羅賓遜全球物流 (CHRW) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the C.H. Robinson first quarter 2008 conference call. At this time, all participants in are in a listen-only mode. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Tuesday, April 22nd, 2008. I would now like to turn the conference over to Ms. Angie Freeman, C.H. Robinson's Director of Investor Relations. Please go ahead, Ms. Freeman.

Thank you. On our call will be John Wiehoff, CEO, and Chad Lindbloom, Senior Vice President & 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 it over to John.

Thank you, Angie, and thanks to everyone who is taking the time to listen to our first quarter conference call. About an hour ago, we issued a press release sharing our results for the first quarter of 2008.

I would like to start by highlighting just a few of the key financial results on that release. For the first quarter ended March 31st of 2008, our gross revenues increased 22.6% to just under 2 billion. Our net revenues increased 13.8% to 338 million. Our income from operations increased 18% to 136 million. Our net income increased 18.3% to 86 million, and our fully diluted EPS increased 19% to $0.50 per share. In that press release, we share more details on the mix of volume, pricing and margin growth by each of the transportation modes and service offerings that we report on. So I'm not going to read those now, but rather we thought might be helpful is to discuss some of the market conditions and how they impact several parts of our business.

I'd like to start the first topic with -- to share some thoughts on fuel and fuel prices and how they impact our business. We get asked often how fuel affects our business. As most of you likely know, diesel fuel prices increased very significantly during the first quarter. Fuel prices have always fluctuated, and the way that Robinson adjusts for fuel and how we manage our business has not changed. But given the significant increases, we thought it would be worthwhile to talk through several aspects of our business relating to fuel. Our transportation gross revenues increased by 26%. That gross revenue increase is made up of volume and price increases for each of the various modes of transportation, as we summarize in the release. In our Truck Load Transportation Services, the largest source of revenue, we discussed that our growth consisted of 15% volume and 8% price increases.

Our best estimate of the impact on fuel prices on our Truck Load Transportation is that the overall price increase of 8% would have actually declined by a couple of percent if fuel prices had remained constant to the first quarter of 2007. Fuel prices had a significant impact on a gross revenue increases for the quarter. We wanted to highlight that impact on our gross revenues, as well as highlight the fact that it is an estimate on our part. Given than we are a third party and we contract for or hire the underlying capacity, we cannot always be certain as to the precise cost of fuel or the pricing adjustment that the underline providers include. While some of our shipments provide for specific fuel surcharge adjustments to the shipper or the carrier, many are priced as an all-inclusive rate with no specific fuel component or adjustment. We know that fuel was a major contributor to our increase in gross revenues for the quarter. Our transportation gross margins declined during the first quarter. At the end of 2007, we discussed the possibility of that happening this year due to the fact that we were at the high end of historic ranges for gross margin percentage during 2007.

Gross margin percentages are impacted by many things, including the supply and demand conditions in the market and our effectiveness in buying and routing the capacity. Fuel prices can also affect our gross margin percentages, as for some portions of the business rates are adjusted for fuel through surcharge formulas. On transactional business, with all-inclusive rates that adjust daily, we are not able to isolate any pricing or gross margin impact due to changes in fuel prices. We can make estimates assuming pricing similar to other transactions with surcharges; however, we cannot be certain about differentiating adjustments from fuel versus other market impacts. We believe the price of fuel contributed to our declines in gross profit margins this quarter. In addition to the fuel impacts on gross revenue and gross profit margins, there is also a correlating impact to our accounts receivable and working capital. The significant increase in gross revenues also drove an increase in our accounts receivable.

Our accounts payable also increased this quarter, but at a slower rate due to increases in quick pay and carrier advance programs. Another impact of fuel to highlight is on our subsidiary e.check, which is reported in the information services revenue -- e.check earns transaction fees for processing and settling fuel purchases. Some of those fees are based on a percentage of the purchase and the increase in the price of fuel increases our fee income. The last thought to share around fuel is that it does impact our relationships on both the shipper and carrier side of our business in ways that are hard to quantify. We work with many of our shipper customers to do network analysis projects and help optimize the way to execute. Fuel prices and expectations of future fuel prices can affect those exercises. So while overall transportation demand has softened the last year, shippers' overall transportation costs have generally increased due to the price of fuel. Many truck load carriers have been challenged by profitability in the last year or so as truck load demand has slowed and pricing has softened.

Many of the carriers believe the market pricing doesn't adjust quickly enough or adequately enough for them with regard to fuel prices. This can be a very emotional issue that often takes the blame for any other market-driven price adjustments. These added costs associated with fuel add more stress to managing transportation for shippers, carriers and for us at Robinson. Moving on from discussion around fuel and fuel related impacts to our results, another market condition that we'd like to discuss is around the challenges in the financial community and credit availability and how those impact us. Probably the most visible impact to Robinson in the quarter was our decline in investment income of over 30%. We ended the quarter with cash and investments of a little more than 400 million. That number is fairly consistent with the previous year, so the reduction was due to yield decreases.

During 2007 and into the first part of the first quarter of 2008, we did have some option rate security investments. We were able to exit those investments at par and do not have any concerns around liquidity or evaluation of our investments. However, with lower interest rates on all investments and as a result of concentrating all of our cash in money markets for the majority of the first quarter, our yields were significantly less than a year ago. We continue to challenge ourselves as to what is the appropriate amount of capital to retain in running the business. As most of you are probably aware, we've ramped up our dividend payout rate and share repurchase levels the past few years to stop the further accumulation of capital. We continued that approach during the quarter, as you see in the results that we released. We know that the capital management is a very important part of our shareholder value premise.

We talked at year end about our plan to continue our growth initiatives this year despite some concern about the overall economy. We still believe that makes sense. We were still looking to grow and acquire businesses. And we plan to continue our current capital management approach, which is to keep our cash and investments levels relatively flat through dividends and share repurchases and remain conservative in the investment approach. The last topic for prepared comments is with regards to our compensation programs. We discussed in our earnings release that the largest variance in our personnel costs as a percentage of net revenues relates to the variable charges in our restricted stock and other incentive programs. Our incentive plans in 2008 are consistent with the past several years and are spelled out in the proxy that we recently filed. So none of this is new or different information. But we do recognize that our plans are maybe a little unique and so it can be helpful to discuss them. We have several different incentive plans that have variable components to them. The primary driver across most of our plans is earnings growth and earnings growth rates.

As we said in our release, our earnings growth this quarter was slower than our earnings growth a year ago, resulting in less expense. Our operating income grew about 18% in the first quarter of this year. Last year, our operating income grew approximately 25% for the first quarter. As a result, we had less expense associated with expensing restricted stock awards that vest according to our earnings growth. While we achieved our long-term growth goal of 15%, we did not grow our earnings as fast as the previous year, resulting in less expense. Our personnel costs in each quarter are impacted based upon how our growth rates compare to the previous year's period. The other element of our restricted stock program that is perhaps unique and worth highlighting again is that our awards in the program are periodic and not annual. The impact of periodic awards is that we do have variances from year to year in terms of the awards that are outstanding and being earned and expensed. If you read through the details of the grants and that proxy, you will see that we have significant equity grants awarded that began vesting in 2003 and in 2006.

Both of these awards were communicated to our employees as intended compensation for a three year period. Our current expectation is that we would also have additional equity awards granted later this year that would begin vesting during 2009. While it's difficult to predict due to the variable nature of the awards, it's likely that these awards would increase our personnel costs as a percentage of net revenue in future periods. So you've got both the earnings growth rate and the amount of outstanding equity awards that have a variable impact on our compensation and incentive programs. We continue to think that our incentive and equity programs are a great way to align our motivations with shareholders. That concludes the prepared comments for the quarter. And at this time, we would like to open up the lines for any questions that you may have.

Thank you, Mr. Wiehoff. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Jon Langenfeld with Robert W. Baird. Please go ahead.

Good afternoon.

Good afternoon.

Can you talk a little bit on the intermodal transfers -- intermodal versus truck? Are you seeing any differences there in terms of the type of business that is being presented to you? I know you commented a little bit about it on the press release. Just like a little more color there.

I would say probably the -- another interesting element that I don't believe we mentioned in the press release is that in the intermodal arena, a lot of the capacity has been aligned with international shipments the past several years as those volumes have grown. And due to the changes in currency and changes in some of the international freight flows, a lot of the intermodal freight that is aligned with that is probably a little more balanced. So some of the impacts that we've talked about on the truck side is that certain lanes where truck and rail capacity can compete for each other, that there is some variances on where truck is more competitive based on better balancing of the rail freight and alignment with better balanced international freight. So we have seen some fluctuations and the availability of intermodal capacity and which lanes are competitive from a truck standpoint. But as we did say in the press release, overall we had very nice volume growth in intermodal and plan to continue to ramp up our offerings and capabilities for that mode.

And are you seeing truck lanes today that are -- you know, shippers are more willing to take the intermodal route because of the pricing, because of fuel and what that is doing to the overall cost structure versus maybe six or 12 months ago?

I can't think of specific examples where that would be true. So I'm sure there's always lanes or instances, but I wouldn't describe that as dominating trend or something that we've observed.

Okay. Okay. Fair enough. And then the transaction growth versus the head count growth. Looks like your head count is up in the high single digit transaction growth, at least in truck it's up 15%. Is that -- can you keep that pace up or is that something over time needs to converge between the head count growth and transaction growth, in truck at least?

We are constantly looking -- well, there are several things to consider, I guess, when looking at that. The first is, those consolidated head count numbers include a lot of support areas and international areas and stuff. So to really look at kind of the head count, to -- specifically to the North American truck load volume numbers, you'd have to kind of give it -- you know, look at it in pieces that we don't disclose. But over a long period of time, our goal is to have productivity initiatives that would allow us to have fewer people or a little bit less than the growth rate relative to the truck load shipments. 15% volume and 10% head count, that would be a pretty meaningful spread. That would be a pretty high productivity gain. So we could certainly experience that for a short periods of time and longer term we would want that relationship to hold true. But I think longer term productivity gains of having fewer people in the spread would be a little bit closer than that.

Okay, okay, good color. And then lastly, can you just go back a little bit and what you talked about lastly, John, in terms of the layering of the additional restricted stock grants. The expense that you have on a run rate today there's some of that expense associated with the '03 grants and some that's associated with the '06 grants. And then if you were to give additional grants at the end of this year, by the time you get into next year then you would have basically three layers of expenses. Is that how we should look at it and that's why it would be an additional expense in percent of revenue?

Let me let Chad talk to that.

Okay, great.

The '03 grants were fully vested by '06. So there was no overlap between the '03 grants that started vesting in '03 and the grants that started vesting in '06, because we did have high growth rates so they fully vested within three years. The '06 grants, just like the '03 grants, have up to five years to vest. And again, the simplified way of looking at the vesting formula is to take our growth rate and earnings and add 5% to it and that's the percentage they vest. So if we exactly meet the 15% growth in five years, they would fully vest.. We will not -- you know, chances are we will not be fully vested in the '06 grants before the next grant is given. So there may be two layers of grants; so the ones that will be granted at the end of '08 and will begin vesting in '09 and there will still be some -- most likely still be some expense from the '06 grants.

And that's why the percent -- personnel expense as a percent of gross profit would go up, because there's two layers in there versus the one?

Yes. It's very difficult to know if it will -- with certainty if it will go up, because the expensing is dependent on earnings growth, and how much it will go up there. We have two different variables, because we don't know what earnings growth is going to be and we currently don't know the size of the grants that will be granted at the end of the year.

Okay, thanks for the color. Nice quarter.

Thank you.

Thank you. Our next question is from the line of Justin Yagerman with Wachovia Securities. Please go ahead.

Hey, good afternoon, John and Chad and Angie. How are you doing?

Good.

I guess you alluded to it, but can you give a little bit more color on how many shares you guys bought back in the quarter and at what price?

Sure. We bought back 780,000 shares at 53.71.

780 at 53.71?

Yep.

Okay. And when you think about dividend yield relative to what you were talking about in terms of managing the capital on your balance sheet, is there a targeted yield that you are looking to stay at? Or is there a level of cash that you are just going to make sure you're either using share buy-backs organization or the dividend is a way for yo you to manage that cash level? I mean, how do you guys think about how much gets allocated toward the dividend and is there a threshold there, I guess, to be more clear? And I guess excess gets allocated to the share buy-backs. Is that the right way to think about it?

Yes. We have -- for the past three or four years we've had targeted dividend payout ratio, so we don't manage it to a yield. We manage it to a percentage of earnings and our targeted payout ratio is 40%. So we view that as a less flexible way to adjust the amount of cash returned to shareholders and use the share repurchase as the more flexible way that will flex up and down given cash needs and cash flows. So we look at our share repurchases quarterly and adjust those quarterly. We adjust our dividend annually -- the amount -- but it is based on a consistent policy.

Understood. Do you rethink that policy in the context of what we are experiencing in the credit markets currently, where you discussed that your yields on investments aren't giving you what you've historically looked for?

We are -- we do consistently analyze and discuss how much cash we should carry on the balance sheet. And as we've talked about many times, there are some advantages to having the cash and, yes, right now with yields lower it's less attractive to shareholders to sit on cash; but we think we will it continue to analyze it and we may change the policy in the future. But it's difficult to predict.

Okay. Switching focus, looking at volume growth in the quarter, can you -- continuing impressive trends off of the results you posted in Q4, obviously significant acceleration on a year-over-year basis for volume growth. Can you give a little bit more color around that? Was it more in the truck load side on the less than truck load side? Was it generally across the board? And maybe underlying that, is that a bigger driving force because of the price that you are able to offer your customers given the capacity that you are tapping? Or is it an increased flight of that capacity towards your platform which outsources some of their back office needs? Or how are you thinking about this increased volume growth that you are experiencing, especially given that that's likely market share in such a weakened environment?

Well, there are a lot of good questions buried in there. I guess for starters, we did put in the press release that our LTL transaction or volume growth was around 30% and the truck load was around 15%. So there was variances in volume growth rate by the different modes. And similar to what we discussed at year end even within the truck load category, some of the areas like flatbed that we have been concentrating on more and building our expertise in the last few years grew faster than the average truck load rate. So, yes, there's variances across it. A lot of the things that we discussed on our last call kind of going into 2008, I still think are probably the laundry list of reasons as to why we feel we were successful at growing our volume when the industry probably isn't growing in overall volumes. And it starts with kind of the long-term relationship commitments and what we are doing to hopefully better understand our shippers and our carriers from an account management standpoint, and working with them to try to help manage rising fuel costs and source and capacity. There is a lot of tension and turmoil because of fuel and different things in the marketplace. So we just believe that it's a long-term focus having good people, building the relationships, offering a greater menu of services and choices around modes and different processes. And kind of like -- we didn't go back to it because we beat on it pretty hard at year end and in our last call, that it's really just the accumulation and --we believe it's the accumulation in tying together of all of that that's allowing us to be successful.

Yes. And you had an interesting comment in both your prepared remarks and in the press release that higher fuel, you believe, contributed to the lower year-over-year gross margins. And I just kind of wanted to ask you, you know, I guess that's a factor of either -- well, first of all, fuel being higher, so fuel surcharges are going to be higher. But is there is an aspect of paying more fuel surcharge to your broker carrier partners, given how much hurt there is on those guys in this type of an environment?

I think the biggest point that we were trying to emphasize is that for a lot of our volume and in a transactional marketplace, the impacts of fuel and the impacts of the market get blurred together. And so therefore, like I said in the prepared comments, we are making estimates. But if you start -- mechanically, it really doesn't work this way -- but if you just say, hey there is huge increases in fuel that were going to customers and paying to carriers and passing through, billing and paying all those dollars would pass through a lot without any incremental margin and lower your gross margin percentage. There are some ways that you can sort of prove that if you have matching fuel surcharge formulas that would be a pure pass through; but in practice, we have very little of that where it's actually aligned like that.

So you are actually making assumptions about what's happening to fuel and what's happening to rates on both sides of it. In the long-term, you have to assume that it's an operating cost just like every other element of transportation, and it's going to adjust and pass through. In the short-term, both sides of the equation feel like fuel is the thing that is easiest to focus on for being the reason why you're unhappy with a rate or your return or your yield or any of those sort of things. So it's tough to isolate the impact of it, especially from our vantage point, into the market. But we try to give a flavor for the fact that it is significant and it does kind of roll through a lot of different impacts or aspects of our financials.

So if I'm understanding you correctly, I mean, it's almost like the sourcing business, whereas commodity prices go up and the dollar value of the transactions may be higher so you may have a bigger dollar value flowing to the bottom line, but your margin gets thinned out a little bit?

Absolutely. And it's precisely why for the last ten years that we have been a public company that we have said probably net revenues or gross profit is a better focal point of the true growth rate because the price of broccoli and the price of fuel affects our gross revenues in very difficult to anticipate ways, and maybe isn't the best measure of the value that we are adding.

Okay. That makes a lot of sense. And then I guess from a carrier perspective, are you doing an increased amount of business with more carriers in this environment? Or are you doing -- I mean, I'm not really trying to get it at the capacity issue. I'm actually curious if you are seeing more carriers flock to your platform in this environment because of the back office and kind of accounts receivables management that you guys offer.

We continue to see a lot of new carriers signing up to our network. The challenge for us is that we also see a lot of carriers drop out. There are bankruptcies that we know of. There are carriers that just don't do business with us any more. So for any one short period of time, like even a quarter, it's difficult to really gauge. But there is no question that we are signing up hundreds of new carriers each month and feel like we do have a pretty appealing platform for them to get access to freight and cash advances and for fuel and different aspects of it. So we feel as good as ever about what we are offering the carrier community and our ability to attract new ones. But we also know that it's a tough environment out there right now and so we can't ensure financial success for everybody who we work with, but we think we have a good program.

Okay. Thanks for the time, guys. I appreciate it as always.

Thank you. Our next question comes from the line of Tom Wadewitz. Please go ahead with your questions.

Yes. Good evening. Hi John, Hi Chad. Let's see, I wanted to see if I could try to get my arms ash the strong growth you are seeing in the volume side amid what seems to be such a weak market. And maybe if you could provide some thoughts of how this time around you're able to grow in such a weak market. If I look back at 2001 and 2002, you were probably still taking a lot of share. But gross revenue growth in transportation was more on the order of 8 to 9%. And so what do you think is really different this time around versus '01-'02 in the volume growth side?

I think it's probably a lot of little things, or maybe a lot of things that add together. There is no question that we have a more established reputation in the marketplace today, that our scale and offerings are more substantial than they were ten years ago or seven years ago or whatever. We also know that there probably are different attitudes in the carrier communities these days about who is adding capacity and even financing availability for medium and large carriers to add a lot of equipment might be different than it was during that period of time. So there could be some underlying shifts in makeup of the capacity in terms of who is more inclined to work with us.

I know that a part of our equation for growth is whether our people in our systems can be part of the answer for a shipper rather than doing it themselves. And it's tough to measure that aspect of it. But I know that most companies aren't anxious to add people or spend money on technology today and we are. We are making that investment so that hopefully we can help out the customers with it; so that whole outsourcing aspect has a lot of different angles and mature aspects to it. And there is probably a bunch of other things, but I don't think you can put your finger on one thing. But we believe it's a bunch of things like that that all wrapped up in that long-term focus that I talked about before of continuing to open new offices and invest in new services and tie it all together.

Okay. That's helpful. I appreciate that. And I mean, I guess the next step to that chain of logic would be if you are able to sustain this high level of volume growth in truck load and LTL, then perhaps you wouldn't see a slowing in earnings growth like you did if you go back to 2002, you had -- I think you had about 10% earnings growth which is great, but that's bit slower than what you typically see. So do you think it's reasonable to think that maybe you wouldn't see the dip in earnings growth to the extent that you did last time?

I think it's really hard to predict that. And you know, the big wild card in all of this is the freight demand and what's happening in the economy. And I don't remember in '01 or '02 exactly what freight volume and demands were doing quarter by quarter. But one of the things that I think has been pointed out across the industry quite a bit is that even though there's some difficult things going on in the economy and in the environment, the best data that we have is, overall volumes are not that far down, like low single digits. So you could see scenarios where overall freight demand and shipment levels drop quite a bit more, or you could see where they rebound back up through the remainder of the year. And I think without kind of getting very specific quarter by quarter or understanding that, that is probably the biggest wild card in this that's going to drive the future results and where the earnings actually go. And it's so hard to predict.

Right. Okay. That's helpful as well. One last one if I can here. On the impact of expected capacity reduction, have you seen any early impact on your gross margin from that? It kind of sounds like you haven't, but if capacity really starts to leave the market given how difficult it is for the truck load carriers right now, that might be something which would put a little further pressure on the gross margin later this year. What would your thoughts be on that topic?

Carrier failures or carrier stress, you know, will ultimately be part of the correction process where the overall capacity shrinks; and then like I just said, the biggest variable or movement in the thing will be the freight demand. And I don't know when, but at some point freight demand will probably jump back up. And depending upon just how much capacity reduction there has been and how much strain there has been, you will see price increases or shortages of capacity. And what we seen to date is we know that some carriers have been unable to make it. We know that many of them are taking more advantage of quick pay programs or cash advances for fuel, and that it's not as easy to be successful or profitable as it was a year or two ago. As far as how and when that carrier failure rate will become a bigger impact to us or the market or ultimately drive those supply and demand pricing corrections, it's probably more dictated by the freight levels or the demand. That's the more volatile piece.

Okay. Great. Well, congratulations on the strong results, and thank you for the time.

Thank you.

Thank you. Our next question is from the line of Alex Brand with Stephens. Please go ahead.

Hey, guys, hi, Angie.

Hello, Alex.

Let me just do housekeeping first. The tax rate, Chad, is it going to stay this low, at under 38%, you think?

Yes, I think our overall effective rate -- we used to talk it about it -- we expected it to be between 38 and 38 1/2. Probably move that down to 37 1/2 to 38. Illinois, which is a state where we have a lot of people and a lot of business, changed the way that they are proportioning income and how much ends up in Illinois. And the change in Illinois had a big favorable impact to us. So between a half and three quarters of a percent on our overall effective tax rate.

Okay. And what about -- what's the approximate percentage of LTLs and total truck?

So it's still around 10, a little bit more than 10%; and again, that's based on what we know as pure LTL that moves on LTL carriers. We also internally classify some of our other businesses LTL where we are consolidating and moving on a truck load carrier.

Okay. And your favorite question every quarter, was there any sort of trend throughout the quarter progression that we should be aware of?

Nothing material when you look at it on a day by day basis. March finished strong, like March is always the strongest month of the quarter; but from a growth perspective over the previous March, the growth was no greater than it was in the early months.

Okay. And then I think I understand on the cost side of the equation. On the labor side you have a variable incentive comp plan, so stock comp comes down and that's the way your model works. But on the SG&A, I guess I'm not exactly clear. What is the investment? I mean, is there a level of SG&A ramp-up that were going to go through for the balance of this year? Or is this going to level off?

The investment is things like new offices, new systems. Those sorts of things that tend to correlate more. We had more meetings and more travel. I think our people are out selling and traveling -- our T&E, travel and entertainment, was up pretty meaningful. So you put that sort of thing together and basically we're adding people, we're adding locations, we're adding occupancy and taking on more space, and a lot of those expenses tend to correlate more with volume than margin. So we think this was kind of a high quarter in terms of our percentage. But, you know -- I don't know if Chad if you have thoughts about what the percentage will level off during the year. But I think it's important to understand that many of hose expenses are driven by our investment in the network and growing out the physical locations.

Yes, we do have approximately 20% more square feet than we did a year ago, as an example. So it's just based on the timing of when the leases come up and when people add people. So every time we take on a new lease we obviously take on significant growth space. We added our new headquarters building six months ago, we we are halfway through cycling that into the expense.

Okay. And what are you guys seeing in terms of interest in shippers to lock up capacity? Is the bid activity moving towards, you know, give us two to three years now before capacity comes out?

I have heard a couple of those types of requests where people are considering locking into longer term contracts. But as we've talked many times before, those contracts are probably only as good as the relationships that you have, because if market conditions change a lot over the next couple of years, you still have to hope that you can actually execute under those rates or that the capacity will actually show up and move your freight. So I think more than ever there is a lot of discussion about what's going on in the market, trying to manage fuel prices. Some trend certainly towards longer term price commitments, but not anything dominant by any stretch.

And, John, you've kind of answered a number of questions about capacity in gross margins. But I mean, what do you think the model does if you are in a situation where capacity is coming out and your volumes are weakening, is there an offset there? Or do you just have to get squeezed and sort of ride through it?

We may get squeezed a little bit. Part of -- you know, it's interesting, as we have been analyzing and digesting our results for the last couple of years. You know, in some respects the supply and demand and margin expansion and contraction is very similar and very comparable to what's happened in the past. We've talked the last few years about price increases being higher than any time since de-regulation. And I don't think we've ever seen a quarter with fuel prices moving this dramatically. And so it's hard to -- it's hard to understand exactly what impact those had and how it will change. So if the economy gets real soft and volumes are declining and capacity is leaving and our margins are contracting, yes, that could be a tough environment for us that we'd just have to ride out for a period, as you say. But there are a lot of moving parts in the supply and the demand and pricing and rates and fuel and shipping levels that -- you know, a lot of moving parts to what each period will look like.

Fair enough. Thanks a lot, guys.

Thank you.

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

Good evening, guys. Chad, quick question for you. I know you mentioned -- I think I missed it. Your changes in operating elements and your cash flow line, could you remind us again why it went from a cost of say 41 to 80 million?

Sure. A lot of it -- the balance of our accounts receivable is generated based on gross revenues. So the price of fuel and the fact that gross revenues are up 26% for transportation and 22% overall, or 23% overall definitely grew the bulk of the increase in receivables. And then also when you look at the fourth -- or the first quarter days of sales outstanding compared to a year ago, we lost a day, March compared to March. So instead of being at 45 days we were at 46 days. So again, we feel really good about our aging and the quality of our receivables. But people are paying on average about a day slower than they were last year's first quarter.

Okay, no, that's fair enough.

And then also, the payables did not grow as fast as the receivables because -- John mentioned that in his prepared remarks -- that people are taking more advances en route, and a big part of that is that they need money for fuel while they're driving instead of being able to wait until after.

My next question, just relates to some of the truck load volumes. Obviously, 15% is still pretty good. We heard a truck load carrier today just talk about how they needed to reduce their percentage of broker business and that they are already starting to do that. Do you think that that' is something that may be pervasive out there in the truck load industry, looking to reduce a little bit of their exposure to the brokerage business to keep some of it in-house?

I think each carrier has their own philosophy as to what's desirable freight. And so that would vary carrier by carrier. Obviously, we are seeing increases with some carriers and not with others. I think oftentimes, as I tried to allude to in my prepared comments, you know, terms like broker, freight, probably means a little bit different things to different people, because oftentimes people are referencing brokered freight as transactional freight that may be is at a more current market rate, which may not be as desirable as the contractual rate that they locked into it year ago. And so the market pricing and whether or not there's an itemized fuel component, all of those can factor into the perception or the interpretation of the desirability of the freight. So a big part what of we focus on is, you know, we wouldn't use that label as a category of freight. It's really more about what the commitment to the customer is and what the pricing arrangement is. And I think most carriers are realizing that for parts of the market, the market is soft and rates are dropping. But fuel prices are rising. And so how you route your equipment and the freight that you accept and how you look at the economics of your business has to adjust for those variables.

And just to sort of add on to your comment there, that the parts of the market you are seeing prices dropping, could you tell us the end markets where you're seeing prices dropping? Because we have seen I guess an overall sort of leveling off of the price declines out there in the marketplace, at least from some data we've been looking at -- on the truck load side, at least.

I don't really have any good color in terms of what regions or lanes; for us, our business is pretty widespread. And I don't really have any examples or specifics around where it may have softened. But I do know that because of rail impacts and because of produce seasons and different fluctuations in supply and demand, many of which are sort of repetitive of seasonality from other years, it changes lane by lane all the time. So it's hard to isolate any one piece of it.

Okay. Fair enough. Everyone, thanks as always for the time.

Thank you.

Thank you, our next question is from the line of Ken Hoexter with Merrill Lynch. Please go ahead.

Hi, good afternoon. Chad, just on the tax rate, is that a permanent shift on the Illinois shift that you were talking about?

They mostly changed their tax law again. Yes. They basically made a permanent switch. It used to be -- they used to apportion revenue based on where the people sat that were generating the revenue and they changed it to where the goods or the services are consumed. We have a greater percentage of our people sitting in Chicago than we do freight terminating or terminating in Illinois. I should have said Illinois both times, but Chicago is the biggest part of it.

Okay. Just a couple numbers questions. Your employees actually were up nine -- almost 10% in the quarter on a year-over-year basis -- it accelerated, the rate of increase. There were no acquisitions in the number, though, right? This was a clean quarter?

There were acquisitions -- there was an acquisition during the year last year. So if you are looking at the first quarter compared to the first quarter, those heads would be in there.

Yes, but I guess it accelerated, the rate of increase, even if I look at fourth quarter which that have been on a year-over-year basis. It looks like --

No, there is no acquisition in the first quarter if that's your question.

Yes. But then if I take that one step further and I look at the net revenue for employee and I think the first question was asking something like this. But your net revenue per employee slowed to like a 3 1/2% growth rate. So it's still growing but at a decreasing rate, I guess slowing utilization. I know you always say hiring is always a local decision. I mean, I guess, how do you look at that in looking at the -- kind of the additional net revenues swelling at such a decelerating rate.

I know we talked about for a long period of time on how long term it's going to take more employees to do more net revenue and we are going to try to gain efficiencies. But we expect that our heads will grow close to our transaction, or our volume or our net revenue numbers. So when you look at it on a quarter by quarter basis, it's going to fluctuate around based on how many offices are ahead on hiring versus behind on hiring. So it's going to be variable, it's going to be constant. But the trend is it will take more people to do more business, but hopefully we can become more efficient also.

Okay. Last question I have is on the buy-back, you talked a lot about the cash before. But why did you have such a pullback on the buy-back if your theme is to use that fluctuating cash? I know you said you like to have cash on the balance sheet. But it looks like once you are topping 350 million, you've slowed it down from the mid-40s down to the low $30 million buy-back level.

If I remember right, in the fourth quarter we bought back 800,000 shares and we bought back 780 this year -- or this quarter.

Okay, so you're looking -- okay, so it's more from your point of view, it's not a dollar amount, it's the number of shares?

We just -- well, we start with a dollar amount and then back into how many shares we think that's going to be but I think on the cash flow statement, it only shows net share repurchases, so the different -- part of the difference there might be how many shares were issued as through incentives. You know, how many people exercised stock options, basically.

Okay. Understood. Thank you, Chad.

Thank you. Our next question is from the line of [Ed Wolf] with [Wolf Research]. Please go ahead.

Thanks. Good afternoon, guys.

Hi, Ed.

Couple things. How much of the 23% gross revenue growth would you say is attributed to fuel? You said a lot of it, John, but I didn't get a number or an estimate or direction.

Well, if you take the largest revenue category of truck load services to break down, it was 15% volume and 8% price. And the component of price that was attributable to fuel was more than the 8%. It would have actually been down. So if my math is correct, I would say about 40% of that growth in our largest category came from fuel.

The fuel impact per mile truck load race was something between -- right around 9%. I also know that fuel went up on ocean as well, probably close to that same number as a percent.

Probably in the 8, 9, 10% range.

Thank you. That's helpful. If I look at the 130 basis points of year-over-year gross deterioration, how much of that would you say is fuel and how much of that is tighter capacity than a year ago? You had mentioned some bankruptcies and things like that, John.

That part is indecipherable.

Would you say there's some part that's beyond fuel?

Yes. You know, it's a guess, but, yes.

And when you mentioned bankruptcies, are you seeing that that's actually getting worse? It's getting harder to find capacity or the number of carriers in your stable is going down? Or is it not changing that dramatically directionally the last couple of months?

We were able to find capacity for whatever freight commitments that we had. So it's not accelerating to the point of making it more difficult at this point for us to find capacity. But just anecdotally in interacting with our branch network, they were seeing more carriers than they had been doing business with dropping out of business or filing bankruptcy because of continued challenges with profitability. But we used roughly the same number of different carriers in the first quarter of '08 compared to the fourth quarter of '07. So there is definitely some churn in there but it's still just thousands and thousands of different carriers that will move our freight.

Thank you. And from a shipper's perspective are shippers starting to seek more contractual versus transactional moves? Are you seeing any change in that split?

Nothing dramatic. As I mentioned earlier, some shippers are being more assertive about looking for a longer term contractual commitment trying to take advantage of what might be the low point in the market, or at least some price reductions compared to a short while ago. But I think most people are understanding that it's a challenging market and it's going to be a volatile market and they are just trying to focus on better processes, better information and long-term relationships.

So you're not seeing a bunch of people looking for long-term commitments or anything like that all of a sudden?

No. I mean, most shippers have always worked on some sort of an annual bid process and looking for 12 month rates. Most shippers do not have a set time when they do those bids. They will do them periodically. So as we've said over the last year or so, there certainly has been an acceleration in the number of bids that you see in the last four or five quarters relative to the years before that. Most shippers don't want to go out for bid when rates are rising because it's an opportunity for everybody to adjust upward on them. When rates are softening, you will see an overall increase in the level of bid activity. So that would be true, but we have not seen a wholesale shift towards people looking for more than a year or an all-out philosophy change in terms of the types of price commitments or contracts that they are looking for.

Okay. Just changing gears. Intermodal volumes, why are they so small and why such a squeeze on pricing, and does that have to do with not owning the containers, do you think, or controlling the containers?

Changes in availability capacity are definitely one element of it. So we play the market, if you will, or source capacity from public equipment or rail equipment. So there is definitely a variable associated with that. But I would say that probably the primary driver is just our increased sales activity and market penetration of working with higher volume shippers and those higher volume contracts tend to come at more aggressive pricing.

So an internal drive to get the volume it sounds like. Is that fair?

Yes.

Okay. When I look at your interest income, I'm backing into -- you're make being 0.6% in the money market. Should we think about that for the rest of the year? Or at some point do you get a little more aggressive with that money?

Part of it is, 100% of the cash that's on the balance sheet isn't earning interest at any give be point in time. Also, if you are just looking at the -- our yield is higher than that, is what I was trying to get across. Because when you look at end of the year's balance and then the end of the quarter and average them, that doesn't work in the first quarter because we pay out significant bonuses and profit sharing in January. So our balance dips way down and then comes back up. But as far as the yields being lower, yes, they are definitely lower than last year. We went ultraconservative during the first quarter and we were all the way back into treasuries for awhile and now we are starting to get slightly more aggressive. We're going back into some MUNI bonds and some MUNI money markets, so it should bring up the yield a little bit.

Okay, that makes sense. And you expect the capital, the working capital, to come back positive this quarter despite the one-day fewer -- I guess the fewer day probably helps you with Easter?

It's very difficult to predict exactly where our working capital will end up. It depends on volume growth, it depends on timing of business within a quarter. As you know, in the fourth quarter the last week the slowest week, the last two weeks, so our working capital really gets -- looks really good when you compare to the quarter's gross ref news. And the first quarter is the busiest week, so part of the ramp up is due to that. As far as over a whole year period of time, it's going to fluctuate up and down. But consistent with previous years, it's going to depend on timings of days of the week and many other thing.

Okay, one last nit-pick because it's hard to nit-pick on your quarter, but I'm going to try. The SG&A up 70 basis points year-over-year as a percentage of revenue, while personnel expenses were improved 270. Is there any reclassification or anything that's different here that we should think about ongoing?

There is no real reclass at all, and we covered some of the SG&A expenses that were growing faster than net revenues earlier.

So, no?

No, we -- you know, our operating expense categories are consistent between those two lines. The previous year.

But why is the SG&A 70 [bips] worse? We haven't seen that from SG&A for some time.

We covered earlier -- occupancy, travel and entertainment. Some provisions for receivables associated with volume growth. There's probably 40 different categories that we go through there, many of which are discretionary, that we had more manager meetings and traveled more during this quarter probably than any time during our history. So a lot of it is just -- I guess I'd like to summarize them as investments in the business that we're building out the networks of offices and investing in the relationships. Opening new offices. Putting in new data lines. Buying new servers, a new headquarters, all those sort of things.

Okay. All good. Thanks a lot. Appreciate the time.

Thank you.

Thank you. Our last question is from the line of Matt Troy with Citigroup. Please go ahead.

Yes, I wanted to circle back on the acquisition front and your focus on optimizing capital. I was curious to hear your thoughts on the potential deal pipeline given the lack of private equity interest and the pension of slower economy and higher fuel costs. Are you seeing a greater number of opportunities and more reasonable evaluations in your due diligence? Will you be more opportunistic if the environment is indeed more favorable, and where do you see yourself as C.H. profits in getting the most return or biggest bang for your M&A buck, if we think about where you might be doing potential deals on a go-forward basis?

I think for the last couple of years, we've talked about the fact that while we are open and all of our different strategies and growth areas that probably the biggest bang comes from getting into geographic territories where we don't have a strong presence today. So building out the global forwarding network and being able to open offices and offer services and parts of the world, like Europe and Asia where we don't have presence today. If we can get a good return on a stand alone investment as well as strength in our network by adding additional competency to it and additional locations to it is probably on the top of the hierarchy where we think we can get a good return. But beyond that, we will look for peer market share opportunities in truck load and intermodal or any of the other services that we offer just where we think we can add to the team through better people and better relationships. So we've had a fairly -- I would say in terms of the volume of deal flow, that may have remained relatively constant, but certainly there is a change in the marketplace in terms of pricing expectations and competitive attitudes on deals, probably fewer kind of rollups going on, if you will, with financial buyers and stuff. So our hope is that we would see more deals that we can get completed in the future.

Okay. Do you have any kind of band width restrictions or book ends for deal size? I know fit is foremost, but is there a ceiling or theoretical limit in terms of size we should think about roughly?

No.

Okay. Appreciate it. Thank you.

We apologize that we cannot get to all of the questions today. Thank you for participating in our first quarter 2008 conference call. This call will be available for replay in the Investor Relations section of the C.H. Robinson at www.chrobinson.com It will also be available by dialing 800-405-2236 and entering the pass code 111-1110-pound. The replay will available at approximately 7 P.M. Eastern Time today. If you have additional questions, please call me, Angie Freeman, at 952-937-7847. Thank you.

Ladies and gentlemen, this completes today's conference. Thank you for your participation, and you may now disconnect.