羅賓遜全球物流 (CHRW) 2007 Q1 法說會逐字稿

Good morning. Welcome to the C. H. Robinson conference call. (OPERATOR INSTRUCTIONS)

I would like to turn the conference over to Angie Freeman, C.H. Robinson Director of Investor Relations. Please go ahead.

Thank you. Good morning. On our call today will be John Wiehoff, CEO, and Chad Lindbloom, Vice President and CFO. John will provide some prepared comments on 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 C.H. 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 will turn the call over to John.

Thank you, Angie. Thank you for taking time to listen to our call this morning. Last night we sent out our first quarter results press release. I'm assuming that everybody on the call has read or has access to that. I want to highlight just a couple of items on there that we think are most relevant: on the enterprise level, gross revenues were up 8%; net revenues were up 16.4%; net income was up 25.6%; and diluted earnings per share 27.3%. Those are the primary line items we look at in terms of summarizing our performance. I don't have a lot of prepared comments this morning, largely because we think the first quarter didn't really contain anything too unusual. There haven't been any financially material acquisitions that were completed during 2006 or the first quarter of 2007. So the results that we reported reflect organic growth of the Company from the first quarter of '07 over the first quarter of '06. We talked a lot in previous calls, as well as discussions throughout the industry, that throughout the second half of 2006 and into the first quarter of 2007 there has been significant slowing in the transportation demand for truckload services in North America and related price increases. During the first quarter of 2007, we did very much of what we have been talking about for the last couple of quarters, is to try to really leverage our customer relationships and proactively sell during this transition in the marketplace; take advantage of improved margins during the transition of supply and demand; and leverage our network of people investment, which are all things we think we did pretty effectively during the first quarter of 2007.

Moving to comments by mode or service line. First, with North American truckload which is around 75% of our net revenue and profitability. First quarter of 2007, over 2006, we experienced relatively flat pricing both from a rate and fuel standpoint compared to the first quarter of 2006. That is a fairly general statement. As always, there are variances by lane and different types of services, but in aggregate, it was relatively flat. Both our gross revenues and our volume comparisons of first quarter were up around 7 or 8% on the North American truckload. We believe that most of that volume was from expanding market share as we sell to our customers and try to help them adapt to the changes in the marketplace. The remainder of our net revenue growth, which was 17% in the truckload sector from first quarter, was from margin improvement due to the changes in the cost of hire from a sourcing of truckload services that we acquire.

On the intermodal mode our net revenues were up 18%. We have been talking for several quarters about the transition in the marketplace and how we have worked hard with our rail partners to realign the types of freight that get put on the rail. Most of the intermodal freight that we deal with is multimodal freight that has options of truck or rail routing. We continue to improve the mix of freight to improve the yield for both rail partners and us on the freight that we put there. Also, in looking at our business, we did find that in the first quarter of '07 the length of haul extended compared to the first quarter of 2006 in the mix of freight that we provided to the railroads. That longer haul gives us greater margin opportunity.

From a global forwarding standpoint, 16% net revenue increase was driven by volume growth in the lower double digits, so pretty close to the volume growth and net revenue growth. What we continue to do is build our network. We have done a number of small acquisitions over the last of couple of years that we are working hard to integrate in from a process standpoint and just continue to integrate into the domestic services and build the global network.

On the sourcing line item we have talked in the past and again in the first quarter of 2007 our results were affected somewhat by weather related. In the sourcing it's the business, it's the buying and selling of fresh fruits and vegetables that we most often also provide transportation services with. During the first quarter of 2007 there were freezes that affected the citrus crops as well as heavy rain and flooding that affected some of the ROW crops. In general, those weather events tend to lessen the supply of the product which means the price goes up for the remaining part. We also experienced some gross margin declines so our net revenue did not grow as fast as the gross revenue. So we try to work with our customers during those periods of transition to provide service as continuous as possible, but it does have an impact on our gross and net revenues. Our net revenues for the sourcing business grew 7%. Overall, despite the weather transitions, we felt it was a pretty normal quarter for us in terms of growth expectations.

On the information services line item, t-checks net revenues were up 8.4%. That is a fairly normal expectation for us in terms of the growth ranges and plans that we have. That business is slightly exposed to volume growth due to the overall demand and activity of truckload services in the marketplace as they earn transaction fees on principally truckload over the road shipments. That was probably a little bit on the low end of growth because of the lower growth of truckload transactions in the marketplace for the quarter.

Shifting then to the personnel line item. A couple of relevant metrics we track overall - head count at the end of the first quarter was 6,834. That represents a 14% year-over-year increase. Our total personnel costs for the quarter were up 11.4%. If you look at our head count increase compared to year end it was up 1%. That is 6,834 compared to our year end number 6,768. That was a 1% increase. We did as we discussed year end, slow the rate of growth in terms of adding people into our network and managed our personnel costs a little bit more aggressively with this truckload environment. We did have an 11% overall increase. We do work hard to continue to invest in our network and our people. The challenge for us is as we have grown a lot the last several years and added a lot of people to our network to allow many of those employees to grow and mature and become more productive and take advantage of the investments we have made in the past but at the same time continue to invest for the future. We have talked about adding 5 to 7 new branches during 2007. We did not add any during the first quarter of 2007 but we do still expect 5 do 7 new offices as we get into spring and the school season ends and a lot of our new hires will come in. We have flowed into a pattern where we tend to open our newer offices several at a time because it is easier to manage the personnel transitions. Even though our investment and growth and head count and new offices for the quarter was on the low end, we do plan to continue to invest during 2007 as we feel that is an important part of the long-term strategy.

The last prepared comment I have for you is to point out, if you didn't notice on the cash flow statements, that we did have a fairly meaningful increase into the share repurchase activity for the quarter. We have mentioned before that when you look at our accumulating cash balances, we do remain aggressively looking for acquisition opportunities in the marketplace and do hope to continue to do those. We are also sensitive to our balance sheet position and not accumulating too high of a level of resources if we don't have an immediate planned use for them. We said if we were not successful with acquisitions using up some of the capital during the year we would increase the share repurchase activity. In fact, that is what you have seen in the first quarter of 2007. Those are the end of my prepared comments. We will turn it over to questions.

(OPERATOR INSTRUCTIONS) Our first question is from Ed Wolfe from Bear Stearns.

Good morning. Can you talk a little bit about -- you said that truck pricing was flat. If we look at your yield truck, they're improved 200 basis points, so is the implication that you are getting flat from the customer but in the marketplace overall you are seeing less than that?

Our overall pricing was relatively flat to our customers, and our yield did expand. So we are getting slightly lower costs of hire than we were last year's first quarter. We don't disclose our exact truck margin. You are looking at overall transportation, but it is true the truck yields did expand.

How do we think about that going forward? Is it your sense that as bids start, which are just starting to come up, come in that the truck pricing market is -- prices coming down, flat, going up, how do you see that going forward as you look at it right now?

It varies customer by customer. It depends upon how aggressively they've been managing their transportation costs in the past. You see some customers who are looking pretty aggressively to try to save money and get reduced rates during this period of transition. You see others who have had service failures and have tried to be aggressive in limiting the past increases who maybe just want to have flat costs but try to improve service levels going forward. As the market changes off there is a lot of different ways that you can manage freight. Our job is to try to understand what that shipper's plan is and work with them to execute it.

Are you seeing any signs of underlying capacity leaving the market in a greater way than you have seen over the last six months?

We have not. We are constantly looking to sign up new capacity, which we continue to do during the first quarter of 2007, mostly medium and smaller carriers that we are qualifying and putting into our network. If we don't utilize them for a 12 month period of time, we drop them off our qualified carrier list. For us, we are not real time monitoring the churn. When carriers stop hauling for us, we don't know if its because they went out of business or chose not to do business with us. We are not a great gauge of real time metrics on whether people are dropping out or not.

I'm guessing you are not having trouble finding capacity?

No, capacity obviously was more available this quarter than the past several.

The personnel expense line item, which improved quite a bit, you made the comment you grew at a lesser pace so that impacted compensation. Is there anything here that's not ongoing as we think about what you're doing on the expense line items?

The formulas are obviously all consistent. We have a variety of different incentive and compensation programs. There are cash base growth pools. Our restricted stock vesting, which is laid out in reasonable detail on our public documents that talk about how it is calculated based off of growth. So last year, first quarter, we had tremendous growth and corresponding a lot of expense in those various incentive programs. So the programs stay in place, but our growth rate did tail off during the year last year. We don't know what will happen this year. From a comparison standpoint the programs will stay in place but it's not certain that that level of improvement would stay in place.

Last year's first quarter we had our highest growth in earnings of any other quarter. The magnitude of the improvement might not be the same going forward.

(inaudible) actually grew more, at least on earnings, in the second quarter than the first, but it's pretty close. There is a $9 million acquisition expense paid on your cash flow. Is that carryover from Trion or is there something else here like an earn out?

That is earn out payment on food source.

Are there any more earn outs left?

There is one more (inaudible) payment on food source and then there are hold backs on other deals. There are contingencies to be met.

Are they capped? Could there be a big number here or is this as big as we will see?

The food source earn out is a calculation based on earnings. There is a cap in place, but the amount is undetermined. The other ones are specific dollar amounts.

Other food sources this year. What is the timing?

It will be next year about the same time so the first quarter.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question is from Scott Flower of Banc Of America Securities.

Good morning. I knew you discussed market share gain. Is there any commonality in the customers where you are gaining share, either by size or product lines or by their industry vertical when you look at your customer base and you're having success in a more fallow market which is like shooting up to the barrel for some of these guys who truck load You are solving particular problems. What is the commonality and where and why you are gaining market share, if there are reasons.

We pride ourselves in trying to be helpful in any way possible. The reason why we keep opening offices and expanding the local geographic network is because we do go very aggressively after local transactional medium and small type customers. We also work with medium and larger customers as a core carrier where we are aggregating a lot of capacity and providing services to them. We are working on the very high end with sophisticated shippers to find niches that are not in the core competency or to help with our systems and to earn management fees and process manage. We are trying hard across-the-board to get in and help however we can, based upon that business model. I think it is more not trying to target certain areas, and I am not aware of any calculated industry or size of company or approach where we have had disproportionate success. It is across-the-board trying to utilize tour network to find a way to help.

Maybe this has changed and I have not followed this carefully. In the past, in intermodal, you have been much more successful with eastern railroads with so much shorter haul intermodal. I know a lot of your freight is multimodal. Is that changing where you're getting the longer hauls? Is that presupposing you're getting more western business? In the past it was more shorter haul and more geared to the east where you could do more value-added work where it was more difficult to make the model work. Now it seems the length of your hall is getting larger. What is transitioning there?

I think historically, since we are more in the multimodal freight, where it is typically more truck/rail competitive than some of the heavier freight or the longer haul international freight that our business on the intermodal side would have historically more aligned with shorter haul, east coast mirroring the truck lanes. I do believe that service changes and lane elimination on some of those east coast railroads and us working hard to penetrate the longer haul west coast freight probably has some impact. As the railroads change their pricing and change their service offerings we will move with it and try to make sure the freight we are presenting to them is the right mix. We did see a little bit of mixed shift there but it is probably more due to the evolution of our participation of the freight and what we are going after.

That is all. Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from Jon Langenfeld from Robert W. Baird.

Can you talk about the contracting period, a lot of freight up for bid. I wonder if C. H. Robinson is differing or altering their approach at all to how they are addressing these contractual bids.

We are not altering. We are doing what we have been doing for a number of years. Bid cycles on shippers have always varied. It depends upon what is happening in the market and how happy or unhappy or opportunistic they are trying to be. There is no question that there has been a lot of bid activity in 2007. We are doing what we all ways do, which is to understand the customer expectations in terms of length of commitment and service. Like I described earlier is what you are seeing in this period of time is a variety of approaches. Some people are trying to stop the escalation of costs and just lock in at very reliable high service parameters. Others who feel like the past few years have been unfair to them in terms of price increases or exposure to the market are trying to rein some of that back in. We can work in any of those categories if there are opportunities and certain lanes or certain areas to reduce costs. We'll certainly participate in that. If a customer is looking for a firm, year-round commitment, we'll sign up for that just like we always have. We, and they, have the standard contracts around market movement and volume expectations and different things, as we've talked a number of times over the past few years. Even when both sides have long term, firm expectations, market movements and volume fluctuations can cause things to differ. There is a lot of activity in the marketplace, but I would describe our approach in interacting with it as very consistent to what we've tried to do in the past.

Have you seen more customers request a longer contract period?

No. One-year contracts are fairly customary. I think that is what most of the bids we've been participating in. Even then, within year-long contracts, there's quite a wide variance of expectations in terms of defining what the commitment to haul is, whether you must take a certain percentage of the loads or whether either side can cancel on 30 days notice and those sorts of variations. There is no one flavor or one contract or one approach that prevails.

That makes sense. Do you track your success rate on the bid process and, if so, is there any reason to think you would do better or worse on a percentage basis this year versus previous years?

We do track bids and results, but it is in categories whether or not our national sales or corporate group is participating versus a separate branch. We don't aggregate those or have anything meaningful that I am aware of or that we can share in terms of what that overall success rate looks like. One of the things that we have talked about a lot the last few years with all the transition in the marketplace with prices rising and it being a difficult market that a lot of our relationships were strained. What we have been trying to emphasize the last few years is to build trust and build relationships. Ideally, we have built credibility over the last few years that we can be helpful, a part of a solution or an entire solution for whatever different opportunities are out there. Those relationships and those service levels get tested every day. You are only as good as yesterday's performance. We will keep working hard on that. There is no clear metric or way to measure it down to success. Even if there were that wouldn't assure it was going to carry on.

Plus when we are bidding on freight we're usually bidding on many different lanes and we may within some lanes and not others. It is hard to measure what is a win and what isn't.

I am wondering when I look at the activity up for bid. the asset-based players are constrained by their asset base whereas you are not. It seems like the added amount of bids taking place would position you to take a greater volume, maybe not a greater win rate but a greater volume of activity.

I don't think when there is still this roughly the same amount of capacity and providers and shippers. Volumes are slowing down. I don't think that when the shipping community decides cumulatively to sort of bid a lot or try to reprice a greater percentage of the freight that it necessarily changes the competitive dynamics for anybody. I think of it a window of time when they are readdressing prices and service expectations and past performance and relationships. When they reset their route guides and pricing and expectations based upon those bids, it is often the next step in their freight management of how they perceive the marketplace and what is going to make sense as opposed to anybody on the provider side having new or different limitations in terms of what they can do.

Thank you. Thanks for the commentary.

(OPERATOR INSTRUCTIONS) Our next question comes from Justin Yagerman.

I guess first off I would like to see if you have any comments as we go towards the end of April on the health of the overall environment; if you are hearing anything form your carriers or customers about directionally how they see things going into the summer, and what trends look like going from March to April in terms of volumes coming through your network.

We don't comment on anything past the end of the first quarter as our standard process. Occasionally, when a whole month is done, like January, if we are releasing in February, we will occasionally talk about the first month of a quarter. As a general practice we don't talk about anything beyond the end of the quarter where we are releasing.

That is a novice error on my part. In terms of the difference in gross profit growth year-over-year in Ocean Air, can you comment on what is driving that and how we should expect that to trend here?

The primary thing in our global forwarding business is that we are still relatively small player in that, and we have growth expectations and we are building out the network. We have somewhere around 15 or 20 customer relationships that are a high percentage of our global forwarding business. When their activity grows or contracts on either of those modes, we see uneven fluctuations by them. On the big picture, though, if you go back several years, we were primarily an ocean shipper. A lot of our internal emphasis, both through smaller acquisitions and by starting up new programs, has been to increase our air competency where we have equal net revenues in ocean and air today. We did have some success in building some of those air freight lanes and relationships with providers that provided nice growth. The ocean volume was a function of slower growth in those larger customer connections and no significant new wins quarter-over-quarter on ocean volume compared to a year ago. As we've said in the past, as we build that network and continue to invest in it, we do expect the results to be a little lumpier in terms of how and when the business comes . Overall, it was what we hoped for the long-term in terms of growth

I guess in looking at the intermodal piece do you have a breakdown of what moves on containers and what moves on trailers on flag car within the business and to comment on the rail rates and the success of passing those through?

We do not have the break down. Our intermodal group does some tracking around that. It is not a metric that we have ever published or cleaned up. I don't have those numbers to share with you. In terms of passing along the price increases, what we did is what we always do. That is to take those service parameters and pricing that the rails make available and try to expose it to our customer base where it makes sense. The fact that our volume was flatish and there was some mixed movement is reflective that we were successful in some instances, adding value relative to truck prices in some lanes but some business went away. Overall, the net activity was flat. Some yes, some no. A lot of change in the marketplace to make sure that the right freight is going on the right provider.

Okay. Thank you. I appreciate it.

(OPERATOR INSTRUCTIONS) Our next question comes from Alex Brand of Stephens.

This is actually Kevin Sterling calling in for Alex. Could you walk us through the quarter, month by month and how truck volume progressed from January through March?

It depends on if you look at a per business day basis or monthly basis. There was relatively consistent volumes for the first two months of the quarter. Then it picks up a little bit in March.

Thank you. One last question. With the excess truck capacity in the marketplace, are you seeing a shift from intermodal to truck or is it stable?

I guess the best answer there is when the supply side moves like it has in terms of pricing and availability you see a lot of shifting. We have seen both situations where, in some instances, rail is a better opportunity to improve the economics and service. In other instances, there has been some freight that has moved back to truck. So, yes, we have seen activity both ways depending on what makes sense to aligning the freight to the best provider.

Thank you. Great quarter. Thank you for your time this morning.

(OPERATOR INSTRUCTIONS) Our next question is from Tom Wadewitz with J.P. Morgan.

Good morning. On the head count side you had made some comments. I want to see if you could give a little perspective when you might ramp up the head count again, and if there is a very tight relationship that we should think about between your ability to grow the gross revenue or grow the volumes underneath that. If you don't add head count for a couple of quarters, should we be more muted in the gross revenue expectation. A few more thoughts on how that relationship works.

The first important point to reemphasize is the way we manage personnel across our network is that the hiring decisions are made locally by the managers across the network, based upon their knowledge of customer commitments and growth and productivity expectations. We do not make top down decisions about how and when we are going to add resources. We supervise and consult and share, and we intervene where necessary if something is out of line. For the most part, what you see in the first quarter of 2007, is really the reflection of what our network is telling us that the volume demand and therefore, the overall need for people has slowed. What happens to the remainder of 2007, we will work to try to mirror the marketplace and stay flexible and move with that. When the year is over, I think you will be able to draw conclusions about our staffing levels and how it correlated with the market. We are disciplined around those metrics. We can't predetermine or guide for you what we think is going to happen the remainder of the year. We are prepared to invest and add people and ramp up if the marketplace requires it, if the economy picks up and volumes accelerate, we are ready to reacts to that. We have talked before about the long-term growth strategy of new geographies and offices and, most importantly, developing and promoting a new manger to grow into the marketplace. That is a long term investment that doesn't require a lot of absolute heads. We start with fairly small offices. We will continue that, regardless of the environment, for the remainder of 2007. That metric would only affect the number of branch openings. It doesn't drive any meaningful change to the total head counts.

What is the appropriate time to think of in terms of you add a certain amount of head count in a given quarter? Do you have to wait six months to see that head count productive in driving gross revenue growth or is it shorter or longer than that?

It depend upon and each office can be different. Depending upon where they are at in the customer cycle. You can have a relationship where you have taken on a lot of new business and you are trying to staff up for it and you are short on people and based upon the metrics and you are trying to catch up. A lot of the last three years there were times where many of our offices were going through that. Then at other times you may have added a lot of talent and you have a lot of capacity and when freight volume is slow, you can take some of those more experienced people and get them out selling and trying to find new opportunities in a more aggressive way. In you work on a contract bid, and you know there is a lot more freight coming, an office will staff up in expectation of that business coming. There is no way to aggregate exactly whether we are behind the curve, ahead of the curve or right down the middle. It is a decentralized approach and metric.

Okay. Then looking at the gross margin expansion and transportation, I think historically if you look at other softer periods of truckload markets, you have been able to sustain that gross margin expansion for four or five quarters at a time. It hasn't been a one or two quarter phenonemom. Is that a fair read of historical performance? Then I guess if you look at today's market, to the extent you're willing to comment, does today's market feel different than the historical periods when demand was soft?

The biggest thing we have been commenting a lot over the last couple of years, if you look at our business from a historical standpoint, the last several quarters we have behaved relatively consistent with that history in terms of margin expansion and volume trade-off. The thing that was difficult to understand, going back 6 to 9 months ago, we were coming off of unprecedented price increases in the truckload sector since back to deregulation. So with those kind of price increases, we weren't certain if, when the volume or demand slowed down exactly how our margins and pricing would react. My summation of the last three quarters would be that we have reacted fairly consistent to what our history has been going through these parts of the cycle. With regard to how long they last, I don't think that is as much a Robinson thing as a marketplace. That is how long the freight stays slower or when does it fire back up. If they freight volumes continue to soften, quarter-over-quarter, margin expansion doesn't work forever. As we get into the end of 2007, we will be comparing to favorable margins from a year ago. It is difficult and always has been difficult to predict how long they last or how long we will compare favorably quarter over quarter. That is more driven by what the marketplace dictates rather what we manage.

I appreciate the perspective. Congratulations on impressive results.

(OPERATOR INSTRUCTIONS) Our next question is from Ken Hoexter from Merrill Lynch.

On the slower truck gross revenues, obviously a little slower because of the economy. You noted that margins had widened on the truck side. Can you compare and contrast. It seems like you are getting decent pricing yet there is more capacity available. I want to understand the dynamics of how you are able to continue to get that pricing. I think you noted it might have been flat while margins are expanding or capacity is loosening?

I think from what we can gather the fact that we always believe our pricing to our customers is consistent with market data. From what we can gather, flat pricing in aggregate is consistent with the market in terms of what shippers are being charged and experiencing quarter-over-quarter. For us in looking at it, what it is reflective of is the fact since there was more ample supply of capacity first quarter of '07 over '06, our cost of hire was less which drove to the margin improvement. I don't think we are doing anything unique on the shipper pricing side or sustaining contracts. It is the timing of supply and demand and the by-sell that we manage.

A lot of questions on the personnel side and growth on the personnel side. SG&A on a per employee basis was down significantly. I guess it has been running at a negative rate for six quarters. Are there any programs to continue to pull cost out or is that your revenue is continuing to grow at a faster pace than the increasing cost.

Revenues continue to grow. There are portions within SG&A that are more fixed. They tend to grow but not as fast as the business does. Things like rent and other things like that tend to always grow as the business grows but not quite as fast.

That is all. Thank you.

(OPERATOR INSTRUCTIONS) Our next question coming from David Campbell from Thompson, Davis & Co.

I hear about slowing economy and slowing economic growth and less business activity from a number of companies. Then I look at your gross revenues they were up much better in the first quarter than they were the fourth quarter. Can you explain any of the reasons why?

Our best estimate, David, would be driven by flat pricing activity but the volume and revenue increases coming from what we believe is taking market share by expanding our relationships. We would certainly echo a lot of what others have been saying in the marketplace that the last several quarters the growth rate and demand for truckload transportation services has tapered off. We have always felt and continue to try to execute that we can grow relationships and grow volume and expand the network even if the market is flattening out.

Do you think there was more pressure on pricing in the fourth quarter than the first quarter?

There is always seasonal differences around the hurricane comparisons and different things. It is hard to know for sure, but I think the pricing being flat, quarter over quarter, was not different than fourth quarter over fourth quarter. Clearly both fourth quarter of last year and first quarter of this year were different than if you went back a couple of years ago where we were seeing double digit price increases and meaningful shortages of capacity in a lot of areas.

Right. Can you tell us anything about your transactional ot spot business versus your contractual business in the first quarter? Did that change in terms of percentages?

Nothing meaningful. Those categories are subjective. We think of it as more of a continuum. As a number of people have stated and we would second it, there was a lot of bid activity on more contractual or committed activity. Most of that is rebidding previously contracted or committed activity. It really doesn't shift the overall metrics around. Obviously, whenever you talk about the spot market, one of the primary metrics that everybody will look at is how much freight was moved at the end -- goes unmoved at the end of every business day, if somebody had a desire to ship it and there wasn't capacity. With supply and capacity more available there is far less freight that doesn't move or has to wait a few more days to move. That is a difficult metric to be precise about because expectations and ship dates and plan dates move. There is no doubt one of the ways you can test the temperature of the market is the fact that most of the transactional freight that people have is generally moving on the day they want it to move.

Right. The last question is you did acquire a flatbed company last May. You said there wasn't any significant impact on revenues from acquisitions. Is that understating the impact of that or what do you mean?

I carefully selected the term of no financially material acquisitions during 2006. The flatbed acquisition was very important to us in terms of flatbed capabilities but it was less than 1% of the truckload net revenues. From the standpoint of looking at comparisons and growth rates and percentages, with or without that acquisition, the messages and the numbers would all be the same, relatively constant in terms of their explanations.

Thank you very much.

(OPERATOR INSTRUCTIONS) Our next question comes from [Adam Farheimer] from BB&T Capital Markets.

Just a couple questions. How do you view your relationship with your carrier partners? I am wondering is as they're accepting lower payouts, are they upset by that or are they happy to have freight?

Carrier relationships to us are similar to shipper relationships. We have tens of thousands of them. They vary significantly. We have carrier partners that we work with on a more dedicated basis where we will continue to provide a year-round, contracted rate for them. We have many thousands of carriers we interact with on a transactional basis on the daily market price. People generally like to make more if they can. I am sure there is some capacity out there that was disappointed with a certain rate on a certain day or would like to have more. When we manage those carrier relationships and we think about them in aggregate very much like we would describe on the customer side. The goal is to have meaningful business reviews and relationships with them to understand where they want committed or dedicated capacity and service expectations and therefore, pricing. If not, if it is a more fluid transactional type relationship, it is what it is. Their experience is going to be reflective of what the marketplace gives them not necessarily what C. H. Robinson offers them. If they are upset with a price or two here or there, the conversation will very quickly move towards what type of relationship they have with the market and with us. We will try to move it to match their expectations better.

Then as people think through what would happen if -- I guess the question is. If the pricing you are getting from shippers starts to move into negative territory, if the environment stays soft, could the pricing you pay out continue to move into further negative territory so you maintain that spread? It sounds like from what you said on this call that is a possibility. You don't know what will happen but you might be able to maintain that spread for longer than you are suggesting.

It is driven by supply and demand. It would depend upon the overall supply of capacity. It is basic stuff. If you have a load to move and there is 10 different trucks who would like to have it, the pricing dynamics are different than if you have three shipments to move and there is only one truck available. What happens on the buy and the sell side gets down to pretty basic supply and demand economics. Each capacity provider has different dynamics and metrics that they use in terms of assessing what they'll do any given shipment. If you have a dedicated network with a lot of head haul commitments, and you have to reposition capacity, you're going to be moving that equipment empty or with any amount of revenue on it; so sometimes one provider will go significantly less than the rate that they'll offer on a true back haul lane because they have to move the equipment anyway. It's a function of how many trucks are there in the marketplace, what's their economic model, what does the commitment look like. It is difficult to determine. If you look at it on a longer term basis, obviously, if prices continue to decline. What we said the last few years is that when prices continue or increase in general, it has provided us opportunity to have a consistent gross margin percentage, therefore, better net revenue increases. If over time prices continue to decline, we would work in the market to take advantage of whatever capacity was available and try to maintain those margins. There is no doubt that, over time, sustained price decreases would probably have a negative effect just like sustained price increases were positive.

Okay. That is fair. Finally you mentioned that you kicked up the share buy backs. Can you remind us of your authorization?

At the beginning of the year there was about 3 million shares left on the authorization. So we have, at this current pace, we have about another four or five quarters worth out on our authorization.

Thank you for your time.

(OPERATOR INSTRUCTIONS) Our next question comes from John Larkin from Stifel Nicholaus.

Thank you for taking my questions. I had one related to the competitors in the marketplace that are starting up truck brokerage capability.. Fed-Ex just made a fairly big splash announcing they are starting a truck brokerage. Whether you are losing employees to these companies that are getting into truck brokerage? That is number one. Number two, as you backfill those positions with younger people and take your head count up 14% whether having a larger percentage of your employees coming from recent hires whether that is a part of your secret to the operating margin improvement.

Looking at our head count, personnel turnover, metrics, they all seem relatively normal for the quarter. We have always in the last 10 or 20 years, I guess, periodically lost people to competitors or start ups or go out on their own. There is was no unusual or different movement in that. If anything the level of new truck brokerage competitors has tapered off in the last few quarters. Most of the competitors come from small startups and local marketplaces. The larger public Companies that periodically announce it or go in and out of it historically haven't been a longer term factor. Our personnel metrics really remain constant with the past.

Our variable comp plans are the, if not the complete difference, pretty close to the complete difference. If you look at the cash flow statement you can see what the equity based charges were and if you calculate those as percentage of net revenue you'll see that that made up about 1.6% of the 2.2% total difference.

Are the majority of the people you are adding in to grow the business, are they people that are unfamiliar with the business in general that you bring into the operation then train the C. H. Robinson way or are these small brokers who can't compete on their own and decide to more or less affiliate with your stronger, more multi disciplinary platform?

Our hiring approach has stayed consistent with the last 20 years, which is hiring inexperienced people, generally right out of college and train them the way we like to.

That is very helpful. Thanks a lot.

(OPERATOR INSTRUCTIONS) Our final question comes from Scott Flower. Go ahead.

I had a couple of follow-ups. One of your goals is over time to gain market share within your carriers on the capacity side. How is that process working in terms of solving their problems in becoming a bigger share of their volumes and otherwise? How is that side of the market share equation working?

We have put a lot of energy in the last several years into what we call the carrier management programs which I hinted towards briefly. We are trying to make sure we have the same depth of dialogue with the capacity side that we are with the shippers in terms of understanding their network and pricing expectations and hopes. We feel like we have made pretty good progress in developing and expanding those relationships. One of the challenging dynamics in managing those carrier relationships I referred to earlier is that because carriers manage networks differently, especially larger carriers versus smaller carriers, when the market moves like this you can see the dramatic variances in terms of how different sized carriers or managed carriers will adjust to the pricing because of different routing dynamics in terms of whether they have to or don't have to reposition equipment. One of the challenges we manage through is making sure we fulfill the carrier commitments and relationships that we have even when prices are moving dramatically in the marketplace like they have in the last couple of quarters.

Thank you very much.

Thank you for participating in this call. This call will be available for replay in the investor relations section of our web site at chrobinson.com. It will also be available by dialing 800-405-2236 and entering the pass code 11087430#. The replay will be available at 2 p.m. Eastern time, today. If you have any more questions about our first quarter results, please call me, Angie Freeman. at 952-937-7847. Thank you. (OPERATOR INSTRUCTIONS) This does conclude the conference call. You may now disconnect. Thank you for your participation.