羅賓遜全球物流 (CHRW) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to C.H. Robinson first quarter 2009 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, April 21st of 2009. I would now like to turn the conference over to Angie Freeman, C.H. Robinson Vice President of Investor Relations. Please go ahead, Ms. Freeman.

Thank you, Mary. 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 first quarter performance and we will follow that with a question-and-answer session. I would like to remind you that comments made by John, Chad or others representing C.H. Robinson may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management expectations.

With that, I will turn it over to John.

Thank you, Angie. Thanks to everyone for taking time to listen to our first quarter conference call. About an hour ago we issued our press release sharing our first quarter results for 2009. I would like to start by highlighting just a few of the key financial results on the release. For the first quarter ended March 31st of 2009, our gross revenues declined 15% to 1.68 billion. Our net revenues were flat at 338 million. Our income from operations increased 1% to 137 million. Net income decreased 1% to 85 million, and fully diluted EPS was flat at $0.50 a share. In addition to these overall financial results, our press release gives more detailed growth percentages by the various service offerings.

As I stated earlier, our consolidated gross revenues As I stated earlier, our consolidated gross revenues were down 15%. The two key or primary parts of that are transportation gross revenues were down 20% and our sourcing gross revenues were up by 8.5%. The transportation gross revenue declines were driven by both volume and price declines. Most of the price decline was driven by the decrease in the price of fuel. The volume decreases were pretty much across most of our customers driven by the recession. From an industry perspective, volume declines in our food and beverage customers were more modest. Volume declines in our paper and printing customers were greater than the overall declines. While overall truck load price averages excluding fuel were down only modestly compared to the first quarter of last year, price declines did increase throughout the first quarter as the market adjusted to weaker demand. Our sourcing division results for the quarter were one of the positive highlights. Our sourcing business was able to grow revenues in the first quarter.

The revenue growth was driven by volume primarily with current customers. Our services and strategies were similar to the past periods, we just executed well and had a good quarter of growth driven by more stable volumes in the produce industry. From a net revenue standpoint we were flat for the quarter and we described many times in the past our gross will fluctuate over time. When freight demand is weak volume growth slows or declines as it did during the first quarter. When carriers make decisions to reduce prices which they did in the first quarter of this year we will generally adjust to that pricing quickly as most of our carrier pricing is spot market or negotiated daily. Customer rates generally move a little slower which generates some short-term margin expansion.

As we have discussed many times in the past, that timing difference in rate adjustments generally works against us and works against our gross margins when prices begin to rise and carriers adjust their prices up faster than most shippers. Our customers were very active with bids and repricing in the first quarter as they adjusted to the market conditions. This rescission brought pretty sudden and significant weaknesses in freight demand. We believe the market forces of supply and demand, the reactions by both customers and carriers to the market softening, as well as our response and corresponding results are all generally pretty consistent with past economic cycles. What does feel unique about the current environment, is the suddenness and severity of the demand drop off. The more sudden and severe demand drop is also triggering faster more aggressive reactions to price adjustments from both carriers and shippers.

Our operating expenses for the first quarter of 2009 were flat with last year. While the totals were flat, the mix within the years vary for some line items. Our personnel expenses this year include lower amounts for variable expenses based on growth. Our restricted stock vesting and bonus accruals for growth are less than last year. The reductions in these personnel costs are offset by increased salary and compensation expenses from higher staffing levels during the quarter compared to last year. We started 2009 with 8% more employees than we began 2008. As of March 31st of this year or the end of our first quarter, our total employee count is roughly flat with March 31st of 2008. Due to the higher staffing levels within the quarter this year our current salary expense is higher than last year.

As the first quarter progressed this year and the severity of the recession became more apparent, some of our branches and corporate functions did adjust their staffing levels to better match the current level of demand. As a result, we have approximately 7500 employees today versus closer to 8,000 at the beginning of the year. The current year compensation expense includes 2.5 to 3 million of severance expenses related to these personnel changes.

Like most companies when we were doing our business planning last fall, we were planning for continuation of volume growth for 2009. We believe the personnel adjustments made during the quarter were appropriate to balance our current shipment volumes and work loads with our staffing levels, while leaving us with good resource flexibility to continue to aggressively sell and pursue market share in all of our services.

In our year-end conference call about three months ago I discussed how we believe that diversification of our services was helping our long-term growth while all of our transportation modes and service offerings are feeling the effects of the recession, in the first quarter we do believe that we continued to take market share in most services and have had success cross selling some of our newer services such as less than truck load, intermodal, international and fee-based management services. In this current economic environment it is as important as ever that we look for new and better ways to add value and we think a broad menu of industry knowledge and services is helping us through today's challenges. Those of you who have followed Robinson in the past know that we have never given quantified earnings guidance other than the long-term growth goal of 15%.

The volatility of today's environment makes short-term forecasting as hard as ever. Given that backdrop here is what we can share with you about the current environment, our business and thoughts going forward. Fuel prices today are at levels well below the second and third quarter averages of last year. While we have all learned recently that fuel prices can change quickly, if fuel prices do remain at today's level for the remainder of 2009 we will see substantial declines in gross revenue attributable to fuel like we experienced in the first quarter of this year. We have continued to experience truck load volume declines in April compared to a year ago. It is too early within the quarter to know what volumes had will be like for this quarter, but adding volume remains challenging.

I discussed earlier that while market adjustments were significant, that our business is responding similar to previous market cycles where margins expand during volume drops and will likely contract when volume and price increases return. Overall, we feel good about our operating costs and our ability to continue to adjust our cost structure to support whatever the market conditions are. Our variable cost model with significant performance based components of compensation helps us to adjust our cost structure and will continue to motivate us to return to growth.

Looking back, during the last five years or so of these calls, we discussed I have discussed several periods of unprecedented industry changes impacting our business, examples include price increases during 2004 to 2006 driven by growing demand and driver shortages, fuel price increases last year, currency fluctuations, changing import/export trends and now shipment volume declines during the current year. While the overall environment in our industry in many ways is getting harder to forecast, the pace of change and volatility in the supply chain and transportation services makes us confident that our long-term strategy of providing flexible supply chain and multimodal transportation solutions remains very relevant and our long-term growth goal are still reasonable.

In summary, the stress and changes from this recession will likely continue for a while but we believe our business model is sound and allowing us to manage our way through things and we feel good about our long-term strategies.

With that I will turn it over to Chad for some more prepared comments.

Thanks, John. I will give a few comments on our balance sheet, operating expenses, capital expenditures, and share repurchase activities. Our accounts receivable decreased again this quarter to $799 million due primarily to decreased volumes compared to a year ago as well as the decreased rates that John mentioned. We are continuing to closely monitor and manage our receivable portfolio while continue to make adjustments to customer terms and limits as we see fit. Our total provision for doubtful accounts as you can see on the cash flow statement in the release was $3.9 million for the quarter compared to $2.7 million in the first quarter of last year. However, this is down sequentially from 4.3 million in the third and fourth quarter of last year. Most of our receivables as we mentioned before have 30 day terms and turn relatively quickly. Because of this, we tend to find out about problems early, although it is difficult for us to predict what accounts will have issues in the future we do feel comfortable with our current level of reserves.

We again had a strong cash flow quarter and our balance sheet remains extremely strong. Our cash and investment balance is approximately $450 million. We continue to invest our cash with the focus on principle preservation rather than chasing yields. Our current interest bearing cash and investments our split primarily between municipal money markets and treasury money markets. Our investment incomes is down significantly compared to last year due to the changes in the overall market yields of high quality short-term investments. Our net capital expenditures for the quarter were $11.6 million which included $6.6 related to our new data center. We expect to have expenditures related to that data center of approximately $6 million during the rest of 2009, with the bulk of it being in the second quarter. Our current plan is for the data center to be live in August of 2009. At that time we will start incurring depreciation and amortization expenses as well as other expenses for that facility. We expect the annualized expense to be 2.4 million which includes 2 million of depreciation and amortization.

During the fourth quarter -- or during the first quarter we repurchased 1,250,000 shares at an average price of $44.30. As we have discussed in the past we look at our share repurchase as a variable way to return excess capital to our shareholders and have not tried to time the market. We will continue to assess our cash position, and share repurchase levels considering other possible uses of the cash and other market conditions.

That concludes our prepared comments, and we will now open it up for questions and answers.

Thank you, Mr. Lindbloom. (Operator Instructions). Or first question is from the line of Tom Wadewitz of JPMorgan. Please go ahead.

Good afternoon. Wanted to ask you first on your thoughts about the transportation gross margin, which was a very impressive number, quite a bit above what we thought it might be the 22.6 number. Do you think as you look at second quarter, is that a number that can go up, you commented on pricing that you are paying to the truck load carriers, your suppliers going down through the quarter. It seems like a very high number but is that likely to go up when you look at second quarter or more likely to come down.

It is going to depend on what happens in the marketplace as a whole: generally in the first quarter when you look at history is the highest margin percentage of a quarter. So that happens unusual times recently. It is very difficult to predict and it is really going to depend on the market supply and demand dynamics.

I guess you commented on the truck load pricing dynamic, is it a big deterioration in pricing where you would actually expect instead of being down 1% like you were in first quarter to be down significantly more in terms of what you pay for your truck load suppliers in second quarter?

The customer pricing trend is downward and we would expect it to be a greater decline. The challenging thing to forecast is how that will relate to the cost of higher and what pace the two of them will work together. So, there's a volume relationship, like I tried to describe how volume and price will kind of correlate. When you look at fuel prices are probably the greatest driver of that percentage and then you have mix issues in there as well too for all of the various categories of truck load services and less than truck load. There's a lot of variables that fall into the mix, and there's a lot of market forces that impact it that are all moving around as fast as ever. So that was really the essence of the message in the prepared comments is no matter how much you study it is harder and harder to forecast it.

Right. Okay. Fair enough. When you talk about the customer side historically you said broad brush 50% is contract and 50% spot. In first half of the year does most of that contract business rollover or is that spent throughout the year.

Most customers do their bids when ever they feel like doing them rather than on a set schedule. Some will have predetermined calendar schedules that was a very, very high level of customer bid activity in the first quarter and that was talked about throughout the industry. So, our assessment of it is that when you see the market changing as aggressively as it has in the last three to six months that it is no secret that the market is soft and that prices are likely to fall; therefore you see a lot of shippers come into the marketplace with bids now.

Okay. One last question and I will pass it on. Do you have a sense of how much contract pricing if you look at 50%of your book that is contract, how much magnitude is that coming down, is pricing coming down 5% or is it essentially significantly more than that?

More mid to high single-digits rather than the 1% average for the first quarter. I think expectations for savings vary. You hear stories of periodic double-digit savings and often times it is more modest but I would say kind of mid to high-single-digit decreases in prices would be a more common benchmark for where the quarter ended up versus the average.

And that is what you are receiving from customers as opposed to what you are paying to the carriers or is that representative of both?

I was talking about customer rates. Like I said earlier the carrier rates can move faster and are much more dynamic and will generally adjust quicker. They are the ones who lead it. It is really the carriers who initiate the changes.

Right, right. Okay. Great I appreciate your responses. Thank you for the time.

Thank you.

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

Hey, good afternoon. How are you doing?

Good.

On the expense side you guys did a really good job controlling costs was curious to dig in on the SG&A, down well, sequentially and flat year-over-year. When I look at that, what were the puts and takes that went into that number that helps you keep that in line on a year-over-year basis?

As I mentioned in the prepared comments, our bad debt expense was down about 500,000 compared to the first quarter when you look sequentially. We also had lower freight claim expense during the quarter, and a lot of discretionary type spending like travel and the training and travel and entertainment there was significant reductions in that, I should say the training is because we are not adding as many people as we have in the past. When we look at the detailed SG&A schedule there are reductions in many different categories.

Got it. On the restricted stock side, that goes into personnel expense, did you guys accrue for restricted stock grants in the quarter?

Yes, we did but it was a much smaller number based upon the vesting formula that we talked about before.

Our vesting formulas are basically the average of operating income growth and earnings per share growth plus 5%. So our vesting during the quarter was about 5% or 5.5%.

So that's an expectation of flat earnings on a year over year basis for the year or is that just applicable to the quarter?

It is applicable to the quarter. We look at the growth rate year-to-date of any quarter. And how ever many quarters were into the year we take that many quarters worth of expense of what it would be at that vesting percentage because you are right it only happens once a year at the end of the year.

Got it. That could end up having to get trued up one way or the other as you go through the year?

We have always trued it up every quarter since we had the program, yes.

Okay. Appreciate that. And then is there anyway to break out between truck load LTL in terms of the gross revenue decline in the quarter and when we look at the transportation sector?

More of it was due to truck load gross revenues in total were down close to 20% which is basically the 10 or 11% rate increase we discussed as well as the 10% roughly decrease in volumes.

Got it. So 9% of that -- 9 percentage points of that would be fuel if it is only down 1% net of fuel?

I think total rate is closer to 11% with 1% being fuel. So about -- or 10% being fuel, 1% being underlying rate.

Got it.

Just as a remainder, all of our fuel calculations are estimates as pricing are bundle rates. So we are making a lot of assumptions around typical fuel costs and surcharges and stuff. These are all our best estimates on the pricing and rate break outs.

When I think about D&A being down in light of adding branches how does that typically impact the D&A line. Are those leased or is there much going on in there that that would be affecting that?

Almost every branch with the exception of, or almost every building we have with the exception of the corporate building and Chicago and the new data center is leased. So the bulk of that is the true building costs aren't depreciation and amortization, but the desks and phones and computers that go into them are. And the furniture. So. But when we open new ones it is relatively small numbers because when we open a new office we do generally two to three people. So when you compare it to the total it really doesn't get noticed.

Right. That makes sense. And when I think about provisions for doubtful accounts being down sequentially in this environment, are you guys seeing something different from your customer base or expect things to be flat to up in the kind of economy we are hearing about. What gets you more positive that you are accruing differently from that?

Our aging actually improved during the quarter. The total amount outstanding went down, and we have less customer specific bankruptcies during the quarter.

Got it.

So we are accruing for it under the same formula just the experience was more positive.

Fair enough. I appreciate it. Thanks, guys.

Thank you. Our next question is from Matt Troy with Citigroup.

Thanks a couple of questions. On the head count reduction sequentially down by about 500, I wanted to be sure I understood that your numbers you said that there was about 2.5 to 3 million severance related to that reduction in the first quarter?

Right.

So if I think about modeling the next quarter and subsequent quarters, that will not repeat?

Right. That's correct.

Okay. Question,. Second question, if you could just help me in terms of how the quarter but April started to look sequentially, you talked about volume decline in the truck load and LTL business but all months are not created equal, any sense of progression, January to February, February to March, March to early April, you had a Chinese New Year comp and Easter skewing those, just any sequential sense you can give us?

No, I will share and Chad can add on to it: but ut in general, when we have looked back wards and forwards it sort of feels like late November or early December there was a pretty sudden and significant drop in the overall freight levels. It has really stayed there. There has been a little bit of positive, negative, whatever but for the most part we feel like for from mid November early December on, there has been a double digit decline that we have been fighting to take share and grow with that. We haven't really seen a lot of trends within the last three or four months.

Right.

The volume growth was on a per business day basis during the first quarter, when you look at North American truck load was within 1 percentage point of each month, I mean it was 1099, 10, 9, 9.5.

Okay.

We look at it different ways but business days and you have Easter in a different month and weekends and month ends. When you factor all of that in, it really doesn't tell us anything, it has just been declining straight across.

On that note I asked, there would logically have been an opportunity to see some pick up due to simple restocking post Chinese New Year as that comps normalized, we certainly haven't heard from any carrier that really saw that, is there a logical sign post or thought process in the next couple of months where you would expect to see or are hearing from your customers some level of restocking whether it is broadly or just by industry vertical, are you hearing anything like that out there that would sequentially help that rate of decline?

Not really, it is we have different levels of review with customers around how much we know about their business and total volumes, but we really don't have any insight or signals that would suggest there's going to be any moments that are more important or less important than the rest.

Okay. No indication that people are anticipating some kind of restocking lift?

No.

Last question and I appreciate the time. You talked about how fuel prices remained comparable levels as they are today, what kind of impact it would have on gross revenues, can you help us comparatively year over year, how that might play out from a margin perspective given the lag some times in the fuel surcharge recovery, how if I model flat fuel prices that plays out on a net margin through the balance of the year? Thank you.

Well, to tell it how it would play out on a net margin would be pretty difficult for us to predict because we don't know how our customer prices are going to react and how the underlying carrier prices are going to react but as John did mention there would be double-digit gross revenue declines on a per transaction comparable transaction just related to fuel.

Right.

So as you bring down both, if you view fuel as a pass through or dollar for dollar pass through.

Right.

Obviously, that will have a significant impact on margins in and of itself because both sides will go down and if the dollar stays the same profit, it is a big margin impact.

Okay. Got it. Thank you very much for the time.

Thank you. Next question is from Ed Wolfe with Wolfe Research.

Thanks, good afternoon, guys.

Hey, Ed.

You said before that rates for you guys were down 1% on the truck load side. I think that was for first quarter but ended March, was it March or April down mid to single digit and truck load specificly?

March and yes, just truck load.

And was the sense that the reason that it dropped so quickly was related to the bids and the number of bids in the process?

Yes, and the component of transactional pricing where, you know, I think there was a growing awareness of excess capacity and more transactional pricing occurring and prices that were declining.

Okay. But is it fair to say you have been in a lot of.

Yes.

Okay. And April, is the implication that that is going to lag for a while or that it is similar to March.

I don't think we know what the implications for April are yet. Even when there's a lot of bid activity going on, you really don't know exactly what the results are going to be or if the loads are going to be tendered in accordance with the bids. A lot of shippers can do bids but tender a lot of the freight transactionally. So it is challenging to predict but like I said we studied April a bunch of different ways and doesn't tell us anything yet. But we know that throughout the first quarter pricing was generally coming down.

Okay. And then if I look at the transportation yield at 22.6, how did that look in March relative to the average?

We are looking for it.

Okay. While you do that, if you want I will keep going. Is that okay?

It is very, it is hardly noticeably higher when you look at truck load gross margin percentages.

Pretty constant throughout the quarter.

Okay. That's helpful. Thank you. On the incentive comp side, can you give numbers of what the incentive comp was in 1Q '09 versus 1Q '08.

What makes it hard is that each of the individual offices has unique growth pools and different incentives based upon different growth rates. So there's mix issues within it from an incentive comp stand point. So the restricted stock numbers are on the cash flow statement but the even greater component of variable compensation is the bonus programs that can vary a lot based upon the mix.

What was the total number of that program for the full year '08 if you have it.

For which program, Ed?

For the total bonus program.

There's so many different programs and so many different ways that they vary we don't disclose it because we are afraid it would confuse people more than help people.

But directionally.

If you look at a pool of employees, somewhere between 35 and 40% of the pay or related expenses would vary based on one measure of profitability or another.

Understood, but directionally first quarter over first quarter, how much are we down? I mean directionally is it magnitude of 10%, 50%?

It is the offset of changes in restricted stock and severance charges. So I don't know what results to from an expense standpoint but you have increases in severance and staffing like we talked about and you have got reductions in the variable costs pieces. Again, depending on what programs you are looking at and how much of the total you were adding up the percentages would vary.

Okay. And on the head count side, is 500 the right number, I mean 5 or 6% when volumes are down 10 or 11, is it possible we can see more and maybe more severance payments?

Here is the way I think about that, Ed. We started the year 8% more staffing and say around to 10% volume decline, which 10% less to do and 8% more people, that's probably not the right business model. So by the end of the quarter, we were flat with a year ago and lets say volume declines are still at 10% lower level. We don't know what the rest of the year is going to bring, but I know that last year we went from 7500 people to 8,000 people throughout the last three quarters of 2008, and right now we are really not hiring very many people and we are managing things more aggressively. So if our head count stays flat our productivity metrics will come much more in line as the rest of the year wears on. So we hope we are pretty close to where we want to be from a staffing standpoint. But who know what is the rest of the year is going to bring.

Okay. But it is not out of the question that if things, I mean you answered someone else's question like all of the severance in first quarter that's based on what you have done so far. Further action if you need it is not ruled out at this point.

That's correct.

Okay. John, in your overall first discussion you talked about, it feels like a normal cycle other than it is deeper and happening faster. How do you think about what that might mean as you go throughout the year and what does that mean it is happening faster?

If you look in the last 30 years since deregulation, we have been riding through the cycles, prices have fluctuated, margins, volumes but like we talked about in 2005, 2006 we never saw a double-digit rate increases until that period of time. We never saw the fuel do before until 2008 those types of increases. We never seen the industry drop double-digits and volumes in like a one month time near the end of last year. So you have this sudden significant drop in industry demand and our demand, and when demand drops, prices drop. So that is not uncommon. But it is just such a big number and a visible number that I think we and every shippers are trying to react differently to that where you want to move quicker to take advantage of the changing market conditions which is probably the right thing to do, but then you have to think about is it sustainable, will it come back, what is it really going to do. So the fact that people would be rebidding freight and trying to adjust to new market conditions is not at all a new phenomenon, but the magnitude of how much it has dropped and therefore how quickly people are reacting and the strategies that they're reacting with, this is all new territory, given this new level of volatility.

It is a pretty amazing run and you guys seem to somehow make it work. What are you seeing from capacity general ? Have you seen any major changes from a quarter ago of people leaving or reentering the

Not really. Obviously there has been some failures but we sign new carriers almost 1,000 a month, and you don't know how much of that is recycling of other capacity or true new capacity but it doesn't feel quite like the churn of capacity is reflective of the drop in demand.

That 1,000 per month, what was that say in July or August of last year.

Pretty similar. And again I think those new carrier numbers are probably not the greatest metric for us to rely on because often time it is one, two, three, five trucks. It is more like, the seeds of relationships that we hope to build longer term with them. So we continue to identify new companies to do business with and to try to grow from, but a very, very small percentage of our total freight will get moved in any given year but by the carriers, relationship windshield that year like 1% or something. So we look at it as a metric that is indicative of our network expanding and kind of staying active with growing but I don't know that it is a real helpful metric in the short-term around what is happening to the universal capacity.

One last question, can you give an update on some flavor on the legal case where the underlying carrier had a severe accident and there's a $24 million claim, where are you in that case? And have you reserved for it? And how do you think about the impact that could have going forward.

Okay. Sure I will give a little background on the case. In March a jury in Illinois entered a verdict against us, a carrier and the carriers driver in the amount of $23.75 million. The jury concluded that the driver was acting as our agent at the time of the accident, which incurred in April of 2004. Even though the carrier and the driver admitted that the driver was working for carrier and that the load was being moved by them acting as an independent contractor for us under our carrier contract. The verdict claims that we were responsible for the damages caused by the admitted negligence of the carrier and its driver. Given our prior experiences with these types of claims we believe the judge err in allowing the case to even proceed to trial, and we have filed post trial motions requesting that the verdict be set aside and release us from liability. We are also seeking a new trial based on numerous errors that were made during the course of the proceedings. If our post trial motions are not successful, we intend to appeal.

The judgment as I mentioned was for 23.75 million the accident that took place in 2004, we have a $5 million deductible in the year 2004. As far as the accrual goes, GAAP requires booking and accrual when a contingent liability is probable and measurable, in our opinion and in the opinion of our counsel, there are many reasonably possible outcomes that will will release us from liability. Based on the current circumstances, we don't feel that any one outcome can be deemed probable therefore we have not booked an accrual for the jury verdict.

Okay. So just to get all of that right, the most that you could owe on this is the 5 million deductible and you haven't accrued because other outcomes are possible.

Yes, a lot of other outcome are reasonably possible and we don't think any one particular one is probable at this time.

What court made the decision?

Cook County Illinois.

Okay. Thanks so much. I appreciate it.

Yes.

Thank you. Our next question comes from the line of Chris Ceraso with Credit Suisse.

Thanks. The pricing you mentioned on the truck load side finished down a lot steeper than it averaged for quarter. Can you give us similar measures on the LTL side on ex-steel basis, maybe month by month?

No, I don't think we have that data if front of us.

Do you have maybe an aggregate for the quarter on the LTL side.

Again, truck load is very easy to convert on a per mile basis by mode. For LTL you get into classes and rates and it is very difficult for us to know that the change in gross revenues is equal to a reduction in rate. So it could be that we are moving freight further or heavier freight when we look at it on a per transaction basis.

Okay. So you're measuring price or rate by mile on the truck load side. Was there any notable decline in the length of haul that may have made that price perhaps a little better than it was?

It went down slightly, our average length of haul just a few miles though, I think.

Okay.

Less than, right around 1%, I believe.

Okay. Anymore color on why the sourcing business was so strong? It seems to be a real standout performance relative to just about everything else going on in the economy.

I think what we said, just more consistency in the level of activity around produce. Obviously, we've had success in building our relationships with our current customers. So we are constantly seeking new commodities, new categories, things like weather freezes and different things can eliminate categories for certain periods of time. So I think, descent crops, relationship, steady volumes in produce. We just had a good growth quarter, nothing really new or magically different about what we were doing.

Was it an easier comp because or weather or something a year ago?

I think there were some, but it is, difficult to compare specific commodities because our participation at any customer level may be varying as well too. So it is hard to isolate what the weather caused versus what the changing relationships caused.

Okay. Thanks a lot.

Yes.

Thank you. Our next question comes from the line of John Barnes with BB&T Capital Markets. Please go ahead.

Good afternoon, guys.

Hey, John.

Could you talk a little bit about, I know you have talked in the past about it is kind of up to your branch managers and that type of thing, but how much additional business could you layer back in before you would have to, begin to layer in more cost before the training costs go back up and that type of thing?

Kind of what I talked about before, if you assume that prior to the brunt of the recession hitting last November or December that we were sort of properly staffed, the level of productivity that we were operating at were obviously still not there today. We could grow probably another 5 or 10% in terms of volume to get back. If we are at constant head count or staffing compared to a year ago but our volumes are down roughly 10%, we should be able to come back to that. Now that is over simplifying it a little bit because as we talked about earlier, meaningful parts of the total compensation are the variable bonuses and incentives. So it doesn't work quite as simply as what I just described, but in general, that would be the productively metric around loads per person that would guide us to that.

Okay. All right. I wanted to go back to a comment you made earlier about, I just want to clarify what you said, that the carrier leads in the shipper kind of follows that the carrier rate reductions tend to happen quicker. I just want to make sure that is what you said.

That is what I said. When you look at market adjustments in pricing, it is generally to be more specifically even, it is generally the larger carriers that tend to have the biggest impact with changing prices in the marketplace.

Okay. Of the bids that are out, could you give us an idea of kind of the ones you are participating in, how much of that is existing business that you are already involved in? And how much may be new customers you are trying to get involved with?

Well, most of the bids would be with existing customers, what happens is if you have a customer generally 50,000 shipments or make up some number and we are doing 5 or 10,000 of them, they will do a bid for 80 or 90% of their lanes, the lanes we are participating in, we have to rebid in but hopefully a bunch of new lanes, you win some, you lose some. You see what happens from the result of that. So it is generally with existing customers, but the level of what is at play is probably much broader. Does that make sense?

It does. Last question. The legal case that you just described, do you have anything else of similar magnitude that this could have some influence on?

As the lawyers have explained to me a jury case does not set new law or new precedented, judges writing opinions on like if they would have granted our pretrial motion like they have in the past on similar cases, it would of set a precedent and there is precedent out there that this case shouldn't of preceded to trial on our opinion. As far as yes, there are other less than five other major accidents where we have brokered the load that we are aware of at this time, most of those we have not even been sued in.

There is less than five, is that what you said.

Of major accidents that we are concerned of.

Okay. But nothing out there that would lead you to believe that there has been a change in the out look on how these cases are going to be handle on a go forward basis.

Correct.

Very good. Thanks.

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

These head count reductions can you talk about the timing of how those occurred? Were those throughout the quarter and then the levels, were they folks at certain level or geographies or across the Board domestically?

The personnel changes were throughout the quarter, and again we made those decisions on a pretty decentralized basis. So we have all of our offices and some the corporate functions and in each of the areas we have pretty well established productivity goals and score card metrics that guide us and really across each office and location, there would be unique decision making as to the level of experience and mix of people and how the changes were made. What was maybe a little bit more input from corporate and this type of environment is seeing what we were hearing from our customers in the marketplace that we were encouraging and pushing to our metrics a little bit quicker than maybe we would if it were a smaller number of offices in the past who were transitioning to different levels. So it was across the network, with highly decentralized as to what changes were appropriate.

Okay. How do the various bonus pools work. If I am in a branch and have a bonus pool and we reduced head count by 5 or 6%, the bonus pool get distributed among the players or does the bonus pool lower? How do you think about that?

There is at least two different buckets at each branch, one is the growth pool which is when branches grow faster than you expect them to -- most likelihood if a branch is reducing headcount because they have less volumes probably not going to hit that growth pool bonus and that is one that is divided a pool that is divided up at the end of the year. So it is the same size if there are less people participating. Again that is an unlikely situation and then the core bonus programs are each person has a percentage of the pretaxed, prebonus profit of the branch. When those people go away that bonus expense would go away as well.

So to the extent that there are that improve the profitability of the office, everybody bonus participation would have enhanced -- (inaudible) reallocated, but in essence, the idea of right sizing the personnel needs is for everybody's financial health.

Right. Right. Okay. And then are there any other additional cost initiatives or things you are looking at today from a cost perspective that maybe you weren't doing 6 or 12 months ago.

Chad talked through the SG&A around discretionary spending where we are certainly managing a little bit differently today. For a growth company like us that is expecting to grow and expand it is challenging at times to travel less or doing less in some of the discretionary categories. When your volumes drop you have to adjust accordingly to the level of activity and discretionary spending. So we did make some decisions around those items. (inaudible)

Okay. Thank you.

Thank you. Our next question comes from Alex Brand with Stephens, Inc.

Hey. Good afternoon, guys. Just a quick question for you on your LTL volumes, obviously most people aren't growing their volume, any thoughts on how maybe what you are doing to attack the market or take advantage of system of the known weaker players allowing you to get growth right now.

I think the longer term, about LTL that has been guiding us is like I said in my prepared comments that we are really focusing on relationship management and cross selling. We believe we are getting a lot of LTL opportunities from truck load customers to manage the relationship effectively because we already know them and are doing business with them. The other thing we talked about internally that may be helping us is that when there is a high degree of volatility instability in the market it is more challenging for a typical shipper to switch providers and be confident than what they are doing than it is for us to manage things. Part of the benefit you get in working through us is that you get to move with the market fairly fluidly because we have automated relationships and a lot of relationships. So it is possible that this type of an environment we are bringing to the table as our value had-added more appealing. Probably the more important driver is just that we have been emphasizing and training in and we think we have been getting better at it more efficient, more automated and selling it more aggressively.

Okay. Fair enough. Thanks for the time.

Thank you.

Thank you. Our next question comes from the line of Ken Hexter with Merrill Lynch. Please go ahead.

Great. Good afternoon. Chad you talked a lot about the customers reacting, how long does it take before the customer realizes that pricing in the market is different than what you're charging? So how quickly can they adjust?

It really happens continuously, in a falling market. It is just like when John mentioned we are buying capacity on a daily basis. That adjusts realtime where there is month, two, three depending on the situation, lag and reprice tug the customers. Again it is hard to predict what is going to happen because as we continue to reprice, the customers potentially downward in different bids as they're bidding, if the market continues to get weaker, it could fall more or you could have the inverse if things start to firm up our margins could get contracted a little bit when prices in the spot market as well as volumes start to increase.

That's helpful. Now you said your volumes you were down 10% on the truck load side. What do you think the market was?

We look at probably the same indexes you do. I would say maybe a little worse than that, maybe in the teens.

So John, do you think then your market share gains decelerated I guess if you look at you were kind of 15, 20 points above the market if I remember in the third quarter maybe a little than that in the fourth quarter. Does it seem like your market share gains are decelerating a bit.

Possibly. Market share things for one quarter get tough to gauge. When again I have said earlier we never lived through this type of industry drop before. So how do you know, but with kind of complete absence of year-end quarter end surge, I don't know it is hard to say, but it could be that the rate at which we are taking share is varying, but again that is harder to tell for a short period of time.

I was surprised at the answer before of your view on the capacity, I guess that you're still not seeing any larger shift of, of I guess carriers leaving the market. I know you said it is an imperfect science but just from your reach of the amount of carriers that you deal with, what do you think it is going to take in order for more of that capacity to leave in order to allow I guess a better supply demand dynamic in the marketplace especially when you talk about volumes being down as much as they are?

Well, you know, I think it is a pretty natural self correcting phenomenon. It could be already happening and we are just not seeing it as serious of an issue because of the scope of our network. But kind of like what we talked about and has been pretty consistent across the industry, if you factor out fuel, price declines for this type of volume drop haven't been that great up until recently. So some of it comes down to the timing of how long,how much lower to rates have to go and how long does it have to persist before a driver or a carrier would decide that is not worth it for them anymore. We talked a lot about the rate increases and the compensation increases that came with it back in 2004, 2005, 2006. So, a lot of this kind of comes down to what does it take to retain drivers and for an owner/operator to stay in the business and access that level of compensation. It is all the natural correcting forces of how much lower and how long before people would decide it is not worth it.

Yes. Do you think you have seen that accelerate recently as you say the prices have gotten a little more aggressive, or still too early in that process.

We don't get good day-to-day. I would think that would be a natural conclusion, but again what a lot of shippers and especially you know, maybe all of us are really trying to sort through right now is are these temporary seasonal price declines or are they permanent, are the bids going on right now, there's a lot of discuss around who will really honor the contractual rates and what will load acceptance rates look like if the market does tighten up in the fall. Everybody has to make decisions through these processes about what type of savings are sustainable and how aggressive you should be in trying to capture them in the short-term versus your long-term relationships. It is a much more dynamic process with a lot of different variables.

All right. Great. Last one quick one on intermodal was up actually year on year, is anything going on? Are you taking, growing in a particular region?

I think it is pretty widespread. We have talked a lot the last couple of years actually about believing that we are getting better at executing and better at multimodal offering of a track and rail compatible freight. Even going back a couple of years ago our volumes were increasing but we were rearranging the margins and carrier relationships. So we've had good momentum from an execution and a sales standpoint over the last couple of years. Like I mentioned earlier, all areas including intermodal have certain some of the slow down from the recession. But we had pretty good momentum coming into it that is allowing us to continue to do good things.

Great stuff. Thanks for the time.

Thank you. Our next question comes from the line of David Campbell with Thompson Davis and Company.

Yes. Thanks, John and Chad just for what you said it sounds like there was no increase in tonnage in March compared to January and February on a daily basis but then you said that the downturn was about 10% each month year to year. Wouldn't that imply some increase in March.

Yes, I don't think we ever said volumes didn't grow sequentially in March over February. If we did we didn't mean to.

Okay. So.

It was growth relatively consistent throughout the quarter.

Okay. So, and you did, you had that increase in business sequentially in March, whatever it was as the employees, employee count was going down. Is that, might I take it you can continue to increase this on a tonnage and keep the employees flat for a while?

Yes, that would be our hope, that we are like I said earlier roughly flat and staffing levels and running at levels 10% below a year ago. Ideally we can crack back up to prior year levels before we add meaningful costs.

Good. Thanks. Appreciate your answers.

Thank you.

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

Hello, Chad and Angie, nice quarter. Hey just wanted to talk a little more and flush out the market share gains. I am sure it is a combination of everything in terms of the cost savings you can offer customer, flexibility, cross selling and probably some disruption to the marketplaces, you have benefited from. But in general, could you maybe flush that out a little bit in terms of where you think you're gaining the most share and seeing the most opportunity out there?

You gave a good summary of it. In a, part of the message we are trying to deliver is that third-party logistics and what Robinson is all about is trying to bring flexibility and choices and a different level of customer service to the marketplace. And each environment gives us new lessons and all of the rest of that but when you step back a lot of what is going on are things we have been doing the last couple of decades to try to get to know our customers better, to help them through the difficult times, to try to solve problems with you know, different mode alternatives like truck versus rail or where less than truck load and truck load meet and what the definitions over those are. Lots of information and reporting. So we have lots of things that we didn't talk about on this call that are very core to our culture around how we sale and service and manage accounts and train people and try to be innovative and develop solutions and all of the rest of that. I think over a longer period of time that's what we would really attribute to market share gains is just our basic fundamental approach to the marketplace, how it varies month to month, quarter to quarter and kind of what really applies during this type of radical change in the marketplace gets harder to sort out in the short-term but over the longer-term, that's what we feel has been good for us.

Probably more so today with where we are in the environment, I would assume..

Hopefully so, when you have industry volumes declining the way they were and so much transition going on and a lot of customers being forced to react in a lot of different ways it is hard to gage exactly what came from account management, what came from luck and what is bad luck and all the rest of that, but hopefully that is true that the things we have been doing are serving us well now.

Great. Just one last quick question and we are about out of time. But asset capacity different. I know you are doing a great job on the AR side too. But have you seen any disruption like T-Chek, in terms of in other carriers, kind of being a little more lagging on those as a possible indicator?

Yes we have. I think T-Chek's business has been impacted pretty significantly by declining volumes. So there is fewer transactions. You have declining fuel prices where the transactions are based off of that and some credit challenges as well where the carriers are the customers and they've had a difficult time paying their bills or bankruptcies we have talked about in some of the prefer sessions. So, yes that's a, it is a challenging environment for T-Chek right now, but we are managing through it like the rest of them.

Thanks for that additional color.

Thank you.

Thank you. Ms. Freeman, at this time I will turn the conference back to you.

We apologize we cannot get to all of the questions today. We ran out of time. Thank you for participating in our first quarter 2009 conference call. This call will be available for replay in the Investor Relations section of the C.H. Robinson Web site at C.H. Robinson.com. It will also be available by dialing 800-405-2236 and entering the pass code 11128676 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.

Ladies and gentlemen, that will conclude today's teleconference. Thank you, again, and at this time, you may disconnect.