RESULTS OF OPERATIONS
The following table summarizes our total revenues by services and products (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
% change
|
|
2017
|
|
2016
|
|
% change
|
Transportation
|
$
|
3,319,995
|
|
|
$
|
2,881,496
|
|
|
15.2
|
%
|
|
$
|
6,422,038
|
|
|
$
|
5,595,184
|
|
|
14.8
|
%
|
Sourcing
|
390,023
|
|
|
418,245
|
|
|
(6.7
|
)%
|
|
703,105
|
|
|
778,500
|
|
|
(9.7
|
)%
|
Total
|
$
|
3,710,018
|
|
|
$
|
3,299,741
|
|
|
12.4
|
%
|
|
$
|
7,125,143
|
|
|
$
|
6,373,684
|
|
|
11.8
|
%
|
The following table illustrates our net revenue margins by services and products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Transportation
|
16.2
|
%
|
|
19.3
|
%
|
|
16.8
|
%
|
|
19.5
|
%
|
Sourcing
|
9.0
|
%
|
|
9.0
|
%
|
|
9.3
|
%
|
|
8.6
|
%
|
Total
|
15.5
|
%
|
|
18.0
|
%
|
|
16.0
|
%
|
|
18.2
|
%
|
The following table summarizes our net revenues by service line. The service line net revenues in the table differ from the segment service line revenues discussed below as our segments have revenues from multiple service lines (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
% change
|
|
2017
|
|
2016
|
|
% change
|
Transportation
|
|
|
|
|
|
|
|
|
|
|
|
Truckload
|
$
|
282,718
|
|
|
$
|
329,740
|
|
|
(14.3
|
)%
|
|
$
|
586,840
|
|
|
$
|
651,424
|
|
|
(9.9
|
)%
|
LTL
(1)
|
102,213
|
|
|
99,778
|
|
|
2.4
|
%
|
|
199,836
|
|
|
191,071
|
|
|
4.6
|
%
|
Intermodal
|
8,308
|
|
|
9,021
|
|
|
(7.9
|
)%
|
|
15,800
|
|
|
18,285
|
|
|
(13.6
|
)%
|
Ocean
|
73,438
|
|
|
60,068
|
|
|
22.3
|
%
|
|
136,313
|
|
|
118,737
|
|
|
14.8
|
%
|
Air
|
25,820
|
|
|
20,118
|
|
|
28.3
|
%
|
|
47,637
|
|
|
38,527
|
|
|
23.6
|
%
|
Customs
|
16,311
|
|
|
11,605
|
|
|
40.6
|
%
|
|
32,389
|
|
|
22,329
|
|
|
45.1
|
%
|
Other Logistics Services
|
29,832
|
|
|
26,171
|
|
|
14.0
|
%
|
|
57,983
|
|
|
50,194
|
|
|
15.5
|
%
|
Total Transportation
|
538,640
|
|
|
556,501
|
|
|
(3.2
|
)%
|
|
1,076,798
|
|
|
1,090,567
|
|
|
(1.3
|
)%
|
Sourcing
|
35,149
|
|
|
37,714
|
|
|
(6.8
|
)%
|
|
65,557
|
|
|
66,983
|
|
|
(2.1
|
)%
|
Total
|
$
|
573,789
|
|
|
$
|
594,215
|
|
|
(3.4
|
)%
|
|
$
|
1,142,355
|
|
|
$
|
1,157,550
|
|
|
(1.3
|
)%
|
(1) Less than truckload ("LTL").
The following table represents certain statements of operations data, shown as percentages of our net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net revenues
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
Personnel expenses
|
49.5
|
%
|
|
45.5
|
%
|
|
50.3
|
%
|
|
47.3
|
%
|
Other selling, general, and administrative expenses
|
18.7
|
%
|
|
15.2
|
%
|
|
17.4
|
%
|
|
15.3
|
%
|
Total operating expenses
|
68.3
|
%
|
|
60.7
|
%
|
|
67.6
|
%
|
|
62.6
|
%
|
Income from operations
|
31.7
|
%
|
|
39.3
|
%
|
|
32.4
|
%
|
|
37.4
|
%
|
Interest and other expense
|
(1.6
|
)%
|
|
(1.1
|
)%
|
|
(1.6
|
)%
|
|
(1.3
|
)%
|
Income before provision for income taxes
|
30.1
|
%
|
|
38.3
|
%
|
|
30.7
|
%
|
|
36.1
|
%
|
Provision for income taxes
|
10.7
|
%
|
|
14.2
|
%
|
|
10.3
|
%
|
|
13.4
|
%
|
Net income
|
19.4
|
%
|
|
24.1
|
%
|
|
20.4
|
%
|
|
22.6
|
%
|
The following table summarizes our results by reportable segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAST
|
|
Global Forwarding
|
|
Robinson Fresh
|
|
All Other and Corporate
|
|
Eliminations
|
|
Consolidated
|
Three Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
2,381,551
|
|
|
$
|
528,820
|
|
|
$
|
657,003
|
|
|
$
|
142,644
|
|
|
$
|
—
|
|
|
$
|
3,710,018
|
|
Intersegment revenues
|
$
|
112,243
|
|
|
$
|
7,440
|
|
|
$
|
39,669
|
|
|
$
|
3,670
|
|
|
$
|
(163,022
|
)
|
|
$
|
—
|
|
Total Revenues
|
$
|
2,493,794
|
|
|
$
|
536,260
|
|
|
$
|
696,672
|
|
|
$
|
146,314
|
|
|
$
|
(163,022
|
)
|
|
$
|
3,710,018
|
|
Net Revenues
|
$
|
359,906
|
|
|
$
|
121,023
|
|
|
$
|
60,846
|
|
|
$
|
32,014
|
|
|
$
|
—
|
|
|
$
|
573,789
|
|
Income from Operations
|
$
|
140,284
|
|
|
$
|
27,675
|
|
|
$
|
14,249
|
|
|
$
|
(388
|
)
|
|
$
|
—
|
|
|
$
|
181,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAST
|
|
Global Forwarding
|
|
Robinson Fresh
|
|
All Other and Corporate
|
|
Eliminations
|
|
Consolidated
|
Three Months Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
2,158,615
|
|
|
$
|
356,773
|
|
|
$
|
660,204
|
|
|
$
|
124,149
|
|
|
$
|
—
|
|
|
$
|
3,299,741
|
|
Intersegment revenues
|
$
|
71,543
|
|
|
$
|
8,763
|
|
|
$
|
27,049
|
|
|
$
|
229
|
|
|
$
|
(107,584
|
)
|
|
$
|
—
|
|
Total Revenues
|
$
|
2,230,158
|
|
|
$
|
365,536
|
|
|
$
|
687,253
|
|
|
$
|
124,378
|
|
|
$
|
(107,584
|
)
|
|
$
|
3,299,741
|
|
Net Revenues
|
$
|
399,203
|
|
|
$
|
97,224
|
|
|
$
|
67,820
|
|
|
$
|
29,968
|
|
|
$
|
—
|
|
|
$
|
594,215
|
|
Income from Operations
|
$
|
182,721
|
|
|
$
|
22,396
|
|
|
$
|
27,311
|
|
|
$
|
1,319
|
|
|
$
|
—
|
|
|
$
|
233,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAST
|
|
Global Forwarding
|
|
Robinson Fresh
|
|
All Other and Corporate
|
|
Eliminations
|
|
Consolidated
|
Six Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,640,803
|
|
|
$
|
997,608
|
|
|
$
|
1,207,448
|
|
|
$
|
279,284
|
|
|
$
|
—
|
|
|
$
|
7,125,143
|
|
Intersegment revenues
|
$
|
213,397
|
|
|
$
|
15,583
|
|
|
$
|
73,009
|
|
|
$
|
10,548
|
|
|
$
|
(312,537
|
)
|
|
$
|
—
|
|
Total Revenues
|
$
|
4,854,200
|
|
|
$
|
1,013,191
|
|
|
$
|
1,280,457
|
|
|
$
|
289,832
|
|
|
$
|
(312,537
|
)
|
|
$
|
7,125,143
|
|
Net Revenues
|
$
|
732,346
|
|
|
$
|
227,569
|
|
|
$
|
117,683
|
|
|
$
|
64,757
|
|
|
$
|
—
|
|
|
$
|
1,142,355
|
|
Income from Operations
|
$
|
296,161
|
|
|
$
|
43,881
|
|
|
$
|
28,901
|
|
|
$
|
835
|
|
|
$
|
—
|
|
|
$
|
369,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAST
|
|
Global Forwarding
|
|
Robinson Fresh
|
|
All Other and Corporate
|
|
Eliminations
|
|
Consolidated
|
Six Months Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,204,094
|
|
|
$
|
707,885
|
|
|
$
|
1,224,297
|
|
|
$
|
237,408
|
|
|
$
|
—
|
|
|
$
|
6,373,684
|
|
Intersegment revenues
|
$
|
131,812
|
|
|
$
|
14,843
|
|
|
$
|
50,945
|
|
|
$
|
542
|
|
|
$
|
(198,142
|
)
|
|
$
|
—
|
|
Total Revenues
|
$
|
4,335,906
|
|
|
$
|
722,728
|
|
|
$
|
1,275,242
|
|
|
$
|
237,950
|
|
|
$
|
(198,142
|
)
|
|
$
|
6,373,684
|
|
Net Revenues
|
$
|
783,001
|
|
|
$
|
190,090
|
|
|
$
|
126,005
|
|
|
$
|
58,454
|
|
|
$
|
—
|
|
|
$
|
1,157,550
|
|
Income from Operations
|
$
|
345,072
|
|
|
$
|
39,253
|
|
|
$
|
45,044
|
|
|
$
|
3,330
|
|
|
$
|
—
|
|
|
$
|
432,699
|
|
Three Months Ended
June 30, 2017
Compared to Three Months Ended
June 30, 2016
Total revenues and direct costs.
Our consolidated total revenues
increased
12.4 percent
in the second quarter of
2017
compared to the second quarter of
2016
. Total transportation revenues
increased
15.2 percent
in the second quarter of
2017
compared to the second quarter of
2016
. The
increase
was driven by increased volumes in all of our transportation services. Total purchased transportation and related services
increased
19.6 percent
in the second quarter of
2017
compared to the second quarter of
2016
. The
increase
was due to increased volumes in all of our transportation services and increased cost of transportation, including fuel. Our sourcing revenue
decreased
6.7 percent
to
$390.0 million
in the second quarter of
2017
from
$418.2 million
in the second quarter of
2016
. Purchased products sourced for resale
decreased
6.7 percent
in the second quarter of
2017
to
$354.9 million
from
$380.5 million
in the second quarter of
2016
. These decreases were due to lower pricing resulting from lower commodity costs. Case volumes were flat in the second quarter of
2017
compared to the second quarter of
2016
.
Net revenues.
Total transportation net revenues
decreased
3.2 percent
to
$538.6 million
in the second quarter of
2017
from
$556.5 million
in the second quarter of
2016
. Our transportation net revenue margin
decreased
to
16.2 percent
in the second quarter of
2017
from
19.3 percent
in the second quarter of
2016
primarily due to the cost of transportation increasing more than customer pricing, including fuel, in nearly all transportation services. Sourcing net revenues
decreased
6.8 percent
to
$35.1 million
in the second quarter of
2017
from
$37.7 million
in the second quarter of
2016
. This
decrease
was primarily the result of lower net revenue per case, as sourcing revenues and costs declined at the same rate. Our sourcing net revenue margin was
9.0 percent
in the second quarter of both
2017
and
2016
.
Operating expenses.
Operating expenses
increased
8.7 percent
to
$392.0 million
in the second quarter of
2017
from
$360.5 million
in the second quarter of
2016
. Operating expenses as a percentage of net revenues
increased
to
68.3 percent
in the second quarter of
2017
from
60.7 percent
in the second quarter of
2016
.
For the second quarter, personnel expenses
increased
5.2 percent
to
$284.2 million
in
2017
from
$270.3 million
in
2016
. The increase in personnel expense was due to an increase in average headcount, partially offset by decreased expenses related to variable incentive plans. During the second quarter of
2017
, our average headcount increased 8.1 percent compared to the second quarter of
2016
, including approximately 310 employees added as a result of our acquisition of APC.
For the second quarter of
2017
, other selling, general, and administrative expenses
increased
19.4 percent
to
$107.7 million
in
2017
from
$90.2 million
in the second quarter of
2016
. This
increase
was primarily due to increases in claims, costs related to the addition of the APC business, the provision for bad debt, and warehouse costs.
Income from operations.
Income from operations
decreased
22.2 percent
to
$181.8 million
in the second quarter of
2017
from
$233.7 million
in the second quarter of
2016
. This decrease was primarily driven by declines in income from operations in NAST and Robinson Fresh. Income from operations as a percentage of net revenues
decreased
to
31.7 percent
in the second quarter of
2017
from
39.3 percent
in the second quarter of
2016
.
Interest and other expense.
Interest and other expense was
$9.4 million
in the second quarter of
2017
compared to
$6.3 million
in the second quarter of
2016
. The increase was due primarily to a higher average debt balance during the quarter ended
June 30, 2017
, compared to the same period ended
June 30, 2016
. Increased borrowings were related to the acquisition of APC.
Provision for income taxes.
Our effective income tax rate was
35.6 percent
for the second quarter of
2017
and
37.1 percent
for the second quarter of
2016
. During the first quarter of 2017, we adopted ASU 2016-09,
Compensation - Stock Compensation
(Topic 718). The adoption of ASU 2016-09 prospectively impacts the recording of income taxes related to share-based payment awards in our consolidated statement of financial position and results of operations, as well as the operating and financing cash flows on the consolidated statements of cash flow. This adoption resulted in a decrease in our provision for income taxes of $1.2 million the second quarter of 2017.
Net income.
Net income
decreased
22.4 percent
to
$111.1 million
in the second quarter of
2017
from
$143.1 million
in the second quarter of
2016
. Basic net income per share
decreased
21.0 percent
to
$0.79
from
$1.00
. Diluted net income per share
decreased
22.0 percent
to
$0.78
from
$1.00
.
SEGMENT RESULTS OF OPERATIONS
Three Months Ended
June 30, 2017
, Compared to Three Months Ended
June 30, 2016
North American Surface Transportation.
NAST total revenues, including intersegment revenues, increased
11.8 percent
to
$2.5 billion
in the second quarter of
2017
from
$2.2 billion
in the second quarter of
2016
. This increase was driven by volume increases in all services. NAST cost of transportation and related services increased
16.5 percent
to
$2.1 billion
in the second quarter of
2017
from
$1.8 billion
in the second quarter of
2016
. This increase was driven by increase in volume and costs of transportation in all services. NAST net revenues decreased
9.8 percent
to
$359.9 million
in the second quarter of
2017
from
$399.2 million
in the second quarter of
2016
. This decrease was driven by a decline in truckload net revenues, discussed below.
NAST truckload net revenues decreased 14.1 percent to $250.0 million in the second quarter of
2017
from $291.1 million in the second quarter of
2016
. NAST truckload volumes increased approximately eight percent in the second quarter of
2017
compared to the second quarter of
2016
. NAST truckload net revenue margin decreased in the second quarter of
2017
compared to the second quarter of
2016
, due primarily to higher transportation costs, including fuel costs.
NAST truckload net revenues accounted for approximately 92 percent of our total North American truckload net revenues in the second quarter of both
2017
and
2016
. The majority of the remaining North American truckload net revenues are included in Robinson Fresh. Excluding the estimated impacts of the increase in fuel costs, our average truckload rate per mile charged to our customers was flat in the second quarter of
2017
compared to the second quarter of
2016
. Our truckload transportation costs increased approximately four percent, excluding the estimated increase in fuel costs.
NAST LTL net revenues increased 2.1 percent to $97.1 million in the second quarter of
2017
from $95.1 million in the second quarter of
2016
. This increase was primarily due to a volume increase of approximately 6.5 percent in the second quarter of
2017
compared to the second quarter of
2016
, partially offset by a decrease in net revenue margin resulting from increased purchased transportation costs.
NAST intermodal net revenues decreased 6.3 percent to $7.8 million in the second quarter of
2017
from $8.3 million in the second quarter of
2016
. Net revenues decreased while volume increased in the second quarter of 2017 compared to the second quarter of 2016 due to lower-margin contractual volume growth, partially offset by a decrease in transactional business.
NAST operating expenses increased 1.5 percent in the second quarter of
2017
to $219.6 million compared to $216.5 million in the second quarter of
2016
. This increase was due to increases in selling, general, and administrative expenses, partially offset by a small decrease in personnel expenses. The decrease in personnel expense is related to variable incentive plans, partially offset by an increase in average headcount of 3.0 percent. The operating expenses of NAST and all other segments include allocated corporate expenses.
NAST income from operations decreased
23.2 percent
to
$140.3 million
in the second quarter of
2017
from
$182.7 million
in the second quarter of
2016
. This was primarily due to a decline in net revenues caused by an increase in transportation costs.
Global Forwarding.
Global Forwarding total revenues, including intersegment revenues, increased
46.7 percent
to
$536.3 million
in the second quarter of
2017
compared to
$365.5 million
in the second quarter of
2016
. Global Forwarding costs of transportation and related services increased
54.8 percent
to
$415.2 million
in the second quarter of
2017
from
$268.3 million
in the second quarter of
2016
. Global Forwarding net revenues increased
24.5 percent
to
$121.0 million
in the second quarter of
2017
compared to
$97.2 million
in the second quarter of
2016
. These increases were primarily driven by our acquisition of APC.
Global Forwarding ocean transportation net revenues increased 22.0 percent to $73.2 million in the second quarter of
2017
from $60.0 million in the second quarter of
2016
. Ocean transportation volumes increased approximately 22 percent and customer rates also increased in the second quarter of
2017
compared to the same period of
2016
.
Global Forwarding air transportation net revenues increased 31.0 percent to $24.5 million in the second quarter of
2017
from $18.7 million in the second quarter of
2016
. Air transportation volumes increased approximately 32 percent and customer rates also increased in the second quarter of
2017
compared to the same period of
2016
.
Global Forwarding customs net revenues increased 40.6 percent to
$16.3 million
in the second quarter of
2017
from
$11.6 million
in
2016
. The increase was primarily due to increased transaction volumes, primarily related to the acquisition of APC. Customs transaction volumes increased approximately 34 percent in the second quarter of
2017
compared to the same period of
2016
.
Global Forwarding operating expenses increased 24.8 percent in the second quarter of
2017
to $93.3 million from $74.8 million in the second quarter of
2016
. These increases were driven by an average headcount increase of 14.4 percent and the acquisition amortization related to the acquisition of APC.
Global Forwarding income from operations increased
23.6 percent
to
$27.7 million
in the second quarter of
2017
from
$22.4 million
in the second quarter of
2016
. This was primarily due to an increase in net revenues, partially offset by an increase in operating expenses.
Robinson Fresh.
Robinson Fresh total revenues, including intersegment revenues, increased
1.4 percent
to
$696.7 million
in the second quarter of
2017
from
$687.3 million
in the second quarter of
2016
. Robinson Fresh costs of transportation and related services and purchased products sourced for resale increased
2.6 percent
to
$635.8 million
in the second quarter of
2017
from
$619.4 million
in the second quarter of
2016
. Robinson Fresh net revenues decreased
10.3 percent
to
$60.8 million
in the second quarter of
2017
from
$67.8 million
in the second quarter of
2016
. This decrease was the result of declines in transportation and sourcing net revenues.
Robinson Fresh net revenues from sourcing services decreased 6.8 percent to $35.1 million in the second quarter of
2017
compared to $37.7 million in the second quarter of
2016
. This was primarily the result of lower net revenue per case, as sourcing revenues and costs declined at the same rate. Case volumes were flat in the second quarter of
2017
compared to the second quarter of
2016
.
Robinson Fresh net revenues from transportation services decreased 14.6 percent to $25.7 million in the second quarter of
2017
compared to $30.1 million in the second quarter of
2016
, primarily due to a decrease of 19.8 percent in truckload net revenue. Robinson Fresh
transportation net revenue margin decreased in the second quarter of 2017 compared to the second quarter of 2016. Robinson Fresh transportation volumes increased 15 percent in the second quarter of
2017
compared to the second quarter of
2016
.
Robinson Fresh operating expenses increased 15.0 percent in the second quarter of
2017
to $46.6 million from $40.5 million in the second quarter of
2016
. This was primarily due to an increase in claims expenses, warehousing expenses related to expanding facilities, and an increase in average headcount.
Robinson Fresh income from operations decreased
47.8 percent
to
$14.2 million
in the second quarter of
2017
from
$27.3 million
in the second quarter of
2016
. This was primarily due to an increase in operating expenses and a decrease in transportation services and sourcing net revenues.
All Other and Corporate.
All Other and Corporate includes our Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses. Managed Services provides Transportation Management Services, or Managed TMS. Other Surface Transportation revenues are primarily earned by Europe Surface Transportation. Europe Surface Transportation provides services similar to NAST across Europe.
Managed Services net revenues increased 15.1 percent in the second quarter of
2017
to $18.2 million compared to
$15.8 million
in the second quarter of
2016
. This increase was a result of new business with new and existing customers. Other
Surface Transportation decreased 2.4 percent in the second quarter of
2017
to $13.9 million compared to $14.2 million in the second quarter of
2016
, primarily the result of lower margins in Europe Surface Transportation.
Six Months Ended
June 30, 2017
Compared to Six Months Ended
June 30, 2016
Total revenues and direct costs.
Our consolidated total revenues
increased
11.8 percent
in the six months ended
June 30, 2017
, compared to the six months ended
June 30, 2016
. Total transportation revenues
increased
14.8 percent
to
$6.4 billion
in the six months ended
June 30, 2017
, from
$5.6 billion
in the six months ended
June 30, 2016
. The
increase
in total transportation revenues was driven by increased volumes in all of our transportation services, partially offset by lower rates charged to our customers, including fuel. Total purchased transportation and related services
increased
18.7 percent
in the six months ended
June 30, 2017
, to
$5.3 billion
from
$4.5 billion
in the six months ended
June 30, 2016
. The
increase
was due to increased volumes in all of our transportation services, and by increased costs of transportation, including fuel. Sourcing revenue
decreased
9.7 percent
in the six months ended
June 30, 2017
compared to the six months ended
June 30, 2016
. Purchased products sourced for resale
decreased
10.4 percent
in the six months ended
June 30, 2017
compared to the six months ended
June 30, 2016
. These decreases were primarily due to lower pricing and commodity costs.
Net revenues.
Total transportation net revenues
decreased
1.3 percent
to
$1.08 billion
in the
six months ended June 30, 2017
from
$1.09 billion
in the
six months ended June 30, 2016
. Our transportation net revenue margin
decreased
to
16.8 percent
in the
six months ended June 30, 2017
from
19.5 percent
in the
six months ended June 30, 2016
, primarily due to the cost of transportation increasing more than customer pricing, including fuel, in nearly all transportation services. Sourcing net revenues
decreased
2.1 percent
to
$65.6 million
in the
six months ended June 30, 2017
from
$67.0 million
in the
six months ended June 30, 2016
. This
decrease
was primarily the result of lower net revenue per case, as price per case decreased more than cost per case. Our sourcing net revenue margin
increased
in the
six months ended June 30, 2017
to
9.3 percent
from
8.6 percent
in the
six months ended June 30, 2016
.
Operating expenses.
Operating expenses
increased
6.6 percent
in the six months ended
June 30, 2017
compared to the six months ended
June 30, 2016
. Operating expenses as a percentage of net revenues
increased
to
67.6 percent
in the six months ended
June 30, 2017
, from
62.6 percent
in the six months ended
June 30, 2016
.
Personnel expenses
increased
4.9 percent
to
$574.7 million
in the six months ended
June 30, 2017
, from
$547.7 million
in the six months ended
June 30, 2016
. For the six month period ended
June 30, 2017
, our average headcount grew 7.9 percent compared to the same period ended
June 30, 2016
, including 310 employees added on September 30, 2016 with the acquisition of APC. The increase in personnel expense was less than the increase in average headcount due to decreased expenses related to variable incentive plans.
Other selling, general, and administrative expenses
increased
11.7 percent
to
$197.9 million
in the six months ended
June 30, 2017
from
$177.1 million
in the six months ended
June 30, 2016
. This
increase
was primarily due to an increase in acquisition amortization, the provision for bad debt, and warehouse costs.
Income from operations.
Income from operations
decreased
14.5 percent
to
$369.8 million
in the six months ended
June 30, 2017
, from
$432.7 million
in the six months ended
June 30, 2016
. Income from operations as a percentage of net revenues
decreased
to
32.4 percent
in the six months ended
June 30, 2017
, from
37.4 percent
in the six months ended
June 30, 2016
.
Interest and other expense.
Interest and other expense
increased
to
$18.7 million
in the six months ended
June 30, 2017
, from
$15.0 million
in the six months ended
June 30, 2016
. The change was due primarily to a higher average debt balance and higher interest rates on our short-term debt during the six month period ended
June 30, 2017
, compared to the same period ended
June 30, 2016
.
Provision for income taxes.
Our effective income tax rate was
33.6 percent
for the six months ended
June 30, 2017
, and
37.3 percent
for the six months ended
June 30, 2016
. During the first quarter of 2017, we adopted ASU 2016-09,
Compensation - Stock Compensation
(Topic 718). The adoption of ASU 2016-09 prospectively impacts the recording of income taxes related to share-based payment awards in our consolidated statement of financial position and results of operations, as well as the operating and financing cash flows on the consolidated statements of cash flow. This adoption resulted in a decrease in our provision for income taxes of $10.6 million the six months ended
June 30, 2017
. The effective income tax rate for the six months ended
June 30, 2017
was lower than the statutory federal income tax rate due to the adoption of ASU 2016-09.
Net income.
Net income decreased
11.0 percent
to
$233.2 million
in the six months ended
June 30, 2017
, from
$262.1 million
in the six months ended
June 30, 2016
. Basic and diluted net income per share decreased
9.8 percent
to
$1.65
in the six months ended
June 30, 2017
from
$1.83
in the six months ended
June 30, 2016
.
SEGMENT RESULTS OF OPERATIONS
Six Months Ended
June 30, 2017
, Compared to Six Months Ended
June 30, 2016
North American Surface Transportation.
NAST total revenues, including intersegment revenues, increased
12.0 percent
to
$4.9 billion
during the
six months ended June 30, 2017
from
$4.3 billion
during the
six months ended June 30, 2016
. This increase was driven by volume increases in all services. NAST cost of transportation and related services increased
16.0 percent
to
$4.1 billion
in the
six months ended June 30, 2017
from
$3.6 billion
in the
six months ended June 30, 2016
. This was driven by increases in volumes and costs of transportation in all services. NAST net revenues decreased
6.5 percent
to
$732.3 million
in the
six months ended June 30, 2017
from
$783.0 million
in the
six months ended June 30, 2016
. This decrease was driven primarily by a decline in truckload net revenues.
NAST truckload net revenues decreased 9.9 percent to $517.6 million during the
six months ended June 30, 2017
from
$574.8 million
in the
six months ended June 30, 2016
. NAST truckload volumes increased approximately nine percent during the
six months ended June 30, 2017
compared to the
six months ended June 30, 2016
. NAST truckload net revenue margin decreased in the
six months ended June 30, 2017
compared to the
six months ended June 30, 2016
, due to lower customer pricing and increased transportation costs, excluding the change in fuel costs.
NAST truckload net revenues accounted for approximately 92 percent of our total North American truckload net revenues in the
six months ended June 30,
of both
2017
and
2016
. The majority of the remaining North American truckload net revenues are included in Robinson Fresh. Excluding the estimated impacts of the increase in fuel costs, our average truckload rate per mile charged to our customers decreased approximately two percent in the
six months ended June 30, 2017
compared to the
six months ended June 30, 2016
. Our truckload transportation costs increased approximately one percent, excluding the estimated increase in fuel costs.
NAST LTL net revenues increased 4.5 percent to $190.7 million in the
six months ended June 30, 2017
from $182.4 million in the
six months ended June 30, 2016
. This increase was primarily due to a volume increase of approximately 7.5 percent during the
six months ended June 30, 2017
compared to the
six months ended June 30, 2016
, partially offset by a decrease in net revenue margin.
NAST intermodal net revenues decreased 11.9 percent to $14.9 million in the
six months ended June 30, 2017
from
$17.0 million
in the
six months ended June 30, 2016
. Net revenues decreased while volume increased in the
six months ended June 30, 2017
compared to the
six months ended June 30, 2016
due to lower-margin contractual volume growth, partially offset by a decrease in transactional business.
NAST operating expenses decreased 0.4 percent during the
six months ended June 30, 2017
to $436.2 million compared to
$437.9 million
during the
six months ended June 30, 2016
. This decrease was driven by a decline in personnel expenses, partially offset by an increase in other selling, general, and administrative expenses. The decrease in personnel expense is related to variable incentive plans, partially offset by an increase in average headcount of 2.6 percent. The operating expenses of NAST and all other segments include allocated corporate expenses.
NAST income from operations decreased
14.2 percent
to
$296.2 million
during the
six months ended June 30, 2017
from
$345.1 million
in the
six months ended June 30, 2016
. This was primarily due to a decline in net revenues caused by lower customer pricing and increased cost of transportation services.
Global Forwarding.
Global Forwarding total revenues, including intersegment revenues, increased
40.2 percent
to
$1.0 billion
in the
six months ended June 30, 2017
compared to
$722.7 million
in the
six months ended June 30, 2016
. Global Forwarding costs of transportation and related services increased
47.5 percent
to
$785.6 million
in the
six months ended June 30, 2017
from
$532.6 million
in the
six months ended June 30, 2016
. Global Forwarding net revenues increased
19.7 percent
to
$227.6 million
in the
six months ended June 30, 2017
compared to
$190.1 million
in the
six months ended June 30, 2016
. These increases were primarily driven by our acquisition of APC.
Global Forwarding ocean transportation net revenues increased 15.2 percent to $136.7 million in the
six months ended June 30, 2017
from $118.6 million in the
six months ended June 30, 2016
. The increase in net revenues was primarily a result of our acquisition of APC, partially offset by margin compression.
Our air transportation net revenues increased 24.4 percent to $44.9 million in the
six months ended June 30, 2017
from
$36.1 million
in the
six months ended June 30, 2016
. The increase was primarily the result of our acquisition of APC, partially offset by margin compression.
Our customs net revenues increased 45.1 percent to
$32.4 million
in the
six months ended June 30, 2017
from
$22.3 million
in
2016
. The increase was due to increased transaction volumes, primarily related to the acquisition of APC.
Global Forwarding operating expenses increased 21.8 percent in the
six months ended June 30, 2017
to $183.7 million from $150.8 million in the
six months ended June 30, 2016
. These increases were driven by an average headcount increase of 13.7 percent and the acquisition amortization expense related to the acquisition of APC.
Global Forwarding income from operations increased
11.8 percent
to
$43.9 million
in the
six months ended June 30, 2017
from
$39.3 million
in the
six months ended June 30, 2016
. This was primarily due to an increase in net revenues, partially offset by an increase in operating expenses.
Robinson Fresh.
Robinson Fresh total revenues, including intersegment revenues, were flat at
$1.3 billion
in the
six months ended June 30, 2017
compared to the
six months ended June 30, 2016
. Robinson Fresh costs of transportation and related services and purchased products sourced for resale decreased
1.2 percent
to
$1.2 billion
in the
six months ended June 30, 2017
from
$1.1 billion
in the
six months ended June 30, 2016
. Robinson Fresh net revenues decreased
6.6 percent
to
$117.7 million
in the
six months ended June 30, 2017
from
$126.0 million
in the
six months ended June 30, 2016
. This decrease was the result of declines in transportation and sourcing net revenues.
Robinson Fresh net revenues from sourcing services decreased 2.1 percent to $65.6 million in the
six months ended June 30, 2017
compared to $67.0 million in the
six months ended June 30, 2016
. This was primarily the result of lower net revenue per case due to a similar rate of decline in both price and cost per case.
Robinson Fresh net revenues from transportation services decreased 11.7 percent to $52.1 million in the
six months ended June 30, 2017
compared to $59.0 million in the
six months ended June 30, 2016
, primarily due to decreases in truckload net revenue. Robinson Fresh transportation net revenue margin decreased in the
six months ended June 30, 2017
compared to the
six months ended June 30, 2016
, due primarily to lower customer pricing.
Robinson Fresh operating expenses increased 9.7 percent in the
six months ended June 30, 2017
to $88.8 million from
$81.0 million
in the
six months ended June 30, 2016
. This was primarily due to an increase in claims and warehousing expenses related to expanding facilities and an increase in average headcount, partially offset by a decrease in expenses related to variable incentive compensation plans.
Robinson Fresh income from operations decreased
35.8 percent
to
$28.9 million
in the
six months ended June 30, 2017
from
$45.0 million
in the
six months ended June 30, 2016
. This was primarily due to a decrease in transportation and sourcing net revenues, and an increase in operating expenses.
All Other and Corporate.
All Other and Corporate includes our Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses. Managed Services provides Transportation Management Services, or Managed TMS. Other Surface Transportation revenues are primarily earned by Europe Surface Transportation. Europe Surface Transportation provides services similar to NAST across Europe.
Managed Services net revenues increased 16.5 percent in the
six months ended June 30, 2017
to $35.4 million compared to $30.4 million in the
six months ended June 30, 2016
. This increase was a result of volume growth from both new and existing customers. Other Surface Transportation increased 4.6 percent in the
six months ended June 30, 2017
to $29.4 million compared to $28.1 million in the
six months ended June 30, 2016
, primarily the result of growth in Europe Surface Transportation.
LIQUIDITY AND CAPITAL RESOURCES
We have historically generated substantial cash from operations, which has enabled us to fund our organic growth while paying cash dividends and repurchasing stock. In 2012, we entered into a senior unsecured revolving credit facility to partially fund an acquisition. In December 2014, we amended the revolving credit facility to increase the amount available from $500 million to $900 million and to extend the expiration date from October 2017 to December 2019, primarily to fund an acquisition. In 2013, we entered into a Note Purchase Agreement to fund the repurchase of
$500 million
worth of our common stock. The Note Purchase Agreement was amended in February 2015 to conform its financial covenants to be consistent with the amended revolving credit facility. In April 2017, we entered into an U.S. Trade Accounts Receivable Securitization facility to reduce the amount outstanding on our revolving credit facility. We also expect to use the revolving credit facility, the receivables securitization facility, and potentially other indebtedness incurred in the future to assist us in continuing to fund working capital, capital expenditures, possible acquisitions, dividends, and share repurchases. Cash and cash equivalents totaled
$273.2 million
as of
June 30, 2017
, and
$247.7 million
as of
December 31, 2016
. Cash and cash equivalents held outside the United States totaled $206.3 million as of
June 30, 2017
, and $172.2 million as of
December 31, 2016
. If we repatriated all foreign earnings, the estimated effect on income taxes payable would be an increase of approximately
$23.7 million
as of
June 30, 2017
. Working capital at
June 30, 2017
, was
$487.5 million
and at
December 31, 2016
, was
$162.4 million
.
We prioritize our investments to grow the business, as we require some working capital and a relatively small amount of capital expenditures to grow. We are continually looking for acquisitions, but those acquisitions must fit our culture and enhance our growth opportunities.
Cash flow from operating activities.
We generated
$150.0 million
and
$247.3 million
of cash flow from operations during the six months ended
June 30, 2017
and
June 30, 2016
, respectively, a
decrease
of
$97.3 million
compared to the six months ended
June 30, 2016
. The increase in volumes, customer rates, and costs of transportation, including fuel prices, in the first six months of 2017 compared to the first six months of 2016 resulted in increased growth in working capital and led to decreased operating cash flow.
Cash used for investing activities.
We used
$35.8 million
and
$44.4 million
of cash during the six months ended
June 30, 2017
and
June 30, 2016
for investing activities.
We used
$33.0 million
and
$44.0 million
for capital expenditures during the six months ended
June 30, 2017
and
June 30, 2016
. During the six months ended
June 30, 2017
, our capital expenditures consisted primarily of investments in facilities, office equipment, and information technology, which are intended to improve efficiencies and help grow the business.
During the six months ended
June 30, 2017
, we used
$1.8 million
in connection with the acquisition of APC resulting from a post-closing working capital adjustment due to the sellers under the terms of the acquisition agreement.
Cash used for financing activities.
We used
$97.1 million
and
$163.7 million
of cash flow for financing activities during the six months ended
June 30, 2017
and
June 30, 2016
.
During the
six months ended June 30, 2017
, we had net short-term repayments of
$148.0 million
. During the
six months ended June 30, 2016
, we had net short-term borrowings of
$15.0 million
. The outstanding balance on the revolving credit facility was
$592.0 million
as of
June 30, 2017
.
During the six months ended
June 30, 2017
, we had long-term borrowings of
$250.0 million
on the securitization facility. The outstanding balance on the securitization facility was $250.0 million as of
June 30, 2017
. We were in compliance with all of the covenants under the Credit Agreement, Note Purchase Agreement, and Receivables Securitization Facility as of
June 30, 2017
.
We used
$128.8 million
and
$127.5 million
to pay cash dividends during the six months ended
June 30, 2017
and
June 30, 2016
. The increase was primarily due to a dividend rate increase in 2017 compared to 2016, partially offset by a decrease in weighted average shares outstanding during the six months ended
June 30, 2017
, compared to the six months ended
June 30, 2016
.
We used
$70.5 million
and
$45.2 million
on share repurchases during the six months ended
June 30, 2017
and
June 30, 2016
. The change was due to an increase in the number of shares repurchased and the average price of the repurchased shares during the six months ended
June 30, 2017
, compared to the same period of
2016
. In August 2013, the Board of Directors increased the number of shares authorized for repurchase by 15,000,000 shares. As of
June 30, 2017
, there were
3,531,355
shares remaining for future repurchases under the repurchase authorization. The number of shares we repurchase, if any, during future periods will vary based on our cash position, potential uses of our cash, and market conditions.
We used
$19.6 million
and
$33.1 million
to acquire shares from employees through their withholding taxes resulting from the delivery of restricted equity during the six months ended
June 30, 2017
and
June 30, 2016
.
Management believes that our available cash, together with expected future cash generated from operations, the amount available under our credit facilities, and credit available in the market will be sufficient to satisfy our anticipated needs for working capital, capital expenditures, and cash dividends in the foreseeable future. We also believe we could obtain funds under lines of credit or other forms of indebtedness on short notice, if needed.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our condensed consolidated financial statements include accounts of the company and all majority-owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying condensed consolidated financial statements and related footnotes. In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31,
2016
, includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief discussion of our critical accounting policies and estimates.
Revenue recognition.
Total revenues consist of the total dollar value of goods and services purchased from us by customers. Net revenues are total revenues less the direct costs of transportation, products, and handling. We act principally as the service provider for these transactions and recognize revenue as these services are rendered or goods are delivered. At that time, our obligations to the transactions are completed and collection of receivables is reasonably assured. Most transactions in our Transportation and Sourcing businesses are recorded at the gross amount we charge our customers for the service we provide and goods we sell. In these transactions, we are the primary obligor, we have credit risk, we have discretion to select the supplier, and we have latitude in pricing decisions. Additionally, in our Sourcing business, we often take loss of inventory risk during shipment and have general inventory risk.
Certain transactions in customs brokerage, transportation management, and sourcing are recorded at the net amount we charge our customers for the service we provide because many of the factors stated above are not present.
Valuations for accounts receivable.
Our allowance for doubtful accounts is calculated based upon the aging of our receivables, our historical experience of uncollectible accounts, and any specific customer collection issues that we have identified. The allowance was
$42.5 million
as of
June 30, 2017
and
$39.5 million
as of
December 31, 2016
. We believe that the recorded allowance is sufficient and appropriate based on our customer aging trends, the exposures we have identified, and our historical loss experience.
Goodwill.
Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.
Goodwill is tested at least annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is performed using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit, there is an indication that goodwill impairment exists, and a second step must be completed to determine the amount of the goodwill impairment, if any, that should be recorded. In the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.
The fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations.
Stock-based compensation.
The fair value of each share-based payment award is established on the date of grant. For grants of restricted shares and restricted units, the fair value is established based on the market price on the date of the grant, discounted for post-vesting holding restrictions. The discounts on outstanding grants vary from 15 percent to 22 percent and are calculated using the Black-Scholes option pricing model. Changes in the measured stock price volatility and interest rates are the primary reason for changes in the discount. For grants of options, we use the Black-Scholes option pricing model to estimate the fair value of share-based payment awards. The determination of the fair value of share-based awards is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate, and expected dividends.