羅賓遜全球物流 (CHRW) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the C.H. Robinson first-quarter 2011 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 today, Tuesday, April 26, 2011. 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. 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 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 it over to John.

Thank you, Angie, and thanks to everybody for taking the time to listen to our first-quarter conference call. I'd like to start by highlighting just a few of the key financial results on the press release that we sent out a little while ago. For our first quarter ended March 31of 2011, our total revenues increased 14%, to $2.4 billion. Our net revenues increased 17.4%, to $390 million. Our operating income increased 15.2%, to $157 million. Net income increased 15.5%, to $97 million. And fully-diluted EPS increased 18%, to $0.59 per share.

In addition to these overall financial results, our press release gives more detailed growth percentages by our various service offerings. In terms of overall highlights for the first quarter, we did achieve our long-term growth target of 15% in our key metrics. The growth of 21.9% in our truck net revenues for the quarter drove our earnings growth. Compared to last year's first quarter, we experienced tighter transportation markets, or greater demand relative to supply, versus a year ago. The tighter markets have generally led to price increases compared to a year ago in our transportation services.

We feel good overall about how we are adjusting to the changing market conditions. Our total transportation gross margin of 17.2% was down slightly from 17.4% last year. While our experience varies some by mode and service, overall, we were able to grow our transportation volumes, while adjusting to significant price increases and holding our gross margins relatively consistent with last year.

The last couple years on these calls we've discussed gross margin fluctuations quite a bit, and how we accept them as part of our business model. Over the past 10 years, we have had reporting quarters with transportation gross margins ranging from 15.4%, to as high as 22.6%. All the variables driving that volatility, pricing, fuel, mix, seasonality, et cetera, were still relevant, but the net result for us overall was fairly constant gross margin percentages.

Our operating expenses grew faster than our net revenues. However, the drivers of that increase are our variable compensation incentive accruals and a litigation charge. The rest of our expenses are in line with our model and longer-term expectations. Overall, we were happy with our execution and the results for the quarter.

Moving on to some prepared comments by mode or service offering. Truckload volume was up 7.5%. Excluding the estimated impacts of fuel, pricing was up 8% versus a year ago. When we discuss our results and the relationship between volume and price, it's important to remember that we are somewhat unique compared to many other transportation businesses, in that our pricing and contractual commitments are made on a very decentralized customer-specific basis, for each of our 35,000-plus customer relationships.

These percentages represent the aggregate decision-making of all those relationships, versus any single decision or Company-wide practice. The majority of our truckload volume growth in the first quarter of 2011 came from existing customer relationships. The truckload market has been tightening for several quarters now, and most in the industry are aware of the challenges involved in adding additional capacity. From an account management standpoint, we've been working with our customers to adjust to the market and provide additional capacity to our current relationships.

Our LTL volumes grew 18% in the quarter. Our approach is selling more outsourced solutions, and our automated process improvement has helped us to grow this mode of transportation. Our cost and customer pricing continue to both increase in this mode, as the industry has reduced capacity in many areas, and is much more focused on efficiency, price increases and profit improvement.

Our intermodal net revenues grew 13% for the quarter. However, our volume was down slightly. While we feel very good about our intermodal service offering and our abilities to execute for our customers, we recognize that the intermodal industry growth has exceeded our growth. We're committed to both quality service in intermodal, as well as growing our business. Our intermodal activity includes a heavy focus on Western US lanes that did not grow as much as some of the eastern activity.

Weather did cause some of our multi-modal freight to go by truck. And we continue to work with our rail partners to ensure that we have adequate access to capacity and competitive pricing to grow this service. Our air-, ocean- and customs-forwarding business continues to grow and become a more relevant part of our global network of services. Ocean growth was very strong in the quarter.

We continue to invest significantly in our continental leadership structures in Europe, Asia and South America, as well as our navigator systems implementation to connect all of our offices to one worldwide operating system. We feel good about the progress on these initiatives and continue to add some very good customers to our network as we grow these services. Global expansion of our network and services remains a high priority.

Our Sourcing business revenues declined 15% in the first quarter of 2011. Net revenues decreased by 5.5%. Two primary factors in those results are the continued declines from the loss of a large customer that we've discussed in the past, as well as several significant weather events that lowered overall crop volumes and related sales activity, but increased margins on the more limited volume of product that we sourced.

Information Services from our wholly-owned subsidiary, T-Chek, grew at 13% for the quarter. T-Chek continued to diversify its service offerings into other categories of transaction processing. T-Chek's revenue during the quarter also grew from increases from transactions that are based on fuel prices. Overall, I would say it's a good start to 2011.

One of the core relationship goals that we have is to balance longer-term strategic goals, like integrating and automating, and longer-term account management practices, to improve our customer supply chains, global systems investments, outsourced solutions and new services; with shorter term adjustments to market conditions that drive things like price changes, transactional solutions, additional capacity et cetera. Keeping that long-term focus on relationships and solutions, while reacting to the short-term market forces, is something that I think Robinson is uniquely good at, and our results this quarter reflect that.

Those are my prepared comments. With that, I will turn it over to Chad.

Thanks, John. I'm going to give some comments on our operating expenses, income taxes, balance sheet and cash flow statement, starting with personnel expenses. Our personnel expense increased to 44.9% of net revenues for the first quarter, compared to 44.1% for the first quarter of 2010. This increase was primarily the result of an increase in our restricted stock expense. Our total stock-based compensation expense was $12.5 million this quarter, compared to $4.7 million for the first quarter of 2010. The majority of the stock-based compensation expense was driven by the vesting of our performance-based restricted stock awards. The vesting of these awards is based on our earnings growth rate.

Each year, we accrue based on the year-to-date growth rate and income from operations and diluted earnings per share. This year's growth of 15% for income from operations, and 18% for EPS compares to relatively flat earnings in 2010, compared to the first quarter of 2009. Also, as John mentioned in his comments and reported in the release, the first quarter of 2011's SG&A expenses include a charge for $5.9 million for the deductible plus post-judgment interest for an accident which occurred in 2004. We disagree with the verdict and the Appellate Court's decision, and plan to submit a petition for review to the Illinois Supreme Court.

Our effective income tax rate was 38.2% for the first quarter of 2011, compared to 38.4% in 2010. Both of these are within our current expected range of 38% to 38.5%. Our balance sheet remains strong with cash and investments of $360 million. We had a good cash flow quarter. As in previous years, the first-quarter of cash flow was impacted by the payment of accrued compensation.

Moving on to our CapEx. Our CapEx for the quarter, including software, was $9.6 million. This includes continued investments in our IT systems to support continued growth and efficiency improvements. We expect our CapEx, including capitalized software, to be approximately $40 million during 2011. We have discussed in the past, our strategy for using share repurchases as a variable way to return excess capital to our shareholders. During the first quarter of 2011, we repurchased 623,215 shares at an average price of $73.01.

That concludes our prepared remarks. We will now begin the question and answer portion of the call.

Thank you, Mr. Lindbloom. Ladies and gentlemen, at this time we will begin the question-and-answer session. (Operator Instructions).Our first question is from the line of Jon Langenfeld with Robert W. Baird. Please go ahead.

Ben Hartford in for Jon. If we could talk about, on the truck side, gross profit margin trends on the transactional business versus the contractual business. Could you talk a little bit about the trends, whether there was a divergence in the trends? I suspect that transactional gross profit was better than contractual trends in the quarter. But could you talk a little bit about that dynamic in the first quarter?

Yes, I would say the prepared comment around re-emphasizing the decentralized nature of the network was really sort of the set-up for that. We have a wide variety of customers, and where we have ongoing price commitments and longer-term price relationships during a tightening market like this, we will generally see some price compression in those longer-term price commitments. And transactional activity, by definition, the margins stay a little bit more consistent because by nature they sort of adjust to the current market conditions. So, there always is a little bit of a variance, but because the market has been tightening for several quarters now and because the marketplace is generally aware, both customers and carriers of how things are changing, we feel like both types of relationships evolved pretty well in the quarter for us. And that there was no real great disparity across our network from a margin standpoint.

And to that end, when you noted that pricing growth to customers ex-fuel outgrew the cost of capacity growth in the quarter, is there something unique about this cycle in that the visibility to capacity constraints is high and, therefore, you can experience outsized gross profit growth over the next several quarters because your momentum pricing to customers is possibly above trend here?

It's really hard to predict what's going to happen going forward, but we do think this cycle, consistent with past ones, that when the market begins to tighten and demand starts to rise, normally we'll see some relative margin compression for a while, until the industry as a whole kind of understands and starts to tolerate price increases and adjusting to the market conditions. We do feel that coming into 2011, with all the discussion last year around capacity shortages and the markets tightening for the majority of the second half of 2010 for sure, that we've reached that turning point where there generally have been price increases across all the modes, and particularly on the truckload side. So, the market does feel like it's turned, and is understanding of the tightness and the price increases. But where they go from here, again, it's always a relative supply and demand thing. It really depends upon how that demand and spot market compares to the supply going forward.

One more, if I could, on the Sourcing side. You talked about some of the disruptions in the first quarter. Now that weather is out of the way, what is the outlook here into April, into the second quarter as it relates to the produce market ,and refrigerated capacity in particular?

We've talked for the past few quarters about the trend of Wal-Mart's changes in the way that they are sourcing some of their product, which includes more in-sourcing and less use of C.H. Robinson. We expect to continue to see declines with Wal-Mart in the third quarter compared to last year's third quarter, so that will definitely be a headwind. But feel pretty good about the growth of the non-Wal-Mart business within Sourcing.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Bill Greene with Morgan Stanley.

I know in the past, you've mentioned that CSA doesn't really change the sort of liability that you think you face relative to SafeStat. Have you seen any change from shippers in how they're thinking about this, whether they're using brokers more or whether they're migrating toward carriers with decent grades? Have you seen any change there?

This is Angie, Bill. I don't know. I think it's premature to say that there's been a significant change in the way that people are selecting their providers. But, there's definitely a lot of discussions going on in on our part with our customers about their processes, our processes, the need to make sure that you have good carrier qualification processes and data in place, both today and under our new system. And until we have more details about the new system, I think for a lot of people, they are in a wait-and-see mode to see what that might look like.

And then we've noticed -- and I think, John, you've even mentioned it in past conference calls about the greater volatility in the rates and changes in capacity. Do you think that through this process, the model has proven itself? Or, do you need to address how many longer-term contracts you're willing to enter into? How do you think about the volatility we see in adjusting the model.

I think the model has generally proven itself. I feel like we're operating today under the same values and principles that we were 10 years ago. Whenever things get more volatile, especially when they get as volatile as they have the last couple of years, we need to be very cautious about long-term contractual commitments and make sure that we've got the shipper and supply side aligned with expectations. There's just more room for error when you've got greater volatility in it. But, I would say our business model and our approach to the marketplace and managing that supply and demand volatility is consistent with what it's been in the past. Like I said, if anything that maybe feels a little bit unique about right now compared to the past, is there's been so much industry-wide discussion about supply shortages and all the things that may cause it and the expected price increases, that maybe there's a little bit broader awareness and acceptance of what's going on in the market conditions than in past cycles. But, I think our business is reacting to it very similar to what we would have done in the past.

That's great. Thanks for the time.

Thank you. Our next question comes from the line of Scott Flower with Macquarie Securities.

Just a couple quick questions. I know that, John, you just talked about how there's more acceptance on the part of the shippers, having heard all the verbiage about what's going on in the truckload markets. Are you seeing any difference or change in your carrier development activity in terms of your capacity development?

Not really. We continue to sign up new carriers and have some fall off, just like we have during any other part of the cycle. So, no, I would say nothing significant to our change. There's been a lot of very public discussion, especially with some of the larger carriers, how some are adding equipment and some are not. So, within any given relationship, there might be a differing attitude about who's looking for growth or who's looking for keeping things. But, in terms of us overall developing the marketplace [on] the supply side, it feels fairly consistent with past periods.

Even with all the impact or possible impact of CSA et cetera, that really hasn't changed anything as you see it?

It has not yet. I think very similar to what Angie said earlier, there's certainly been a lot of discussion and planning for what the impact of it is going to be. And I know that within some carriers, they're working their drivers differently and preparing for how they want to operate under the new rules. So, within any given motor carrier, there could be some differences in practices that we're not really exposed to. But from our standpoint, in terms of qualifying carriers and gathering information around their equipment capabilities and preferences, we continue to sign up new ones and lose some old ones, and kind of manage that process very similar to what we've done in past periods.

Okay. And then the other quick follow-up is, could you give me some sense in the truckload and the LTL side. Was there any sort of trend change within the first quarter in terms of volume? Did it pick up toward the end of the quarter? Was it more even. I'm just trying to get a sense. I know there was obviously some weather in there. But, I'm just trying to get a sense within first quarter how the volume trends might have behaved within the months of the quarter.

I think the quarter is representative of what happened in and of itself. There was no discernable trends.

Great. Thank you.

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

A strategic question on the composition of your growth. Maybe you can put it in the context of the quarter that you just finished and then also in the outlook. I'm thinking about how much of your growth is coming from growth in outsourced transportation as a market? How much is coming from just economic growth and freight volume growth? And how much is coming from share gains? And has that changed over time?

Our growth strategy would definitely include everything you just listed around account penetration and developing new services and tying them together in more comprehensive outsourced solutions. The last several years, we have had greater emphasis on marketing what we have labeled outsource solutions. So, everything from a single-source transportation product in 1 mode to more complicated multi-modal programs. That would include our technology-driven freight management services, our TMC model that is the fee-based business where it's very much solutions and process-driven. All of those services in that outsource solutions category have continued to grow a little bit faster the last several years compared to some of our general growth in each of the services.

We have put greater emphasis on that, and I think we've talked in the past during the depths of the recession when customers were probably more reluctant to hire or to spend money on a technology solution, and then and now continued to look for more aggressive solutions to drive out costs and make things more competitive. That's probably the marketplace conditions that have been feeding some of our growth in that outsource solutions category, and causing us to continue to emphasize it and make sure that we're talking to the customers who may have a need for it.

Are these customers that have already been using outsourced transportation but you're taking them to the next level, or -- ?

It's all across the board. In some cases it's that. In many cases, our marketing strategy will be to build a transactional relationship and then eventually get more involved in routine bids and more consistent levels of freight. And then, when we have somewhat of an automated and working relationship and a trusting relationship with that customer, we can talk to them about relying on us on a more holistic way in 1 of many outsource solution type things. That's our normal marketing approach, kind of a bottoms-up thing, where we would start with a more limited relationship and then tie in. But occasionally, we get the request for proposal from somebody who is currently outsourced and evaluating it, or somebody who has never been outsourced in the past but is just looking to jump in.

Okay. Thank you.

Thank you. Our next question comes from the line of Matt Brooklier with Piper Jaffray.

Wondering if you could walk us through your truck gross yields in the quarter, per month, or provide them. Or, if you could just talk to them directionally.

Similar to the volume trend in the previous question we got about the progression throughout the quarter, there was no discernable trends that we're going to comment on.

Okay. Can you comment a little bit in terms of how April feels thus far, capacity tightness, what have you?

We're not going to quantify the results thus far in April. The year-over-year growth trends are similar to what we saw in the first quarter. Really, when we started commenting on the first month of the quarter is when there was directional things that we're causing it to either increase or decrease significantly during the quarter. So, now that we're not going up and down, we're just not going to necessarily comment on April.

On the Sourcing side, your gross yields, good improvement year over year. You spoke to 2 abnormalities in the quarter, the Wal-Mart business going away and also some weather impact. Just curious as to what's enabling you to improve the gross yield within the sourcing side of the business? Is it the Wal-Mart volume peeling off? Or, was it your ability to maybe charge a little bit more during [first] quarter, just given what happened on the weather side of things?

The primary driver of it is the weather. Each freeze or each crop is different, but it's generally the case that when there's a freeze there's a lot less product. But, customers are willing to pay for it because the market is so tight for it. So, the primary driver of that margin expansion was tomatoes, lettuce, couple other crops that had some pretty significant freeze activity where there was a lot less volume, but it was at higher margins.

Would you expect that to maybe get back down to a more normalized level moving out?

Yes, assuming the weather normalizes, yes, we would expect that to return as well.

Thank you. Our next question comes from the line of Tom Wadewitz with JPMorgan.

I wanted to ask you about the volume trends in truckload. I guess if you look back over the past 4 quarters or so, you had very strong growth in first quarter '10, and it's still been good, but it's decelerated. And then you see a little bit further deceleration first quarter, to 7%. How do you think that would develop looking forward, assuming that the market, the economy's okay and you see some further tightening in the market? Does that accelerate when shippers need someone to help find capacity? Are there any kind of directional comments you could make on how truckload volume might develop?

Yes, I think some of the prepared comments around that price/volume relationship, I think are relevant to bring into it, Tom. Because when the demand tightens like it did during the fourth quarter, it really wouldn't have been that hard to have higher volume growth. It's all a question of what margin it's going to come at. And like you said, we did have pretty high volume growth in the first half of last year. And as the year wears on, what we're going to be doing on a customer-by-customer basis and adapting to the market, is just seeing how tight it gets and seeing what pricing behavior is doing in the marketplace and what's the right blend of volume and price in order to balance keeping our customers happy and serving them with protecting our profitability and managing the business. So, I think it has a lot to do with kind of what happens in the marketplace and what's the right reaction for each customer, based upon how much more capacity they need and what price it's going to take to make it happen.

So, if the market tightens considerably, you would be less inclined to grow volume? Or, don't necessarily read it that way?

No, it depends upon what our customers want of us. I think what you can read into the first quarter is that most of our existing customers were willing to pay additional to get access to that capacity in the marketplace. When we look at our network in aggregate, that's how we see it reacted, is that maybe a little less volume growth than we could have had under other circumstances, but our margins held fairly constant with a year ago despite tightening market conditions. If that's the way the marketplace and our customers and our networks react in the future, you could see similar results. If the market gets really tight, and the transactional market gets a lot crazier than it is today, you could see a lot difference in volume growth.

Okay. And then as a follow-up, and I'll pass it along, on fourth quarter you mentioned that you had really gotten to a high level of productivity. And then 2011, you would probably have to begin to hire more aggressively. Is the increase in headcount in first quarter, I think up about almost 5%, is that kind of the right run rate to think about for headcount going forward? Or, is that a number which could accelerate further?

No, it could accelerate a little bit. Most of the offices are pretty actively looking, based on a pretty tight market and a lot happening. The headcount generally grows kind of closer to volume than to net revenues. So, it will depend, again, upon the market conditions. But, we do expect it to grow. We are looking at the same outlook as we had at the beginning of the year, that we had pretty tight staffing for a while, and now that the market is turning and volume is growing, we do feel like we're going to have to continue to add people into the network this year.

Okay, great. Thanks for the time.

Thank you. Our next question comes from the line of Ed Wolfe with Wolfe Trahan.

I'd just like to follow up to Tom's question on headcount. If headcount is going to grow, give or take, over time similar with volume, then I would think in a period where your net revenue is growing much faster than your volume, there should be some leverage. We didn't see all of that leverage. You talked about rising comp costs and some of the incentive shares around that. Can you talk about how that looks going forward? Is there anything unusual in the quarter in terms of compensation and personnel costs that wouldn't go forward if you had similar earnings going forward?

Chad highlighted in his comments the variance solely attributable to the restricted stock vesting. But remember, that in all of our core cash compensation variable pay programs, that those are based on profitability as well too. Our core bonuses as well as our growth pools, whenever our profitability grows faster, like it did this quarter compared to last year, you're going to see higher personnel costs. In addition to the restricted stock numbers that Chad gave, there is just the typical variance of increased personnel costs when we grow at a faster rate. We talked in the third and fourth quarter of last year that as our growth rate in earnings started to accelerate, we did have much more meaningful restricted stock and compensation charges for growth pools and others in those periods. As 2011 wears on, if our earnings growth stays constant, we will have quite a bit different comparisons from a growth standpoint.

I get the profitability changes, the amount that you pay out in compensation. But what I'm trying to understand is, would the [restrictive] grants be similar in second and third quarter, assuming similar growth rates of earnings?

Yes.

Yes, the charge would be consistent, and it would compare to different charges from last year.

Right. If our growth rates stay at exactly the same in each quarter, the expense would be very similar. There's other fluctuations that happen. There's stuff in equity expense, things like employee stock purchase programs, and we have some time-based vesting and we have some fully vested awards. But, when you look at the core driver of the expense, the expense would be identical, if nobody quit, too. That's a whole other -- But, on the leverage question, Ed, if you look at our restricted stock or our total stock-based compensation expense as a percent of net revenue, it's 3.2% this year, and it was only 1.4% last year. So, even excluding those other plans that accelerate when earnings growth rates accelerate -- the cash plans and the profit-sharing plans and things like that -- even excluding the impacts of those, our personnel expense as a percentage of net revenue did show leverage, excluding the things that are purely driven by volume -- or by earnings.

That's fair. How about branches? I see you're down 3 year over year. Is there any plans to increase those? Or, is that a pretty set number for a while?

We do have plans to continue to open offices and to grow. The down 3 year over year was from some consolidation of branches in previous quarters. We actually added 1 during the quarter. We added an office in [Goteburg,] Sweden that will be part of the European team. We do plan to continue to open more offices as this year progresses, and we did add 1 during the current quarter.

Directionally, relative to a year ago, would you say you have more business that's transactional relative to contractual or less?

That's a tough question because it gets into that fuzzy definition between the 2. We focus a lot on the pricing elements of what's contractual and what's transactional. Because we're doing a lot of business with our existing customers, a decent percentage of the volume is pre-priced. However, as you can imagine, there's a lot fewer bids in the marketplace today than there was over the last couple of years because of market conditions and pricing. So, it feels like because we're doing more business with existing customers and we have relationships in place, that our portion of contractual or pre-priced business is still fairly high.

I'm not sure what I just heard. It sounds like you're saying it's similar, depending on how you define it?

Yes, as we've always talked, Ed, transactional to contractual is a continuum of relationships. And we have route guides and pricing in place with our existing customers. And we have anticipated volumes with those current customers. For many of them, we're taking more volume than was originally planned. A lot of that would probably be at the pre-priced rates, so that a higher percentage of the freight would be moving around bid prices or set route guides or contractual type pricing arrangements as opposed to pure daily quoting or transactional pricing.

All right. Last question, fuel. When fuel is rising as fast as it was, it can be a benefit for your business. It can also be a negative. How was it for you in the quarter as you see it?

I think on the truckload piece it's probably pretty neutral on the biggest category because it adjusts pretty fluidly. In the intermodeal, air, ocean, LTL, where pricing is a little bit more steady, we probably benefit a little bit on the way up because just the timing of when the surcharges would correct or adjust. So, since truckload is such a big portion of our business, we feel like that passes through fairly timely and fairly clean.

Okay. Thanks for all the time. I appreciate it.

Thank you. Our next question comes from the line of Nate Brochmann with William Blair & Company.

I just wanted to talk a little bit on the strategic side, John, if you could maybe share with us a little bit of your discussions with some of your customers. As, certainly, intermodal and [move in] rail, and trying to save money as fuel prices rise, it would seem to me that you're in a great position to provide those multi-modal solutions for customers. I know access to containers have been an issue in the past. But could you talk a little bit about the discussions with customers and kind of where that business is going, or opportunities?

Yes. I think you summed it up well, Nate. We do feel like 1 of our unique capabilities is multi-modal solutions, where we can help a customer take advantage of savings when they're available, but have the safety net of truck capability for anything that needs to be done. As you have mentioned, over the last couple of years, there's been some times where access to boxes and access to capacity has been a [limiter] as to how much we could take advantage of that and offer it up as a cost-saving alternative in some of that multi-modal freight.

We do feel pretty good that in our relationships with our carriers, that there is more equipment coming into the marketplace that we're going to have access to, and that customers will want to continue to take advantage of some of the cost savings and efficiency opportunities that can happen with intermodal. So, while our volumes haven't grown a lot the last couple of years, it is definitely our long-term strategy to grow those volumes. And we're having discussions, selling, working with our customers and planning with our providers to make sure that we've got incremental access to grow the business.

Thank you for that. And then another kind of strategic idea but -- Europe's been something that seems to have been an opportunity for a long time but hasn't really necessarily picked up. In talking to some relationships over there, it seems like some larger companies are now beginning to outsource. And it seems like the network is starting to get to be there to kind of come your way a little bit more rapidly than in history. I was wondering if you could talk a little about what you're seeing there, and if you're seeing some more opportunities?

Yes, I talked earlier about the outsource solutions approach, where we're talking to customers about different types of solutions that involve kind of more dependency, more automation, generally multi-modal type stuff. We are definitely pursuing those across Europe as well, too. We've been doing business in Europe for about 20 years. I think in 1 of the messages that we've continued to emphasize, is that we're growing our business mostly organic, and we're trying to build it from the bottom up with long-term relationships and adding capacity and adding things very deliberately to make sure that we have high-quality service and we can build on that foundation. So, we've continued to feel good about the rate of expansion and the adding of services.

Europe has to us, has always felt like it's been reasonably conducive to customers looking at outsource activities, at least as much as those in the US would. It's been maybe more that we didn't have the network or the breadth of capabilities to offer them the way we are today. But, we've got some nice new accounts in the last couple of years around our TMC model in Europe, where we're selling process-oriented solutions and focusing in on the outsource type stuff. So, it's a 2-pronged strategy of growing our service capabilities and growing our network of offices, along with -- just like what we're doing in North America -- to tie those together and aggregate solutions into more comprehensive value-added programs for the customers that want to go in that direction with us.

Great. Thank you very much for taking the questions.

Thank you. Our next question comes from the line of John Barnes with RBC Capital Markets.

Could you talk a little bit about -- are you seeing any pressure on your carrier group with the rising fuel cost and the like? I know rates have gotten better, volumes have gotten better since the last time we saw a spike in fuel, but have you noticed any uptick in carriers taking advantage of any QuickPay programs that you may offer or something like that versus what they might have done in the last year when fuel prices were a little bit more benign?

We really, this quarter, haven't seen any significant pickup in the percentage of loads that are paid through QuickPay. I haven't really seen it yet. Again, but they never really came back down from when they spiked in 2008. And overall on the capacity side, it feels like maybe some of the really difficult times around bankruptcies and profitability are starting to distance a little bit on the motor carrier side. But, the difficult question still is who has the confidence to add capacity or order new equipment, and those answers seem to still be pretty mixed. That there are some who are investing, and how much of it is replacement activity and how much of it is truly incremental equipment.

There are still quite a number of carriers who say they're not adding, that they want to really improve yields and profitability first. So, the overall environment, the price increases, are obviously a positive thing. Many of the carriers have talked about how the fuel surcharges in the short term really don't cover their incremental fuel costs because of the empty miles. That they're only collecting fuel surcharges on the loaded miles, so that they have to kind of work through a cycle in order to adjust their rates and stuff to correct that. So, maybe some of the price increases and fuel stuff doesn't come through quite as quickly. But overall, probably a little less financial churn and a little more financial health in the carrier community than a year or 2 ago.

Thanks for that color. And then just a follow-up on your comments earlier about the customer base seeming to be more accepting of rate increases and understanding how tight capacity has gotten. Have you seen any change in maybe some other type of potential shipper behavior, where maybe [they're] more accepting of a company offering your services, more of a non-asset based company coming in and bidding on their business that maybe weren't doing business with a broker before. Have you really not seen any change in that kind of behavior?

We do feel like there is a longer-term trend. I wouldn't say there's anything radical in this quarter or the last couple of quarters. But, if you look back compared to 10 years ago, we do feel like there's a very clear longer-term trend of shippers across the board understanding our business model better, understanding third-party logistics better, all the different hybrids of business models and how you control quality and how you commit to things. We definitely feel like third-party industry [and] our business model has been gaining share and gaining confidence for quite some period of time. We do feel like the recession in general probably accelerated some of those trends a little bit over the last couple of years. That's a longer-term trend for us.

In the short term, what we've always talked about is that when the market starts to move 1 way or the other, it really takes service failures or kind of stress in the market really in order to move pricing. And in the last half of last year, there was freight that didn't move on the day that it was planned to. You saw route guide depth start to go a little bit deeper and a lot of discussion in the industry about rule changes and OEMs and ordering new trucks and all the rest of that stuff that I think, combined, brought most shippers into 2011 fairly aware of the market conditions and fairly open-minded about what they needed to do to get the right access to capacity.

All right. Thanks for the color. I appreciate it.

Thank you. Our next question comes from the line of Alex Brand with SunTrust Robinson Humphrey.

I want to follow up on Ed's question on the margins. With respect to other G&A, which I think if I back out the litigation, was down about 100 basis points year over year. Is that something that is sustainable, that you can create some leverage off of as well?

Yes, there's really nothing else unusual in there. There are expenses that do fluctuate, things like bad debt expense and others that are very hard to predict. But, there is nothing significantly unusual within the quarter. So, if the growth rates stay where they are, yes, that's possible that that leverage could sustain itself.

Okay. I'm going to try this again, Chad, even though it sounds like you don't want to answer this question. But there was no acceleration in the volume growth late in the quarter. I feel like in the past , you have talked about how that volume growth trend looks into the current quarter, first few weeks. No color on

There is no further color on that, other than what was in previous questions, which is, yes, that is true, that a few quarters ago and previous to that when there was extreme volatility month to month within the quarter, we felt that it was important to let you know. When we don't see extreme volatility, we're probably go back to the way we used to be and talk about the current quarter in its entirety and reduce the amount that we talk about the first month of the quarter, or the first part of the first month of the quarter.

There's a lot of reasons for that, Chad. I mentioned when there's less volatility. In addition, when we're in a month like this, the Easter holiday is different, there's a difference in business days, there's just a lot of things that we worry about the additional commentary not necessarily being helpful unless there's a clear trend that is taking it one way or the other.

Okay. On the bigger-picture question, kind of along the lines of John's last question there. When the capacity is tight, I think you hear a lot of questions where we're all concerned about whether you get squeezed on gross margin. But, do you think about it differently from that? And what I mean by that is, are you going to the market and saying, look, we have scale and can offer capacity that maybe others can't offer. And so, this is really more of an opportunity scenario than a risk scenario?

We do that. We certainly sell our scale and our capabilities to do things that we feel that most others can't in the marketplace. But as I mentioned earlier, Alex, that even like account by account, every day we lose money on transactions, and there's a wide variety of the types of relationships and the types of margins that we have. And there can be situations with customers where we're working our way in and developing the relationship and accepting low margins, or even occasionally losing money on shipments to help them get through a difficult time or to prove our wares to somebody on what we're doing.

That's why I, in the prepared comments, talk a little bit about it has a lot to do with each relationship, and each account manager of ours has to make those individual decisions around what commitment we have to that customer and what the expectations were and how the marketplace is changing. At times, you take more volume and less margin and at other times you adjust to the pricing so that you can have more assured capacity and not have as high degree of service failures and as much transactional tension in the marketplace. When I look at it, I look at our network and I look at our results and I say what I learned from it, is that our customers saw the tightening coming, and they were prepared for it and they wanted to make sure that they got first access to the capacity that's out there.

And our pricing moved with the market pricing and we were able to provide meaningful amounts of additional capacity to our current customers. We and they were both happy. That could change in future periods, depending upon just how tight the marketplace gets or how our customers react. Again, that's a generalization. There are customers out there that we did less volume with in the first quarter of this year than last year because they had differing pricing expectations and we couldn't service their needs at those price expectations. So, it's a combination of all of those individual account management decisions and adjusting to the market conditions based upon what we've built in that relationship.

Good color, John. I appreciate the time.

Thank you. Our next question comes from the line of Scott Malat with Goldman Sachs.

I just had a quick follow-up question. I know a few people have asked on this. Maybe I missed it. I just wanted some help. How do I think about employee productivity? You said that headcount moves up with volumes. That implies that employee productivity remains pretty flat. Is that a good way to think of it? Or, just as you ramp up tech hiring, should we get a little bit of dislocation around there, just as they get up to speed?

When you look at it overall and as we ramp up, I think it's really hard to exactly predict. But in theory, yes, we'll add people and then it will take them a while for them to become fully productive. But, when there's constantly different levels of freight, it's really hard to know because people will go and put extra hours in if there's more freight available to move because they're paid on incentives. But overall, there's going to be some fluctuations in that. But overall, it should move pretty close to the same, and hopefully gain a little leverage on headcount over time as we continue to invest in systems and other things to make the people more productive.

That's helpful. Aside from some of the productivity improvements, you kind of indicated that your productivity levels were higher than normal, and we could see just some slowing in previous calls. I'm just trying to understand. I guess you'll get improvement over time, [so] we should expect some productivity improvements. But, just in the nearer term, does it come off of high levels also?

In the shorter term, what you're going to see, like we talked earlier, is that we are hiring, we are adding people to the network. So, that if our volume growth continues during the year we do expect to continue to see incremental headcount for each of the next several quarters as we grow through that. We talked earlier about the leverage that we get by margin expansion and how our total personnel costs are up because of the variable accruals around restricted stock and growth pools. But that our actual headcount year over year and our transaction growth year over year in the first quarter was fairly consistent, kind of mid-single-digits. And that while the last couple of years, we've been able to grow volume, but headcount, we don't see that happening in 2011. That as we grow the business, we're at a point where we're going to be putting more people into the network going forward.

That's helpful. Thanks.

Thank you. Our next question comes from the line of Justin Yagerman with Deutsche Bank.

Just wanted to dot an I, cross a T here. The charge in the quarter, that's 1-time in nature. Operationally, it feels like a $0.61 quarter. Is that how you are looking at this?

We just wanted to make sure everybody understood the charge was there. You're right that the these legal settlements are pretty infrequent.

Okay. When I look at the quarter, I guess, trying to get a sense of the way that things are progressing here from a business model standpoint. It sounds like maybe transactional volumes in the quarter weren't as robust as maybe it could have been. Obviously, weather and some of the other issues that have been talked about were impacting there. As we look out, I guess 1 of my questions is around the West Coast and whether or not you are seeing a lack of activity there. We've heard that from a number of different carriers. And whether or not you are seeing that pickup or expect to see that pickup in the quarter. And if that could be something that drives an increase in the transactional market for you looking out at second quarter.

We did, during the first quarter, see some worse softness in the West Coast and some of the West Coast lanes than there was in the East. I think commented specifically around the intermodal variations and in some of our offices out there. It was not quite the same tightness. As far as how that will be going forward, it's very difficult to predict. The long haul West Coast stuff, especially in the summertime in refrigerated freight, it can drive some very transactional-type services that can have a lot of different margin attributes and a lot of different service stuff to it. But, it really can vary year to year depending on those market conditions.

Last year, if I'm right, second quarter you did see a big surge in transactional volumes, and that was around the time that we saw West Coast volumes really pick up. I mean, obviously there was a different mood around container availability and worries about peak season surcharges. But as we see that ramp, that was kind of what I was thinking about.

Yes, last year in both the first 2 quarters, we had very easy comparisons from a volume standpoint coming off the depths of the recession. So, while we had really good volume growth last year, some of it was not at very good margins. As we go through a tighter market like this, there may be those incremental transactional opportunities. But we're also, like I've described several times, making sure that we've got the business priced right to get the capacity in the marketplace and give it to the customers that are able to plan for it and price it properly.

Right now, it sounds like the real focus, just looking at the margin performance in the quarter -- yield optimization sounds like the word of the day right now? Or, margin optimization?

I would say that's always our objective. How it works out between price and volume probably has more to do with how the customers and capacity react in the marketplace. And that again, why I mentioned it several times, that our results tend to be the aggregate combination of how our network and how our customers reacted to the market conditions and what kind of price increases were tolerated. What we saw first quarter over first quarter, is that our customers, carriers and network reacted fairly consistently in terms of moving prices upward.

John, in your prepared remarks, you mentioned something that was driving LTL volumes in terms of more automated services, I think. Can you talk a little bit about that and where you are in that process?

Sure. We've had, probably for the better part of 10 years now, pretty good growth in our LTL. In the beginning of that decade or so, a lot of it was just expanding our relationships and our service capabilities and our internal processes around selling it and bringing it to the marketplace. Over the last couple of years, as we've gotten more into these outsourced solutions and process management through the recession and [into] this year, there are a fair number of medium-sized or larger LTL shippers that in the past would use multiple providers or not have as good a processes as we believe we can help them with.

When we go out and talk about how you route freight, how you automate with the carriers, how you build loads or consolidate, that a lot of the growth in our LTL stuff has come from significant volumes from customers that are giving us more of the single-source or outsource-solution type opportunities. So, it's been a longer period of time, 10 years or more, where we've been increasing our competency and growing that mode and taking market share pretty nicely. And now, the last couple of years it's more about an integrated process with a lot more technology and more relationships where we're handling all of their LTL freight.

It sounds like that's been more of an enterprise sale in terms of like a 1-off. What's the pipeline look like in terms of that market really flipping the switch over to truckload the way that there's been an adoption of the broker model there?

From a longer-term standpoint, we believe that as companies continue to focus on supply chain efficiencies and get more and more acceptance of 3PLs and trust in our business model, that there's really good long-term growth support there. And that's why we continue to say we feel like we can sustain our long-term growth goals and that there's good momentum around those opportunities. There's no question that we've increased our operational capabilities and our systems capability over the last 3 or 4 years, where the solutions that we can offer today are a lot different than what they were 5 years ago. And hopefully, that added capability on our part is adding to some of the growth.

As carriers are yield-optimizing in that market, has it been more or less challenging than the truckload market for you?

Probably as much price volatility as there has been in any of the modes and services that we deal in. So, in the depths of the recession there was some very aggressive price-cutting and market shares. And now that there is network rationalizations and a much greater focus on efficiency and profit improvement, you see a lot greater change. So, I think some of the industry volatility and variances by provider and that price volatility has probably helped us sell the value part of the single-source or the process solution. Because it's not so simple to go to the marketplace and just do a stagnant bid anymore. Things are moving around on you and the price difference and service difference from 1 provider to another might be greater than it's been in the past. And I think that contributes to the value that we can add in some of these relationships.

Last question, I'll turn it over to someone else. You got $360 million of cash, you're up significantly year over year. You did buy back shares in the quarter. And I know you like to keep a healthy amount of working cap. But thoughts on acquisitions or special dividends or buybacks in excess of what you're doing right now?

We continue to look pretty aggressively. Our first preference is always to try to find ways that we can invest organic growth or look at acquisitions to try to grow the business. The dividend practices are pretty set. I don't think our payout ratio will probably stay generally where it's been. And then, the share repurchases are the plug, as Chad has described many times. The core question in all of that from my point of view is, will we find any opportunities to invest in acquisitions and use some of that capital to expand our network. We've found over time that we've had periods of time where we hit a few and get real successful, and then it just feels like we haven't had success for a while here. But, we're out there looking, and hopefully we'll find a good investment for the shareholders.

All right. Great. Thanks for the time. Appreciate it.

Thank you. Our final question comes from the line of Ken Hoexter with Merrill Lynch.

On the cost of capacity, it was up about 6%. John, you talked about how net margins got squeezed a bit from 16.7% down to 16.5% from the fourth quarter. But you also talked about the fears and tightening in the market. The cost of capacity was up only 6%, down from 8% last quarter. What would be the rationale for seeing that slow on the cost side?

That's comparing year over year versus sequential. A lot of it has to do with what happened between the fourth quarter of '09 and the first quarter of '10.

Can you give a sequential?

I don't have every quarter in front of me, but it would -- the price changes were in the [Qs] back then. I just don't have it here with me.

I don't think the sequential changes from fourth quarter to first quarter are all that helpful because of some of the seasonal variances that we see each year. We tend to focus on the year-over-year stuff to get a better price comparison gauge.

Right. I guess I'm just surprised. Is the pace picking up, do you think, on the cost side? Is that fitting with your thesis that the market is tightening that much that you saw continued pressure on it? Or, is it just the first quarter?

It feels like for the last several quarters that year-over-year price increases have been pretty meaningful, mid-to-high single-digits. And that's reflective of a tightening market and the fact that shippers are understanding that they've got to allow some rate increases in order to get their freight moved the way they want to.

Okay. And then lastly, just so I understand, the LTL shipments, I think you were just alluding to this. But, you saw some significant acceleration there. Was there a driving factor causing that acceleration?

It's a combination of things I spoke of earlier, where we certainly believe that our execution and our operational capability and our systems and stuff are much better than they were 3 to 5 years ago. And then, the outsource solutions activity that I referenced a couple times around where we're bringing multi-modal, more integrated, automated type things, probably have all helped to our growth in that mode, to be able to have more ways that we can add value to the customers.

So, it's not something like that just as YRC continues to trickle along that you're seeing more shifting of business. It's actually your capabilities?

No, nothing to any 1 specific carrier, for sure. I did mention earlier that price and service volatility across the industry probably has led to a little bit greater acceptance of how a Company like us can add value in the LTL world. Because just single-sourcing with 1 provider is a little bit, probably more challenging to do today around the service variances and price variances. So, working with somebody like us, who can help route the freight to the best network a little more fluidly and better understand the market condition probably means more today than it did 2 or 3 years ago.

Makes a lot of sense. Appreciate the time.

We're sorry, but we're out of time, so that will have to be our last question. We apologize we didn't get to all of you today. Thank you for participating in our first-quarter 2011 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 1-800-406-7325, and entering the pass code 4432022 pound. The replay should be available at about 7 PM Eastern Time today. If you have additional questions, please call me, Angie Freeman, and 952-937-7847. Thank you.

Thank you, ma'am. Ladies and gentlemen, that does conclude our conference for today. Thank you very much for your participation. You may now disconnect.