October 20, 2008 / 7:39 PM / 10 years ago

RPT-PREVIEW-C.H. Robinson seen posting higher Q3 profit

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*C.H. Robinson to report Q3 results on Tuesday

*Analysts expect EPS of $0.53, rev of $2.25 bln for Q3

*Co seen benefiting from asset-light nature of business

By Bhaswati Mukhopadhyay

BANGALORE, Oct 20 (Reuters) - Third-party logistics provider C.H. Robinson Worldwide Inc (CHRW.O) is expected to post a higher profit in the third quarter as the asset-light nature of its business helps boost margins amid a sluggish freight environment.

The overall freight market in the United States has been hit by the credit squeeze and analysts believe it is the business model of the company that provides greater earnings resilience in a downturn.

Truck brokerage accounts for about 80 percent of C.H. Robinson’s sales, which means the company is less burdened with the fixed costs of maintaining a fleet.

With freight volumes slipping and carriers weighed by excess capacity, third-party logistics companies such as C.H. Robinson are in a better position to bargain for the cheapest rates, helping drive margins.

“They probably have some benefit from the fact that capacity has become more available out there and that allows them better growth margins than what they had been tracking,” analyst Jon Langenfeld of Robert W Baird said.

C.H. Robinson buys capacity in all types of cargo carriers — air, ocean, rail or road — and resells them to clients at cheaper rates than they could themselves get from carriers.

This helps it plan shipments in a cost effective way without actually owning transportation assets.

“It is a service company. So when markets slow, its margins go higher and create more profits even though there is less business,” David Campbell, an analyst with Thompson, Davis & Co, said.

C.H. Robinson, which operates in the United States, has been consistently grabbing market share from companies that have their own carriers, analysts said.

For the third quarter, analysts on average expect the company to post earnings of 53 cents a share, before special items, on revenue of $2.25 billion, according to Reuters Estimates.

The company, which is expected to report third-quarter results on Oct. 21, had posted earnings of 48 cents a share and revenue of $1.87 billion in the year-ago period.

Rival Landstar System (LSTR.O) recently posted third-quarter results that topped market expectations but forecast fourth-quarter earnings below Wall Street estimates.

Seattle-based global logistics company Expeditors International of Washington (EXPD.O) is scheduled to report its third-quarter earnings on Nov. 4.


Analysts said they are bullish about the company’s long-term growth prospects, but voiced concerns about the softness in volume growth.

“If our longer-term estimates are right, C.H. Robinson could double within three years, assuming a ‘normal’ economy from 2010,” UBS analyst Rick Paterson said.

For the last six quarters, the company, which does not provide outlook, has posted earnings that either beat or were in line with Wall Street estimates.

Over the next 12 to 18 months, the stock will outperform the market as the company is very well positioned in terms of the balance sheet despite the difficult times, Baird’s Langenfeld said.

“It will use its balance sheet for smaller, tuck-in acquisitions,” Langenfeld, who upgraded the stock earlier this month along with Expeditors International, said.

There are, however, concerns about volume growth, and analysts said the next couple of quarters are going to be very challenging for these companies. “We are now forecasting softer volume growth trends for United Parcel Service Inc (UPS.N), C.H. Robinson, Expeditors, Landstar and the major railroads,” analyst Thomas Wadewitz of J.P. Morgan Securities wrote in a note dated Oct. 2.

Analysts are expecting a 3 percent drop in third-quarter revenue for C.H. Robinson on a sequential basis. (Editing by Saumyadeb Chakrabarty and Deepak Kannan)

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