羅賓遜全球物流 (CHRW) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the C.H. Robinson fourth quarter 2007 conference call. (OPERATOR INSTRUCTIONS) Following today's presentation, instructions will be given for the question and answer session. I would like to turn the call over to Angie Freeman, C.H. Robinson's Director of Investor Relations. Please go ahead, Ms. Freeman.

Thank you. On our call today will be John Wiehoff, CEO, and Chad Lindbloom, Senior Vice President and CFO. John will provide prepared comments on the highlights of our fourth quarter and full year 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 risk 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, and thanks to everybody who is taking the time listen to our fourth quarter conference call. About an hour ago, we sent out our press release that shares our results for for the quarter and year-to-date of 2007. I would like to start by highlighting just a couple of the key financial metrics that you see on that release. For the fourth quarter,ended December 31, 2007, our gross revenues increased 18.8% to $1.9 billion. Our net revenues increased by 15.9% to $322 million. Our income from operations increased 20.4% to $132 million for the quarter. Net income increased 18.7% to $85 million. And fully diluted EPS increased by 19.5% to $0.49 per share.

The year date numbers for all of 2007, our gross revenues increased 11.6% to just over $7.3 billion. Our net revenues increased 14.9% to $1.2 billion. Our income from operations increased 22% to $509 million for the year. Net income increased by 21.5% to $324 million, and our fully diluted EPS increased by 21.6% to $1.86 per share for 2007. Overall, we were very happy with our fourth quarter results. We exceeded our long-term growth target of 15% in all of the financial metrics that I just referenced, despite the fact that market conditions in a lot of our service offerings presented some challenges. During the fourth quarter, for the first time in awhile our gross revenue growth exceeded the growth rate of our net revenues. The press release that we sent out gives us details by each of the service offerings to explain the drivers of that.

However, I want to highlight a few of the more significant factors. Significant fuel price increases for the quarter was one contributing item. A decline in truck load gross profit margins, and higher commodity prices for some items in our sourcing business. We have discussed many times before that given the variety of ways that we price our services, that it is not possible for us to be precise in the impact of fuel. However, we can quantify the impact in some areas and we can estimate it in others. We do know that we experienced significant fuel cost increases in all the modes of transportation during the quarter which helped drive gross revenue increases.

For about a year now, we have been stating our gross profit margins for truck load services were at the high end of the range, based the upon our historical experience. We did see a slight decline in gross margin percentages for the fourth quarter of 2007, compared to the fourth quarter of 2006. The primary driver of our growth for the fourth quarter of 2007 was the volume growth in our North American truck load offerings. Overall volume growth was in the mid teens. And as a reminder, the way we report in our truck services, that category includes all forms of truckload services, which would include dry van, flatbed, refrigerated, as well as less-than truckload, and European truckload services. Volume growth for the truckload services category was in the mid teens.

The growth for the individual components of the truck category did vary, however we believe that we were able to grow our market share of transaction volumes in all of the services by growing our volume, when industry data suggests that overall volume and demand was generally closer to flat or down for some the services. I will talk more in my 2007 year- to-date comments about our volume growth and why we believe we were able to achieve those results. Also during the fourth quarter of 2007, we were able to grow our earnings faster than our net revenues. There is a variety of contributing factors to us leveraging our earnings growth. Most of them are consistent with the previous quarters and we discussed them in the past. A primary contributor during the fourth quarter, and during all of 2007, was our variable incentive plans, including our equity awards which reward growth.

While our total personnel expense for the fourth quarter of 2007 increased by more than $15 million from the fourth quarter of 2006, it did represent a lower percentage of our net revenues, allowing us to grow our operating income at 20%. We think our incentive plans do a great job of balancing employee and shareholder rewards. Those are my prepared thoughts, specifically addressing the quarter. So moving to some prepared thoughts or comments for the 2007 year-to-date results. Again, the press release details some of the computation and actual results for the year-to-date, similar to some of the previous numbers that I highlighted. When you look at our results for the year, I think there is a couple of themes worth mentioning.

The first one that I want to talk a little bit about is our long-term focus. We think the results for all of 2007 were pretty solid, just like we felt good about the fourth quarter. Even though we did not grow as fast as some recent years, given the overall market conditions in the fourth quarter and for all of 2007, in some ways our achievements this year may have been harder to accomplish than previous years. For those of you who follow our story, we talk a lot about our long-term focus. Examples of that would include the fact that we focus only on long-term earnings growth goals. We want to build long-term relationships with our customers and carriers. Our incentive plans have very long-term components to them. We were taking a longer term approach to building out the global network. I could go on with a lot more examples, but it is a very defining part of our culture that we try to stay very focused on the long-term.

When you look at the 2007 results, our team worked really hard to execute and deliver the 2007 results. But it is also pretty clear that when you study it, that the foundation that we laid in previous years and decisions that were made in the past, were really what enabled the growth during 2007. The fact that we were investing in people and relationships, building systems, we opened new offices, and went into a lot of new services and new parts in the network, all of those things were in place and really helped us grow in a tough market during 2007. Robinson has always tried to keep focus on the long-term. We think we are still doing that today and we think it helps us to stay focused and execute in all market conditions. I do not believe that we did anything radically different this year. We just stayed focused on our plan of selling and executing. And we think we were able to do pretty well in what were generally tougher conditions.

Another component of our long-term approach is our balance sheet. A lot of people challenge us periodically as to why we do not consider more aggressive financial leverage or capital management in the way we run the business. We think it has always been a competitive strength for Robinson that our customers and carriers can count on us being there for the long-term., with full investments and resources to grow in all market conditions. So, as economic uncertainty escalates and economic challenges cause others to have to scale back, we think we are in a great position to continue to invest in our people and our network with new offices, new technologies, keep looking at acquisitions, keep offering quick pay programs to our carrier partners, and a lot of other investments like that, that help us grow and re-enforce our commitments to be there in all markets. Having a long-term focus is a big part of the success and we think that made a difference in 2007.

Also in looking at 2007, another theme that we would like to highlight is our diversification of services. While our primary source of revenue continues to be North American truckload services, we have worked hard to find new ways to serve customers and suppliers. We continue to expand our capabilities within all the truck load offerings, while developing some high service offerings and other modes and services. We think there are more ways today that we can help our customers than ever before, and it gives us a lot of opportunities to grow our business. So when we were out in the marketplace selling, we think the diversification of our services and capabilities has helped us be effective in all market cycles, by having a lot of different things to offer. And we think that was also a contributor in 2007.

Having a long-term focus diversifying our services, having good people, a lot of these are consistent themes that we talked about in the past. But we think they really made a difference for us in 2007. Lastly, a few prepared thoughts on 2008 before I open it up to questions. As most of you know, we do not give specific quantified guidance for future periods, other than our long-term growth goal of 15%. Our goal is that we want to share with you how we are thinking and what we believe our business will do in varying environments, so here are some thoughts that we will share with you within that framework.

First, is that we are going continue that long-term approach. We plan to continue opening offices and hiring people, regardless of the economic environment. We do adjust the hiring rate, based upon productivity metrics and growth rates, but we think it is as good a time as any to continue to invest in our network and our people. We plan to open five to ten new offices and we will continue to look to use our capital to make the right kind of acquisitions to add new people, new expertise, new services, and new geographies to the team. While long-term growth goal remains 15%, we know that our actual growth rates in the past, and our future growth rates will continue to fluctuate, given the market conditions and the business fluctuations that occur. Sometimes, the markets will make achieving the goals easier and sometimes it will be a little more difficult.

We talked in the past that our growth in truckload services is driven by three things, our volume growth, our pricing, and our gross margin percentages. As I mentioned earlier, we feel pretty good about the strength of our offerings today, and our momentum defined ways to help customers. We will continue to sell and build on these relationships to try to grow our volume. We are going tol work hard to continue to capitalize on that momentum. A portion of our truckload volume continues to be unplanned or transactional freight opportunities. The current weakness in the U.S. economy and related freight demand, makes growing that portion of our volume more challenging. But, we have good opportunities to grow all of our truckload services in more contractual ways.

After several years of generally seeing price increases, the softening of demand the past 18 months, has caused flat to declining prices, going into 2008 for most of our services. While nobody knows for sure what the supply and demand relationship will do in 2008, the current market, as we see it for pricing, is soft with decreases more likely than increases. As far as gross margin percentages go, while we did see some decline in the fourth quarter of 2007, we do generally remain towards the high end of our historic ranges. We do have some risk for continued decline in gross margin percentages for 2008, as we will continue to compare to periods where our margins were at the high end of the range.

Putting those comments and data points together, we continue to feel very confident about our long-term approach, relationships, and the market penetration of our services and business model. However, it is no secret that market conditions around demand and relayed in pricing are fairly soft right now, and we will continue to feel some of those impacts during 2008. Those are our prepared thoughts and with that we would like to open it up to your questions.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Justin Yagerman with Wachovia Securities. Please go ahead.

Good afternoon, John and Chad. How are you?

Good.

The 16% or so growth in the truckload services that you alluded to in the press release and in your remarks, very impressive in this kind of environment. Can you go into a little bit more color on where you were able to find that kind of growth? You listed off of a number of the different service offerings that are housed in that division, where are you seeing pockets of strength and pockets of weakness? And then, I guess of, how much much of that business is transactional versus contractual at this point, and how you see that shift moving?

You're right in that all of the different truckload services that we rattled off were all contributors. In terms of where we saw the growth, it was fairly strong across the board. And I would say that, the primary thing that we tried to focus on in all of 2007, is really just getting out in the marketplace and being active and selling, and touching our customers. As we talked in the past Justin, there is a lot of definitional differences around what is less than truck load, what is truck load, all of the rest of that, that makes it difficult for us to be too precise, in terms of how we share those things. But, it was widespread across the board in terms of double-digit growth opportunities from a volume standpoint. And we think it was more about our model and our approach, to just continuing to build relationships, and try to find ways to help in markets that are difficult for shippers to deal with.

Yes, but you guys have been talking about 7% to 8% growth for the last several quarters. So, basically growth rate doubling in the fourth quarter here, while everybody else in the asset-based world is talking about things having slowed down. Are you taking share in a particular market? Are you seeing more customers flock to your model for a specific reason? Are you hearing any reason why you guys would see this massive share shift? Because it does not feel like that is translating into other people's businesses.

I think when we studied that, as part of the reason why we came back with the message that this is really the manifestation of a bunch of long-term things, because we did not do anything different or see anything really out of the ordinary during the quarter. It was just the fact that we have opened offices, and put good people in place, and they did well during the quarter. We have been investing in our LTL offerings for more than ten years, and they had a lot of success in helping people try to figure out what to do in a pretty uncertain environment. It was pretty widespread across the board. We reviewed the customer stuff and there was nothing really whacky, just good overall growth. Might have been that last fourth quarter was a little bit weaker from a volume standpoint. It is hard to tell precisely, but we think we had a little bit of an easier comparison. I think if you look at the sequential volume growth, it would not be quite as impressive. But, really nothing that we can identify as being individually driving a higher growth rate for the quarter.

Got it. Switching gears a little bit, everybody is always trying to get you guys to gauge what is going on in the capacity market. And I know you are reluctant to say. Or it is hard for you guys to tell. Any comment you got there will be useful. I guess, getting at it at a slightly different way, I would be curious to hear if you have seen a uptick in truckload carriers, or trucking carriers in general, who are taking advantage of your early payment option, and are using you guys as a cash flow source in this tough environment. I know you guys are able to make a margin on that. And I am curious to hear if that has been helping you out. And also from the carrier angle, if more people have benn taking advantage of that.

Obviously, that is one of the big advantages for small carriers to do business with us. But, we did not see a significant change in the percentage of our truckload payments, going out through our quick-pay program. And as far as kind of the overall capacity marketplace goes, the reason why we try to deflect ourselves is being any sort of a leading indicator, is when we sign up a carrier to do business with us, if we do not see them for a year, we will put them out of our active carrier base. But If they stop doing business with us, we do not necessarily know why that is right away. So, we do not know if they went out of business for sure, or where that was at.

But one of the biggest indicators that we can see is when, in general, the larger truck lines become more aggressive about offering their available capacity, that we will see that in the marketplace as a symptom, I guess, of generally more capacity being out there. And we have seen that throughout all of 2007 and in the fourth quarter, that capacity was certainly available in the marketplace. As we highlighted in our press release, you also adjusted for fuel, see some modest price declines in the truckload side which is also indicative of that. So, there is no question that there is a softer market from a demand out there, and that it is having some impact on the capacity side. But exactly how impactful it is to that smaller carrier base in a shorter period of time, like the fourth quarter it is really hard for us to get a feel for that.

Sure. Quick question, tax rates fluctuated a bit over the last several quarters, where do you see that for 2008, if you can comment on that?

We expect our tax rate to be around 38% to maybe a little bit higher than that, 38% to 38.5% on a normal basis. One of the big fluctuations this year was really related to last year. We had a one-time foreign tax credit that was harvested, related to Mexico, that we highlighted last year.

Got it. And I guess last question before I turn it over to someone else. I would be remiss if I did not ask you about what are you going to do with the cash piling up on your balance sheet. I know you alluded to a bunch of different options. But, if you do not see any acquisition opportunities on the horizon, do you step up share buy-backs or are you comfortable at the pace you have been moving out on those types of uses of cash flow?

You know, we finished the year with approximately the same amount of cash as the year before. And we did during 2007, accelerate that share repurchased activity. As we talked a lot in the past, first priority is to reinvest in the business, and hopefully we will find more opportunities and be able to acquire things that we feel good about, expand the menu of services. Hopefully, the marketplace will give us some more opportunity in that area. But if it does not, we will likely stay in the same neighborhood of share repurchase activity. As we have said in the past, we do not want to let that accumulated capital grow. But we think the amount -- the money we have on hand, gives us some good flexibility where we are at today.

And also, like every other year, this year there is $100 million or a little more than that, of accrued compensation, all of which will be funded early in the first quarter. So our cash balance will dip and build up like it has in the previous years.

Got it. Thanks a lot for your time. I appreciate it.

Our next question comes from the line of Alex Brand with Stephens, Incorporated. Please go ahead.

Hi, this is actually George for Alex. I am sorry if I missed it, John or Chad. Did you buy back any shares in the quarter?

Yes, we did. We bought back 880,000 shares, I believe.

Okay. What was the average price?

Give me one second. It was just over $50. $50.08.

Great. This may seem like a silly question after 16% volume growth, but going forward throughout the rest of '08, are you still comfortable at the mid to high single digit volume growth that we have talked about in the past?

No, I think we still feel comfortable with the broader parameters that we have laid out before, that in our long-term target of 15% that there is a permanent kind of market share number in there of mid to high single digits, that we think we can keep expanding and growing in that 7% to 8% type range. And that, the other portion to get to 15% fluctuates, based upon market swings and opportunities. But obviously, those are kind of long-term averages. Because during the fourth quarter, we did have higher volume growth, despite the fact that the market was flatter. That could swing the other way on us. Who knows. But yes, if the economy's demands stay soft, and we continue to work hard to sell into that, that would be our growth goal in general during that period of time.

And one more question. When you looking at acquisitions, specifically international ones, does the weakness in the U.S. dollar affect any of your decisions, or ability to make any of these acquisitions?

Obviously as the dollar weakens, our offers are less attractive to foreign people, because when you look at translating those foreign earnings into the dollars, they are worthless. As well as, our dollar being worthless. So, it can impact our competitiveness in the market, make deals more expensive, in essence.

But, do you think it has, I guess that is more of my question?

Since we have not done any deals in the last --

Over the last couple of years, we have put offers in on some opportunities that were not priced in U.S. dollars that I do believe, we were less competitive on because of that,. So, yes.

Okay. Great. Thank you for your time.

Yes.

Thank you. Our next question comes from the line of John Langenfeld with Robert W. Baird. Please go ahead.

Actually, this is Mike [Hallerin] stepping in for John. I know you had a little pressure on the growth margin side this quarter. But, kind of more broadly speaking, when you look at that range going forward, is there anything that you see out there, that could move you ahead of that historical range? Or do you think that you have kind of got to the point where that is capped?

We do not really see anything that is going to move that range from a long-term perspective. I think, like during 2004/2005, one of the things that we talked a lot about, was the fact that meaningful price increases were very positive for us, and that we had not experienced those in the past. But if you look at, sort of the underlying economics of the cost structure for carriers, and sales and marketing, and the spreads between pricing and purchasing, it sort of feels to us like those margin ranges will likely stay fairly consistent.

Fair enough. And then on the intermodal side, there is some pressure on the growth rate there, could you talk a little about what that was due to, and whether or not any of that was diversion toward your truck offering?

Within our intermodal business, we are always pursuing conversion opportunities that tend to be more transactional where, if we can substitute or offer intermodal services at a lesser cost, that some shippers will take advantage of that, when and how they can. So in general, we would refer to that as more transactional-type conversion freight. More traditional, intermodal, higher volume freight is generally priced more aggressively, with higher volume shipments and less margin opportunity for us. So what we tried to describe during the quarter, was compared to a year ago, a little less conversion or transactional-type opportunity. made up for, in part, by a little bit higher volume of more committed or contractual traditional-type intermodal freight. So, our volumes went up a little bit because of that. But overall, margins were hurt because of that blend of types of freight.

And then on the miscellaneous line item, growth still pretty strong there, but it has slowed relative the last couple of years. Was that really more due to comparisons or is there some slowing in the core business there?

The management fee business that we talked about. that has been the primary driver there, did continue to grow, not as fast as it has in previous quarters. And like we said in the release, that was offset by a slight decline in our customs business.

And then lastly, as you have noted, you guys have been getting some pretty meaningful margin expansion, mostly driven by that personnel line, given how the incentive comp is trending. Is there is a point here in '08 where this benefit gets anniversaried or when you look at the current environment ,does that allow for more additional opportunities there?

The general expectation around that, is that we have done longer term equity awards periodically, like every three years for the last five years. And that, if we see stick to that, which is our plans, that near the end of '08 and early '09, there would be additional equity awards. So we would -- we do not know for sure because those expenses are driven by performance and a lot of other things we can not control. But, perhaps the most likely scenario is that during '08, it would be easier to keep the relationships constant. But, then during '09, there could be additional equity expense from new awards.

Alright. I appreciate the time, gentlemen.

Thank you. Our next question comes from the line of Ed Wolfe with Bear Stearns. Please go ahead.

Thanks. Hey guys. First of all, Chad, any guidance for Cap Ex?

Next year, we expect it to be probably in the neighborhood of $25 million. That assumes that we do not start construction on another building. The next building that we build will have a data center in it, and we are not quite sure when we are going to start that building.

What does that mean that it has a data center? Is that going to change your depreciation going forward? I mean is that a massive expense?

It is a massive expense from the cost of the building and the infrastructure. It means the building will cost more per square foot. But, the life on those assets will be pretty long. So, it would not have that meaningful of an impact.

Okay. And what kind of --

We will make sure that we inform everybody what the plans are.

And is that In Eden Prairie? Where is that?

Yes, that would be immediately adjacent to our other two buildings that were in.

What kind of expense are we looking at, $50 million kind of thing?

You know the building, we are still estimating how big of a building we would build for the next building, and what the data center is going to cost, so --- exactly, or give you a good prediction.

Okay, but you own the property?

There is a good chance that that will not start until 2009 or after.

And, do you own the property?

Yes, we own the land.

Okay. John, try as I may, other than fuel being up, I am having trouble understanding, with pricing down 3%, why the gross yields would be down year-over-year. Is that the right answer, because fuel is up so much?

We probably do not make the same amount of margin on fuel. Again, it is impossible for us to know. So that would be one partial explanation. The other explanation is, like we talked about last year's fourth quarter, they were as high as we remember. They being the margins on our truckload business, were as high as we remember seeing them. So, it was a tough comparison.

Okay. I did read somewhere that pricing in the truck division was down 3% year-over-year. Is that right?

Correct. That is in the release, excluding fuel. Correct.

Okay, and there is no major change in the mix of your business, in that business is it, where there is so much more flatbed or something, that that could impact it?

No, that rate was on a per mile basis. It was pretty consistent if you looked at just van or all truckload in North America.

Sure, that minus three, what did that look like the third and second quarter, for instance, year-over-year.

Third quarter, I am going by memory here, but I think third quarter was about 3% down, compared to last year's third quarter. I do not remember what second quarter was. I believe it was modest decreases for most of the year.

Okay, so no big change there.

No.

Are you seeing any change in the economy generally? Is there is a sense things are stable, worse,, better?

If I had insight on that I would -- no, it is really hard. I think uncertainty is probably at an all-time high. It is just really hard to gauge.

Based on your working capital, it does not look like there is an increase in bad debt. Am I missing that somewhere?

No, we had a good year in 2007. I think that debt is definitely an area of focus for us going forward though.

And SG&A expenses, you talked about there was $15 million of --- of incentive bonus more than a year ago, but that was a lower percent than a year ago, am I saying that correctly?

Well, that was total personnel. That the total personnel dollars were $15 million more than a year ago. However, it was a lower percentage of net revenues, trying to highlight the fact that while our total compensation is growing, and we have more people, and many people made meaningfully more money during the year, it was actually a lower percentage of net revenue in the personnel line.

What drove that lower percentage? Obviously, you are growing business faster than you are growing heads. But, is some of this reduction and incentive comp, and what else is in there?

Most of the largest quantifiable item, is the fact that we have growth pools. based on earnings growth, and restricted stock vesting, based upon earnings growth. And while we think we had a very good year, our growth percentages were not as high as they were in 2006 over 2005. So, we have less expense.

Is that materially more -- and that is an event more in the fourth quarter than the rest of the year or is it pretty accrued evenly?

We have been talking about that all year, and it was pretty even across the year.

Okay, there was no true up or anything like that in other words?

No.

Would you look at a large acquisition, you know, it has been awhile since [back cars] and even something larger than that, if the right opportunity. Or are you pretty much at this point, said we are doing it on our own. and a tuck in here or there, a couple million here or a couple million there. That is the model.

Well, we look at most things. I think, you know, we have as we have always said, a pretty strong filter on everything that we look at to see if it --- you know, what is the risk and does it fit right, and is it culturally compatible. And I think for a lot of those reasons, larger deals become far less likely than the smaller deals. But, we are not close-minded to any sort of opportunity. But, we do feel pretty good about the momentum that we have on a lot of our growth areas, like global forwarding, and intermodal, and some of the other offerings that we have, that we think we can make some pretty good progress by building it ourselves, and selling and integrating it. We will keep looking and we will stay open-minded. But, we have been and remain today principally focused on organic growth

I do not want to be nit-picky on such a great quarter, intermodal net revenue down 4%, is that really the trend going the way you want it to go? Can you talk a little bit about that?

Yes, we talked a little bit earlier, that there was less conversion freight and less transactional opportunity overall, that hurt the margin growth on the intermodal side. But, some of that is driven by the fact that the actual carriers were offering some different services than they were a year ago. And, so when we think about representing the shippers in the marketplace and finding the best answers for them, sometimes when we lose some volume opportunities like that, it is just reflective of the change of the marketplace versus our capables or competencies, and executing that or growing it. I think that is how we felt about intermodal, during the fourth quarter. We did not get any weaker at selling it or executing it. It is just that some of the opportunities in the marketplace, did not price out that way. Which is a good example of why I chose it to highlight diversification of services, and why we think that is continuing to make us more effective in the marketplace at growing. Because what is right for any given customer at any given time, can fluctuate.

Okay., fair enough. Just last one. The recent trend in the last four or five quarters of $40, $50 million a quarter of share repurchases, is that fair to assume going forward?

Yes, and we look at it and assess it quarterly based on our cash flow. It is a safe assumption. It is as good of an assumption as you have. But, we will adjust it quarterly. And what I had mentioned earlier, Ed, is that first priority is to look for good acquisition investment opportunities. So, if we can find those, we would do those first, and those would adjust the share repurchase. So, assuming our intent is to keep the capital balance similar, and if we do not find the acquisition opportunities, then you would be back to what Chad spoke of --- would likely assume that it is similar.

Makes a lot of sense. Thanks for the time, I appreciate it.

Thank you. Our next question comes from the line of Tom Wadewitz with J.P. Morgan. Please go ahead.

Yes, good afternoon. Let's see. I had wanted to ask you a little bit about head count. If I look at the increase in head count in '05 and '06, it looks like it was up something on the order of 18%, 19% year-over-year. And then in second half of '07, you have got it up more, 8 or 9% year-over-year. So, intuitively that makes sense, given that the domestic economy is weaker. But, I'm wondering, at some point, is that lower head count addition affect your ability to put up the gross revenue growth or the volume growth? Or is there enough of --- available capacity in your head count that we should not think about of it that way?

One of the things that really we pride ourselves in, is the constant pipeline of recruiting people, and the ability to get them in and train them, and get them up productive fairly quickly. So, we like to think that the head count number is going to flex with the market pretty realtime, and adjust to what the opportunity is. So, you know, yes, if things stay slower, our head count growth will stay slower. But, we also feel like we have got the disciplines in place that, when transaction volume picks back up, we will be all over it and be ready to grow with it.

You do not think, I mean if you look out a couple quarters, it is not an issue -- the pace of growth at that point, that you have not -- that you have added head count at a lower pace for few quarters.

No. I do not think that is an issue. I think if the market changed abruptly, and there was a lot more opportunity starting tomorrow, I think we could respond very well.

Okay. And when you look at where you are going to focus your additional offices, I think you said five to ten, in light of the uncertainty of the U.S. economy, do you look to open offices more in Europe, or open more forwarding offices, or how would you think about you know, where you expand the capacity in light of U.S. uncertainty?

Probably an even mixture all around. We think there is still markets in North America that we can be successful in. And remember, when we are opening offices, it is generally with two or three people, and it is not a real significant capital requirement of us. So, it is more about having the people ready and being able to expand the network into a new geographic region, or a new city within the United States, where we think which can do a better job of penetrating it locally by opening the office. So for us, those office opening decisions are really more about the bench strength of the people and the perpetuity of building out the network . Ad that is really what the origin of the comments that I made earlier, that we feel pretty good about that. And we are going to keep driving those openings and building out the network. Even if the freight demand stays a little bit softer, it will not be a huge financial risk for us to do that. And we think we have the bench strength to take advantage of it now. So all of the above, forwarding offices, European end, North American surface truck

Okay, do you have thoughts, specific to how Europe is doing, and I guess, what --- how big Europe is as a percent of the truck business right now?

Sure, Europe is, it is between 3% and 4% of truck or about 3% of overall net revenues. It has been doing well. We had a very good year in Europe. They did increase both their volume as well as their margins. So, we have huge upside there we believe. We are continuing to penetrate the marketplace, and do believe it is a good market, very fragmented, carrier based, just like it is here. We are still as positive as ever about the long-term growth potential for the Robinson European network to be of comparable size and scale some day as the North American network. We just know that it is going to take awhile to get there. It is all about having the right people and training them, and building relationships, and it takes a long time to do that. So we are just doing all we can to get the right people on board, and to train them, and build it and grow. But, the actual opportunity itself and our confidence in the long-term success of it feels very good.

Okay. Great. Thank you for the time.

Thank you. The next question comes from the line of Jason Seidl with Credit Suisse. Please go ahead.

Hey John, hey Chad. How are you guys today? A couple quick questions. As I look at your gross revenue growth in the quarter, extremely impressive, 20%, but you did have a year-over-year easier comp in the four Q '06. I think only grew about almost 2.5% How much of it was market conditions, how much of it was an easier comp, in terms of just picking up from the 2Q and 3Q growth rates that were pretty much double digit?

Like John outlined in his prepared comments, fuel was a big part of the transportation growth's revenue growth. And truck load, it added probably 6%. And then, we have volume growth in the mid teens.

Okay. That's good. If we go intermodal, you highlight a little bit about transitioning from transactional business to more contractual. Should we expect that to continue here into 2008, and if so, for how long?

It gets difficult to predict, because we do not really know what variations, and pricing, and service offering derails, will come out with or how the truck versus rail pricing will look. On a conversion basis, it literally can change day-to-day, depending upon if new prices is introduced. We definitely have plans to continue to grow our dedicated contractual-type intermodal business. So, we would hope to continue to see that volume come in and that, that is at a higher volume, lower margin relationship. The part that is really difficult to predict, is what the truck/rail relationship will be like, and how those transactional conversion opportunities will trend up or down. It is really difficult to know that part.

Okay. Fair enough. I know you guys do not give specific guidance, but you know, considering that here we were in 2008, and the first quarter, and we are seeing fuel on a year-over-year basis still up fairly significantly. Should we expect, if nothing changes, continued pressure on the gross profit margins due to fuel?

To the extent that fuel stays high, yes. You would expect higher gross revenue growth than net revenue growth. So, from an overall standpoint, yes. that would be a pressure on margins for us. We do not --- if you think of it as kind of a pass through cost, we certainly have to manage it. But, that does not become a real driver into our ultimate earnings. It is really more just the relationship of the gross revenue and gross margin level.

Okay, fair enough. Gentlemen, as always, thanks for your time.

The next question comes from the line of Ken Hoexter with Merrill Lynch. Please go ahead.

Hi. Good afternoon. If we look at the net, or I guess the gross revenue growth, adding almost a $100 million sequentially. On the net revenue base, I guess, you added about 7% net revenue per employee. Is there any strain to the system at that point? I think that was the fastest level it has grown in two years. Just wondering if --- I understand that a lot of the gross side was fuel, but looking on the net revenue per employee, also up fairly rapidly.

Nothing I do not think we can identify or highlight. You know, we --- our approach and practices, and internal productivity metrics were fairly comparable to the previous period. So, nothing individual that I think we can identify.

I did not hear, there is always, the amount of backlog changes day by day. But I did not hear of any branches that were significantly understaffed or complaining about it. And again, people are innocentive for profitability, so they are making more money when they are busier. Hiring -- sorry.

I just want to understand, did you say that you believe these kind of -- at these levels the net margins are kind of at peak levels, or what you have seen the last few years. I guess looking back over the past decade it has kind of consistently increased on the net margin basis from 13% up to 17%. Are you saying we should see that come down, particularly if fuel stays high, or when business rebounds, you could continue to see that net margin expand as it has for the past nine, ten years?

A big part of that margin expansion is the service line mix. You look at especially the relationship between sourcing and transportation. Sourcing has a much lower margin than transportation. So outsourcing has become a smaller percentage of it. That has been one of the primary driving forces of the margin expansion. In addition to that, within transportation, those different modes of services have different margin percentages. And most notably, the miscellaneous category, most of the things that fall into that category are 100% margin base where the gross revenue equals the net revenue. So, yes, the margins have been fluctuating on the individual service lines with the slight uptick in truck. As we get bigger, we get more efficient or more likely to have a better match of a load with a truck.

Okay. And then if I look at personnel expenses, I just want to understand what you were mentioning on the stock pay. Looks like personnel expense per employee was actually up 3.3%, I guess, versus the decreases you were mentioning. Is that what you were getting at when you were saying, yes, we are paying more stock to the individuals?

I guess the message was that even though our personnel expense has a percent of net revenue declined, compared to the previous year, that we have the same incentive plans. And the growth in compensation for most of our people did in fact increase, just as you pointed out. Yes, that while --- when we get larger, we are able to leverage our network, and oftentimes, grow our earnings faster than our net revenues. But, that does not mean that our incentive plans were not lucrative, and our people did not make more money.

Okay. Helpful. Thank for the time.

Thank you. The next question comes from the line of David Campbell with Thompson Davis and Company. Please go ahead.

Yes, thank you very much. My questions have been answered except for one, and I do not really know if it is a good question. But, anyway, I will try it. Have you ever thought of or would make acquisitions of asset based trucking --- truckload or -- truck load companies?

Not very much. When you know, over the last couple of years when a lot of people have asked us about asset-based carriers getting into brokerage and third party businesses, we have made the statement that today, we do not really understand the value proposition or the benefit to the customer of offering both third party and asset-based trucking services. If the marketplace evolved, where it was proven that that was a more optimal model to serve customers, we would certainly consider that, in order to serve our customers that way. We would go out and invest in good trucking assets, if somebody proved to us that that was a better way to serve the marketplace. But, we do not think that is the case today, and so we really do not spend much time speaking about it.

I was thinking that you could buy a truckload --- company and just convert all of the business to nonasset -- nonasset transactions.

Or we could just go compete in the marketplace and sell. So, if what you are saying is buy the customer base, that would be a large premium compared to continuing to execute what we do.

Okay. Thank you very much.

The next question comes from the line of Nate Brochmann with William Blair and Company. Please go ahead.

Congratulations on a great quarter, gentlemen. I just had one question kind of pertaining to the international forwarding businesses. I know in the past, that those businesses had been fairly lumpy, with just ten key customers, now moving to maybe 20 to 30. But, that business is definitely been supporting some more consistent gross profit growth for you. And I was just wondering whether that was because of market conditions, better penetration within those key customers, or a bigger, broader effort that you are doing globally.

Hopefully, it is a bill bit of all of the above that you mentioned. We have been building that business for about 15 years, I believe now. And as you seen over the years, we have sewn in some small acquisitions in different parts of the world. And our hope is that as that network gets bigger and more capable, that it allows us to compete more aggressively on more lanes, and more regions, and different types of freight. We did have a very good year in 2007. That division of Robinson grew organically at a very nice rate. And we felt they made some really good progress in the marketplace, in terms of selling their capabilities and building up volume and density. It is a very competitive marketplace though, and there still are shorter list of customers, compared to the rest of our business that make up a pretty meaningful percentage of the mix. So, I do not think the lumps are completely gone. As we get larger, we do think that we will able to grow it at a more consistent rate, and be able to expand the offerings that they participate in.

Great. Thank you very much.

Thank you. And the last question comes from the line of Corey Armond with [Rice Voeckler]. Please go ahead.

Thank you. You answered my questions, but I have one question about the contract side of the transportation business. Is there a certain part of the calendar year when the bulk of your long-term agreements come up for renewal? Is it the first quarter or is it evenly distributed throughout the year?

It is fairly evenly distributed. Most of the customers that we deal with, will do their transportation bids and related contracting on a fairly random basis, depending upon when they think it is the best time to approach the market. There are some who do fairly regular calendar bids and some do fairly regular calendar bids and some do fairly regular bids on a differing cycle. But, the vast majority of them are going to the marketplace for bids for components of their business at different times throughout the year. And when we look at it at, it tends to --- the net result is that longer- term pricing agreements would generally tend to be spread throughout the year.

Okay. And your comments about pricing. Are you seeing a disproportionate amount of that type of bidding activity going on now? Than normal?

During the price increases of 2004, 2005, 2006, there was noticeably less bid activity than in typical years. Just because, I think when prices are rising rapidly, that shippers are more inclined to try to hang on to their rates, rather than go reprice them in the marketplace. Starting in the end of 2006, and probably most notably the first half of 2007, there was quite a bit more bid activity, in terms of shippers going to the marketplace and looking to reprice or stabilize some of their stuff. It was fairly high throughout all of 2007, but maybe even tapering off as the year wore on.

Okay. Great. Thank you very much.

Thank you for participating in our fourth quarter 2007 conference call. This call will be available for replay in the investor relations section of the C.H. Robinson website at www.chrobinson.com. It will also be available by dialing 800-405-2236 and entering the pass code 11105696 #. The replay will available at approximately 7:00pm, Eastern time today. If you have additional questions, please call me, Angie Freeman, at 952-937-7847. Thank you.