羅賓遜全球物流 (CHRW) 2005 Q1 法說會逐字稿

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  • Operator

  • Good morning, ladies and gentlemen, and welcome to the CH Robinson First Quarter 2005 Conference Call.

  • I would now like to turn the conference over to Ms. Angie Freeman, CH Robinson's Director of Investor Relations.

  • Please go ahead, Ms. Freeman.

  • Angie Freeman - Director of IR

  • Thank you and good morning everyone. On our call today will be John Wiehoff, CEO and Chad Lindbloom, Vice President and CFO. John will provide some comments and the highlights of our first quarter performance, and we will follow that with a question-and-answer session.

  • I would like to remind you that comments made by John, Chad or others representing CH Robinson, may contain forward-looking statements which are subject to risks and uncertainties.

  • Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations.

  • With that, I'll turn the call over to John.

  • John Wiehoff - President, CEO & Director

  • Thank you, Angie, and thanks to everybody on the call for taking the time to listen to the Robinson story this morning. Our earnings release was sent out last night, it's available on the Internet, and hopefully, you all have a copy of it.

  • Obviously, we had a very strong first quarter. We exceeded our long-term growth rate of 15% largely due to the strong revenue growth in both transportation and sourcing. If you look at our first quarter results, it's our opinion that there's really nothing too unusual or interesting in the personnel and SG&A part of the results for the quarter.

  • When we have this higher revenue growth, we tend to have earnings growth a little bit stronger than our revenue growth, just because of the leverage that is in the model. But, we don't have any really prepared comments for the personnel or SG&A area, but Chad is here to answer any questions that may come up in the Q&A session.

  • I'm going to focus my prepared comments in three different areas -- first, transportation, and then, sourcing, and then the third point is to give a brief update on litigations within the company.

  • So, starting off, in the transportation area; probably, best to go right to the largest part with the North American truck business and to try to give you a little bit of flavor for our interpretation of the first quarter results.

  • I'm going to start by just briefly taking you back a year to refresh a few data points that are probably fresh with all of you, but I want to make sure that we reemphasize them.

  • A year ago, in the first quarter of 2004, at Robinson, what we were talking about and what we were experiencing is an environment where transportation rates were, for the first time in a long time, starting to rise pretty rapidly, and we were seeing a fairly quick escalation in transportation costs and some real tightening of capacity in various parts of the country and in various lanes.

  • A year ago at this time, we were talking about the fact that a lot of our contractual business that had pre-committed pricing in the first quarter of the previous year experienced a fair amount of margin contraction, and it was going to be a challenging environment for us.

  • As '04 wore on last year, what we discussed is the fact that by the end of the second quarter and into the early part of the third quarter, that we were aggressively re-pricing business to adapt to the marketplace, and that, by the end of the year, we discussed in the third and fourth quarter that we were in what we would describe as a very transactional market where a lot of business was occurring on a very short-term basis, with shorter-term pricing, day-by-day tendering and acceptance of freight, and that the market had become very reactive, and thus, we were participating in what we described as a very transactional market near the end of '04.

  • When we come into '05 then we are in the first quarter of this year, we kind of set the stage for that as we discussed in our year-end conference call. Across the board, pricing and rate structures coming into this year were quite a bit higher than they were in '04.

  • Our numbers around that with few included would be somewhere in the mid-teens that we would see pricing or rate increases comparable to the first quarter of a year ago. Obviously, there was decent volume as well, too, there was a lot of freight coming off at the end of last year, and freight demand and freight volumes are fairly strong coming into the current year.

  • And, then the part that we can't and didn't try to anticipate, but we're prepared for whatever scenarios, is that, the cost to higher the supply/demand relationship between the freight and the trucks during the first quarter.

  • I think it was a little bit easier or a little bit softer in the truck market during the first quarter than many of us expected at the beginning of the year.

  • So, consequently, when you put that altogether in our first quarter, we had nice volume growth, again, mid-teen kind of volume growth with significant demand for freight coming into the current year.

  • We had strong pricing increases from the overlap of rate ramp-ups during the current year and favorable or decent buy rates from a purchasing standpoint as the supply and demand relationship didn't tightened up quite as difficult as many of us had been expecting.

  • So you put that altogether and we had very strong gross revenue growth and even stronger net revenue growth across all of our transportation modes, really driven by the 80% of that which is the North American truckload market that we talk most about.

  • In the past, I have talked frequently around this transactional versus contractual framework of how we look at our freight and how we talk with our customers. I've tried to emphasize all the time that that's really a continuum of various types of relationships and that is very difficult to quantify exactly what anyone might interpret that to be from an analyst standpoint or a customer or a company or all the rest of that.

  • I think that environment continues to change even more so where today what we are seeing is that a lot of contractual or longer-term pricing commitments are maybe moving more towards three months, six months seasonal type commitments rather than a full calendar contractual environment like we have most frequently used in the past. And so that definition is becoming even more challenging to try to convey, but its clear to us that the first quarter was continuing in a much more transactional environment, and by that we mean, shorter-term, shorter-term pricing, much more fluid from both the shipper and the carrier side in terms of their timeframe for reacting and looking for alternatives or repricing.

  • It's difficult, if not impossible to kind of predict what the rest of the year will be, and so we don't talk about that from a guidance standpoint. But the interesting thing to think about for the remainder of the year is, what will happen with that freight and supply relationship and how and when will longer-term contractual commitments start to come back more into being the norm. But today, we continue to see a very transactional marketplace with people still trying to sort out, will this tightness in capacity return aggressively like it did last year, only starting a little bit later than a year ago or will it stay more imbalance for the remainder of the year, and those are things that we'll all kind of pay attention to as the year wears on. But as it is, we were very happy with our revenue and net revenue and results growth on the transportation period for the quarter.

  • Briefly on the other modes then; we continue to include our LTL trucking results in with our truckload results, because of the definition vagueness and the challenges of separating the two. But it is very clear that our LTL business and our focus on less than full load freight continue to grow at the same pace or slightly greater than the full truckload activity. As most of the people in the industry know the dynamics around supply and demand and pricing are a little bit different in that LTL industry. So for us, it's a lot about multimodal marketing and marketing of more comprehensive services. And we continue to feel very positive about not only growing and participating in the truckload market, but that the less than truckload component of it is keeping pace and slightly exceeding the market penetration of growing with our customers.

  • On the intermodal side, you've probably seen where our numbers for the quarter were down. We are definitely experiencing what we would consider a more challenging period in our intermodal growth. Both our volume and our margins were down single digits for the quarter. For us that is largely driven, almost entirely driven by the trade-offs of truck versus rail opportunities from both the pricing and of service standpoint. So at the period of time where we're giving back some of intermodal volume as it converts back to truck.

  • We're working hard to make sure that our service experience and our people are doing better than anyone else in the industry and trying to grow our capabilities and grow our volumes. But we continue to really focus on multimodal efforts and managing broad customer relationships. And during this period - a period of time like this, where the truck environment is favorable and there are price increases and some service issue on the rail side, we probably will always see volume pushback, and given our relative size and depth in each of the two, it was a challenging quarter for us on the intermodal side. But I really do want to emphasize how important and successful we believe the multimodal approach has been for us and for all of our customers, and we are not in any ways backing off of that or changing our longer-term expectations for market share penetration into intermodal.

  • Lastly, on the international freight forwarding side; the story has been and continues to be about building out our network, growing customers largely here in North America by growing competencies in other offices and expanding the network principally in Europe and in Asia. We'll continue to do that. We had some good success during the quarter, both in landing new businesses, as well as integrating the Asian offices that we entered into, acquired and opened in the middle of last year that we continue to fold revenues in from them. So international forwarding remains a single digit percentage of the total within transportation, but again, a very key component of the long-term strategy of global multimodal integrated offering that we're bringing to the marketplace and feel pretty good about expanding our competencies.

  • Those are really my prepared comments in transportation. Let me change to sourcing now. This is the highest quarter of growth that we've had in the sourcing division of Robinson for quite some time, and obviously, it was driven by the FoodSource acquisition which we, I believe, previously talked about in our last conference call, the opportunity to grow in the sourcing area by acquiring a business that we were familiar with. These are people that we've known for a period of time that we've competed with and cooperated with in the past.

  • I know that for some of our shareholders it maybe was a little surprising that we made an acquisition in the sourcing area, because we had been experiencing and talking about lower growth expectations in the 3 to 5% range with sourcing, and it was not understood to be nor do we or did we expected to be the highest growth component of Robinson. But we did feel like it was a very good business. We feel it's been a great transaction for Robinson, really a good use of our capital. It has strengthened and will as we integrated more strength in our sourcing division that we can continue to strengthen the relationships that we have, and further penetrate retailers and foodservice type companies that have higher expectations from a transportation service and supply chain perspective that we will continue to focus on.

  • So we had, for us, good solid 10% net revenue growth in our existing sourcing businesses as well as the new revenue that came in from the FoodSource acquisition. Put those together and it resulted in a very strong quarter of sourcing growth. It's too early for us to change our expectations on the growth rate of the non-FoodSource component of our sourcing division. However, we will obviously have FoodSource revenues holding in for the remainder of the quarters this year. So we should continue to see above average revenue and net revenue growth within the sourcing division for the remainder of the year from the acquisition. And hopefully, we'll continue to feel positive effects on an overall perspective from the growth rate.

  • So those are my comments along the sourcing piece of it. Lastly, I want to touch on a litigation update here at Robinson to refresh those of you who already know or if you are in, if you're not aware, about two years ago, we were sued with a very -- some very broad and complex allegations in the employment litigation area. And we have had disclosures around that for the last couple of years. We really haven't had a lot of discussion or updates around for the last couple of years because there hasn't been a lot of activity around it. On March 31st, couple of weeks ago, we had the first rulings from the court on our litigation that we believe, in general, reaffirms our positions on the litigation. But I want to do, if I can, try to talk you through the critical parts of that ruling and give you some sense of an update as to where this litigation is at.

  • As I mentioned, it's been two years of discovery and request and process leading up to the process of resolving the litigation. From an overall point, the way I would try to summarize the litigation, again, there is many components of it and it is fairly complex, but there is kind of three core elements of it. The first one, alleging sexual harassment across the Robinson network and seeking class-action of sexual harassment for all locations of CH Robinson within the US. The second allegation was around pay and promotion practices, again, in all locations. And the first two components, the sexual harassment and pay and promotion, are around gender discrimination and gender lines. The third piece of the litigation was around overtime practices and federal labor interpretations of exempt and nonexempt employees, and alleging the potential for misclassification of employees, and significant back wages and labor cost associated with, basically, again, all US employees, both male and female, and this instance, across the branch network in the US for the past several years.

  • There's been a lot of different filings and emotions by both sides in addition to the discovery that occurred, but on March 31st, the court gave its first rulings on several of these things. And I'm going to touch on what I believe are the highlights of this rulings that really are setting up the framework, for all of this litigation will be resolved over the next year or so. First and foremost, from our standpoint, the request for class certification on the sexual harassment claims was denied by the court.

  • In the past in press releases by the plaintiff's lawyers and others, there have been statements around several thousand classed participants, times the 3000 per participant maximum under the federal guidelines for these types of claims, multiplying about a hundred of millions of dollars. That type of class notion with those types of issuing penalties were dismissed and has not really the format that any of these claims will be looked out under anymore. It was a procedural ruling as to how that portion of the litigation will be looked at but as of today any of those claimants are free to pursue individual claims but we do not have the exposure on class certifications under the Sexual Harassment Peace.

  • On the second claim, under pay and promotion, the court did certify the class with regards to current and formal female employees, around questions of pay and promotion on a gender basis. So we are preparing for trial later this year or the next year in terms of looking at the statistical evidence around pay and promotion by gender and by practices within Robinson. We -- the judge in certifying the class around pay and promotion puts several restrictions on the certification with regards to the types of employees only non-hourly employees, the time period and most importantly around the types of damages that could be awarded to this class. So we feel very good about the way that the class was certified and we are preparing for our arguments and the way that we believe from the beginning of the litigation that these claims are without merit and we're going to continue to aggressively defend our position and prepare for the resolution of that component of the litigation under a class certified format that the court has granted.

  • The third component, the overtime fees that includes both men and women is a different legal terminology which is a presumed collective action where there is no hearing around the class certification piece though but then again there are many complicated pieces to this but essentially, our interpretation of the legal process is that we have narrowed the number of participants in this collective action down to a much smaller number, again here in the past there have been allegations of the potential for thousands of participants times, thousands of dollars of back wages leading to very large potential damages the process to date has both narrowed the number of participants, as well as, the lead plaintiff and the allegations around the overtime was dealing by the court to be an exempt employee and so we've had some substantive wins that have made it clear to us that our practices largely deployed in the past, although, we believe are proper and that we do not have the magnitude of exposure, that's maybe then alleged in the past. With a lot of facts the litigation is not by any means over, but the discovery period really is largely over with and the court has set out a frame work for the resolution, of how this litigation will be dealt with.

  • We're preparing to face the rest of litigation under the same manner with the same belief that we started two years ago and in the mean time its business as usual at Robinson. And we feel very good even better today about our positions and the resolution of this within Robinson. Those are really the end of my prepared comments. So we'll move to Q&A now and be prepared for whatever types of questions you may want to ask.

  • Operator

  • Thank you Mr. Wiehoff. And ladies and gentlemen, at this time we will begin the question and answer session. If you have a question please press the "star" followed by the "one" on your push button phone. If you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment for our first question.

  • And our first question comes from Scott Flower with Smith Barney City Group. Please go ahead.

  • Scott Flower - Analyst

  • Yes, good morning, all.

  • John Wiehoff - President, CEO & Director

  • Good morning Scott.

  • Scott Flower - Analyst

  • Just a couple of questions. I was wondering you talked about how freight was still pretty good and it sounds like some of that was carry over without getting specifics, perhaps just generally. How are things, as you went through the quarter I guess in particular everyone has focused a lot on March and I'm just wondering do you think, do you still had any impact. What was your sense on demand through the quarter, if just generally?

  • John Wiehoff - President, CEO & Director

  • Our results during the quarter were fairly consistent when we looked at, we always adjust for business days. I think there was a variance of business days, month-to-month, but on a business day basis, the quarter began and ended somewhat similarly, so we did not see any real trends within the quarter, that would noteworthy.

  • Scott Flower - Analyst

  • Okay. And then I know that you mentioned that Chad was available on the call but I guess I'm curious that obviously even though maybe there is nothing extraordinary notable and you did have growth that traditionally at least when I looked over the last six, seven years -- traditionally there usually as you are going through accretive growth some creep up in the SG&A side. And really SG&A sequentially from fourth quarter to first is relatively flat despite obviously, pretty good business growth and I'm just trying to get a sense of it is that just good cost management. Might we see a little bit more of a spurt in SG&A costs later, I'm just trying to get a sense is obviously, is very good, on a percentage basis, partially driven obviously, higher revenue came in, but even it was absolutely sequentially I guess I'm not typically used to seeing SG&A cost flat with fourth quarter.

  • Chad Lindbloom - VP & CFO

  • Yes. We did have a very good quarter from a cost management prospective and John did mention the leverage. Most of that variable cost is obviously in the personnel but some of our SG&A like telephone bills are variable, but there some fixed components of SG&A as well. Things like rent don't move around as much with the level of business. So it is just gaining leverage also the fourth quarter was quite a bit higher than previous quarters.

  • Scott Flower - Analyst

  • Okay.

  • Chad Lindbloom - VP & CFO

  • And the are two biggest Scott -- the two biggest line items in there, are occupancy and data cost, and when we constantly are relocating offices and upgrading space and whatever so some of those expenses will come in a little lumpier than the kind of purely variable personnel and similarly with the data lines and the phones and other those communication costs that they came in little lumpier when contracts, renewal rates two different things so, we view the SG&A part as the least variable piece of the model, but we just try to manage it down and keep it in context.

  • Scott Flower - Analyst

  • Okay. And then just a couple of other real quick ones. And I know you said, that you're still in a very transactional period, I'm just wondering from your perspective in working with customers, are you trying to move to see if you can't move back toward longer contractual relationships -- I know you said they come in the three or six months versus a year. Do you see any move in terms of how you want to work relationship with the customer to move back to have somewhat longer and away from shorter transaction like 'E' locking and when the rates are good versus how you see perhaps supply and demand working as you look out over the next year?

  • John Wiehoff - President, CEO & Director

  • Well, remember that our primary approach to the market place is to make available what the suppliers want to offer. The reason why we are highly transactional late last year and early this year is because that's what the trucking community and our carriers are looking at, I think there was lot of reluctance late last year and coming into this year train carrier to locking the long term rates because there had been significant rate increases, significant fuel issues, so we do not generally speculate on what we think its going to be and make decisions around locking in or not locking in, we write with the market. So I think we know what you are probably going to see, going forward here is depending upon that supply/demand ratio and pricing relationships and kind of mood of shippers its really the freight levels and the attitudes and actions of the shippers that drive it, and they start to aggressively push back and demand for a longer term fixed rates and different approaches towards the carrier maybe its going to have in us or is going to have more pressure to understand and react to that, but through the end of the quarter we -- we do not see a lot of sentiment towards that. I think everybody was more in the wait and see attitude, a little bit surprised that it wasn't as difficult as everybody thought it was going to be. But still sort of waiting for the other shoe to drop or more enough time to pass before people react to too aggressively either way.

  • Scott Flower - Analyst

  • Okay. And then I know you said that LTLs grew a little bit. Could you give us just a bit -- refresh us on some relative proportionality of (inaudible) I know it's hard to define, but LTLs, however you wish to look at it more efficiently. What that represents is the total truck bucket, is it 10% is it 20%, I'm just trying to get some very broad...

  • John Wiehoff - President, CEO & Director

  • Okay. Our best definition is it is right about at 10% of the truck net revenue in the LTLs. That's come from 4%, 5%, 6% maybe three or four years ago. It was what we had set for quite awhile Scott is that it was growing faster than the truck piece but that it was coming off a smaller base, and so the percentage mix wasn't changing real radically over the last year and half or so of the truck growth has picked up so significantly that they have been growing at about the same pace. So we've been saying 10% for 1.5 year or 2 years now. But if you look back over a five year period of time, because we are newer to that pushing it more aggressively. It has been growing faster.

  • Scott Flower - Analyst

  • And last question from me I just want to understand the impact of the sourcing acquisition, I believe the recent news release came out the 14th. And so all I'm trying to do is, and I know that the aggregate gross revenues last year, with the sourcing acquisition was roughly about 270. I'm just trying to get a sense of when we look going forward what kind of gross rates makes sense? Or I'm trying to get a sense of how much was really in the quarter from those acquisitions and I know that you all said 10% would have been your organic growth. I guess maybe you can just back out and when you realize it I'm just trying to make sure I don't miss extrapolate for future quarters in those acquisitions.

  • John Wiehoff - President, CEO & Director

  • 10% is the right number for net revenues. And, we did have it was half a month almost exactly.

  • Unidentified Speaker

  • Half a quarter.

  • John Wiehoff - President, CEO & Director

  • Half a quarter - I'm sorry -- the business was ours effective February 15th. So you can use that to give yourself a rough idea of what it'll do in the future. There will be some fluctuations with seasonality and things like that. But it's a pretty good indication what the year should be.

  • Scott Flower - Analyst

  • Okay. Great

  • John Wiehoff - President, CEO & Director

  • I think, the one other comment that's note worthy though as the FoodSource acquisition for the first half of quarter, the first six weeks that we owned it did get off to a very good start. It slightly exceeded our and their projections for the deal and what I saw it was most of it is obviously just to acquire revenues but when you are looking at your extrapolations you should understand that it did get off to a very good start.

  • Scott Flower - Analyst

  • Okay. Thank you very much. Lets (inaudible) have added.

  • John Wiehoff - President, CEO & Director

  • Right.

  • Operator

  • Thank you. And our next question comes from John Wagonfeld (ph) with Robert W Baird. Please go ahead.

  • John Wagonfeld - Analyst

  • Good morning.

  • John Wiehoff - President, CEO & Director

  • Good morning.

  • John Wiehoff - President, CEO & Director

  • Hi John.

  • John Wagonfeld - Analyst

  • On the pricing side, can you refresh my memory? This is disproportionately high period of time where the contractual contracts come to be in the fourth quarter or first quarter

  • John Wiehoff - President, CEO & Director

  • Not really, no. There is probably a slight bias towards calendar year activity. But in our world at least, our experience is that most shippers do their contracts off their own business cycle. And that kind of varies depending on their own seasonality. There are a lot of them in the spring, a lot of them in the fall. Most people want to have their new rates in place some time in the summer for their real busy fall shipper. Most people for their own planning purposes, don't do them effective to match up with the calendar year. So we think of it largely as a continuum of renewal during the year.

  • John Wagonfeld - Analyst

  • Okay. That's helpful. And then historically, not looking back over the last couple of quarters but I guess over the last many years. Have you done anything specifically to try to convert the transactional customer, the customer that isn't contractual on anyway but more just using Robinson on a spot basis and try to convert that customer into more of a contractual relationship?

  • John Wiehoff - President, CEO & Director

  • Our general business practice is to build transactional credibility and to build relationships one load at a time and most of our top 100 customers started with single transactional shipments and that really is what we are all about. And if you go back 10 or 15 years, we were almost purely a transactional broker at the time and we've involved into much more committed and integrated relationships with our larger customers. In that context so John, when we say committed or integrated, it usually has to do with technology integration, people on side, multimodal services, other logistics type offerings. Even with some of our very large customers depending upon how they price and how they commit. We may have started with a few loads of week, a long time ago and now we're doing 100 loads per week within that freight, that truckload freight in a more committed integrated relationship with a larger customer, can move back and forth between shorter term and longer term pricing or transaction or contractual type commitments where there is tier great structures or shorter or longer term commitments to it. Some of the business might be dedicated lane-by-lane and we maybe both a core-carrier and a transactional broker for the same customer and that's why lot of these definitions get levied but the main answer to your question is "yes", always and all the time are we trying to take transactional activity and involve it into a more committed longer term relationship, if that's what the customer wants and if that's what the marketplace can offer them.

  • John Wagonfeld - Analyst

  • Okay. All right. And then finally on the acquisition side, I believe when you do the acquisition, we were kind of thinking that part of the revenue, part of the gross profit would go into sourcing and part into transportation, kind of a two for one type split, did that actually occur or is it all reflected in sourcing?

  • John Wiehoff - President, CEO & Director

  • The great majority of it is in sourcing because a lot of their customer base is on the West Coast which is where the produce is coming from, so that smaller transportation component than there is Robinson as a total.

  • John Wagonfeld - Analyst

  • Okay. But don't think of it as a two for one, I think you did like 3.6 million in sourcing. The truck side is going to be a lot less than that.

  • John Wiehoff - President, CEO & Director

  • A lot less, yes.

  • John Wagonfeld - Analyst

  • Okay. And then did you issue incremental shares in the quarter?

  • John Wiehoff - President, CEO & Director

  • We had some option exercises, we continued our normal buyback that we've been doing for years but had option exercises and in place stock purchase, planned shares exceed that.

  • John Wagonfeld - Analyst

  • But nothing related to the acquisition.

  • John Wiehoff - President, CEO & Director

  • Yes and there was some shares issued in acquisition.

  • John Wagonfeld - Analyst

  • Okay. Will that be in K, Q or can you disclose that?

  • John Wiehoff - President, CEO & Director

  • It was $10 million worth at roughly $50.

  • John Wagonfeld - Analyst

  • Okay. And then as the first earn out on this, are we -- a year out from that?

  • Unidentified Speaker

  • Yes, the three annual payments based on March through February earnings and there will be enact within 90 days after, the end of that February 28th, for the next three years.

  • John Wagonfeld - Analyst

  • Is it unlimited or is there a cap on it?

  • John Wiehoff - President, CEO & Director

  • There is a cap.

  • John Wagonfeld - Analyst

  • Okay. Very good. Thank you.

  • John Wiehoff - President, CEO & Director

  • Welcome.

  • Operator

  • Thank you. And our next question comes from James Valentine with Morgan Stanley. Please go ahead.

  • James Valentine - Analyst

  • Thanks. Great quarter guys and excellent. First for modeling purposes, can you help us quantify these legal costs that presumably were in 2004 and now in 2005? And I guess first are they, I assume your expense to each quarters go long or maybe not and once again I want to try to get into training (ph) and give you guys and hope up, they decided the case here, but I'm just trying to think through that clearly this is have some head win in your earnings were probably being understated by these cost right down on an ongoing basis?

  • John Wiehoff - President, CEO & Director

  • Right. The bulk of the legal expenses are covered by insurance. The only ones that aren't are the ones directly related to the overtime law suit. So yes, they are not significant.

  • James Valentine - Analyst

  • Okay. Good. So there really is no head wins in this.

  • John Wiehoff - President, CEO & Director

  • Right.

  • James Valentine - Analyst

  • Okay. Great. The second is, I was wondering, how much the acquisitions helped your EPS in the quarter? I wasn't sure if you -- there's been a lot of questions about acquisitions, I wasn't sure if you guys actually quantified the amount? And, I guess, more importantly, for modeling purposes, try to figure on an ongoing basis, what it's going to mean for the remainder of this year given that it looks like it's starting off, at least, the biggest acquisition start off on the right foot?

  • John Wiehoff - President, CEO & Director

  • The FoodSource, Epic Roots acquisition added, approximately, 1 cent in the quarter -- for the half of the quarter. So, it's on the page to roughly be 2 cents per quarter.

  • James Valentine - Analyst

  • Well, okay. So are there a lot more acquisitions came at the top here right now like this?

  • John Wiehoff - President, CEO & Director

  • Not really. We've talk before that on the sourcing side, it's a very fragmented business. And as the industry and it's consolidating -- because there are so much change going on, a lot of sourcing and produce brokerage type activity has really been under pressure, and that's why we've had a difficult time in someway of growing pieces of those businesses as well too. For us, it's an opportunity to consolidate some of the existing market share out there to really align with some of the other players that we think are long-term players in this, and try to ride through the aggressive industry changes together, and hopefully, we can so better together.

  • James Valentine - Analyst

  • Okay. Great. And if I can ask one last question, look at the 43% earnings growth in the quarter and -- which is, once again, phenomenal, very impressive, and I'm trying to figure out how much of that is due to the high degree of transactional business you have going to your business versus, just organically, you are gaining momentum versus your competitors, versus the acquisition, which you've already quantified being about a penny a share. Can you give us some kind of thought on those three piece, because clearly the 43% growth (inaudible) in your 15% stated goal, and I am trying to figure out, if maybe that 15% if you bumped up, or is it simply that we're just in this somewhat unusual market right now between supply and demand?

  • John Wiehoff - President, CEO & Director

  • I guess the main thought I would share, Jim, is that, you know, it's not that we just don't like to disclose those things; it's impossible to really sort that out. I mean when you combine the kind of long-term market share, low growth build-in marketing relationship management objectives that we've been doing forever and are emphasizing as strong as ever, we're clearly, I mean, we're signing up new customer IDs, we're taking on new market share all the time. But then, you've got the cycles of supply and demand that we've always lived through that will flex up and down. And that's why -- what we keep coming back to is that we look at the rate that we hire people, the rate that we measure productivity, and the rate that we think we can penetrate the market and the long-term average growth rates, and say, hey, 15 is a great foundation. I think in the last seven or eight years, it's been more like 17% or 18%, but 15 is a 20-year or 25-year average. And there's been really good times and there's been low single digit times, and obviously, a lot of things blew in one direction this quarter, which is great. But it's really hard to segregate exactly how much was kind of surplus transactional freight for the quarter and how much of it was just margin expansion. The one thing that I do want to emphasize though is that when you look at gross margin percentages that even though the vivers, the sell percentage that when it compares favorably to a year ago, it actually is pretty close to the two years prior to that. There isn't -- there is a lot of different ways you can analyze our business, but that, you know, I don't want to leave the impression that we feel like there was a huge component of the first quarter results that are going to somehow disappear. It really is, I would say, more towards just the continuum of how we grow our business and manage the relationships.

  • James Valentine - Analyst

  • Okay. Great. That's helpful.

  • Operator

  • Thank you. And our next question comes from Jordan Alliger with Deutsche Bank. Please go ahead.

  • Jordan Alliger - Analyst

  • Hi. Good morning. We got disconnect, so, if this question was asked just let me know? Sort of following on the last question, you mentioned you started overlapping, I guess, some of the contractual -- the price increase from last year - and once again, I don't know, if you can answer this, but just looking at the mix of more spot versus that contract repricing, was there one that had a more effect than the other? And then secondarily, given the sort of softness in the truck market, presumably, the truckers gave you significantly more, at least, meaningful more capacity with which to work with this past quarter?

  • John Wiehoff - President, CEO & Director

  • On the first question, I want to make sure -- remind everybody that, we price on a customer-by-customer basis and on a load-by-load basis and on a lane-by-lane basis. So when we talk about repricing, there is not "A" date or "A" percentage that really means all that much, it's more that in general, by mid to end of second quarter last year we started to pushback, because rates have just escalated so quickly that in the freight opportunities in the expedited or transactional world we're so high that we really didn't want to live with long-term rate commitments where we were losing money or taking very thin margins on shipments. So it really was a pricing continuum starting in the second quarter all the way through the fall and into the end of last year. So the overlap portion or the cycling portion will be a gradual thing over the next - remainder of this year, really, from a price comparison standpoint. And I apologize; I forgot your second question.

  • Jordan Alliger - Analyst

  • Well, the second question was just, how much more can you give some sense for the degree to which the assets based guys, the guys who own the trucks were coming to you aggressively or were they really saying, "Hey, you know, can you use our truck?"

  • John Wiehoff - President, CEO & Director

  • When we analyze our carrier components who shipped the loads for us and all the rest of that that our experience was that throughout '04 and through the first quarter of '05, we -- as you probably know about two-thirds, 67, 70% of our capacity comes from carriers with a 100 pieces of equipment or less. If anything of that component of our capacity base expanded or stayed the same to expand it, the growth the extra capacity came from the small carriers. Though, we signed up a lot of new ones, several hundred each month again in terms of new providers and a lot of medium and small carriers adding new capacity. It was not like the larger carriers suddenly said, okay, here is a much more capacity for you to take a look at. Our relationships with the largest carriers have for many years now been on a mutually beneficial basis. When they have capacity they'll offer it to us and when they don't, they won't. And with the medium and small carriers we tend to have a much wider menu of relationships, with dedicated relationships and some are dedicated and transactional relationships. Our sense is that, well, it's the freight levels that really drive the swings in supply and demand that these driver shortages and capacity shortages from last year that there was some contribution to the leveling of this in the first quarter by the adding up capacity principally with smaller medium size carriers.

  • Jordan Alliger - Analyst

  • Okay. And then, just a final question, is there any -- with regard to the litigation, is there any timing difference between those three elements you've talked about in terms of how we proceed through the ports?

  • John Wiehoff - President, CEO & Director

  • Well, they could be resolved simultaneously or they could be resolved separately, but for instance, on the sexual harassment piece, those could turn into zero or several individual claims that give us all done different timetables. The paying promotion class piece will resolve -- should resolve itself separately and the over time issue could resolve itself separately as well too. So there will be separate timetables in terms of the process and how they get pursued, sort of, the individual versus the class cases. And the class cases could be resolved simultaneously or they could be tried separately.

  • Jordan Alliger - Analyst

  • But it's the intense, I guess, at this point to have the date in court or is settlement an option too?

  • John Wiehoff - President, CEO & Director

  • We really haven't discussed kind of our strategies around that. I would just want to leave it as we have felt that the allegations from the start were without marred and inappropriate, and we feel even stronger about that now, and we're preparing to defend ourselves in court.

  • Jordan Alliger - Analyst

  • Thank you very much.

  • Operator

  • Thank you. And our next question comes from Gregory Burns with JP Morgan. Please go ahead.

  • Gregory Burns - Analyst

  • Hi, guys. Just I want to make sure, I heard, I think, Chad correctly, you had 10% organic growth in sourcing, and it sounds like you're expecting that for the year, but that would seem a little bit higher than sort of what you always said as your trim line for sourcing. And I guess, my question is, ex-acquisitions, what is your realistic long-term growth rate that you are comfortable with on the sourcing?

  • Chad Lindbloom - VP & CFO

  • It's still the 3 to 5% range which is what John said during his prepared remarks.

  • Gregory Burns - Analyst

  • Okay.

  • Chad Lindbloom - VP & CFO

  • We are very pleased with our 10% organic growth rate for the quarter, but don't expect that to necessarily continue for the year.

  • Gregory Burns - Analyst

  • Okay, all right, good. I'm glad I clarified that. And on the international, I know that's a small part of the business. I'm just curious, are you doing - is the ocean business -- does that involve consolidation or is that full container load? And also in the air, is that still just sort of one-off charges, are you doing any consolidation here in those businesses?

  • John Wiehoff - President, CEO & Director

  • We do principally full container on both air and ocean, but we do, do some consolidation out of Asia. I think, when you look at some of the other larger forwarding networks that you're probably more familiar with, this is certainly benefits of scale to doing a lot of that consolidation activity and we are not there. So our -- I think our margin opportunity on some of them are lucrative. Heavy volume consolidation stuff is something that we hope to grow into. It's principally -- again, we look at more on the customer side there, we have mostly dedicated customer relationships that are mostly full container for both air and ocean. But if those customers have partials, we consolidate them to the best we can or co-load them and do - are growing our competency in that areas, as well.

  • Gregory Burns - Analyst

  • And John, I know, you guys have always been very weary about adding fixed cost, but my sense is to be a big player in consolidation that would necessitate adding some more fixed bricks similar to cost. And I guess, my question is, over the medium to longer term can you envision that or you always, sort of, see yourself as really just primarily assets light and full consolidation player?

  • John Wiehoff - President, CEO & Director

  • I think, what we've tried to say, Greg, is, this is maybe a little bit of an extremist view, but you can sort of build up your business and then when you have it, put it into a more committed facility or you can do the build (inaudible) where you open up a giant facility and hope you get the freight to fill it and you have startup losses and all the rest. That it's really bad that we are opposed to, I mean, where we have existing businesses in a lot of our branches where we're doing domestic consolidations, we've made one or two year lease commitments and we're taking on facility commitments for a longer period of time. But our approach to the marketplace is to add value, build the relationships, get the business first, and when there are opportunities to backfill with a longer-term asset commitment that can improve your margins, we will do that, but we don't like to do that without the surety of having the business.

  • Gregory Burns - Analyst

  • Okay. I hear you loud and clear on that. Just on some commentary in the release on -- that since we've entered into more favorable arrangements with surprising customers to reduce volatility, is that what's going on in the truck side as well, in short, if you can please tell me what that means on the sourcing side?

  • Unidentified Speaker

  • On the sourcing side what it really means is last year we were hurt margin-wise on some fixed price commitments we had to our customers.

  • Gregory Burns - Analyst

  • Right.

  • John Wiehoff - President, CEO & Director

  • We still have those, but we have a bigger percent of which contractually buzz as well. So that's kind of the favorable arrangements with customers and suppliers as we're better matched. So, even though there was -- whether a last year's first quarter that impacted the sourcing or the produce market than there was this year's first quarter, we are better capable to deal with those weather issues and volatile prices.

  • Gregory Burns - Analyst

  • Okay. I apologize to follow-up to understand that better. All right, great quarter. Thank you, guys.

  • John Wiehoff - President, CEO & Director

  • Thanks.

  • Operator

  • Thank you. And your next question comes from Alex Brand with Stephens. Please go ahead.

  • Alex Brand - Analyst

  • Thanks. Good morning, guys. I just wanted to clarify on price increases. Is this real price increases in terms of profit per load or is this more about you guys recapturing some pass-through price increases?

  • John Wiehoff - President, CEO & Director

  • Those are gross rate increases inclusive of fuel and price increases.

  • Alex Brand - Analyst

  • All right. So, is profit per load move significantly?

  • John Wiehoff - President, CEO & Director

  • There is two different ways to look at it. The gross margin percentage which has stayed fairly constant, and then profit per load, which, when rates go up, that pulls the profit per load up a little bit. So, yes, the profit per load has moved up over this last year, but the gross margin percentage has stayed constant within the last couple of year parameters within the quarters, because there is fluctuation quarter-by-quarter, season-by-season.

  • John Wiehoff - President, CEO & Director

  • That's a good point. First quarter gross margin percentages are always higher because that's when capacity slips off and...

  • Alex Brand - Analyst

  • Okay. And just sort of housekeeping question on the litigation, have you guys taken any reserves for litigation?

  • John Wiehoff - President, CEO & Director

  • No.

  • Unidentified Speaker

  • No.

  • Alex Brand - Analyst

  • Okay. Thanks a lot.

  • Operator

  • Thank you. And our next question comes from Ed Wolfe with Bear Stearns. Please go ahead.

  • Ed Wolfe - Analyst

  • Yes. Good morning, guys. Just a follow-up on the litigations side, you had mentioned that the costs weren't significant to-date. Do you expect any expense cost to change going forward or will they continue to be immaterial?

  • John Wiehoff - President, CEO & Director

  • I think they'll be immaterial from a finance-reporting standpoint. I mean, for us it's a big effort, and legal, it's a significant expense relative to our other legal expenses. But I believe from a finance reporting standpoint that will continue to be immaterial.

  • Ed Wolfe - Analyst

  • Okay. When you talk about supply and demand, and maybe some of that loosening up, so on a first quarter basis gross yields for transportation were up 60 basis point year-over-year. Have you seen any change in the trend in the April when you take the seasonality out of the year-over-year, or are you still seeing the gross yields work similarly, favorably, again, year-over-year taking the seasonality or as things snap back seasonally?

  • John Wiehoff - President, CEO & Director

  • We have not and do not plan to comment anything on April, Ed. We don't like to talk about a month until, at least, until it's over. And so, sticking with our past, we're not going to comment beyond the first quarter in this call.

  • Ed Wolfe - Analyst

  • Okay. Not even directionally if I ask you a question about. I mean you made the comments in your statement that it's hard to know at this point whether this was a -- there's more capacity there, or whether this is just seasonal, and as we get to more seasonal strength later in the year, whether things will tighten again? When do you think you would know that, you know, when you get to May, when you get to June, when would you know?

  • John Wiehoff - President, CEO & Director

  • Well, you get little inklings all along. Like I said, that's why we don't like to talk about and we're just not going to.

  • Ed Wolfe - Analyst

  • Okay. You gave some indication last quarter on the conference call stating that it's tough to know when a contract ends and transactional begins these days. But you were roughly in the 75/25 with 25 being contractual at the end of 2004, has that changed that mix at all?

  • John Wiehoff - President, CEO & Director

  • No, one of the things that in a lot of the follow-up with that I learned that the site that I'd emphasized the multiple interpretations of all of this it was easy for a lot of people to use their interpretations of contractual and transaction and read too much into that sort of specific estimate. So what we would say is the environment was comparable to the fourth quarter of last year with much more heavier towards the transactional environment. By that, we mean, shorter term pricing with both shippers and carriers ready to react or adjust on a shorter term versus expecting a calendar year for rates to stay in place and business to go that way. I think I've learned that it's dangerous to try to specifically quantify those things because we do not have clear definitions for it internally and everybody who we interact with has slightly different definition of how you would quantify that. But it is important in understanding our business to know that we see the marketplace as much more transactional than committed and that's how we are participating in it. And so we are in a period of time where the margins and the results and the activity in the marketplace can move even quicker than normal.

  • Ed Wolfe - Analyst

  • Okay. More than a year and a half ago, you were some of the first guys to note the trend you are seeing more smaller capacity. At that time you also said you are conversely seeing less of the big kind of public and large truckload guys for capacity that they tend to have more demand than they have drivers. Is there any change there? Have you seen a little bit more of the JB Hunts and Werners and Snyders and Swifts using your revenue or using them a little bit more for capacity or has that not changed?

  • John Wiehoff - President, CEO & Director

  • If anything the medium and small capacity providers have picked up a little bit over the last year and a half in our environment. And our understanding of that, Ed, is based upon public statement that the larger carriers have made that they are not adding capacity, they have driver shortages, they are focusing more on operating yields and trying to put the pricing environments of the last year and a half down into operating earnings rather than growing the volume. And you have -- the driver shortage issues is, where we see and do believe that a lot of drivers during a favorable environment will leave the security of the bigger trucking company and go out on their own and try to make more money and become an owner/operator. And just logically, in the supply and demand fluctuations of capacity, just like in other industries, the growth comes through new small businesses and new small carriers. So there is lots of data points that would I think reinforced our view that the capacity growth comes from -- has come in the last year and half from the medium and small carriers.

  • Ed Wolfe - Analyst

  • And I certainly agree with that. What I am trying to get at is, in this first quarter, because we've had some of these same asset-based truck load guys, some of the public ones, see their utilization go down. And I was wondering may be if some of them all the sudden were plugging in for a load with you guys, if you saw any uptick on that or not in the quarter?

  • John Wiehoff - President, CEO & Director

  • Not really. I mean our history has been that it takes a little bit longer for the bigger guys to come back to us.

  • Ed Wolfe - Analyst

  • Okay. Just switching over the sourcing side, the 10% internal growth, would that be acquisitions? Is that just kind of a coincidence, or do you think the actual signing of the deal lead to some momentum for your existing business?

  • John Wiehoff - President, CEO & Director

  • I think it was more a favorable comparison to a tough first quarter of last year. And I don't really believe there long terms, we think, there is going to be some synergies of sharing vendors and sharing approaches, but we are probably a year or so out from that. There might have been a little bit of -- I mean this was a meaningful investment for the sourcing division and that group worked really hard during the quarter and they are very excited about the deals, both sides were, so there could have been some but I think it would be really intangible and probably was more driven by just the fluctuations of comparison with in -- I mean even when we said 3 to 5% growth in sourcing, it has fluctuated between negative growth and high single or ten.

  • Ed Wolfe - Analyst

  • All right. Just in terms of the characteristics of the sourcing business, seems to have higher gross yields associated with it. Can you talk about that? And is there any net margin -- operating margin difference from your other sourcing or transportation business?

  • John Wiehoff - President, CEO & Director

  • In general, we think their overall business is pretty similar to our overall approach. When you look at dealing with retailers and dealing high service high touch business where you do a lot for the customer, you tend to have higher gross margin percentages but you have got to put a lot more people and a lot more effort towards it. Their customer base is more towards the retail, food service, high touch, high margin type stuff. So, as a business, their margins are a little bit higher than ours but if you break ours apart and look at customer for customer, pound for pound, what are we doing, we think the businesses are pretty similar.

  • Ed Wolfe - Analyst

  • And on an operating margin is it fairly similar then or...

  • John Wiehoff - President, CEO & Director

  • Yes. It is. I mean it's a lot of in sourcing just like in transportation. It's all about people cost. That's 70% of it. You get into things like allocating overhead and timing of hiring people and depending upon the growth cycle of each customer. It can vary a little bit here and there. But in general, it's essentially the same model.

  • Ed Wolfe - Analyst

  • Sure. And then just kind of a bigger picture question. I remember when you bought Backhaulers. I remember going to Chicago to see them. And you guys kind of pointing out that they do it a bit different from us, we're not sure if we're going to use our technology, their technology. They have all of the branches in one building versus ours out where they are. And over a several year period you've kind of pulled the best of each.

  • John Wiehoff - President, CEO & Director

  • Absolutely.

  • Ed Wolfe - Analyst

  • Is your view that there are some of those opportunities to sell between your different products and different cost opportunities? Can you just talk to a little bit of some of those things that you are going to be looking at over the next year or two?

  • John Wiehoff - President, CEO & Director

  • Yes, I would say, first up, from an integration standpoint, while this is a pretty substantive business. It was not quite the same as Backhaulers and from a technology standpoint, it would be largely above putting our technology in. Subject to kind of the gap analysis of some of the business processes that they do very well and we will probably improve our operating system. But I think in the Backhaulers rather some thing and it was almost became a 50/50 process thing. From a technology process standpoint this will be a little bit more us integrating them into our operating system and our operating procedures. However, on a relationship side, in terms of how they sell, how they buy, this business is located in California and is closer to the grower relationships and the growing communities than Robinson has ever been. They have approaches towards products and markets and cycles and stuff that are different and often times better than what we've done in the past. So from a relationship, management, pricing, cross-selling, marketing standpoint, it would absolutely be our intent over the next several years to kind of have that similar experience where we make both sides better.

  • Ed Wolfe - Analyst

  • Is there any natural synergy with the transportation side, or is that just...

  • John Wiehoff - President, CEO & Director

  • Yes, there is. You know, as we have always talked about in our sourcing division, it's not a coincidence that Robinson is in these two lines of business. Because of the perishable nature of produce, it was a very time sensitive supply chain sensitive product long before any of the other industries ever conformed more to that model. So the transportation component of all of the produce sourcing that FoodSource and everyone is involved with is very important to the overall success. So one of our goals will to be work -- to be more involved with the transportation component of the FoodSource customers. And there are natural synergies in, I believe, all of the perishable areas to coordinate the procurement and the quality and the packaging with the transportation piece of it into a broader logistic supply chain play, which is really what we are trying to build.

  • Ed Wolfe - Analyst

  • Thanks. I appreciate the time, as always.

  • Operator

  • Thank you. And our next question comes from Matt Gardner with Credit Suisse First Boston. Please go ahead.

  • Matt Gardner - Analyst

  • Hi guys. Just another question on capacity side. I know you guys get this a lot. Is your feeling that the small and medium sized carriers are actually adding incremental capacity, or is what your seeing out there more a function of the fact that you are doing a good job recruiting additional carriers to your network?

  • John Wiehoff - President, CEO & Director

  • Both. We are definitely signing up carriers that have been around a while that we haven't done business with. And I know with certainty that there are family trucking businesses that have two trucks that now have five or had three trucks and now have six, so both.

  • Matt Gardner - Analyst

  • Okay. And then on the sourcing side, you talked a lot about your long-term growth target still being in the 3 to 5%. Can you say whether the FoodSource acquisition whether that has higher growth profile than your existing business?

  • John Wiehoff - President, CEO & Director

  • It has historically had but it's been a smaller company. So, it's tough. We did range analysis when we were buying it and stuff. We didn't really lock in and I think one of our hopes would be that over the next year as we integrate and get to know them better, that hopefully will get a better sense of what if any impact, there would be on our current sourcing business and understand theirs. And I would anticipate a year or so from now that we can hopefully give you a little bit better insight as to what the blended long-term growth rate would hopefully be.

  • Matt Gardner - Analyst

  • Okay. On the intermodal side, you talked a lot about the shift away from intermodal into truck. Can you talk about whether -- I mean that's completely dependant on the rail service issues, or does it have anything to do with -- in fact that intermodal pricing has been rising here and may they are getting some pushback.

  • John Wiehoff - President, CEO & Director

  • This is a little bit of a generalization, but if I had to generalize about, what I would say a lot of people converted intermodal programs over the last couple of years, particularly last year, when capacity was tight and intermodal was a great option, particular off of the west coast. It's not uncommon that during the first quarter of the year that transactional truck rates would fall meaningfully below the cost of the year round intermodal program. So it's been a long time issue of who is going to stick with their intermodal program on a year round basis, or who is going to go back to trucks in January, February, March when trucks are generally more available at a reasonable rate, higher service, more flexibility and especially when they are cheaper during that period of time. So you come into the quarter not knowing what capacity is going to do during the current year. You have some weather issues on the west coast, some real rail service issues, some price increases by the rails, trucks are more plentiful than people expected. It's all that. You get people moving lanes away. I mean all it takes is a big wash out at the port and the trains don't move for three days and you've got to move a couple hundred containers by truck and then all of the sudden it's back to truck. And then somebody has got to build the case for going back to go rail and win and so a lots of instances like that where it's kind of all of the above that just drives the collective decision making of a shipper to go back to truck.

  • Matt Gardner - Analyst

  • Okay. So, if we say rail service issues source stay status quo for the remainder of year and truckload pricing begins to rise again just because of seasonal factors, should we expect to see some growth in your intermodal products for the rest of the year?

  • John Wiehoff - President, CEO & Director

  • You know, I would think so, but again one of the challenges of intermodal is that you can't switch it on quite as quickly as you can switch trucks on. I mean we can put 100 trucks somewhere in a hurry but to get an intermodal program -- and that's one of the things that I know frustrates the railroads and it frustrates a our intermodal people is that, it's by definition, a longer term payback on a more managed program of dedicated capacity. It's not as flexible or as fluid. And so a lot of shippers and we'll try to do the best we can to work with it. We'll try to turn it on and off and use it here and there but it depends upon the container pool, it depends upon the international freight flows and how much space there are in the trains, it depends upon the pricing decisions that the rails make. There is a lot more variables than the two that you just laid out. But it's logical that the two that you said would make more intermodal freight more likely.

  • Matt Gardner - Analyst

  • Okay. And then just last question, you've talking in the last couple of quarters about expanding the Freight Forwarding business and looking for acquisitions and it just hasn't happened yet. Any change in the acquisition environment for Freight Forwarding and Logistics businesses?

  • John Wiehoff - President, CEO & Director

  • Last year we did the China acquisition, which was pretty important for us. And we continue to look at smaller businesses principally in different regions of Asia and Europe to kind of build it out. And I know that from a materiality standpoint, it seems probably kind of slow and long but from our standpoint, when you're going into new parts of the world with new languages and new cultures, new traditions, integrating offices into your technology and your network, I mean we feel like we're moving pretty fast on it. But I understand it's a big world and we're still kind of largely in the US. So we are -- we don't feel like anything has changed. But we feel like we're pushing it fairly aggressively within the Robinson to build out our network and hopefully in the next year or two we'll find some other businesses to add to the network in parts of the world where we are not now.

  • Matt Gardner - Analyst

  • Okay. I appreciate the time.

  • Operator

  • Thank you. And our next question comes from Ken Hoexter with Merrill Lynch. Please go ahead.

  • Ken Hoexter - Analyst

  • Hi. Good afternoon. Just a quick question on the -- where you see business right now, I mean, you have got rates that seem to be going in your favor and you also have a little bit of capacity coming on. Does that mean we're at the peak in that your margins are at the widest and we should start to see that get squeezed, as pricing should start to come down because there is additional capacity? Where do you think we are relative to the cycles you have seen in the past at Robinson?

  • John Wiehoff - President, CEO & Director

  • It's difficult to say. I think we what we have all felt is that this is about as transactional as it gets. I mean we've had rate increases in the last 12 to 18 months that are bigger than we've seen in the last decade or so. So, that's reaction to that, people redeploying their trucks to higher rate freight, shippers getting upset, experiencing cost increases, rebidding, re-managing and it's very transitional. It clearly is probably the one end of the pendulum from a transactional standpoint. As far as where we go from here and what that means for the Robinson, we talked at the beginning of the year there still is the potential for the marketplace to remain highly transactional for a period of time. There were and still are a number of people who expect significant rate increases and transactional environment for the remainder of the year, with capacity tightening up. And if that were the scenario, our expectation would be that a lot of the pricing and margin and volume growth would stay where we are right now. We still have different comparisons as your the business grows on, but this period of time. I guess the point is that none of this activity to us really feels like it's out of the parameters of the last 10 or 15 years. But, it's not a predictable pendulum that just swings back and forth. It's a combination of supply and demand, and pricing, and transactional commitments, and freight growth, and certain environments can sustain themselves for one quarter, two quarter, three, four quarters but they will change overtime.

  • Chad Lindbloom - VP & CFO

  • And it's important to remember, Ken, that the first quarter our gross profit percentage or gross margin percentage in transportation is always significantly higher than the other three quarters. So to say we were at the peak during the first quarter, that's pretty true every single year.

  • John Wiehoff - President, CEO & Director

  • Yes. Seasonally, that's always true. That's a great point.

  • Ken Hoexter - Analyst

  • But how about during an economic (inaudible) have your seen the transactional, what is the timeframe that it should kind of wait on transactional business? Does it usually go for a full-year, two-year, three-year period, is this the kind of level you saw in 2000? Can you give us some history to compare this to?

  • John Wiehoff - President, CEO & Director

  • I think our view relative to others in the industry is that it changes much quicker than people believe. That the reason why we don't forecast or give guidance or do any of that is because it is very common that in the last ten years that the next quarter or two will turn out substantially different than what we think it's going to be right now. So, I don't think there is a predictable cycle to it. Other thing that we've talked a lot about internally is that there are some things, like a double-digit rate increase. That was new and different last year. I mean there have been rate increases before, bur that was the most significant and the largest that's been in a decade. And driver shortage, if you look at the demographics in the capacity side, how quickly new capacity will add and where it will come, could be a little bit different this time around, just because of the aging of the drivers and all the rest of that. I'm not even so sure that -- kind of the premise of your question that, you know, looking at the cycles over the past would necessarily answer it anyway. We don't think that way. We think of it in terms of, hey, there's a range of things that happen, and it is unpredictably moved somewhere within that range, and what's going to cause it to start moving more in one way or the other, there's probably a bunch of new variables around the capacity side, and prices and fuel at an all time high and all the rest of that.

  • Ken Hoexter - Analyst

  • It's very helpful. Thank you, guys.

  • Operator

  • Thank you. And our next question comes from David Campbell with Thompson Davis. Please go ahead.

  • David Campbell - Analyst

  • Most of my questions have been answered. I'm curious about the potential for the information services business. Is that growth slowing down? Do you see still slow demand there because I don't think there was a lot said about that?

  • John Wiehoff - President, CEO & Director

  • No, we didn't talk about it, not in anyways to -- due to lack of excitement or the positive outlook for that. It's really the same message that we said consistently in the past, which is long term 12 to 15% growth, it's market share taking, it's a transactional penetration, we're building truck load relationships and continuing to integrate the information services, T-Chek relationships into the into the Robinson network where we offer not only the fuel management and payroll management and fee-based services that show under information services to those carriers but combining that with freight offerings and electronic integration with those carriers. It's really big part of our strategy, but from a modeling or analytical standpoint, really, no change at all in terms of our thoughts or expectations to that component of the business.

  • David Campbell - Analyst

  • Okay. Thanks very much.

  • John Wiehoff - President, CEO & Director

  • Thank you.

  • Operator

  • Thank you. At this time, I show no further question. So I'd like to the conference back over the management for any concluding comments.

  • Angie Freeman - Director of IR

  • Thank you for participating on our first quarter 2005 conference call. This call will be available for replay in the investor relations section of the CH Robinson website at www.chrobinson.com. It will also be available by telephone at 800-405-2236 with the pass code 11028123, "pound". The replay will be available at approximately 2 PM Eastern Time today. If you have additional question about our first quarter results, please call me, Angie Freeman, at 952-937-7847. Thank you.

  • Operator

  • Thank you. And ladies and gentlemen, at this time, you may now disconnect.