CH Robinson Worldwide Earnings Call Nuggets: Truckload Pricing Pressure and Cost Wins

CH Robinson Worldwide, Inc. (NASDAQ:CHRW) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Truckload Pricing Pressure

Nate Brochmann – William Blair: I just wanted to talk on a little bit I mean obviously you gave a lot of nice color around some of the pressures on the gross margins. I wanted to talk a little bit more specifically like on the fourth quarter and in to what you are seeing so far in January where I mean it seems like truckload pricing is kind of down a little bit. Just wondering what you think currently is kind of causing that additional pressure and maybe whether that some of your larger or longer term customers are trying to lock in rates ahead of any potential capacity squeezes.?

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John P. Wiehoff – Chairman and CEO: Specifically what’s happened in pricing in January that’s the sort of metric that we don’t have scrubbed yet until we really closed the books, but I would say just anecdotally from interacting with our people I haven’t seen or heard any significant changes in the pricing approach. What I can tell you though is that one of the things we’ve talked about a lot internally is it just feels like our customer base there were a lot of examples of customers that did fairly meaningful year-end plant shutdown and inventory management and slower ramp ups into the current year. So, our hope is that that was a big part of what we are seeing it just diminished year-end activity that carryover into January. Things did change as the month went on and I don’t feel like there’s – I’m not aware of any material shifts or changes in the bidding activity or pricing activity in our business.

Nate Brochmann – William Blair: And then just second question regarding Phoenix, I know it’s really early. You’re only two months into it and there is a lot of transitions taking place, but so far could you talk about like the general customer acceptance and whether you’ve seen already any significant opportunities on the cross-selling side?

John P. Wiehoff – Chairman and CEO: Customer activity, I would say, customer reception has been very positive by our judgment. Phoenix has a very diverse customer base, so they don’t have any large customers that constitute a heavy percentage of their business, but at the same time, we and they are not aware of any significant losses from a customer or people standpoint. All of the Robinson global forwarding offices continue to sell and there have been some wins. It probably would be unfair to say that there has been any known wins due to the combination or synergies. I think, both teams have good momentum and are continuing to sell. Most of the shorter-term wins have been on realignment of the network with agents or offices or service contracts or the procurement side of it. So, we feel very positive about the cultural fit. I think the teams are working together very well. There have been some tangible wins on the cost side that maybe didn’t benefit the fourth quarter that much, but we feel pretty good about benefiting 2013. In terms of cross-selling, integrating, sharing account management practices, a lot of that needs to be facilitated by some of the IT integration. That’s going to take a little bit longer for us to get into. So, hopefully, as 2013 wears on we’ll feel more confident about our go-to market benefits from the acquisition, but at least today we feel very good about the absence of any disruption.

Cost Wins

Thomas Wadewitz – JPMorgan: Let’s see question on cost side. I think, John you just mentioned that you had some wins in the cost side. I was wondering I guess in fourth quarter, was there anything on the amortization that was unusual. You didn’t mention that. But then looking at cost side in 2013, can you give any kind of framework for what these cost wins would be that you’re talking about how substantial they might be?

Chad M. Lindbloom – SVP and CFO: This is Chad. So with the amortization, the only piece that would be unusual in the fourth quarter is that it only had two months, because we only owned the company starting November 1st. So, as far as the cost wins on synergies, I think there will be some cost of hires we leveraged freights and look at each other like John was mentioning, each other’s freight rates, with different service providers and leverage each other’s contracts, with both air and ocean business, as well as we’ve always talked about we don’t expect any immediate cost synergies in the deal, or talking about integrating and doing the best of both and from any significant perspective we will be growing, hopefully be able to – once the significant acquisition integration efforts are done, continue to leverage yield overhead rather than really looking for significant changes in the overhead structure.

Thomas Wadewitz – JPMorgan: But you’re not talking about a significant headcount reduction or something along those lines, in terms of the cost wins?

John P. Wiehoff – Chairman and CEO: No, what our plan is for the Phoenix integration, is that we believe in the short-term that by carrying, all of the people from both organizations, we have the incremental resources to focus on integration and all the change in management stuff that we need to do. As that occurs and as our system gets more efficient, when it comes time to – that we could get by more efficiently on fewer resources, our hope is to have grown the business, to keep jobs for everybody. So that the long-range plan is that it’s a growth strategy and if we’re successful we would hope that for the next three to five years we can grow our net revenues much faster than we would grow our operating expenses, but that was a part of what I was trying to share in our 2013 outlook that I think the history of global forwarding mergers and acquisitions is that everybody who has gone after cost synergies too aggressively has disrupted their customer relationships and services to the point where it’s helped to turn out to be a bad deal, and we’re taking a very long-term approach around the continuity to our relationships and our service and trying to create the synergies in the deal over a little bit longer period of time through a growth platform.

Thomas Wadewitz – JPMorgan: And then just a short follow-up, I might have missed this, but you said the loads in North American truck up about 10% in January best you can tell. Is there any sense of net revenue in North American truck in January? Is it flat or…?

Chad M. Lindbloom – SVP and CFO: I did not say 10% in January. I said the volume growth approximated what it was. Again, with all of the mix shifts that we’ve had, we want to be more comfortable closing the book before we say precisely what it would be, but we did have meaningful margin compression year-over-year in January as well that reduced our net revenue growth from the volumes similar to the last couple of years.