羅賓遜全球物流 (CHRW) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the C.H. Robinson third quarter 2008 conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session.

(OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded Tuesday, October 21 of 2008. I would now like to turn the conference 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 and Chad will provide some prepared comments on highlights of our third 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'll turn the call over to John.

Thank you, Angie, and thank you to everyone who has taken the time to listen to our third quarter conference call. As usual we sent our press release our about an hour ago, releasing the results for the third quarter of 2008. I'm going to start by highlighting just a couple of the key financial metrics on that release.

For the third quarter ended September 30 of 2008, our gross revenues increased 24% to $2.3 billion. Net revenues increased 12% to $351 million. Our income from operations increased 12.7% to $148 million. Net income increased 11.7% to $93 million. And fully diluted EPS was up 12.5% to $0.54 per share.

The year-to-date results for the same metrics for the nine months ended September 30 of 2008, gross revenues increased 23.5% to $6.6 billion. Net revenues increased 11.9% to just over $1 billion. Our income from operations increased 13.9% to $429 million. Net income increased 13% to $270 million. And fully diluted EPS increased by 13.9% to $1.56 per share for year-to-date 2008.

Our growth rates for the third quarter of 2008 in all the key financial metrics that I just referenced are all very similar to our year-to-date 2008 growth rates. In addition, when we analyze our results for the quarter, the critical factors impacting our results are also similar to the rest of the year. As a result, our prepared comments for the quarter will be fairly brief and somewhat similar to what we've spoken about the past couple of quarters.

The first topic that's noticeable in our results is that our gross revenue continues to grow much faster than our net revenues and earnings. The gross revenue increase continues to be driven by volume increases in virtually all of the revenue categories and price increases driven by the increase in the price of fuel. The press release gives volume and price metrics by revenue category.

When we look at it we think there are two important conclusions that come from analyzing our gross and net revenue growth rates and results. The first conclusion is that fuel price increases are effectively passed through to our carriers and suppliers. As we've said many times before, we generally do not establish fixed routing relationships with contractual pass through formulas to the carriers that we work with. We execute virtually all of our service commitments by separating the customer and carrier supplier commitments that we make.

While we can't prove with absolute certainty that all the changes in fuel prices function as a pass through, all of our analysis suggests that they effectively do and we manage our business and pricing relationships under the assumption that fuel price changes function as a pass through to our carriers and suppliers. The second important conclusion that we draw in looking at the gross and net revenues is that we continue to grow our volume by increasing our market share in virtually all of our service offerings. We think our business model and approach continues to offer an alternative in the marketplace and that we are growing our presence in a relatively flat environment.

The second overall topic that we've been discussing this year that is again relevant this quarter is the variable nature of our operating expenses. We work hard to ensure that our staffing decisions and compensation models are variable and adjust with our growth rates and market conditions. Our variable incentive plans are structured to make sure that we continue to have growth opportunities and that we reward for performance in all areas of the business, but that we adjust to the market conditions. I don't plan to discuss the details of our cash and equity incentive plans as we have in the past quarters, but those again are important contributors to understanding the results for the quarter and for the year-to-date. Those are the two high level trends and topics that we wanted to repeat.

I also want to do share a few specific comments on the results for the quarter that I think are worth noting. Within the truck net revenue category which includes truckload and less-than truckload, we continue to see very high growth rates in our less-than truckload services. We believe that's being driven by both a continued increase in our internal efforts to cell and execute less-than truckload services as well as favorable market conditions with a high degree of transition and changes in that industry.

In our global forwarding business, you see good growth results from both organic sales efforts as well as increased revenue from the acquisition of [Transera]. Transera is a project-based global forwarding company headquartered in Calgary, Canada that we had previously announced. We have a couple of months of operating results from Transera in the current quarter. We are excited about having the Transera group part of the Robinson team and all signs are at this point that we are off to a good start in working together with them.

With regards to our intermodal results, we continue to think that we are making good progress in growing our intermodal capabilities for our customers. While we've been growing our intermodal volumes and improving service capabilities for several quarters, net revenue growth has been more challenging due to margin pressures. This quarter, we were able to grow our intermodal net revenues over 20% and we think we are in good shape to continue to offer very competitive intermodal services to our customers and to continue to grow the intermodal net revenues. Those are some of the revenue and operational highlights that I wanted to emphasize in my comments.

In a moment, I am going to turn it over to Chad who has a few other key financial metrics around the SG&A and the balance sheet. But before I turn it over to Chad, I again just want to briefly summarize how we look at this quarter's results in the context of our longer term goals. Those of Hugh have been following Robinson for awhile know that we always talk about our long-term sustainable growth target of 15%. While we've been able to achieve that target on average since transportation deregulation, we've always talked about that we have had and will likely continue to have periods of time where we are below that target and periods of time where we exceed it.

Through the nine months of this year, we are a little bit below our long-term target but it's also clear that these are pretty challenging times for economic growth. Our overall belief is that our business model continues to work, that we are executing well and that all things considered, these results are well within the range of what we would expect in this type of an environment. While we don't see anything in the marketplace that makes us think the environment is going to improve any time soon, we are going to continue to sell and grow our network and hopefully continue to take market share in the services that we offer. During times of less freight demand and slower growth, we monitor our variable cost disciplines more aggressively to make sure that we adjust with the market.

In summary, we are adapting to the short-term challenges and conditions, and our long-term approach and goals remain the same and we continue to feel pretty confident that we can achieve them. With that I'll turn it over to Chad for his prepared comments.

Thanks, John. As John mentioned, I'm going to give some comments on SG&A, working capital, capital expenditures and share repurchase activities. We continue to see increases in many expense categories that we mentioned during the first two quarters of 2008.

Our occupancy expense again grew faster than our gross profits. As we've mentioned before, the primary driver of that is increased square footage. We have approximately 20% more square feet of office space than we did a year ago. About half of that is related to our new corporate headquarters which we moved into on October 15 of 2007.

Our provision for doubtful accounts again grew faster than our revenues. The provision is affected by the level of activity and receivable balance, as well as specific customer accounts. We did have a higher level of customer specific issues than we typically experience. As you can see on our cash flow statement contained in our earnings release, our total provision for doubtful accounts increased from $5.1 million for the first nine months of 2007 to $10 million for the first nine months of 2008.

Our receivables -- our trade receivables from many different customers in many different industries. We receive frequent payments and monitor the balances on a daily basis. Based on the information we have about our customers today, we are comfortable that our receivable balance -- our reserve balance is adequate. We are being as proactive as ever in managing our receivable portfolio and will continue to monitor the financial strength of our customer base.

We did have a relatively strong cash flow quarter. We reduced our days of sales outstanding and accounts receivable compared to both last year's third quarter and this year's second quarter. Our days of payables also decreased slightly, driven partly by increased fuel advances to carriers hauling our loads.

Our net capital expenditures were approximately $5 million for the quarter which included approximately $1 million related to our new data center. We expect to have capital expenditures related to the data center of approximately $4 million in the fourth quarter of 2008 and another $12 million in 2009. This spending is in addition to other CapEx which has been around $4 million to $6 million per quarter excluding buildings.

During the third quarter, we repurchased 1.07 million shares at an average price of $51.10. As we have discussed in the past, we look at share repurchases as a variable way to return excess capital to our shareholders and have not tried to time the market. We have also said that if our stock traded outside of historic valuation metrics, we may adjust our share repurchase levels up or down.

We will continue to assess our cash position, other possible uses of the cash in the market price of our stock and will continue to vary our share repurchases based on decisions we make. That concludes our prepared remarks. With that, we will turn it over to questions.

Thank you, Mr. Lindbloom. We will now begin our question-and-answer session. (OPERATOR INSTRUCTIONS.) Our first question comes from the line of Alex Brand with Stephens, Inc. Please go ahead.

Thanks. Good afternoon, gentlemen.

Good afternoon. Hello.

And Angie, sorry. John , can I start with an issue that was brought up on the last call where you talked about that you did have some business that was unprofitable that would just take you sometime to work through that? Can you update us on where that

Yes. The reference that I made to business that we lost money on or unprofitable business, it's less than 1% of our business, Alex. And there is no permanent business that we are losing money on. I was really trying to make an example of the fact that when you look at our margins and you look at the trends in the business that those are averages off of 28,000 to 30,000 customers and 45,000 plus carriers. And that across those relationships there can be a wide variety of experiences, results, margins, all the way down to -- on every single day, there will be a very small number of loads that we lost money on simply to accommodate a customer or do what we need to.

I didn't in any way intend to imply that it was a meaningful part of our business or that it was abnormal in any way. That's always been the case. But when you look at our business and how spread out it is and the variety of relationships and commitments that we have, it's helpful to understand that it's a blended average of a whole bunch of things.

Okay. But last quarter, there was such pressure on your truck yields and that appears to have eased up at least a little bit in the quarter. Can you talk about the factors that relieve that pressure? In other words, there's maybe a bit looser capacity now but that's because there are fewer loads to move in the market and whether that's helpful or hurtful in the scheme of things?

Alex, what are you looking at to conclude that there was less pressure on the truck yields?

Well, just that sequentially they weren't down more.

Well, we've commented before, Alex, that virtually when you look at it from a gross margin perspective, transportation gross margins were 15.9% this quarter, 18% last year's third quarter. The biggest driver of that is fuel increases because they do function as a pass through.

The only real change sequentially was the fuel? And, Chad, can you just remind us in the first quarter of next year, what's the impact of the additional restricted stock that's going to kick in?

Well, the estimate we gave last conference call was somewhere around the 1% of net revenue, but that estimate is still a very unprecise estimate because we have not done the grants yet. We don't know how many shares it's going to be and the expense would also vary based on the growth in earnings.

Okay. Fair enough. Thanks a lot, guys.

Your next question comes from the line of John Langenfeld with Robert W. Baird.

Good afternoon. When you look at the LTL business, I think you said it's about 10% of your truck side. How much of that is LTL business that goes to an LTL carrier versus LTL business that you consolidate yourself within a truckload brokerage type of -- ?

The vast majority of it would be going to an LTL provider. There is an amount, I don't have a precise break out for you, but a smaller amount of it would be consolidation center activity that were combining loads and putting them on a truckload provider. The numbers -- that when we estimate that it's around 10% or 11% of the truck category. That is estimated based on how we would sell it to the shipper or the customer and then that can either get passed through to a -- consolidated to a truckload provider or put directly on an LTL provider.

Is there any big levels of concentration of any underlying LTL carrier that actually does the former part?

No, I think our LTL activity that we tender directly to the LTL providers is spread fairly evenly across the industry. Now, in the LTL industry there are far fewer number of providers. I want to say there's between 200 and 250 carriers that we do virtually all the LTL business that we would tender to an LTL provider. It's a much smaller universe than the 30,000-truckload providers that is we work with. But across those 200 to 250 national and regional LTL providers, it is spread fairly proportionate to their representation in the marketplace.

Okay. Then on the pricing side, you made a comment in terms of what you estimated your cost of transportation went up. What the true pricing went up ex-fuel. Do you think your cost of transportation went up at a similar fashion? I know that's a hard number to get to, but how would you view that?

Yes. You don't have the exact data to show this but, yes, our underlying rates to the carrier excluding the impact to fuel if you assume that fuel is a straight pass through. The rate we were paying the carrier went up even faster than the rate to our customers.

And relative to even the second quarter, would it have -- just trying to understand the delta of second quarter to third quarter, would have been a similar type dynamic or would it have been worse?

There was a similar type of dynamic. You can tell by looking at our volume increases are greater than the net revenue increase.

What about on the sourcing side? Is there anything there specifically that drove the type of growth you saw which is above trend line? Anything we should think about moving forward with that segment?

What we highlighted in the release is probably the most relevant; that there is a product mix issue in the sourcing around some of the produce that we source and distributes is fairly straight forward. Bulk product and others are very high value-added, more expensive product that margins can vary on. A lot of the better than historical growth came from margin expansion and mix shifts to higher value-added products.

Is that expected to continue or it depends on the market?

It depends on the market. It depends upon weather and crop yields and customer orders and all the rest of that.

Very good. Thank you.

Your next question comes from the line of Tom Wadewitz with JPMorgan. Please go ahead.

Good afternoon. I wanted to see if you could give some comments on the demand trends. I don't know if I missed this right at the beginning of the call or maybe you didn't comment on it. But your volume numbers in truckload appear like they are still growing quite well, but it seems like there is some deceleration over the last few quarters. We heard from other carriers there was some meaningful slowing in demand at the end of September and early October. I'm just wondering if you are seeing the same thing and if you think it's reasonable to anticipate that your truckload volume growth would need to slow down as we see some weakness in the broader market?

Again, we have had good volume growth throughout this year. That's been relatively flat from a total volume perspective. To predict our volume growth going forward would all depend on how well do we do it taking additional market share.

Are you willing to give us some thoughts within the quarter? Did you see a fall off toward the end of the quarter or not?

Our volume growth was relatively consistent throughout the quarter.

Okay. And in terms of the market, it did seem that there was a considerable tightening in the truckload market in the May and June timeframe, but our sense would have been that maybe the market would have loosened a little bit in third quarter. And that there wasn't a lot of follow through from the June improvement. Did you see any loosening in the truckload market? Or did it -- was it similar in terms of being tight from where you were in the second quarter?

The interesting thing about the second quarter and third quarter sequentially, is that during the second quarter fuel prices were rising and during the third quarter fuel prices were declining. Those fuel surcharges or spot market rate adjustments for fuel made gross prices or absolute prices rise and fall in the second and third quarter which probably for a lot of people, especially a lot of shippers made the market feel like it was getting tighter or more expensive throughout the second quarter and then loosening during the third quarter. We tried to strip out as best we could. As we said in the comments, assuming that fuel is a pass through adjustment, our results would reflect fairly constant across the second and third quarter.

You saw most of the gross margin pressure with fuel, but there was a portion of the gross margin pressure that would have been a little bit of a tighter market. Is that a fair way to view your comments?

Maybe a very small amount of market tightening. One of the things that we put in the release that I think is perhaps indicative of that, as best we can analyze and strip our numbers from the fuel impacts, we put the comment in there on the truck that the pricing was probably up about 3%. We felt that one of the more interesting observations in the quarter is that for this portion of the cycle when freight demand is softer and economic conditions are not that great. It's a little unusual that others in the industry, and we ourselves, are experiencing a little bit of price increase. I think what we talked about last time around and we still belief to be true that what's maybe a little bit unique or interesting about this part of the cycle is it feels like the capacity side, especially on the truckload portion of the industry, has corrected downward fairly quickly and fairly aggressively that maybe the large truckload providers are not holding on to excess capacity through the weaker part of the cycle like they've had in the past. Or maybe that escalating fuel prices simultaneous to the soft market drove capacity out of the market quicker than maybe it has in the past. But the one analytical thing that we think is interesting is that in what appears to be smack in the center of the softening part of the market, there actually was maybe a little bit of price increase.

Okay. The last question I had, then, would be do you have a sense or an outlook for capacity in the market? You think it's tightened a fair bit, but you think there's quite a bit more of that to go? Or do you think you are stable where you're at capacity wise and you wouldn't have concern about further tightening and potential margin squeezed going forward?

No. This entire year, including the third quarter, there has not been by our metrics any periods of lose or tight capacity. It's been relatively balanced from a supply and demand point of view. The point that we've emphasized in the past that we still belief is true, what I was touching on earlier is that we don't have the crystal ball. And no one can really predict what demand is going to be like for the next couple of quarters. One of the most interesting incites that we can share is that what you saw in '04, '05, '06, was significant increases on the truckload side. The fact that prices are holding firm or perhaps even increasing a percent or two during a soft part of the market like this, when demand does return and if demand returns aggressively, all conditions would seem to point that there could be some pretty significant shortages of capacity and/or price increases when demand returns.

Okay. Great. I appreciate the time. Thank you.

Our next question comes from the line of Justin Yagerman with Wachovia Capital Markets.

Just a couple quick questions on the LTL side. When I think about the gross margins there during the quarter, you said that there was little to no compression year-over-year. Is that all because of fuel and how it affects the fuel surcharge within the LTL environment? Or was there something else in terms of the competitive environment in LTL that made it easier for you guys to garner a better gross margin? And when you think about the gross margins in LTL, are they higher or lower than the total in terms of the transportation group?

Gross margins within the LTL services, particularly those where we are tendering to an LTL provider, are much more constant than the truckload side of it because pricing tends to work off of price tariffs or discounts that stay in place for a longer period of time. In a significant amount of the LTL business, margins tends -- for us at least, tends to not fluctuate as greatly as they do on the truckload side of it. Where we are consolidating freight and putting it with a truckload provider, those margins can be much more erratic because obviously if you consolidate very efficiently you can have very high margins. And if you consolidate poorly, you can have very poor margins. There's a little bit of a blending of some more constant margin and some more volatile stuff. But really for us the business from an LTL standpoint, was fairly consistent from a pricing and margin standpoint year-over-year and our net revenue growth was just driven by volume and market share penetration.

Got it. When you were talking about the lag between how you get your prices up to your customer and prices going up for what the carriers are charging you guys, can you talk to that? How long that lag typically is and how that sorts itself out? And maybe why that actually occurs when you've got a transactional exchange going on.

There is a portion of the business that we've always described that is contractual where we are bidding on freight lanes and freight rates for a period of time up to a year where there's prepricing in place and there's a route guide in place. And most often, we are sourcing the capacity on a daily basis. There's a portion of the business that overtime probably averages around half, can be more or less depending upon our customer relationships and how things are fluctuating. But we've got a decent percentage of the business that has precommitted pricing to the shipper where the buy rate to the carrier can adjust up or downward, depending upon market conditions and therefore our markets will fluctuate.

We also have the transactional portion of the business where both our sell rate to the customer and our by rate will fluctuate daily. Those margins can expand or contract, just depending upon overall freight demands and market capacity and conditions. Depending upon the fluid mix of route guide compliance, and exactly how the freight is flowing that mix of contractual and transactional freight can vary. Then the margins within each of those categories can vary a little bit.

If you go back to the customer in a volatile spot market if you end up with a six-month or a year contract, it all of a sudden becomes very hard to deal with.

We do. In most of the contracts, both ways allow for thirty-day notice if the contract is not working out for either side. There is room for renegotiation in some instances. In many instances in soft markets, customers will not have the freight volume that they intended to have in the beginning of the year. There might be contractual rates in place, but the volumes aren't what they were forecasted to be. There's a lot of different variations on what can happen.

Okay. Looking at your -- the doubtful accounts and the provisions that have gone up on a year-over-year basis significantly, when you look at where that's being driven by, is that more on the shipper side or is that more on the carrier side when you're thinking about who is generating more of those provision for the doubtful accounts?

It's primarily on the shipper side, because the only place that carriers owe us money other than for freight planes is in T-Chek's business.

Right. And that's what I was trying to figure out. When you look at the T-Cheks, are you getting a rise in the provision for doubtful accounts there? Is there any read that you guys can take from that or from the rest of your business that gives you a sense of how fast or how much capacity is coming out right now?

We definitely have seen some bankruptcies of the carriers, including Jevic that we mentioned last quarter that T-Chek does business with. We are aggressively managing our receivable portfolio and in many cases, we have put some carriers on pay-up-front. Basically, they have to fund their account before they can use their card.

We don't have a lot of firm data on bankruptcies or carrier turns because it's sometimes challenging. But I would share with you that our transportation leadership team and from those of us who are traveling, our offices. Our perception and belief is that capacity is exiting the market fairly aggressively, that many of the offices that we travel to have talked about capacity that has quit or left the marketplace on the truckload side. Given the comments that I made earlier about pricing and how the capacity side is correcting, it is our sense that in this part of the cycle that truckload capacity is leaving the marketplace, perhaps even more aggressively than they would have at this part of the cycle in the past.

Yes. Lastly, guys, if you think about gross margins and how they have historically reacted to changes in fuel price -- we are at 13% up year-over-year on diesel now. That's contracted considerably from peak spreads on a year-over-year basis. If that continues to trend in the quarter, would you expect that to have a positive impact on gross margins? And how does that magnitude trend when you take a look at the movement of diesel and the gross margin movement?

As far as the margin percentage goes, yes, if fuel comes down, we would expect the margins to expand similarly to the way they contracted when diesel came up. But as far as dollars go, it would fluctuate based on market supply and demand and how well we price.

Okay. Thanks a lot, guys. Appreciate the time.

No problem.

Your next question comes from the line of Ed Wolfe with Wolfe Research.

Good afternoon. I know you've been through this a little bit, but I just want to get at this 3% underlying line haul rate. Is there a component of that that's gross of fuel or is it pretty much net of fuel as you look at it?

That is net of fuel the most accurately that we can adjust out of the rates.

If you say that's something net of fuel if you're an asset based carrier, I would say that was revenue per mile net of fuel. Is that revenue per load net of fuel? How do you think about that?

That's per mile.

Can you talk about throughout the quarter, how that trend moved or did it stay pretty much firm throughout? Because the public asset guys are all seeing since July their mile net of fuel flattening out quite a bit.

No, it was -- I'm just looking for the monthly numbers. It was pretty consistent as far as the growth goes.

Can you give us --

It fell -- well, that's because fuel fell off. I was looking at the wrong column. The net of fuel was very consistent through the quarter as far as growth over last year's rates.

How about the 9% volume growth? How did that look July through September?

We've already answered that one, it was relatively consistent.

And one of the things that maybe makes us a little bit unique from some of the asset providers is that we have a wide variety of mix issues. The rate per mile and some of the pricing stuff, we are aggregating a whole bunch of spread out activity here. When we are looking at our rate per mile and revenue per mile, there could be head haul, back haul, east, west, long haul, short haul, various type variances in there that maybe would be a little bit different than an asset provider who tends to run a little more consistently.

I'm interested in your thoughts because what we've heard pretty consistently is that as fuel came down, carriers came back in. Also we are seeing it on gains on sales which have been better, we started to see trucks move again. They stopped moving in June. In the last couple of months everybody is reporting more gains on sales and that some trucks are being sold as more people come in. You are just not seeing that? Are you seeing that in your carrier base?

Our capacity metrics aren't that real time and that could very well be true, but we wouldn't get great exposure to -- we still continue to sign up hundreds of new carriers during the quarter. There could certainly -- and we would certainly validate that there were many new carriers that started doing business in the third quarter. But we also know that there are a lot of them who quit during the quarter as well, too.

Are you aggressively trying to grow the volume right now? Is that something that's a little different than past sectors? Is the opportunity because some of the big asset-based guys have been reducing their fleets for you to go get it? Could that be impacting this, too?

I would like to believe that we are always trying to aggressive grow our volume. What might be a little bit different is that we think we are continuing to do that this year where maybe others haven't continued to do it as aggressively. Maybe our focus in the marketplace is a little bit different that way. But you've spent enough time with us to know, Ed, is that sales and sales training and relationship building and marketplaces presence is part of our core competency that we really try to emphasize and bring to it. As we shared in previous quarters, despite a slower economic environment, we've tried not to back off of that.

Sure. Given what you know right now that the economy is weakening. Capacity seems to be coming out. Fuel, let's say -- Justin was on to something when he said, last week we are only up 13%. At the rate we're going, fuel is going to be flat. And in three or four weeks, it's going to be down year-over-year. If you had flat fuel in the next couple of quarters in this environment, would you expect gross yields to be flat year-over-year or still depressed a bit?

That would be very difficult to predict exactly how they would react. It will depend on those other factors that I talked about before with Justin.

When you say gross yields, the difference between our gross and net revenue growth -- obviously, if fuel is comparable and pricing is comparable, they would be the same. But we think of it is as growing our volume and growing our net revenue. Whether fuel continues to flatten out or go back up, the way we manage our business that wouldn't be a big factor in terms of targeting our growth rate and our margin and earnings expansion.

I understand it just happens, but yet you've been through it so you might have a sense. Your sense is that we have to see all these different factors basically?

Yes.

If I look at your ocean obviously, there's an acquisition but even backing that out, it's tremendous growth as you reported in net revenue. We've seen where ocean pricing is just falling out of bed. Is this a case where you are seeing margin expansion on the ocean where the gross isn't as big as the net growth. Is that fair to say?.

Yes.

On the SG&A line, Chad, when year-over-year do you expect to grow into some of the rent issues and other things and start to see SG&A as a percent of revenue just year-over-year flatten out or start to improve? Is that an'09 event at some point?

If you just look at the fourth quarter of '07, total SG&A including depreciation and amortization was $45 million where it's only up $40.8 million for the third quarter of 2007. The comparisons are going to start to get easier. We did move into this building halfway through the quarter so that variance will go away starting in '09. And, yes, we did move a bunch of our bigger offices during this time period. The occupancy line in particular should stop being such a big variance once we lap it.

It sounds like you could get back to improvement in this line at some point in '09, give or take what happens with revenue?

And the provision for bad debts is a significant item in there, too. That's probably the most difficult to predict.

That's fair enough. You mentioned in your remarks that you try not to time the market on stock repurchases. Yet you did a record number for you guys in a quarter when your valuation has been the lowest it's been in sometime. You did say something about when it's beyond valuation parameters. Is that a fair assumption that some of that is intentional and if the stock stays down here, that's a good use of cash going forward? It's safe to assume that as the price came down, we did by a few more shares in the third quarter. As far as what we are going to do in the fourth quarter that's an ongoing conversation that John and I have with the Board so we are not committing to what we will do during this quarter.

I would add to that, Ed, that within a range of what we preestablished with our Board, we probably moved a little bit more to the aggressive end of the range but we have not yet agreed with our Board on a broadly different strategy. But certainly with the price trading where it is, it's provoking a lot of discussions around whether that's appropriate or not.

Thanks for the time. I appreciate it.

Your next question comes from the line of Nate Brochmann with William Blair & Company.

Good afternoon, Chad, John and Angie. Last quarter, John, you were talking about, hey, we are not going to look at one quarter in terms of our investment spending whether it be in people or branches, et cetera. Clearly we've moved to a slower growth outlook now. How do you think about those investments now going forward?

I still feel like there is as much opportunity as challenge for us in the marketplace and we are going to continue to add people. We are adding them every day and we are going to continue to open offices. We opened another three during the quarter and are we continue to look for acquisition opportunities. I'd like to believe that relative to others in the industry that we are going to try to take advantage of the softness by expanding our network and selling and pushing as much as we can. That message is still very much true.

The balance to that that I tried to emphasize in my prepared comments is that when we know freight demands is very high and relatively high growth is much more like to the occur, we will give a lot more leeway in the productivity metrics and the hiring backlogs and the things like that that we've established over time. When things get a little bit slower, we'll reign those in and tighten them up a little bit and that's clearly the way our branch supervisors are behaving today. It's not like we are ignoring the current environment and just executing blindly to the fact that things are going to be a little bit slower, but we certainly have continued growth expectations despite the environment.

Great. Thank you very much.

Next question comes from the line of John Barnes with BB&T Capital Markets.

Following up on Ed's comment, do you have an exact share buy-back number from Q3 and an average price?

Yes, it was in the prepared remarks.

I'm sorry.

It was 1.07 million shares at an average price of $51.10.

I apologize, I must have missed that. And another thing, I know you touched on it in your opening comments about the Transera acquisition and the ocean. Going forward, is this $17 million, $18 million of gross profit a good run rate to look at or should we see -- is that only two months of the quarter or can you add some color there?

That is only two months of the acquisition. It could be -- a comparable number if we would have had them for the whole quarter, it would have been higher than the $17 million.

Okay.

They are a relatively smaller percentage of the total and they were in there for two months, so you'd have to do the math to figure it out. We are still learning about the seasonality or any fluctuations in their business as we integrate them in. I don't think it would be a substantially different number.

Okay. That makes sense. The rest of my questions have been answered. Thanks for the time.

Thank you. Your next question comes from the line of Ken Hoexter with Merrill Lynch.

Hey, Chad, when you talk about the increase in the doubtful accounts, just want to make sure I understand that right. Just looking at the accounts receivable jumping $200 million since the end of the year. When you talk about doubtful accounts, you're talking about what percent of that increase that you believe you've accurately reserved for or I'm just wondering why the AR is jumping up just so fast?

The main reason why AR is jumping up so fast is because the price of fuel and gross revenues have jumped up so much. When you talk about provision for doubtful accounts that's basically the accounting term for how much bad debt either did you experience during the quarter or additions to the reserve for allowance for doubtful accounts you thought you needed to make to have adequate reserves.

Okay. When you talk about Jevic a couple of months ago -- also Great Wide, another large truckload carrier just declared bankruptcy. Any exposure there?

No. Jevic was a T-Chek customer and that's what created the receivable exposure for us. I don't believe Great Wide is a T-Chek customer so if any relationship with them, we would probably owe them money for providing capacity to us. No exposure that I'm aware of.

You talked in great detail on the trucking environment and some questions on ocean. I don't think you've hit on the intermodal side which also jumped up and you highlighted the volume growth. Is there anything that's driving that level of growth?

We've made a lot of -- we've put a lot of effort internally over the last couple of years to really improving our operating system and procedures and put a lot of people investments in there. And I feel like we've been talking fairly positively for the last couple of years about our service levels, our capabilities, knowing that intermodal for many customers is becoming a more viable alternative with fuel prices and all of that. We've felt good about it for awhile, but it hasn't really translated into net revenue increases because of margin compression from the elimination of rail incentives, from the shift in capacity providers in certain lanes.

We've had some capacity sourcing and margin pressure type things where our volume growth and our service improvements haven't really translated into net revenue growth. We hope now that we are beyond those comparisons and feel like hopefully going forward that we'll be better positioned for some net revenue growth to come with our volume and service increases.

Okay. Great. Just to clarify if I can. I think you mentioned before that with the bankruptcies that you're seeing out there you are also signing up, I believe you said a couple hundred carriers in the quarter. Are you working as fast to sign up new counter parties as you are seeing inactive truckload carriers out there?

Yes. John should have said we signed up thousands of carriers during the quarter because it's right around -- it's a little bit less than 1,000 a month. And it's really hard for us to know -- we know when we add a new carrier but we don't know when a carrier goes away. Just because they don't haul for us during a month doesn't mean they are not an active carrier any more.

We drop them as an active carrier if they haven't hauled for us in a year and then we sign up the new carriers as they come. As I mentioned earlier, our carrier statistics around turn aren't real time. They just get cleansed over time. As far as how many new entrants came to the market versus how many left during something like the third quarter, we don't get real good visibility to that.

I take it you -- do you seen when you sign up the carrier, the size or scale of that carrier when you're looking at insurance because you are not doing it truck by truck, I take it, you do it by carrier?

We do it by carrier, yes, by operating authority. When we do sign up a new carrier, we do log how many new trucks they have. Most of the new carriers are pretty small.

Is this level of sign ups fairly consistent of these newer carriers?

It's down a little bit in the last year or 18 months but, yes, there is a relatively consistent level of new carrier sign ups.

Then I'm sorry, just to clarify one other thing you said. Did you say you were still about half transactional, half spot? Is that down from -- I thought had you gotten up to about 80%, 90% maybe only a couple of quarters ago?

No, I don't think we've ever been estimating that far either way. But we always get asked to try to estimate what the percentages are between where there's a price commitment and where it's transactional. And those volumes will fluctuate depending upon how loads are tendered each day and what route guide compliance looks like. It will fluctuate back and forth with no real firm definition around exactly what constitutes contractual versus transactional. No, I don't think we've ever been 80% or 90% either way.

During 2004, 2005, 2006 when prices were rising rapidly and route guide compliance was very low, we were saying at that point in time that the marketplaces was very transactional. There were very high percentages of the freight that was being priced daily because all of the precommitted pricing that was the in place was becoming obsolete pretty fast. During this period of time where the market is fairly soft or balanced, a much higher percentage of the freight will be moving on preestablished rates and bid packages. A higher percentage of it today would be contractual. But again, there's no firm definition or measurement around exactly what percent that would be.

But you said it's more --- it would be established rates. But if a carrier is not meeting some of its volume commitments, you mentioned before you can go back in and start renegotiating that price level. If maybe you were giving too good of a price relative to a higher volume commitment and they're clearly are not meeting those now.

On truckload business, we make very little rate commitments or volume commitments to a carrier. In general talking about that, that was on the customer side. Almost all of our truckload capacity is hired on a spot basis.

I know it's hired on a spot basis. I'm just wondering what rates they are tendering to you at.

That is negotiated on a load-by-load basis. Very often it will be same price at last time and the answer will be yes, but they are not committed rates like they are with the customer except for about -- I think it's like 3% or 4% of our capacity.

All right. Great. Thanks for clarifying.

Your next question comes from the line of David Campbell with Thompson, Davis and Company.

Thank you very much. Good afternoon. I want to do try to understand on the Transera contribution of your revenues. If I did it right, it's $1.3 million of net revenues and largely in ocean and some in air as well. On an annual rate, that's about $7.2 million, if that number is right. And you had -- when you announced the acquisition, you said Transera had $125 million of gross revenue. Trying to figure out if that's -- if there's some net revenues in the truckload business or is it not? Or is it just low gross margins?

I think you actually made some mistakes in your calculations.

And there are net revenues on the truckload side as well, too, because in the project-based business there will be international and domestic components of the shipments that they are working with.

Okay. I will go back and check my numbers. Thank you.

The next question comes from the line of Mike Hamilton with RBC Capital Markets.

Good afternoon.

Good afternoon.

Wondering if you could comment if you're seeing anything changing in acquisition potential out there in the current environment.

No real significant changes. Obviously as the credit markets have dried up, everybody expects that the transactions would happen at lower relative prices. There have not been many significant acquisitions in our space. And the small ones are less susceptible to what's going on in those markets, because the venture capital funds were never going after the small acquisitions which most of ours have been. Also the better --, in this type of environment, there's not a lot of sizeable, well run things that are for sale because everybody knows it's probably about the worst time there has been lately to sell a company.

Fair enough. My other question if we can come back lately to the transactional issue. Are you seeing any changes out of the buyers of your service in terms of how they are trying to position contracts that's worth noting?

Obviously, I'd say probably the number one topic this year has been focus on fuel and fuel surcharge formulas and how they work and how often they adjust. There are literally hundreds of different ways that you can calculate them and frequency of adjustment. And in the price negotiations and the purchases of services, that's probably been the lead topic of -- because of the volatility of fuel during the year and the significance to the outcome. In terms of beyond that, the basic price negotiations and bidding of the services, in the freight world the customers have always had the luxury of them being the one to say decide when and how often they put things out to bid. Obviously when rates are declining, it's more advantages for a shipper to bid their freight more frequently than to try to take advantage. Then when rates start to escalate, you'll see fewer bid opportunities as they try to hold on to those committed prices for as long as possible.

A year ago we were talking about a lot of increases and the frequency of bids and bid opportunities. Throughout this year, you will probably see a little bit of tapering off of the volume of RFPs and bid requests in the marketplace as people probably feel like they've adjusted downward to some of the softness as well as they can. But I would say that's probably the best description of the overall marketplace and bid scenarios.

Then finally for Chad. Beyond the obvious heartburn with all of the stresses financially on some of your buyers of services, is there anything that you're changing in terms of how you're approaching some of the retailing in other world where there's a little more stress than there's been in recent years?

I would say we are managing our credit limits to certain customers a lot more aggressively than we have in the past. We do get continuous updates from Dun & Bradstreet and other sources, and we are a little more skittish right now about it being aggressive on the credit limit side. We are definitely managing it more aggressively than we have in the past.

Thanks for your help everyone.

Thank you. Next question comes from the line of [Joel Ridgey] with Goldman Sachs. Please go ahead.

Hey, everyone. Good afternoon. Thanks for taking my question. First question I had was on the LTL business. Can you remind me again what percentage mix of your truck business is LTL versus truckload?

It's around 12% or 13% right now LTL for the quarter.

And that trend I'm assuming has been growing over time because you exhibited pretty strong growth rates this past quarter. Is that right?

Yes. We've been saying for a long time it's around 10%, but especially this year it's been growing faster than truck. Yes. It's ratcheted up from 10% a year and a half ago to probably 13% -- 12% to 13% now.

Okay. Great. And can you talk a little bit about what you're seeing in that industry specifically? Is it the problems that some of the larger national LTL carriers are having or are you seeing industry-wide both regional and national players using your services?

I think there's a whole bunch of contributing factors to the growth. We've certainly put more emphasis on training and operational execution on it internally just to make it more a part of the mix. When you look at capacity side of it, we've put a lot of effort into building and automating relationships with the various capacity providers so that we could do a better job of representing them and selling there services in the marketplace. It's a combination of us pushing harder on both sides.

And then the fact that there is a lot of transition in the marketplace, a lot of new entrants who are aggressively bringing capacity. It's more challenging for an LTL network to try to adjust capacity downward in a softer market like this. They are probably more inclined to give great price discounts or reduce pricing a little bit more than the truckload providers might have at this point. You put it all together and we continue to find a lot of opportunity to sell and execute in the LTL category the last couple of years.

Okay. Great. That's good color. The second point I want to touch on was it seems like you have been increasing your market share. You mentioned earlier that you have been increasing your market share in all of your offerings. Yet one of the big push backs I get from investors is that a lot of the truck load carriers that have started up brokerage operations. I wanted you to potentially talk about the resiliency of your business model and talk about how the competitor dynamic has maybe changed, because the truck load carriers have entered the space.

I think that's a very fair question. The way we think about it is that there is two big dynamics going on that probably offset each other a little bit and how we fair in the mix of those will be a determinant in our success. If you go back five to ten years ago, I think there was a lot more skepticism and hesitancy with a lot of shippers around using a third party or broker for a major portion of their transportation needs. If you look at industry data, the best that we can find and the best that we can estimate, we believe that more and more of the truckload industry is being handled through some third party logistics brokerage type business model.

When you look at the universe of truckload activity, we think what we and our business model represent is taking share from a traditional truckload relationship out there. At the same time, there is no question that there are more competitors or at least more large public companies who have declared the intent to be a competitor in it. Even many of them have been very vocal about converting existing truckload capacity to brokerage services that they are going to offer in terms of the truckload capacity, validating the broader market transition as well as declaring their participation in it. The way that we think about it is that more of the market looks and smells like us, but we have a lot more competitors within our space.

While there is more competition and we know that we have to be faster, better, smarter and continue to grow the network, we also think that there is as much opportunity as ever because the marketplace is much more receptive to a third party model.

Great. One follow up to that. It doesn't -- in this type of environment, what should be -- what looks to be a potentially tough environment over the next three to six months and potentially longer, it doesn't sound like the pie is going to grow much, but you are going to continue to gain share. Maybe you can talk a little bit about what it is that's going to enable you to do that.

The thing that we start with is that the transportation logistics and truckload industry's are very, very large. Probably on the broadest definition of logistics of all transportation modes and warehousing and admin and all that, it's somewhere over $1 trillion. In our largest revenue category, the truckload services I think a lot of the analysts estimate it at about a $400 billion market or something like that. Even though we are proud of our size and if we end up around $5 billion or $6 billion of revenues in truckloads this year, it represents somewhere maybe around 2% -- 1% to 2% of the market share that's out there.

If that $400 billion number is growing and there's a lot of demand that wasn't planned for and a lot of incremental opportunity in the marketplace, we think we get a disproportionate amount of that growth and opportunity to grow our business. And when the market is not growing or contracting, we are left with the only opportunity to really take share and get a greater slice of the pie. But when you've got say 2% of the market and it's a big market like a $3 billion to $400 billion market, our attitude is that if we are bringing a better solution and have better people and better processes and are out aggressively selling that the fact that the pie may be staying the same or shrinking shouldn't be an excuse for us not to try to grow our business.

That's the cultural attitude that we have. We know we can't grow as fast as when things are expanding, but we are going to sell, build relationships and just try to take share.

Great. Thanks, guys.

Your next question comes from the line of Chris [Russell with Credit Suisse.

Thanks. Good evening. One last quick one on fuel. I know you can't pick where it's going to go, but what's the best environment for you? Would you rather have fuel higher than it is who here, lower or do you just care that it's stable? What works out the best for you in terms of business levels and margins?

We are probably fairly neutral to it. I think when it rose very rapidly, it added a lot of tension for everybody because the absolute costs were higher. Nobody knew if their surcharges were adjusting appropriately or adequately and it caused a lot of strain between head haul and back haul relationships that had been to be adjusted for. We are neutral to it with the acknowledgement that when there's real abrupt movements, especially really abrupt increases, that's probably not good for anybody, including us.

Thank you very much.

Our final question comes from the line of Donald Broughton with Avondale Partners.

Good afternoon, gentlemen. Just want to do ask real quick a little nuance. You're saying you're continuing to recruit more trucking companies. That's something that's certainly been true for a number of years. When you say new trucking companies, these are trucking companies that are new to you, these aren't new trucking companies as in just entering the industry, are they?

It can be both. Many of them are new. Part of the challenge that makes tracking the metrics on it interesting is a lot of the new trucking companies will be new operating authority, but perhaps that driver has been driving for a long period of time with somebody else or under a different operating authority. They've just ceased to do business and re-established and that makes tracking a lot of things like history and safety records and all the rest of that interesting. We have a group of people who monitor that. But there are some carriers that have been around for a long time who we have never done business with us. There are many of them who are brand new registrants as well.

You don't have any idea how that percentage breaks out?

I do not.

Thank you.

Thank you for participating in our third quarter 2008 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 buy dialing (800) 405-2236 and entering the passcode 11119775 pound. The replay will be available at approximately 7:00 P.M. Eastern time today. If you have additional questions, please feel free to call me, Angie Freeman, at (952) 937-7847. Thank you. Thank you, ladies and gentlemen. That will conclude today's teleconference. We do think you again for your participation and at this time, you may disconnect