羅賓遜全球物流 (CHRW) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the C.H. Robinson fourth quarter 2008 conference call. At this time, all participants are in a listen-only mode. Following the presentation, instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Tuesday, January 27 of 2009.

I would now like to turn the conference over to Angie Freeman, C.H. Robinson's Vice President 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 the highlights of our fourth quarter and full year performance, and we will follow that with a question-and-answer session.

I would like to remind you that comments made by John, Chad or others representing C.H. Robinson may contain forward-looking statements, which are subject to risk and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations.

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

Thank you, Angie, and thanks to everybody who's taking the time to listen into our fourth quarter call.

About an hour ago, we issued our press release that shares the fourth quarter and annual results for 2008. I'm going to start by highlighting just a couple of the key financial results on that release.

For the fourth quarter ended December 31, 2008, our gross revenues were essentially flat at $1.9 billion. Our net revenues increased 6.6% to $344 million; income from operations was up 7.2% to $142 million. Net income increased 4.3% to $89 million, and fully diluted EPS increased 6.1% to $0.52 per share.

Our year-to-date results for the 12 months ended 12/31/2008 -- gross revenue increased 17.3% to $8.6 billion. Our net revenues increased 10.5% to $1.4 billion. Income from operations was up 12.1% to $572 million. Net income increased 10.8% to $359 million, and fully diluted EPS increased 11.8% to $2.08 per share.

In addition to these high-level financial results, our press release gives more details and growth percentages by the various service offerings, so I won't cover those now. As Angie said, consistent with the past, myself and Chad are going to share a few prepared comments on certain things that we think are good to understand, and then we'll open up the lines for questions.

In terms of prepared comments, overall, I would start by stating that we feel pretty good about our fourth quarter of 2008 and the year. As we all know the economic environment was not real good this year and the fourth quarter was particularly weak. We were able to grow each quarter and had double-digit earnings growth for the year. So overall, we consider 2008 another successful year for C.H. Robinson, the employees and the shareholders.

While we feel the year was pretty good, one of the most important growth metrics that we track, volume growth in our North American truckload services slowed throughout the year and declined by 4% during the fourth quarter of 2008. So while we feel pretty good about the quarter and the year looking back, we do know that 2009 is starting off with plenty of challenge for growth. I'll come back to more thoughts on the outlook later, but staying on 2008 for now, there's a few more thoughts that I'd like to share.

The first one is the notion that diversifying our service offerings is working. Looking at the 2008 results, we think that our overall strategy of diversifying our service offerings continues to be the right thing to do to better serve our customers and provide balanced long-term growth opportunities.

So what do I mean by that? A couple of examples include continued success in growing our less-than-truckload and intermodal businesses. We work hard to try to broaden the offerings that we have with our customer and carrier relationships, and we know that many times truckload, less-than-truckload, and intermodal offerings are all interrelated in terms of what a customer may be looking for or when one might be more appropriate than the other.

So, we continue to see some good growth by cross-selling and expanding these revenue sources, and we think when you look at 2008, our strategy of diversifying our services continues to work.

Another example would be building out the forwarding network. During 2008, we had good growth in both our ocean and air in net revenues. We're excited about the additions to our international network and that we've been able to grow many of those customer relationships, both from acquisitions and organic growth with new customers.

I could go on with other examples about -- within sourcing, how we're expanding our value-added services and really diversifying the things that we do for those sourcing customers. Transportation management and fee-based services is another example of where we're working hard to expand and diversify what we do.

So when we look across things, one of our observations for 2008 is that, as customers continue to look at transportation and supply chain on a broader basis, we need to continue to evolve our services, and we feel good about the success we've had thus far along those lines. You'll continue to see us emphasize a broader service offering and continue to invest in more modes and services as we go forward.

Second theme or point that I'd like to make is that we really believe our overall business model and financial position remains strong. As we all live through the recession and financial crisis, our balance sheet remains debt-free and we continue to focus on people, process, technology and relationships.

The decline in fuel prices during 2008, the second part of it, and volumes during the fourth quarter had the positive impact to us of shrinking some of the working capital requirements needed for growth at the end of the year. While we'd rather have stronger growth, our balance sheet at year-end is as strong as ever, and our financial strength is an asset for us in uncertain times.

We are talking about the longevity and financial durability of Robinson in all of our relationships today, and we feel that it's a very important asset for us that we can continue to use in the marketplace.

So we have a longer-term growth strategy of diversifying and integrating services that we think is working. We also have a business model and financial platform that is as strong as ever and we believe in. The other ingredient that's critical to our success is the capable team of people that we have. Our personnel metrics around the people and the talent pool are as strong as ever.

And our business is pretty simple in some respects, but the work ethic, talent, creativity and drive to be successful by our people is at the core of it. That's a simple statement, but one that we really try to stay focused on, especially when times get challenging, like they are now.

So, so far, I've talked about some of the reasons why we feel good about 2008 and why they're the foundation for our long-term success. I want to turn back a little bit, kind of more to the current environment, the recession, weak economy, how it's affecting us, and our outlook thoughts.

So the most obvious impact to Robinson from the weak economy is the significant drop in freight demand and shipment volumes. Our growth rate in truckload volumes declined each quarter in 2008, ending down 4% in the fourth quarter. We've discussed many times in the past that while pricing and margins have fluctuated and will likely continue to, that the volume growth is the foundation of the long-term plan. So we pride ourselves in our ability to build relationships and grow those volumes by providing better service, better costs, better solutions.

We know that the overall market demand in the fourth quarter was very weak. It's too soon to know exactly how we compared to the rest of the market in the fourth quarter, but we do believe that the overall drop in market demand was the primary reason for our decline in volumes.

Additional things that we've talked about that may apply to us or may apply to us differently than it would to others is that we believe in the fourth quarter, there was a very high route guide compliance -- which means that there was little or no transactional or unplanned freight opportunities in the marketplace that we do like to use to serve our customers.

There was a lack of any sort of peak shipping season or quarter-end surge. And we also know that there were significant manufacturing plant shutdowns at year-end, eliminating a lot of the volumes. All of those are intertwined factors as to the fourth quarter freight demand and may have impacted us in differing ways.

The drop in volumes in our largest source of revenue was our primary disappointment for 2008. While we're able to offset some of the lost volume with margin expansion and growth in other modes, we do need to grow our volumes longer-term to reach our long-term goals and to continue to grow at our target of 15%. The very weak demand in the truckload and decline in our volumes is carried into January of 2009. While it's still obviously very early in the year, that's the primary reason for our cautious outlook.

I want to talk briefly about our people and our variable costs business model. We've discussed many times before in these calls that people are our main asset, and managing things like the culture, staffing levels, financial incentives are one of the primary challenges at Robinson. I think it's important to talk about how we're managing our people and personnel costs through the recession.

We noted in our press release that fourth quarter of 2008, personnel costs grew at 3%, while the net revenue grew at 6%. Our total employees at the end of 2008 of 7,961 was down slightly from the end of the third quarter of 2008, and represents about an 8% increase of total employees from the beginning of 2008.

We pride ourselves in adapting to the market conditions and having variable compensation plans that have us sharing proportionally in the Company's success. We think those plans worked well during 2008, and you see that in the results.

While we will certainly be managing and executing the same way during 2009, a prolonged environment of weak demand is the most challenging for us to manage through. Our model thrives on the growth, the new talent and new relationships. The offsets to the growth of margin expansion and contraction of our variable compensation plans are helpful in the short-term cycles, but they get more challenging as comparisons lap.

While we feel great about the strength and depth of the team and the continued effectiveness of the business model and compensation plans, we believe the beginning of 2009 will be very challenging for growth of our net revenues and earnings.

So to sum up my comments before I turn it over to Chad, we're happy with our 2008 results. Our growth strategy of expanding services and building a global network is working. Our balance sheet and financial foundation is very sound. Our core asset remains the team of people, which we think is in very good shape.

The current market demand for freight is extremely weak. 2008 ended and 2009 is beginning with very low demand in the marketplace. That's probably not a great surprise to many, given the overall economic news and data over the past few months. We think we're as prepared as possible to manage through this recession, and we feel very good about our longer-term outlook, and are positioning for growth when the freight demand returns and the economy strengthens.

With that, I'll turn it over to Chad for some additional prepared comments.

Thanks, John. I'm going to give some comments on our balance sheet, operating expenses, capital expenditures, and share repurchase activity.

Starting with the balance sheet. Accounts Receivable is our biggest assets. Most of these receivable have 30-day terms. We don't extend any long-term credit to any of our customers. The receivables turn quickly, and because of this, we tend to find out about problems relatively quickly.

We are being as proactive as ever in managing those receivables, and will continue to monitor the financial strength of our customer base and make adjustments to their terms and limits, if the situation warrants it, on a case-by-case basis.

We did continue to see significant increase in our provision for doubtful accounts during the quarter. Our total provision was $4.3 million for the quarter and $14.3 million for the year. Both of these are more than double of what 2008 was.

The primary driver of this is we did have a higher level of customer-specific issues than we typically experience. It is very difficult for us to predict what other accounts will have issues in the future, but we do feel comfortable with our current level of reserves.

As John mentioned, we did have an extremely strong cash flow quarter. Our cash and investment balance increased to approximately $500 million at the end of the year. We continue to invest our cash with a focus on principal preservation rather than maximizing yields.

Our current interest-bearing cash and investments are split primarily between municipal money markets and treasury money market funds. Our investment income is down significantly compared to last year, primarily due to the changes in the overall market yields on high-quality, short-term investments.

Our non-cash working capital, primarily made up of our Accounts Receivable and Accounts Payable, decreased significantly from the end of the third quarter. This decrease in working capital accelerated during the quarter and was a result of falling fuel prices, which led to lower rates to our customers, as well as a fall-off in volumes, especially during the end of the year in our biggest revenue source of North American Truck.

Moving on to our capital expenditures. Our net capital expenditures for the fourth quarter were $7.6 million, which included approximately $3.9 million related to our new data center. We expect to have expenditures related to the data center of approximately $12 million in the first half of 2009. We expect the total capital expenditures, including those of the data center, to be approximately $37 million for 2009.

During the fourth quarter, we repurchased a little bit over 1 million shares at an average price of $50.21. As we have discussed in the past, we take a very long-term focus on our share repurchase activity, and have used it as a variable way to return excess capital to our shareholders. We will continue to assess our cash position, share repurchase levels, while we consider other possible uses of cash and other market conditions.

That concludes our prepared comments and we will now turn it over for questions.

Thank you, Mr. Lindbloom. (Operator Instructions). Justin Yagerman, Wachovia Capital Markets.

I guess digging in, you were talking about headcount for a bit, and it's down slightly sequentially and obviously still up year-over-year. Is the implication there that that's one -- I mean, obviously margin expansion, variable comp, are ways that you can have stop-gap measures to offset some of the deterioration in the environment, if it continues. But how do you manage headcount versus what you're seeing in the economy and leave yourself enough room? How fast do you move on that, if you continue to see an environment like you were seeing in December and now in January?

Okay, well, I guess it starts with two kind of premises. One that, with our 220 locations, we do manage the headcount and the personnel relationships in a fairly decentralized manner, because we, at all times, do have variances across modes and services, and in each of the different regions where growth may be occurring.

So in any environment, we're typically adding people in some areas and subtracting in others. So we'll continue to manage it and oversee it on a decentralized basis, and make sure that the network is adjusting in all locations to whatever the demand would be.

So, as I think we've talked before, we think of it as kind of from a supervisory standpoint to make sure that we're adjusting and adhering to the metrics in all of the different markets, and that the overall outcome becomes a combination of what happens in each of those locations.

We also believe that we have a higher degree of variable compensation components in our model than most companies. So we know that we have a fair amount of flexibility as to how compensation and incentives will adjust automatically, based upon the level of activity.

If, in a normal year, in normal circumstances or really in all years, we have a certain amount of voluntary attrition or performance-based attrition. And typically, what we'll do is just not replace turnover from those two sources. And historically, that has always been adequate to allow us to contract where we need to.

And that's the mode we're in today -- is very reluctant and not really replacing any voluntary or performance-based turnover attrition. And we'll just monitor it as we go and make sure that that stays adequate to adjust.

That's fair and sounds like a good strategy there. When I go back in my model and I look at time periods historically -- and there are very few when you guys have seen gross profits decline on a year-over-year basis in the truck division -- I've got to go back to, I think, the first half of 2002.

Can you refresh our memory as to what was going on at that point and what was driving that decline? If you have any corollary between that environment and this environment, that you'd be able to extrapolate or how you might see those two environments as different and why maybe it wouldn't be proper to compare the two?

I would say what's probably most analogous about all the declining periods, including 2001, 2002, is that when volume starts to soften, for a period of time, we'll see less growth in the volume and some expansion of margin. So I don't know exactly what period we might be comparing to or looking, but I know in 2001, 2002, we had some very low, modest net revenue trucking growth quarters where volumes were close to flat and margins were improving a little bit.

And that would essentially be what was happening during a lot of 2008, is that our volume growth was slowing and margins were expanding. What probably feels a little bit unique this time around, I guess, is that the time period is kind of extending. And after a year or more of declining volumes and expanding margins, the year ending with a pretty significant decline in freight demand in the marketplace sort of accentuating some of those.

And again, the foundation of our caution is who knows what 2009 is going to look like? But if we continue to see softening in the demand and we're getting deeper into a soft demand cycle, the opportunity for margin expansion goes away from a comparison standpoint and it gets tougher and tougher. So, probably very similar until maybe the very end of 2008, where it starts to feel a little bit different.

When I think about the LTL business, which you guys have been growing, how big a piece of truck is that or was that in the fourth quarter or maybe in 2008, if you have that?

And how much room do you see for that to grow? And has that been a more profitable piece of business for you in this environment, maybe because of how much slacking capacity there is in LTL that you may be able to exploit in this environment?

Historically, it's been around 10%, going back a couple of years as it's grown faster than the truck mode -- Chad is showing me it's between 12% and 13% now of the truck category. So it's inched up a little bit over the last couple of years, as it's done well.

I think maybe we've articulated before that we think there's kind of a handful of reasons that go together as to why we're doing better in LTL. Clearly, we've had a point of emphasis on it the last five to 10 years, like I talked in my prepared comments, that we're putting much more effort and energy into it, into the system's capabilities, into the carrier relationships, into our routing models and all the rest of that, to try to do more with it.

I also believe that in the short-term, with all of the challenge and disarray in the marketplace, there are wide variances in pricing and opportunities in the marketplace combined with a lot of uncertainty as to the different types of providers and what might make the most sense. So I think our fundamental premise that we can bring our expertise and our systems in, and help a shipper kind of sort through what might be a good long-term solution with more flexibility on how to handle it, is just selling well today. So, you put all that together and it's worked well for us.

Okay. And I guess last before I turn it over to someone else, when I look at SG&A, it's definitely been creeping up some. And I guess with doubtful accounts going up, that explains a bit of it. But is some of that an additional cost in terms of going out and trying to drum up the business that's out there?

And I guess how would you think about that in terms of, if we are going into more of a prolonged, down environment, does that business spend get curtailed as well? Do we have more leverage on that line than maybe we've been seeing in the back half of this year?

I would -- well, the biggest variance in our non-personnel operating expenses is the credit and finance or the provision for doubtful accounts that we've talked about, all year long as it's -- the increase is being driven primarily based on customer's specific issues within our customer portfolio.

We've also, over the year, commented on growth in occupancy. A big part of that is we did have -- for most of the year, we had about 20% more square feet than we did in 2007. Part of that started to anniversary itself because a big portion of that increase was our new North American headquarters, which we had half of -- for half the quarter of 2007.

So the growth in that particular line item has slowed down a little bit. But you're right, our people did remain very active in the marketplace, which I think, in the long-term, will pay us dividends and will continue to pay us dividends. But my guess is some of those other operating expenses, we would sure hope that the growth on things like credit and finance and -- or the bad debt provision and occupancy would slow during 2009.

Okay. I appreciate the time, guys. Thank you very much.

Alex Brand, Stephens, Inc.

This is actually George Pickral for Alex. Chad, real quick, I'm sorry I missed it -- what was the Q4 doubtful account number?

It was -- for the quarter, $4.3 million.

Okay, thank you. Let's see -- you mentioned in the press release that your gross profit per business day declined in December. Is there any way you could give us the -- I guess how much it increased in October and November, and then how much it declined in December?

Sure. The comment was specifically about North American Truck -- truckload, I should say, to be more clear. And on a per-business day basis, we were down about 4% in net revenue in December.

And how about October and November?

They were both slight increases, in the 4% to 5% range of growth.

One thing that we've talked before that when we look at our growth metrics, one way is per-month and per-quarter; the other is per-business day. There was a pretty significant fluctuation of business days in the quarter when you compare months.

So, for instance, December had two more business days this year than last year. And when we break it down, you start to get into peak season, quarter-end, how many business days were there, where did the holidays fall -- it gets a little challenging to decide what's the most reliable metric to know exactly what the trends are. So just be cautious that that's one per-business day metric that may or may not be the most revealing, in terms of the growth trends.

Okay, thank you for that. Moving over to your intermodal sector, volumes were impressive there. Is there any way to quantify how much of that volume growth was due to brokerage customers or existing customers switching over to intermodal from brokerage?

It's difficult to be precise, but we believe the majority of it is. That when we approached the business, as I kind of talked in the prepared comments, we're working largely with customers that have both truck and intermodal freight, and are working with them to try to optimize what the best routing might be and what's the optimum solution for any one shipment or any one period of time.

We do have some intermodal customers where we're only working with them on an intermodal basis, but the vast majority of it is what we would call a multimodal customer, where a lot of the freight is fluid and can go either mode, depending upon what's most economical and what the circumstances will allow.

So, we believe that a high percentage of that growth was driven by customers that -- what we would call mode conversion opportunities, where we're working with both modes of transportation.

Okay. I just have two quick questions and then I'll turn it over. Any impact to your Budweiser business from the InBev acquisition -- positive or negative, or indifferent?

No, no difference to date. But we have had a lot of discussions with them. Their world is certainly changing and their approach to the marketplace is changing. So we'll definitely be staying as close to them as any account that we have. I think we're optimistic. We've had a good long-term relationship with them, and from -- at least what I've seen personally in terms of how they're evolving the business model and how they're changing their approach to the marketplace, we feel pretty good about continuing that relationship and hopefully expanding it.

Okay, great. And lastly -- I'm sorry if I missed it, but could you tell me how much, if any, of a reversal you had for bonus accrual in the fourth quarter?

No reversal, but each quarter, we have a fairly significant accrual based upon the performance of each of the different locations. And so because the earnings growth rate was less, the accrual would be less for the quarter. So, no reversal but less expense associated with the revenue growth.

Got you. Thanks for your time.

Tom Wadewitz, JPMorgan.

Wanted to see if I could get your numbers, if you're willing to provide this, on the truckload volumes by month. Is that something you're willing to disclose?

Sure. This is purely North American truckload on a -- again, this goes back to that caveat John mentioned earlier, on a per-business day basis or a total-month basis. And we think neither way is completely accurate to look at it, because some freight, there's monthly cycles and some just depends on how many business days there is.

But if you look at, on a per-business day basis, October was flat; November was down 2%; and December was down approximately 11%.

Okay. And then so far in January, any sense of whether it looks -- I mean, if you want to give a number, that's great, but directionally, does it look like a greater decline than you saw in December or similar?

Slightly smaller. This is through actually yesterday. So, 17 business days compared to 17 business days, and volume down about 8%, and net revenue down about 1%. And again, we have no idea based on the volatility of the current market to know whether that is a good representation of even the whole month of January, much less the quarter or the year in 2009.

Okay. Let's see. When you look at the capacity side and what you're paying for capacity, how did that trend through the quarter? I mean, it seem like in second quarter, third quarter, you were paying more for capacity; obviously, demand fell a lot, so presumably you're paying less. But any comments on what you paid for capacity in fourth quarter and maybe what that might look like in early '09?

It definitely did drop off during the quarter, as did the prices to our customers, but the capacity price fell slightly quicker. And it's continued to look similar to December and January as far as the pricing environment goes.

Right. So what do you think in terms of -- I mean, the gross margin was really impressive in the quarter and that obviously supports the earnings pretty -- gives you some support for the earnings. Do you think you can run for a couple more quarters with a pretty high gross margin level, given that obviously there's excess capacity in the market? Or are you kind of cautious on that in terms of maybe supply reductions starts to have an impact relatively quickly?

Well, the biggest thing to remember throughout 2009 is the single biggest impact on gross margin percentages is the price of fuel. So as that peaked later on, a lot of what you're seeing from margin expansion during the fourth quarter of 2008 is simply the total invoice cost or the total billing coming down for the fuel component of it. So, depending upon what part of the year we're in next year and what fuel prices are doing, that will probably be the greatest driver of that margin percentage.

From the standpoint of overall gross margins or net revenues on our activity, there's certainly some room in the beginning half of the year for a little bit of margin expansion to make up for some of the volume activity, similar to what you saw in the fourth quarter. But the. But again, depending upon how 2009 shapes up, if it continues to get soft -- softer the whole year, at some point, margin expansion kind of runs out of steam.

If, like many people are speculating, that by the second half of 2009, things start to get a little bit stronger, hopefully there will be better volume comparisons and we'll get some volume growth. And then at that point, your margins will start to level off or maybe even contract a little bit if the historical patterns would follow.

Okay. And then I guess one more question or maybe two questions, just on the comp and benefits. You made some comments which seemed to indicate that the ability of the personnel expenses as a percent of revenue, which have declined pretty nicely in 2008, that maybe we shouldn't expect that in 2009. And I'm wondering, is that a function of you've already had a pretty sharp reduction in incentive payout, and so that the magnitude of further reduction is a lot more modest? Or what is it that would be behind those comments, assuming I'm reading that right?

That's certainly part of it. We've talked several times in the past about additional restricted stock awards that happen near the end of 2008, that when we're growing, will provide incremental expense as well. And probably the main thing too is just that while we have a lot of variability in the compensation model, that if, in fact, volumes are declining or 2009 provides a very soft market the whole year and there's a lot of contraction, it does take a little bit of time for our model to adjust in terms of the staffing levels and the headcount.

So it may not be quite as efficient scaling downward as it is scaling upward, when we're adding people and providing variable incentives. So you put that all together and we can model it a 1,000 different ways, and we just don't know what 2009 is going to look like. But it's hard for us to imagine that we're going to gain the same sort of leverage that maybe we have the last couple of years.

So we should probably think about operating margin under a bit of pressure then, if we look at it that way -- at least near-term?

Depending upon where volume levels are at. If it's flat, yes.

Right. Okay. Well, thank you for the time. I appreciate it.

Chris Ceraso, Credit Suisse.

Just to clarify, when you talk about -- and you mentioned this a couple of times -- the lower cost of capacity, is that mainly fuel?

Yes. Fuel is definitely more cents-per-mile drop than the underlying line haul rate, but underlying rates, depending on when you're comparing to, compared to last year, underlying rates for us were roughly flat.

So the difference then is the fuel? The comment about the sustained slow freight environment -- was that directed at Q4? Or is that more toward the outlook for the first quarter and for 2009?

Really for both. The fact that 2008 was a softening market that throughout the year, demand weakened and our volume growth slowed. So that the longer end of 2009, that that persists, will start to lap comparisons on variable compensation and margin expansion and all the rest of that, that will make it more challenging.

Is it fair to say that in the fourth quarter, given the sharp drop in volumes that we hadn't seen up to the point in 2008, does that create some extra opportunities for you? And if we go sideways at a low level, that's where you get into more trouble?

I think that's correct, yes.

Okay. And then just -- is there anything fundamentally about your business or secular-wise in the industry that has changed that would jeopardize the longer-term growth prospects of 15% that you're targeting?

We really don't think so. We've talked about that a lot. And actually, it's not a great time to be bold, but in some ways, I can talk myself into maybe there's even more confidence in the longer-term horizon, when you think about carrier fragmentation and instability in supply chains and our opportunity to be a good foundation and a good partner.

There is, even today, a lot of opportunity in the marketplace and a lot of the things that we feel really good about. But when the underlying pie that you're trying to take share from is contracting at double-digit, it just gets really hard to post good numbers. So, we feel as good as we've ever felt about the long-term, but in the short-term, it's a pretty weak environment out there.

Okay. Thank you very much.

Matt Troy, Citigroup.

Great. Thanks. I was wondering -- I think that the consensus view is that an economic recovery isn't in the offing until 2010 at the earliest. So I understand it's difficult to think about the trajectory of volumes through the year, but what I did want to do is try and get a sense of the reading the teas and what you're hearing from customers about freight demand in the first quarter.

Specifically, if I just look in the context of volumes being depressed across all modes over the last eight weeks, you've got plant shutdowns that you talked about in December and January; you've got the early arrival of the Chinese New Year coming up in a few weeks; all of which points to what I would argue is an artificially depressed level of shipment activity.

Are you hearing anything from your customers about a sharp pickup or expectations or need for capacity beginning in mid-February in the hopes that some of these folks are just playing catch-up, albeit it could be just a near-term phenomena? Are you having those discussions or hearing that yet?

No, we have not heard that. I think there has been discussion -- again, it would be very anecdotal that I've been a part of where, perhaps, some of that year-end plant shutdown like December, early January, some discussion around maybe some temporary softness just due to the abrupt corrections in the business models from some of the manufacturers.

And we do know that when we look across our customer base that the manufacturing slice of it was down the most in terms of volume. So, I think it's a plausible theory that some of this is a little bit softer now that it might be, but I haven't heard anybody talk about short-term sharp corrections in demand.

And I don't think sharp is a word anyone is using on the upside these days. So, that wasn't my inclination. I'm just trying to level set expectations or to hear about activity picking up in February.

I guess secondarily, looking at the organic numbers on the trucking side, certainly reflective of the broader market, but I think when the dust settles and we can see industry statistics in whole on the trucking side, I would imagine you guys are taking some share; difficult to provide metrics that show that.

But I was wondering whether it was your anecdotal conversations with customers on the bigger side or contracts you may be signing, what's your sense on the upslope on this thing, that you are going to be a bigger provider, a bigger partner to your existing customers that today, that you are, in fact, taking share in this downturn. Any evidence there?

We know that for many, many years we've been taking share by most of the measurements that we have. And we know that it's a core competency of ours. Nothing really changed in the fourth quarter in terms of what we're doing or how we're executing. So we'd like to believe that we continue to take share, but when you're a growth company with high growth aspirations and your volumes decline, it's kind of hard to feel good about bragging about taking share.

So hopefully, that continued to happen. I would say when you think about -- when we think about the longer-term prospects of our success and our business model, we know that one of the things that we do for small carriers or shippers of all sizes is bring some stability and continuity and automation and innovation to the relationship that maybe they don't get elsewhere in the marketplace.

And I guess it's our hope and our belief that kind of the core long-term value providers that we think we've leveraged for the last couple of decades seem to be as pertinent as ever out there -- and should be and hopefully will be when demand returns as well, too.

So hopefully, we're not being naive about it, but despite the fact that it's a really tough environment, we have as much confidence as ever that what we're all about is going to stay relevant. And we'll be in a great spot when the demand comes back.

I'm sure that the share numbers will bear that out when we see your performance versus industry, but I guess we can wait and see.

The last question is relative to acquisitions. Counter-intuitively, I know that away from the trucking side and even on the trucking side internationally, acquisitions are something you guys have explored in the past to grow those businesses. In this environment, are you seeing any more opportunities, any more attractive opportunities?

Obviously, culture has been a barrier; you want to scrub the personality and culture of who you're buying, but certainly I would imagine, given valuations being more attractive and your very nice cash position, you're in a better position to buy property. Is the pipeline any better these days?

You're right that the market expectations on prices have definitely fallen from the peaks, but at the same time, there are a lot of companies that -- the better companies, the smaller ones that we're looking at are still thinking in those peak prices and a lot of transactions aren't happening right now. So, a lot of what you see are people who are desperate. And if you're in our business model and you're a well-run company, even in a tough time, you shouldn't have that desperation.

So, there hasn't been really an increase of high-quality opportunities, but we are definitely out in the marketplace looking, both reacting to what we see that's available for sale as well as continuing to be proactive.

Okay, great. Thanks for the time, guys.

John Larkin, Stifel Nicolaus.

I have the impression that there are quite a few very sizable LTL bid packages out on the street currently. And I listened with great interest as you mentioned that that's one of your thrusts to diversify your services. Are you participating in those bids? And any early indications as to how those might play out in your favor?

I do know that our LTL team is very active and working on a lot of new business. I'm not sure if it's the same ones we'd be referencing or not; but it -- LTL is a growth opportunity for us. And we do think that we can be of value in any size or any type of a relationship.

A lot of the very largest LTL shippers will most often want to have a direct relationship with some of the largest providers that they match up with. And we can provide some process facilitation and automation to that relationship and help out with some of the rest of it.

So, in the very largest opportunities, we probably wouldn't be well-positioned to handle it all, like we might be with a medium or small account. But regardless of the size, I hope that we're involved in all of them. And if you want to forward us the names, I'll make sure that we are.

Alrighty. That sounds good. Also, on this whole theme of integration and diversification, which I think is a great theme going forward for the Company, does that imply, as you get deeper into it, that you need to change the mix of personnel that you're bringing into the Company, to find people that are a little more conversant in multimodal terms, and to perhaps do some fairly major work to your systems to enable these folks to really provide that multimodal, almost-transportation optimization view for your customers?

Yes. The only thing I might describe a little bit differently is I feel like that transition has been underway for quite some time. Our IT -- our information technology team has grown from less than 100 a decade ago to more than 300 today. We've got a bunch of logistics support teams. And clearly, like in the global forwarding business, the type of people we're adding around the world are of different calibers and different cultures. So, we definitely need to continue that and perhaps accelerate it in some areas around analytical support for some of the fee-based management-type services.

So, yes, is the overall question. It's a transition that's been occurring that we need to carry forward with and probably accelerate in some areas.

The data center capital investment that Chad detailed during his comments -- how much of that is just sort of geared towards improving the overall versatility of the systems along these general lines of providing more multimodal integrated services to your customers?

Really our current data center is nearing capacity is part of the issue, so it's definitely enabling more services, just because we'll have more room for more servers.

But as far as -- and it will be definitely a little bit more redundant than our current one and more stable than our current one, and should never, ever, ever go down, is the hope. But it really is more of a capacity play than it is being able to change the type of systems we can build.

And as to the software development and the functionality and the support tools that would drive at the transition that we're discussing or talking about, we've got more than 100 developers that are working on those sorts of tools, that certainly the infrastructure of the new data center will help us deploy those and run them more efficiently. But the real intellectual capital of some of the support tools and decision tools that we're working on are really -- the resource being put towards that is more the team of people that are developing the software.

And those people are employees as opposed to consultants?

Yes.

Yes.

Okay. So, these systems very well could be proprietary and difficult for other people to replicate?

Yes.

They are -- all of our core North American operating systems are proprietary. Our European truck system is the same system and it is proprietary, and we're working on an international forwarding system that will be worldwide and proprietary.

That's very helpful. Thank you for your time.

Jon Langenfeld, Robert W. Baird.

Chad, is there any way to kind of just roughly slag the working capital and say how much of it came from fuel in the quarter and how much of it came from lower business levels?

Well, when you look at our rates during the quarter -- well, if you look at -- the receivables are down about 20% or a little bit more than 20% from the end of the third quarter. Most of what's left in the receivable balance is from December transactions, because we averaged about 40 days collection.

We already mentioned that volumes in the biggest source of revenue was down a little bit over 10% in December. So that's part of it. And then the rates of our truckload for the total quarter were also down -- about 10% or a little bit more as well, driven primarily by fuel, if you look at the quarter sequentially.

So, if you're looking at from third quarter to fourth quarter, how did we cut it 20%? It was roughly half volume and half price and a little bit of improved collections.

Got it. Okay, good. Thanks. And then how should we think about the amortization of that -- or depreciation of that data center coming online? Is that -- how material will that be and when will that start to hit?

It will start to hit in the second half of the year. We plan on implementing it sometime in the third quarter, is when we plan to bring the data center up. I haven't seen all the asset life study on the total thing, but if I had to guess, it's probably, on a weighted average basis, somewhere around seven to eight-year asset.

Okay. And there's $8 million this year -- in '08 and then another $12 million. So basically $20 million you're putting into that?

Yes, a little bit less than $20 million.

Okay. Good. And then just on the intermodal side, are there any particular carriers that you're getting more or less lift on, given the success you've had there?

I think it's generally sort of across the board. We do less with the BNSF directly because they like you to have your own equipment. But the others, the CSX, Norfolk Southern, Union Pacific and Pacer, we've had good growth with all four of them this year.

Okay. So none that particularly stands out among those?

No. There is obviously some transition in the West with the Pacer UP thing, and actually I may have misspoke that -- I'm not sure if our Pacer activity for the year is up or not, but it's still a very significant provider for us. But as the transition and offerings goes on, we'll continue to try to grow on both of those horizon. But it's -- our growth is coming from improved relationships, we believe, on the customer and carrier side all across the board.

Got it. And then last question just on the bid activity, you touched on this a couple of times, but -- when you talk about trying to focus more or get your fair share of the bid activity that's out there as kind of a core carrier on the contractual side, what exactly does that mean? Or what do you emphasize more these days in this environment than maybe what you were doing 12 or 24 months ago?

It's probably a lot of the same things with different points of emphasis, but that when we're looking for a more dedicated position in the route guide, it's typically a combination of price and service. And what we like to emphasize is even though we're a non-asset third party model, that our service metrics of load acceptance and on-time pickup and delivery, we believe can be as good or better than anybody else's.

So, if we're price competitive, we just want to make sure that in any bid situation that we're working on, that people understand our capabilities of commitment and our automation and the feedback and reporting that they'll get from us.

Oftentimes, the role that we play for a shipper may be lower in the route guide or a backup brokerage-type provider. And in this type of an environment, we will probably put a little bit more emphasis on the fact that we can certainly play the role of a dedicated provider and be anywhere in their route guide, and make sure that hopefully, they're considering us as a viable vendor for any role.

And how would you compare that strategy to maybe 2002, 2001, 2002? I mean, was there a similar -- I don't want to call it a shift, but maybe a similar emphasis being put on that type of a strategy?

I think so. I think it's probably fairly intuitive that any time the market softens and that shippers tend to have as much freight as they planned or less, likely a higher percentage of that will go in accordance with the bids and the route guides that were set up at the beginning of the year. So you need to be a little bit more aggressive about wanting to participate in that.

When demand is very high and volumes are much greater than anybody projected, oftentimes the way to be of most value to somebody is to be that person who's helping them out with all the unplanned freight or the freight that falls through their route guide, that becomes more spot market or challenging.

So I think it's a very fluid transition that would be natural for us, but in a softer market, we're going to want to make sure that we're participating in the freight the best way we can.

Got it. And then, Chad, I'm sorry, with the minus 1% net revenue you talked about in January, is that just North American Truck net revenue?

Yes. All of those monthly numbers, both for the fourth quarter as well as January that we referenced, all of those were North American truckload only.

The net revenue included?

Included, yes.

Great. Thank you.

Ed Wolfe, Wolfe Research.

Can you talk a little bit more about truckload pricing? You said it was flat for the quarter. Where did it end in December and January, net of fuel as you see it?

We don't -- I don't have January rates in front of me at all. December was -- excluding fuel, maybe $0.01 lower than the average for the quarter, so pretty comparable.

Is it your sense directionally that it's holding up pretty flat in the marketplace? Or does it feel like it's softening to you?

You know, my sense is that -- and this is maybe sort of more speculation; like Chad said, we don't have the facts in front of us -- but the fuel decline was so significant during the fourth quarter, that overall pricing was coming down quite a bit. But there's no doubt that if the market is as soft as it is, that expectations and bids for beginning of the year will have to start driving the rates down more aggressively.

Just shifting gears on the headcount -- the headcount was up I think 8.5% year-over-year. And I realize, I think it's 107 or so from the acquisition. But even taking that acquisition headcount down, we're up 7% or so. What's the goal with the headcount as we go out through next year? And how quickly can you take it down if you want to adjust it to volume, say?

You know, the -- in normal times, what we've discussed over a longer period of time with our business model, that it's common for us to experience double-digit turnover through voluntary turnover and performance-based attrition. Now, maybe in a very soft market, it won't be that high, but our normal approach would be to manage the business as we have.

And if things stayed very soft and we didn't hire during the year -- which is the mode we've been in for a couple of months now -- that you could correct to that magnitude on kind of the normal course of running the business without any more significant adjustments. So I think our challenge is just to keep executing, stay on top of it, and react to the market demand and make sure that that approach is going to be adequate to keep us adjusting.

So, am I hearing you right, John? You're talking about attrition, not cuts at this point, just letting people attrition and not hiring, is the way to think about things?

Yes. That would be the current approach. Whether that remains adequate or not will probably depend upon how the market goes.

And attrition would be both voluntary terms plus performance-based terms.

And what would you expect, assuming there is no change in the economy, the first half of the year, how much attrition could you see or would you expect to see?

You know, like I said, we've been at a -- for many years, at a double-digit rate, so maybe a mid-single digit turnover rate by the middle of the year. And that's, again, a very broad generalization. We've got several of the different service offerings now where with global forwarding and other parts of the world where the relationship could be a lot different, those are very high level statements. It could vary differently by business line.

You guys have a special kind of situation with all the cash you have, given how tough it is to find cash in this marketplace. You made the comment that finding acquisitions at the right valuations are tough.

Two questions for you. One -- is there an opportunity to use that cash in other ways? Do you plan to continue to buy back your stock, for instance, if you bought it at $50, are you buying it at $43 or whatever the stock is?

And then secondly, if there's a very large opportunity out there for maybe a very quality larger company that's depressed in this market, would you use a combination of stock and equity?

Yes. We've always been predisposed to any size transaction if we thought it was the right cultural fit and the right long-term opportunity. As we've said a lot of times, we run fairly lean and we're not into fix-it-up projects. So, if we felt like it was a good company that just had an attractive price and we would not be afraid to use our balance sheet and to use our cash for that sort of growth opportunity.

We're obviously doing share repurchases and plan to continue so. We have ongoing discussions with our Board about what's the right level of that, but we don't want to accumulate a lot of excess capital. But we expect to be very profitable in 2009 and continue using our balance sheet to quick-pay carriers and help grow the business, be ready to supply that working capital right away when the market turns and take advantage of it, hopefully better than anybody else, and look at acquisitions and share repurchases in the interim as ways to keep the capital level.

And we've mentioned this in previous years as well -- our cash balance tends to get the highest at the end of the year. And then early in the year, we have some significant payments like the $40 million dividend that's already been paid. And most of the accrued comp on our balance sheet will be paid out during January, which is another $80 million, $90 million, which will also be paid out. So, it does look really high, but it is -- it will fall during January.

Okay. No, that's helpful. If I look at the restricted stock grant you had talked about in the past, 100 to 200 basis point kind of expense headwind. Given where the stock is and how things are, first of all, do you know how large the grant is going to be at this point? And then is there any updated kind of guidance on what you think the expense drag might be from that?

The grant was done in November, and if I remember right, the total amount was around $100 million or slightly more. And as far as the expense of it, it depends on the growth. So it's the average of operating income growth and earnings per share growth; take the average of that and add 5%.

So if we assume that operating income is going to be flat and earnings per share flat for the year?

Then there would be an incremental expense. There'd be about $5 million of expense from the current grant and then probably about $5 million of expense from the previous grants compared to $17 million, I think it was for the total year of 2008. So in a flattish scenario, even with the incremental grants, the expense could decline.

Yes. No, I see that now. That's interesting. In fourth quarter, what was the amount of incentive comp in the expense line versus a year ago?

There is many different incentives -- the formulas?

The equity.

Are you talking about equity?

No. I'm talking about the expense in personnel expenses line.

Boy. I don't have it totaled up here in front of me. I can't give it to you right now, Ed.

We have a lot of intertwined salary/bonus/commission/growth pool-type programs that sometimes there's draws against them. And it's -- that's not a way that we look at it in terms of isolating the total variable part. We do for the equity piece of it. And we can make some assumptions and back into something, but we probably shouldn't do that on the fly here. There's -- we don't really grab the number that way.

For the equity piece, what does it look like then?

You can see that right on the cash flow statement. So, stock-based compensation in total for 2008, I mentioned $17 million restricted stock. There's some other -- that's the -- mainly the performance-based. There's some other restricted stock grants, as well as there's a little bit of reload expanse. So, people who got reloads on their old options. So it was $20 million or $21 million almost in 2008 compared to $38 million in 2007.

Okay. And then finally, intermodal net revenue, up 28% -- or gross profit up 28% -- is that sustainable? And what's going on that's driving that, if you would?

You know, probably not sustainable in today's market conditions at that level of growth. As Chad mentioned, that's a combination of volume growth and margin expansion. And as the year wears on, if the market stays soft like this, I don't know if the intermodal price advantage to truck will stay as wide as it is, to give us those mode conversion opportunities.

However, as we talked about earlier, we've put a lot of effort in the last few years to improving our operational execution, our carrier relationships. We do feel like we have very good momentum in terms of offering that service and selling it in the marketplace. So we do feel good about outperforming the market, whatever the market is, but I think there was a combination of our momentum and good market conditions versus truck that allowed us to grow at that rate.

Is it a coincidence that when intermodal volumes were being reported by the railroads and other IMCs is very high, you guys seem to be undergrowing the market? And now when things have turned, you seem to be taking share? Or is it just things that you implemented that are now bearing fruit? How do I think about that?

I do think that our participation in the intermodal market space is a little bit unique in terms of pursuing customers that have multimodal freight or that are doing both types of transportation. So, it may be that our volumes are going to fluctuate or correlate a little bit differently, based on the type of customer that we have.

But there's also no question that if you look back over the last five or six years, that we've gotten our performance a little bit better in terms of -- you know, we made some changes around centralizing the team a few years ago and improving the operating system, and really revamping carrier relationships and executing at a different way.

So, I think some of this -- it's a combination of it that may be our participation. And freight exposure is a little bit unique, but also there's a little bit longer-term trend of us believing that we're selling and executing better the last couple of years.

No, that's all very helpful. Thank you very much.

Thank you. And at this time, I'd like to turn the call back over to Angie Freeman.

Well, unfortunately, we're out of time, so that will have to be our last question. And we're sorry we could not get to all the questions this afternoon.

Thank you for participating in our fourth quarter 2008 conference call. This call will be available for replay in the Investor Relations section of the C.H. Robinson website at chrobinson.com. It will also be available by dialing 800-405-2236 and then entering the pass code 11124369 pound. The replay will be available at approximately 7 PM Eastern time today. If you have additional questions, please call me, Angie Freeman, at 952-937-7847. Thank you.