrotra. “Meaningfully worse than expected,” complained UBS analyst Thomas Wadewitz. “The magnitude of the miss and the weakness of the October guide will still come as a significant surprise,” Morgan Stanley analyst Ravi Shanker observed. “Forward trends look to remain quite weak,” Goldman Sachs analyst Jordan Alliger wrote.

Yesterday, October 29, after markets closed, C.H. Robinson (NASDAQ: CHRW) reported its results for the third quarter, which FreightWaves covered here. Earnings growth went negative for the first time in years, and, more importantly, Robinson did not effectively manage expectations, missing Wall Street’s estimates on revenue and profits.

After the call, equities research analysts issued a rash of notes to their clients, putting Robinson’s weak performance in context and trying to sort out the larger implications ahead of the company’s conference call, which will take place later this morning (October 30).

Mehrotra noted that Robinson’s earnings would have been even worse after backing out of some transitory benefits like favorable taxation and proceeds from a real estate transaction.

“Underlying EPS [earnings per share] were about $1 per share when normalizing the tax rate and backing out a gain from an office building sale (vs. cons of $1.14 and our estimate of $1.20),” Mehrotra noted, citing an even lower number than the non-GAAP $1.07/share Robinson reported.

Despite massive investments in technology, “opex leverage was nonexistent,” Mehrotra pointed out, calling out the fact that C.H. Robinson actually grew headcount by 3.2% as revenue fell and selling, general and administrative expenses grew, even after excluding the growth in headcount.

“Unfortunately current negative trends for brokers are expected to continue, which likely means shares will be range-bound at reasonably lower levels. Maintain Hold,” Mehrotra concluded.

UBS’ Wadewitz was alarmed that “pressures are greater vs. prior cycles,” noting that “the magnitude of the year-over-year [y/y] decline in both CHRW’s net revenue and its EPS (-15% y/y in the third quarter) are both greater than we have seen in prior cycles. Looking at the most recent period of cyclical pressure in 2016/1H17, the worst y/y net revenue decline was -5% in the third quarter of 2016 and -3.4% y/y in the second quarter of 2017.”

For those reasons, Wadewitz cut his estimates of C.H. Robinson’s 2020 earnings per share by 11% to $4.10 from $4.60. Prior to the earnings release, the consensus expectation on Wall Street was for Robinson to earn $4.82/share in 2020.

One of the challenges to Robinson’s long-term strategy of ramping its technology spend to drive productivity gains and continue to protect its moat from digital and private equity-backed competitors is that the significant hit to net earnings is prompting analysts to ask how Robinson can cut costs. The conversation has apparently shifted from Wall Street being encouraged by large investments in technology to investors’ concern that Robinson needs to prop up its profits.

“We believe higher technology spend was a source of upward pressure on opex in the third quarter,” Wadewitz wrote in an investor note. “Given the difficult net revenue backdrop, a key question is how rapidly can CHRW reduce expenses?”

Morgan Stanley’s Ravi Shanker was perhaps the most bearish on C.H. Robinson’s results, pointing out that Robinson’s aggressive bidding for contract freight did not result in positive volume growth.

“If pricing was sacrificed for the sake of volume growth, that did not show up in the third quarter,” Shanker wrote. “There is no doubt that this is a very tough market in regards to volume but we expected more volume traction as a result of more aggressive pricing.”

Notably, Shanker cited secular as well as cyclical pressures, which include pricing competition from new players – which is real but perhaps sustainable – and a potential shift in shipper preference toward asset-based carriers, which we see no hard evidence of.

“We believe the third quarter miss reflects both the cyclical headwinds that CH is under plus secular pressures from increasing price competition from new players as well as potential structural market shifts away from brokers toward asset-based carriers,” Shanker wrote.

The Morgan Stanley analyst agreed with his Deutsche Bank colleague that it may be time for C.H. Robinson to rein in costs.

“It may also be time for CHRW to take a more proactive approach with headcount and costs,” Shanker suggested.

Alliger’s ‘first take’ investor note was brief; Goldman Sachs typically waits until after speaking with management during the conference call to update its model. Still, Alliger cited both internal operating metrics as well as external competitive pressures as reasons why the quarter disappointed.

“Net revenue per employee (an important efficiency metric for CHRW) was also worse in the quarter, dropping by 11% y/y, vs. our expectations of -1%,” Alliger wrote.

“Unfortunately, according to the quarterly presentation, the forward trends look to remain quite weak for CHRW as management cited aggressive competition and soft spot market freight opportunities,” Alliger concluded, before acknowledging the only positive takeaway he could think of – October truckload volumes per business day are flat.


  1. More technology to close the gap? New breed executives and managers are zigging when they should be zagging. The corporate environment has become a bunch of manager meetings where everybody agrees to make each other look good, followed by high fives and chest bumps, each protecting each others jobs.

    How about a different approach? About 50 major manufacturing companies are coming on line or breaking new ground each month. Why not dig and dig and find out who will be in charge of shipping and send a gift basket with a card “Congratulations on your new expansion” and follow up with a phone call, then meeting? Most likely a call would not be turned down, knowing the gift was sent.

    With technology, people have forgotten the human element and how to sell. Breaking just one of these accounts would pay for hundreds of gift baskets and the process goes on. Perfect example is east coast NJ, half the accounts are locked down because of personal relationships, rates matter little.

  2. This is a sad story which reflects on this whole industry of transportation, CH Robinson will rebound, I know these folks well, all of these large Brokerages are going through this right now, All Brokers need to say no to the shippers for cheap, cheap hurts everyone, except the greedy. It is so bad pain is being felt by everyone. As truckers we are part of the reason for hauling this cheap freight, as brokers, they need to step up to the plate with their sales dept, and say no to discounts. It will happen as many corporations fall off the list of being available, only the strong will survive, as a small owner of 6 trucks, I see bleakness in front of me, even if I fail, I would say CH Robinson is the best company I have ever dealt with. And any shippers who use CHR, you are dealing with ethics, something very rare in my opinion

John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.