羅賓遜全球物流 (CHRW) 2015 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson second-quarter 2015 conference call.

(Operator Instructions)

As a reminder, this conference is being recorded Wednesday, July 29, 2015. I would now like to turn the conference over to Tim Gagnon, the Director of Investor Relations. Please go ahead, sir.

Thank you and good morning, everyone. On our call this morning will be John Wiehoff, Chief Executive Officer; and Andy Clarke, our new Chief Financial Officer. Andy joined us in June and has extensive experience in the industry. Prior to joining Robinson, he served as the President and CEO of Panther Expedited Services and the CFO of Forward Air, after roles in investment banking and corporate finance. John and Andy will provide some prepared comments on the highlights of our second quarter and we will follow that with a response to the pre submitted questions we received after earnings release yesterday.

Please note that there are presentations slides that accompany our call to facilitate the discussion. These slides can be accessed in the Investor Relations section of our website, which is located at chrobinson.com. John and Andy will be referring to these slides in their prepared comments. I would like to remind you that comments made by John, Andy, 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 could cause actual results to differ from management's expectations.

With that, I'll turn it over to John to begin his prepared comments on slide 3, with a review of our second quarter results.

Thank you, Tim, and good morning, everyone. I'll start by highlighting some of our key long-term financial metrics that we focus in on every quarter. So on that slide 3, our total revenues of $3.5 billion for the quarter represent a 1.2% increase over the previous year. Net revenues of $584 million represent a 12.1% increase over last year's second quarter. Our operating income, or income from operations, increased 14.3% for the quarter. One of the things that we often reference is our growth in income from operations relative to our net revenues, and our hopes to mirror that over time or exceed it, if possible. And so we like the fact that our income from operations grew in excess of the net revenue growth rate. Earnings per share of $0.94 compared to $0.80 last year represents a 17.5% increase.

We're proud of the results. We think it's a good quarter. If you look at a couple of the other metrics that we share there, our average headcount is up 10%. That's including Freightquote. If you eliminate the impact of Freightquote, it's about a 1.5% increase for the quarter. But we like our performance for the quarter. We're investing in our business. And obviously, as we'll get into, there were some things in the marketplace and some marketplace trends that went in our favor throughout the quarter. And we've talked often in the past about those market cycles and how a lot of the value that we try to add is to protect our customers from exposure, either price-wise or service-wise, to those market cycles. So sometimes they go against us and sometimes they go in our favor, and we're acknowledging that this quarter, some market conditions went in our favor, particularly in the truckload sector.

But in addition, I hope, from an overall perspective, one of the other things that you take away from the call is the fact that we are making a lot of longer term investments that we feel positive about. Some of the headline items have been the larger acquisitions with Phoenix and Freightquote that we feel very positive about. We've been making investments in our sales force and going after both market share volume, but also trying to have balanced growth around how we grow our profitability and our margins, as well, so organic and inorganic growth. I mentioned that we are investing in our team. It's important, in our definition of balanced growth, that we invest in both the human capital to grow our business, but also the technology and the productivity gains to make them more efficient and to add value to our customers in better and better ways. So that's been our formula for sustainable growth, that when the market moves in our direction, we'll take advantage of it, and when it goes against us, we'll do the best that we can. And over time, we think our average results are going to be very good and create a lot of shareholder value. And that's what I think you saw in this quarter.

So moving off those overall enterprise results to slide 4, talking about transportation that makes up the majority of the business. On slide 4, I always like to remind everybody that there are a lot of factors that impact our transportation net revenue margin percentage. But nonetheless, I think it is helpful to start by looking at it on an overall basis. Because there is a lot of relationship between the various modes of transportation and integrated services and how we interact with the marketplace. From a total transportation standpoint, total revenues are up 2.9%, to $3.1 billion. Net revenues of $548 million were a 12.8% increase in transportation. The chart on slide 4 that shows our overall net revenue margin percentage shows 17.5% for the quarter, compared to 16% a year ago, or 150 basis point improvement. Throughout the individual transportation services and upcoming slides, we'll highlight a number of the items that are impacting that. But if you look at it from an overall C.H. Robinson perspective and summarize the various factors that are impacting it, the most material in the quarter would be fuel. We've given examples and talked in the past about fuel behaving as a surcharge pass-through in the majority of our business, particularly on the truckload side. If you do the math of reducing the price of fuel on both what we charge our customers and pay our carriers and reducing both amounts by an equal amount, it creates margin percentage expansion. And with the meaningful reduction in fuel year over year, that is the most material impact driving the net revenue margin percentage change in the second quarter.

The second most material item in that would be the mix. If you factor in, this does include the results of Freightquote and higher growth in LTL, higher growth in ocean services, and higher growth in shorter length of haul truckload services, all which have a higher net revenue margin percentage on a comparable basis. So mix issues are number two on the materiality scale of that margin comparison. And the third factor that, again, I'll get into by each individual item does relate to pricing and the fact that particularly in our contractual or committed pricing arrangements, that there can be timing differences in terms of how we adjust to the market and when prices move. And as you'll see on some of the services, the pricing to the customers increased at a slightly greater percentage than what our cost of hire was during the quarter. But that would be the third most material thing, in terms of explaining that variance.

Those are the comments that we'll share on an overall basis about our transportation. And then moving from that to slide 5 and our truckload results, which represent over half of our revenues, for the quarter, you see that truckload net revenues grew at 8.6%. As was indicated on the first slide, a quarter ago, I guess, when we were talking about our first quarter results, we did indicate that April started slower than our first quarter had been trending. And as you see in our second quarter results here, throughout the quarter, the months of May and June improved during it to finish at 8.6% net revenue growth for the quarter. Freightquote did add about 3.5% net revenue growth to the truckload category. So some of that was from the acquisition, but also the larger growth came from the improvement in the net revenue margin and the trends throughout the quarter. Andy will touch a little bit more and give you some quantification of that. But as I mentioned in my opening comments, we did see market conditions improvement throughout the quarter.

Our North American truckload volume grew 7%. So in the upper right-hand corner of slide 5, we give some of the key metrics that support that truckload activity with volume being a key one. Similar to the first quarter, volume ended up 7%, with about 3% of that being acquired volume from Freightquote and 4% being our legacy organic growth from our network. We do see a lot of activity in the marketplace with regards to bid activity, and we do believe that our volume growth increases this year have come from success in those bid opportunities and doing a good job of responding to the requests of our more committed or contractual customers. We did see less spot market activity in the second quarter of this year compared to a year ago. It becomes very difficult, as we've talked in the past, there is no real clean definition of committed or contractual freight versus spot market freight. In our book of business, there's a continuum of pricing commitments and relationships. On the extremes, there's very transactional activity, where you price it on the day of and there's no commitment either way, and similarly on large bids, there can be very high expectations of committed performance. But there are a lot of different variations in the middle.

Overall, though, it's pretty clear that compared to a year ago, where market conditions were much more volatile and route guide compliance was a lot lower a year ago, that in this year's second quarter, there was less spot market activity and more freight that was tendered and executed in accordance with contracts and committed pricing. Another important metric, when you look up in that upper right-hand corner -- again, it's difficult because our network is so diverse, and we have pricing that is very diverse across tens of thousands of lanes -- what we try to do to share those pricing dynamics is do the best we can to scrub out fuel surcharges and get down to consistent pricing comparisons, to the best we can. Those estimates are in the upper right-hand corner. I mentioned early in talking about total transportation that we did have some pricing improvement throughout the quarter. Our best estimates of that above are that our average pricing to shippers increased 3% year-over-year and our average cost of hire went up 2.5%.

A couple of additional comments that we can share with you about that. Again, that pricing represents a blend of all of those different types of customer relationships that I described earlier. In the contractual or committed category of pricing in this quarter, in many cases the increases were slightly higher than that. I think we would estimate 3% to 5% as being a market range of the types of pricing increases. And because of the spot market changes that I described earlier, in many cases, certain prices were lower than a year ago, based on year-over-year comparisons of market conditions.

Another comment that I would share with you, because I know that it's important to all of us to understand the trends and what's sustainable, is that one of the things that we often talk about and feel that we have unique exposure to in the marketplace is the variables created by produce season, because of our market leading presence there. And when product starts to ship and when those produce commodities come to market can have a meaningful impact on when and how the cost of capacity starts to change. Typically, we see a cost of increase throughout the second quarter, where the normal trend would be that the cost of hire would increase throughout the quarter. And one of the observations that we would make is we did see a slower rate of increase throughout the quarter than we typically would have. In some cases, that could be attributed to a lower, later start of the produce shipping and the produce season. It could be related to softer economic demand overall just creating a softer market. And those are the sorts of things that become important to us in adapting to the market every day and every week and making sure that we are servicing our customers and fulfilling the commitments that we have. But nonetheless, as I mentioned in my opening remarks, our customer shipper pricing did exceed the average cost of hire for the quarter. And that was positive for our net revenue margin expansion.

One other comment on this page that is important for those of you who follow our business is the last bullet point. We did add over 3,000 new carriers in the second quarter of 2015. That is a record high for us. An important part of our value add on the truckload services is the fact that it's a very fragmented market and that we can work with our shippers to get the most efficient and effective access to the right carrier for the right shipment at the right time. As we've talked in the past, we have more than 50,000 carriers under contract and we are constantly adding to that. There is a lot of churn. So in the short term, we don't know exactly what type of relationship and the amount of freight that will be moved by those 3,000 carriers. But it is an important vitality index to know that there is capacity coming into the marketplace and that we are growing our access and relationships to those at a record pace.

Moving then to slide 6 and our LTL results, you see our net revenues in LTL increased 35.8% for the quarter. That does include the significant LTL net revenue that was acquired in the Freightquote acquisition. Overall, the net revenue margin for the LTL services did increase in the second quarter. That also was impacted by the mix issues that I talked about. Andy will share some comments about the Freightquote business and the higher nature margin of that transactional business in LTL.

Our volumes, as you can see, were up 33%, with approximately 20% of that growth coming from Freightquote. We did have good volume growth in our legacy LTL business. We talked in the past about our market leading capabilities and the capabilities that we have around executing with larger, more dedicated customers. We feel very good about our market presence and the share that we are gaining in that. During the second quarter, it did not translate into similar net revenue growth in the legacy business. That's a combination of reasons. I think fuel has an impact in the LTL area that's a little bit different than in our truckload space, as well as just some price compression in the more higher volume dedicated business that we bid on. But nonetheless, we think this is an area similar to truckload, where we have a market leading presence and we feel good about our capabilities.

Moving to slide 7 and our intermodal results. Intermodal net revenue increased 6.2% in the quarter. And as you can see in the continents, similar to the first quarter, the majority of that growth came from the acquisition of Freightquote. As we've said in the past, we are proud of our capabilities and our service in this area. We know that we add a lot of value to the customers that we work with in the intermodal space. But we do not have a market leading presence. Scale is very important, and we have found it tougher to grow this service line. But nonetheless, we remain committed to it and we'll continue to invest and grow that service for our customers.

Moving to slide 8 and our global forwarding services of air, ocean, and customs, fairly similar messages to past quarters around this. We had overall net revenue growth of 8.6% for the quarter in global forwarding, led by the ocean revenue of 17%, air net revenues decreasing 9.9%, and customs net revenues increasing 6.4%. Same story here that we've invested significantly the last three years in strengthening our network and our operational capabilities in our global forwarding business. And we feel very good about our current capabilities and where we're at. Our core strength is in the trans Pacific corridor and specifically being number one in the NVOC rankings between China and North America. So we're trying to build market share and leverage that core strength of ocean services and also investing in our air and services in other corridors around the world.

Our air freight net revenues for the quarter as being down. We did have some pricing changes in the marketplace and some variances in volumes with larger customers that drove that. Growth in air freight is an important key initiative for us. And our total customer count did grow, and we feel like we are expanding our presence in the air freight. But given the relevance of size and density to your margins in net revenue and the fluctuations in the marketplace, we do expect to see the net revenue on the air freight line item to fluctuate a little bit more aggressively.

Moving then to slide 9 and our other logistics services. Again, the largest item in this category is our transportation management services. Net revenues increased 22.6% for the quarter. As we've talked in the past, this is a very important growth area for us, one, because it reflects the current marketplace and where the opportunity is to engage with a lot of our customers. It represents the scale of capabilities that we have to really work with larger customers on a more integrated way. And as I again have commented often in the past, there's a little bit different business model in a lot of our transportation management services, where it is much more common to have a five-year contract or a three- to five-year contract. We do spend or invest a fair amount of implementation dollars in those newer relationships. So we continue to grow with new customers and we are investing significantly in the implementation costs to grow that business. And we feel very positive about the long-term value creation that can come from that.

The last service line, on slide 10, our sourcing results, or Robinson Fresh, as we are branded in the marketplace. You see a net revenue increase of 2.2% for the second quarter, and that was driven by some of the growth in our strategic commodities. Again, for those of you -- to remind you or inform those who are not familiar -- the strategic commodities, produce and produce sourcing for us, works very similar to some of the transportation markets, where we can add more value in the commodities that are fragmented or nomadic and follow the sun around the planet. And we did see growth in those categories. The total revenues declining by 10%. That is representative of the fact that this is the sourcing revenues where we take title to the product. And really across the industry, there were some meaningful price declines in a number of the categories that we do business in. So that is reflective, really, of just the reduced price activity in the marketplace, where a year ago there were some freezes and some weather conditions that drove prices up. And this year we saw declines, in general, across most of the categories that we deal with. That net revenue margin improvement represents a return to something that we feel is in the normal range of where we can conduct our sourcing activities going forward.

So that concludes my comments by service area. With that, I will turn it over to Andy Clarke. As Tim mentioned, he is making his C.H. Robinson public forum debut with us. I know that a number of you know Andy from the industry in the past, as do I and a number of the rest of us here at Robinson. He has been with us for 60 days, and we are very proud to have him be a part of the team at Robinson. So with that, I will turn it over to him.

That you, John. I appreciate the kind words. Robinson is a great company and I'm really excited to be on the team. For nearly 20 years, I've had the good fortune to interact with a number of Robinson people, and I've always been impressed. Now being on the inside, I can tell you that the reputation, the accolades and the awards, like the inbound logistics number one 3PL for the fifth year in a row, are well deserved.

And now to the numbers. Starting on slide 11, with our summarized income statement. As John mentioned earlier, our net revenue accelerated during the quarter. Net revenue per day for April ended up 7.5%, as we saw performance improving going into the last week of the month. That trend continued in May and June, as net revenue per day increased 15% and 14%, respectively. Month-to-date, in July our total company net revenue per day is just up over 12% from the same period last year.

I'd like to now spend a little time on our operating ratios and some of the expense categories contributing to the excellent bottom line results our people delivered. We improved operating income as a percent of net revenue by 70 basis points during the quarter, to 39.2%. We focus quite a bit on this metric and these results represent our best performance in the past 10 quarters. Personnel expenses, our largest expense item, were up 10.5% in the quarter. Almost the entire amount of the dollar increase is attributable to the additional headcount related to Freightquote. Both historical Robinson as well as Freightquote operated more efficiently this quarter than in the same quarter last year. A majority of the rest of the increase in expenses is related to our variable incentive plans. Congratulations to the Robinson team for its ability to serve our customers, grow the business, and manage expenses.

Other SG&A expenses increased 11.3%. Again, the Freightquote acquisition, including amortization expense of $1.9 million, was the primary driver of the increase. As John mentioned, we are very pleased with the acquisition of Freightquote and the integration is proceeding very well. Our philosophy has been and will continue to be to acquire high quality companies and successfully integrate them. Total operating expenses increased 10.7% in the quarter, which is well below our net revenue growth. As a percent of net revenue, total operating expenses decreased to 60.8% in this year's second quarter, from 61.5% in the second quarter of last year.

Moving on to slide 12 and other financial information, we had a very strong cash flow quarter, generating just over $150 million in cash flow from operations. Capital expenditures were $12.9 million through the second quarter. As we discussed during our first quarter call, we expect full-year 2015 capital expenditures to be between $40 million and $50 million. The additional expenses in the back half of the year relate to the building of a second data center. We finished the quarter with total debt of $1.13 billion. The balance on our revolver is $630 million with a 1.3% rate, and our long-term debt remains unchanged at $500 million, with an average coupon of 4.28%.

And finally, before turning it back to John, I'd like to cover our capital distribution to shareholders on slide 13. During the quarter, we returned approximately $106 million to shareholders. That broke out with just over $57 million in dividend and $49 million in ongoing share repurchases. In the last 5.5 years, we have returned $2.8 billion to shareholders through dividends and share repurchases. During the most recent quarter, we returned approximately 78% of net income to shareholders. Our target continues to be to return approximately 90% of net revenue to shareholders annually.

Thank you very much for your time today. We appreciate your interest in our Company. I will now turn it back to John for his closing comments.

Thanks, Andy. Just a few high level statements addressing slide 14 and the look ahead before we transfer into the Q&A. Just reiterating what Andy stated earlier, that our enterprise net revenue per day is up 12% in July. That's one data point that we share with you. As a reminder, I think this quarter is a good example of how market conditions can move quickly and things can change fairly fast, which makes it difficult to forecast or give longer term guidance in our business. But the improvement that we saw in May and June has carried on, to a large extent, in early July.

Freightquote, talked about it a number of times. I think the summary comment there, half a year into it, is that we believe we bought a great business. Tim Barton and the team down there were doing a lot of very positive things that we've put together a thoughtful integration plan that we're well into, and the results are working. The Freightquote integration has a lot to do with our segmentation strategies. The business that Freightquote has a lot of success with is predominantly small customer LTL activity. And as we've looked at how we want to continue to compete in the marketplace, that's a segment that we are very interested in, but have not always invested in our network with the same commitment of resources that we have to the larger, more strategic customers. So Freightquote is a great business. It's helped reinvigorate one of the segments that we do a capabilities in. And I think that's at the core of why the acquisition will work and continue to provide lots of career growth and opportunity for their employees, as well as create some shareholder value for the C.H. Robinson network.

The last comment. We use the term balanced growth, and I started to touch on this in commenting about why we felt positive about our results for the quarter. But I just want to touch on it a little bit more, because I do think it is how we try to differentiate ourselves and create the right culture for our employees and the right atmosphere to service our customers in the way that we think is unique. And it really does focus on sustainable, long-term balanced growth. We talk a lot about pursuing market share gains, and that's obviously a very important metric for us in the long run. It's how we create value and it's how we grow the network. But we don't just pursue market share at the expense of the other metrics that matter to us, as well, around margin improvement and customer service and some of the other things that we balance with that to try to create the right mix of those metrics to create stakeholder value for everybody involved and provide the right career path for our employees.

As we talked about in the people metrics, we are adding to the network. After some volatile years of market swings up and down, we do feel like we're in a little bit more consistent environment and we're confident that it's the right thing to do to be investing in our team and growing our network. So we expect to continue to do that throughout the remainder the year. I feel very good about the technology investment. Chad has transitioned fully into that role and we're spending more money than ever to make sure that we are properly position to be competitive in our technology platform of Navisphere and making certain that we're balancing productivity gains with all of the human capital talent that we're putting into the network. And maybe most importantly, we do continue to feel very proud about the culture that we have at Robinson and the long-term focus that enables us to do the right thing for our customers regardless of the market conditions, as I mentioned earlier. And that's what we'll continue to pursue.

On the challenges side, the thing that I think is worth sharing, because when we've talked about our long-term double-digit EPS growth goal over the last five or six quarters, we've been able to exceed that. But one of the things that we've shared pretty consistently over the last three or four years is that when we do meet with our larger customers, there does continue to be a fair amount of what I would label as broader economic uncertainty that correlates to overall freight activity in those large customers. A number of the large retailers, manufacturers and food and beverage customers that we've dealt with for a long period of time continue in this time period of the last three or four years to be much more focused on supply chain efficiency and cost take out, as opposed to the tailwind of market share growth and volume gains that were prevalent for a long period of time before that. So when you ask us what on the negative side or on the challenge side, what do we continue to think about, it does feel like some of the tailwind in our industry that was there for a long time of underlying organic freight growth is maybe a little bit more challenged in some of those bigger customers over the more recent period than it has been in the past. And then secondly, I know we always get a lot of questions and talk about the fact that technology is changing very quickly and our industry is changing very quickly. And while we feel very good about where we're at today with Navisphere from a competitive standpoint, we do have to constantly stay alert to how quickly things are changing and any technological disruption that is out there. We factor all those variables into that balanced growth concept and feel like we're doing the right thing to mix them together and add value.

So with that, that ends our prepared comments on the quarter, as well as high level thoughts to look ahead. And with that, I will turn it back to Tim to facilitate some of the Q&A that was submitted.

Thanks, John. And as always, thank you to the analysts and investors that take the time to submit questions after we release on Tuesday. We've got a lot of great questions. We will do our best to get to all of them. And I welcome calls to try to get to the questions that we don't have time to answer. Calls or emails, please follow up with me. I'm happy to schedule time.

So we'll get right into it here. And the first question is for John. And that is around productivity. Could you talk about sales force productivity trends and your outlook on your ability to drive North America truckload and LTL volume on an organic basis, as well as what opportunities you see with Freightquote?

So drilling into those productivity gains that I referenced a couple of times, one of the common themes across our network is that we have evolved a lot of our roles and job families to conform more to how the marketplace and our business is changing. I referenced the segmentation initiatives on the customer side of the business. And as we've grown to be a larger global enterprise, one of the things that we've become more sensitive to is making certain that we have the right specialization of sales and sales people with the right competency matching up with the customers with the right capabilities and where they want to buy in the marketplace.

So when we look at productivity, it's different today than it's been in the past around the various segments and the various activities that we have. More and more the operational activity is being isolated and automated for efficiency. On a high-level basis, we feel very good, as I mentioned in the opening comments, that our volume growth, really in most every service this quarter, exceeded our headcount growth in terms of the talent that we're adding. And that is our long-term objective is to continue to provide the right types of career paths, the right types of training and really focus those people exactly where they can be most effective in the marketplace. And we do think that's translating into salespeople and operational productivities that are helping us create value.

Now those gains come with a lot of investment and a lot of effort, and at the same time, making certain that we have the right people and the right team put together in the right culture is probably the most important thing that's driving the success of our business. So that balanced growth initiative is all about balancing the two of those.

Tying in the Freightquote question, one of the things we're much more aware of and focused on today is the uniqueness that's required to serve those very small transactional customers that might literally only ship with you once a quarter or a couple of times per year, and how do you create the right information management and customer service for an experience like that relative to somebody who you might be doing hundreds of shipments per day with. We do have an evolving set of metrics and different capabilities; and, again, the branding and focus that Freightquote investment has brought to our network, we think will also be an enhancement to our productivity.

Thanks, John. Next question for Andy. Operating margin was much better than we expected. Is that a factor of Phoenix and Freightquote operating margins sustainably better than originally targeted, as well as improving on last quarter?

Yes, it was a very strong quarter for our operating margin and most of our key metrics. We had really good results at all of our business units, including Phoenix and Freightquote. It has been and will continue to be our goal to grow operating expenses less than net revenues, and we were able to accomplish that in the second quarter.

John talked before about balanced growth, and I think this shows that we can do it. We're focused on growing our market share profitably, with an ongoing commitment to optimization and efficiency.

Thanks, Andy. Next question for John. Can you discuss what the Company saw in terms of spot freight availability? Do you agree that there's less spot freight available, due to shippers moving more freight under contractual arrangements as a result of concern about capacity availability? If yes, what percentage of lower spot trade was the result of economic conditions and what percent was the result of shipper actions?

We do see a trend in the marketplace in our business reviews. I think it's been fairly well established, and we would agree with the notion that transportation, particularly full truckload transportation, is ripe for higher than inflation price increases in the future, due to driver shortages and the increasing cost of equipment and emissions control and all of the rest of those things. So it is a pervasive practice and something that we agree with that more and more of the larger customers are trying to contract out or get committed pricing on more of their freight to make certain that they can protect themselves and plan their own supply chain against a marketplace that has more and more uncertainty. So that is definitely something that we see.

I do believe that our engagement in those contractual relationships was a positive for us in the quarter that when, as I described earlier, the market settles down from a spot market activity that those commitments and that dedicated volume, particularly with more available capacity in the marketplace, was a very positive thing for us in the quarter.

The question asks around the quantification of it. And as we've said in the past, we wish we could. It's a very difficult thing, because of the wide variety of types of commitments and the continuum of relationships that we have. But we do believe that more than half of our truckload shipments that we moved in the quarter were on committed or contracted pricing. And that's very different than 20 years ago. Exactly how it moves from week to week and this quarter over last quarter, it's difficult to be more precise about that. But definitely a trend in the marketplace that's relevant and had an impact on our results for the quarter.

Thanks, John. The next question, again for you. With the looser spot market capacity seems to have played a positive role in the acceleration of organic net revenue growth in May and June, as you were able to arbitrage this against your committed rate. This has continued into July. But is there any concern that shippers will start to push back against your committed rates, given the current market dynamics? Essentially I'm asking, is this type of net revenue margin benefit sustainable?

So one of the realities of the marketplace that feeds into the previous comment that I made is that while there is a lot of bids and a lot of contractual commitments that get fulfilled in the marketplace, the reality of it is that the market is much more fluid than the paper might always indicate. And when market conditions move aggressively, sometimes it will provoke earlier rebidding of activity than might have otherwise been anticipated. Obviously, when the market prices change aggressively, like they did a year ago, you see a lot of people in the marketplace going after more lucrative opportunities or changing things.

So there's this template of relationships and expectations and contracts. We've always been very proud and believe that we fulfill our commitments as well as anybody in the marketplace, hopefully better, and that we understand those. But whatever the marketplace moves, there's always the potential for reaction, either on the provider side or the shipper side. And that is exactly what we do every day in our account managers to continue to add value.

So I wouldn't say there's concern, because that's what we've been doing for 110 years. But the reality of it is even though the market is becoming more and more committed, you always have to be prepared for how the market is going to continue to evolve and how anybody may react to that and how we may need to adjust.

Thanks, John. Next question for Andy. What is your outlook for capacity availability, especially as the new ELD rule and other regulatory requirements are rolled out between now and the end of the year? Do believe that the ELD requirement will result in an immediate tightening of capacity, or do you believe it will take time to see any impact?

Yes. Our outlook for capacity overall remains positive. Congratulations to our team. They signed up, as John mentioned, 3,000 brand new carriers in the quarter. What's interesting is that those carriers, on average, ran 8 loads each for us. So not only did we sign them up, but we immediately put them to work.

With respect to ELDs, the final rules are scheduled to come out later this year. And based on our time spent with the regulators, the implementation will extend over the next couple of years. The impact on capacity, just like in any other regulatory change, will be felt over time. We would expect, again, very similar with other regulatory changes, we would expect that certain industry groups will contest the current state of the rule, and where things ultimately end up, quite frankly, will be different than where they are now, but it will also be different than any of us can, quite frankly, predict.

Thanks, Andy. Next question for John. Please discuss any updated thoughts with respect to M&A. Are there any verticals, geographies that are more attractive for CHRW? What is management's current view with respect to consolidation in the brokerage space and longer term implications for growth and returns?

No change on the overall strategy. And just to repeat it quickly is that we are primarily focused on high quality M&A opportunities, with more focus on the service offerings or regions where we lack the scale and the market leadership that we have in many of our services. So things like intermodal, things like managed services. I referenced air freight in other regions of the world, in terms of global forwarding, where we believe we could have a disproportionately positive impact to our network by adding scale and adding high quality businesses to that. So we are looking. We are focused on that, with a very similar philosophy to what we've had in the past.

Our view with regards to consolidation. I think the relevant point about all that is maybe what I talked earlier from a segmentation standpoint. Your size and scale in the marketplace does impact the sorts of things that you can hopefully be more effective at doing. There are tens of thousands of brokers in the United States, and that or more in Europe and other parts of the world. And that broad brokerage network can compete transactionally in a lot of the local markets, and we see that everyday.

I think we've talked in the past about one of the bigger competitive landscapes changes that we've seen over the last five or six years is more people aggressively going after scale. Maybe scale in one service line or scale in their global footprint, so that they can combine services and aspire to provide more integrated things.

So the consolidation, if you will, in our industry is relevant from the standpoint of it changes who you might see in certain bids and what their capabilities would be. But the balance of all of that, as we've continued to talk about, too, is that part of the reason why people are investing and trying to gain scale is because we do believe that the longer term trends are favorable that more of the market place is going through a 3PL, or the type of provider. So from the terms of ultimate competitiveness and pricing and margins, it's a balance of broader industry growth and opportunity with how the globe is changing, with the level of investment and the capability and competitiveness of the companies that are coming in and investing that.

So certainly a relevant topic that we are paying attention to. And I mentioned it a couple of times, but we have, in the last three years, completed the two largest acquisitions in our 110 year history. So while we are being more focused and looking for high quality companies, we are participating, to a slight degree, in terms of being able to align ourselves with some high quality companies that we've known for a long time and feel are having a good impact on our network.

Thanks, John. Next question for Andy, and it relates to the Freightquote deal. When you announced the Freightquote deal, the Company mentioned a $7 million per year increase in interest expense associated with the transaction. Interest and other was down a little bit in the quarter, however. Are there one-time items that impacted that line, or is the financing cost just coming in lower than expected?

No, during the quarter we had a one-time credit of just under $1 million that impacted that number. However, going forward, our interest expense will be approximately $7 million per quarter.

Okay. Thanks, Andy. Next question for John. Can you clarify what was behind the 10% decline in sourcing gross revenue, particularly given that the case volume was up?

I think I drifted into answering this question in the prepared comments, which is the fact that we do source and distribute, take title to a variety of commodities in that perishable area. And a number of the items that we deal with do have ultimate market prices that fluctuate rather meaningfully based on market conditions and crop output. And really, the gross revenues in that service line being down are just a reflection of across many categories just a across-the-board reduction in the price of those commodities compared to a year ago.

Thanks, John. Next question for Andy. It sounds like Freightquote.com has better net revenue margins than your traditional LTL business. Can you remind us why this dynamic exists?

Following up on John's earlier comments, it's the difference in customer mix between Freightquote and traditional C.H. Robinson LTL business. Freightquote has a high concentration of small transactional customers, which is, quite frankly, is great for us, because it's an area we're focusing on. Typically, this is a higher margin business, whereas the traditional Robinson customer profile tends to be a larger high volume shipper without source agreements. While it's higher volume, it's lower margin. We can execute it very efficiently.

Thanks, Andy. The next question, again for you. What was the driver of the business trend acceleration in May, June and July? It seems like the rest of the freight market has seen sluggishness.

Yes, the faster growth in these three months is primarily the result of increased truckload net revenue per shipment. Usually at this time in the peak season, we have a bit more pressure with our purchased transportation costs. But right now, there's enough available capacity that we are able to manage our costs effectively. We would agree with the comment that the market seems to be a bit sluggish. But again, we've been able to hold our volume growth pretty steady thus far in July.

Thanks, Andy. Next question for John. Please discuss your thoughts around the source of the 7% North American truckload volume growth during the quarter, specifically the 4% excluding Freightquote. I'm assuming it's a combination of many factors, but are you seeing more contractual commitments driving this growth or is it from employee efficiencies, as your recent headcount additions become more productive, or something else?

I think this question ties back to a number of the earlier comments that I made, really under the umbrella of our balanced growth culture and mentality, that we are very focused on longer term goals of gaining market share, but are also balance on not trying to do that at the expense of making commitments that aren't sustainable or below market pricing that we know we're going to have to adjusted at a different time.

So we have the sales force that we're investing in, dedicated account managers that we're investing in, and we are responding to the changes in the marketplaces that I discussed earlier around a greater prevalence of desire for commitments and pricing and committed freight. So we're pursuing all of that in what we think is a balanced way, and it did lead to good volume growth in the quarter.

Similarly, the second part of the question around employee efficiency and headcount, you do need to add to your team in order to successfully grow this business. I think everybody in our industry has eventually acknowledge that, that there still is a lot about the relationships and the talent and the human element that grows our business. But there's also no doubt that the technology is changing and the productivity opportunities are training, and you have to do both. So the statement in the question around it's a combination of many factors is dead on. And I think we've hit on most of them today, in terms of describing how we're approaching the marketplace and what we believe drove the success in the quarter.

Thanks, John. Next one, again for you. Investors have seemingly become tepid on transportation names, believing that the manufacturing softness may play into the retail side. While we know it is difficult to predict the future, what is your current outlook heading into the second half of the year and your general discussions with your larger customers?

I touched on this a little bit earlier in the challenges side of the outlook. I would probably temper those comments less specifically to the second half of 2015 and maybe more just towards our long-term investor guidance and why we're talking about our business a little bit differently today than maybe five years ago. It does feel like particularly with our larger customers that economic conditions here in North America are not as focused on growth gains and market share as they were maybe 10 years ago and more focused on supply chain efficiency and savings, which is why we see opportunity and growth in our managed services, which is why our technology spending and account management spending and investment is as high as it's ever been, because we're responding to those opportunities in the marketplace and continue to feel really good about what those will provide for us.

The situation in Asia continues to be something that we monitor as well, too, around the health of those economies and the production activity and how our growth will occur. And again, for a number of years with that core lane that we're involved in from China to North America, the double-digit growth was almost assured. And while we still see a lot of future opportunity in that, it's maybe a little bit less and a little bit uncertain exactly what it's going to be based on how things are moving. I do think that's one of the relevant backdrops that has impacted our thought process of where we're investing and how we're going to the marketplace and how we think we'll be able to add value over the next decade as opposed to the past 100 years.

Thanks, John. Next question for Andy. With the strong level of buybacks, why is share count not noticeably declining from 1Q?

It really relates to the timing of the repurchases and the impact it's had on the weighted shares. So the difference in the weighted average share count between Q1 and Q2 is just over 700,000 shares. And again, we repurchased 766,000 shares in the quarter. So it really just relates to the timing of when we did those purchases.

Thanks, Andy. Back to John here. What's the outlook for both the air and ocean freight markets in the second half of 2015 and beyond?

So drilling a little deeper into our global forwarding division and where our heads are at, I talked about our investments the last three years and how we like our operational capabilities and our go-to-market strategies today in that global forwarding business. We are very confident that we're going to continue to be able to create value and grow that business in the long term.

If you recap some of the events over the last year or so, the port strike on the West Coast was a big deal in terms of some of the disruption. We've recently published some white paper thoughts around the Panama Canal and all the investment that's happening to change the flow of freight. I talked earlier about our air freight investments and the dynamics between air and ocean.

When we put that all together, we've had a great run the last three years with growing our net revenues pretty meaningfully every quarter since the acquisition of Phoenix three years ago. And while we still feel great about the long term, we did comment last year that our comparisons in the third and fourth quarter for the global forwarding business will probably be a little bit more challenging, because we're comparing to periods of pretty meaningful disruption a year ago. I commented about air freight and how that becomes very reactive to the current marketplace and supply chains. So we're investing in the long-term capabilities and market share gains there, but those results could be a little bit more volatile going forward, as well, too.

Thanks, John. Next question for Andy. Given the plethora of rapidly growing truck brokerage based logistics companies in the US, would you say the competitive intensity is the same or greater than it was five years ago? How would you see the competitive landscape playing out over the next five years?

Yes. We do see some of the competitors growing and pursuing scale through acquisition, as Jon mentioned. There are more larger competitors today than five years ago. And quite frankly, we welcome the competition. It makes us better.

Our approach, however, which we happen to believe is the right one, has been to focus on our customers by helping them improve their supply chain and drive better results. We know we will always have competitors that can offer brokerage services. But we also know, and quite frankly, this is where we're focused, is that there are very few non-asset-based competitors that have the people, the network, the processes and the technology to offer the same breadth of services on a global scale.

I happened to have the good fortune of sitting in on a customer presentation yesterday. It's a multi billion dollar global manufacturer with 26 facilities located across the globe, and they had their entire senior leadership team in on the logistics side for some strategic planning. And our ability to show them the global scale, the in-transit visibility across all different modes of transportation, I think they quickly realized -- and we're doing business with them right now -- that they can't get that service from any other competitor that's out there.

Thanks, Andy. Next question for John. LTL volumes excluding Freightquote looked to be up 13% year-over-year. This seems well above the market. Can you elaborate?

Yes, this is probably drilling down a little bit into our LTL service line. And I started to go there in the prepared comments, that we do believe we're the market leader in terms of 3PL services in the LTL space. And we're investing significantly in our capabilities to go in to larger customers and really help them understand the best way to ship that LTL freight. And as the marketplace moved toward e-commerce and smaller sized shipments, I think it's an area that's really ripe for our greater and greater value proposition.

We do believe that we can continue to take market share. Those larger integrated customers do have a little bit different business model or relationship with us, in terms of the effort and expectation that it takes to understand their business and to make sure that we flow the data and make the best decisions.

A lot of the supply chains change and get more complex and move faster. A lot of the opportunity for us to add value in that space is really in a more effective route guide to make sure that the right types of freight is going to the right people in the right quantities. And we're very proud of the fact that we think the LTL partners that we work with in the marketplace, that not only can we add value on the shipper side, but that we can do a better job with those carrier partners by giving them the freight that they really want and makes their network more optimal, as well, too.

I think it's just a great example of why the 3PL industry exists and is growing is that in the evolution of supply chains and a more competitive market, the better intelligence that you can inject into the decision making and the order management of those LTL cycles, there's an opportunity to create value on a number of fronts.

Thanks, John. Next question again for you. What are the major IT initiatives under development presently?

We've only got a few minutes left, and I could probably talk about this for the next hour or so, because it is a really important thing. And it starts with the premise that you've heard us talk about our Navisphere platform and the fact that when we think about technology, there are many different areas supporting all of our different divisions and regions where we're trying to make things more productive and, maybe more importantly, integrate with our customers in a more effective way to add value, like I just described on the LTL front.

The things that probably aren't as visible to everybody else relate heavily to how those different capabilities and services tie together in that Navisphere platform. Because the power of that is it allows us to give customer billings ability across their types of services or businesses. It also gives the foundation for optimization and mode selection around the different things that we're doing. Collecting all of the information regardless of region or mode in the same data warehouse feeds the analytics that are a really important part.

So we've got initiatives in the analytical area to help our customers and capacity providers understand their business and our relationship with them better. We've got productivity and operational enhancements in each of the divisions, and a number of technical initiatives to make sure that everything ties together and executes as effectively as we want it to.

Putting that all together, it's really our goal that Navisphere is an industry-leading transportation management system, or TMS as it's referred to, that is both an asset for us as a business and also something that we can extended to our customers and carriers in a way to increase their competitive advantage, too.

Thanks, John. Next question for Andy. Personnel expense leverage was favorable in the quarter, with net revenue increasing 12% and operating expenses just under 11%. Given the higher EPS growth in the first half, does variable compensation accelerate going forward or do you expect personnel expenses to grow in line with headcount during the second half? Are there any other factors we should be considering with respect to personnel expense growth?

Yes, we would expect personnel expenses to grow equal to or slightly less than net revenue growth. That's always been our objective. Typically, we would expect headcount to grow more in line with volume. Over the past six quarters, we've been able to grow volume at a faster pace than headcount.

As far as variable compensation accelerating, we don't expect that, as we had a good growth in the third and fourth quarters last year. And finally, we don't have any -- pardon me, we do have additional headcount, Freightquote, but the base Robinson business should not see an acceleration.

Thanks, Andy. Next question for John. Given the excellent first half performance against a mediocre economic backdrop, have you considering changing the 7% to 12% EPS growth rate targets laid out at your last analyst day in New York? With 200 basis points of that growth coming from share repurchases, is the core 5% to 10% growth objective now too conservative?

When we delivered that long-term double-digit EPS growth goal, we talked about the fact that that really did not factor into significant acquisitions, really. We have some history of smaller acquisitions supplementing our growth. But I think some of our enhanced performance more recently has come from a couple of good investments that have really paid off, and that our comments and the transparency that we're giving you to the legacy business and those trends, I think, probably do support maybe more the investor day longer range guidance that we gave.

So I think that still is the right long-term message that we're sticking with. And the comments I shared earlier about the GDP, the marketplace, and customer outlook probably weighs into that a little bit. When you put it all together, we will continue to look for opportunities to exceed our long-term guidance and hopefully create more value. But I think that's an appropriate message for us to keep our investors and potential investors focused on for now.

Okay. Thanks, John. This will be the last question for Andy. When do you plan to conduct your next analyst day? It seems that they should be more frequent than they have been.

Yes. We've had two investor days since becoming a public company. And I like the approach that John, Chad, Angie and Tim have taken in the past about holding investor day when there are important topics to present to investors and gain feedback. Going forward, I'll be working with John and Tim to build the current IR program. And I would not rule out an investor day in 2016.

Thanks, Andy. Unfortunately, we're out of time. And we apologize that we couldn't get to all of the questions today.

Thank you for participating in our second quarter 2015 conference call. This call will be available for replay in the Investor Relations section of the C.H. Robinson website, at www.chrobinson.com. It will also be available by dialing 888-203-1112 and entering the passcode 3923556#. The replay will be available at approximately 11:30 Eastern time today.

If you have additional questions, please call me, Tim Gagnon, at 952-683-5007, or by email at Tim. Gagnon@chrobinson.com. Thank you, everybody. Have a great day.

That does conclude today's conference. Again, thank you for your participation.