C.H. Robinson's new operating model off to a good start, say analysts, as shares skyrocket

By James Rogers

The new operating model "is still coming into its own," says C.H. Robinson CFO Michael Zechmeister

C.H. Robinson Worldwide Inc.'s new operating model is off to a good start, say analysts, after the shipping logistics provider's better-than-expected second-quarter profit.

"CHRW reported better-than-expected second quarter results as the company's new operating model continues to be implemented, resulting in more favorable outcomes including cost," wrote BMO Capital Markets analyst Fadi Chamoun. BMO Capital Markets raised its C.H. Robinson price target to $92.

"CHRW reported solid results given execution of the new Robinson operating model that CEO Dave Bozeman has implemented," wrote Benchmark analyst Christopher Kuhn, in a note released Thursday.

"Implementation of the new operating model including disciplined pricing and capacity procurement positively impacted the quarter causing adjusted operating income and margin to exceed our estimates." Benchmark raised its C.H. Robinson price target to $110 from $90.

Related: Freight demand is weak, but cost cuts help C.H. Robinson boost profits. Shares are rallying.

"Newly hired (June 2023) CEO Bozeman has put his lean operating expertise to work since the start of the year, which has clearly shown up in results (have handily beaten Street expectations the last two quarters)," wrote Raymond James analyst David Hicks, in a note released Thursday.

"While this dynamic is supportive of operating margin improvements as the company decouples headcount from volume growth, further opportunity arises on the gross margin side of the equation as investments in technology and automation take root."

C.H. Robinson's shares (CHRW) surged following the company's second-quarter results and the stock is up 14.3% Thursday.

The new operating model aims to bring more discipline to C.H. Robinson's operations and "decouples" headcount growth from the company's volume growth, according to the company. Last quarter, C.H. Robinson said that it was starting to see the benefits of the new operating model.

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During a conference call Wednesday, Bozeman said that the company's second-quarter results reflect a higher quality of execution and performance, as C.H. Robinson continues to implement the new operating model. "The Robinson operating model starts with an enterprise strategy map that lays out the key strategies that we need to execute on to drive profitable growth and improve the operating income of the business," he added.

The new operating model "is still coming into its own," according to C.H. Robinson CFO Michael Zechmeister. "I would expect that as time passes, we get better and the performance should reflect that," he added, during the conference call.

"While two quarters of good performance shows improved execution, we believe it will take an upcycle to prove that the model is disciplined with volume decoupled from headcount growth," wrote Benchmark analyst Kuhn, in Thursday's note. "The first half is a good start, and the company is set up well to produce strong leverage once volume and contractual prices increase in our opinion."

Related: C.H. Robinson Worldwide names David Bozeman as CEO, succeeding interim-CEO Scott Anderson

In its second-quarter results, C.H. Robinson also cited the ongoing disruption in the Red Sea, noting that ocean rates declined slightly in July, but remain elevated compared to 2023. Benchmark's Kuhn noted that C.H. Robinson's global forwarding revenue and adjusted gross profit were 13% and 4.4% higher than Benchmark's estimates driven by higher prices due to the Red Sea disruption. "But NAST [North American Surface Transportation] was the main contributor to the better results," he added.

C.H. Robinson shares are up 17.8% in 2024, outpacing the S&P 500 index's SPX gain of 14.9%.

-James Rogers

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08-01-24 1139ET

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