C.H. Robinson Worldwide, Inc. (CHRW) Earnings Call Transcript & Summary

All right. Good afternoon, everybody. Welcome. For those of you who do not know me at this point, my name is Stephanie Moore. I'm Jefferies Transportation and Business Services analyst. Thank you for coming to Jefferies 2026 Industrial Conference. We are very pleased to have the team from C.H. Robinson with us today. We have CEO, Dave Bozeman; CFO, Damon Lee. Welcome.

Thank you.

Thank you.

Format, fireside chat. I will kick it off with probably what has been the most topical area of question that you've received over the last couple of months or so, but that would be post the Supreme Court ruling on the Montgomery case, there's been a lot of, I think, just uncertainty that investors feel about just what this can mean for the overall brokerage space and C.H. Robinson as a whole. So maybe just to start things off, since the SCOTUS ruling, what processes have changed at C.H. Robinson?

Why don't you start off?

Yes. So I'd say post Montgomery, first of all, I'll just start with, look, we're a lean company. We have a lean operating model. All of our major processes are always going through some level of continuous improvement. carrier vetting is no different. But I would say, post Montgomery, we did not have material changes to our carrier vetting process. So roughly about I'd say less than 3% of our active carriers were expelled from our network post Montgomery. What does that tell you? That tells you is that we had an industry-leading carrier vetting process, pre-Montgomery. And we still have an industry-leading carrier vetting process post Montgomery. And then I would even add the life case, which has got the most recent attention. Post line, we've made no material changes to our carrier vetting process. So we've always felt really good that our carrier vetting process was of the utmost integrity and quality was industry-leading. We felt that way after Montgomery, we fill that way after life. We're going to continue to do what we do.

And just to add on to what Damian said, and we've been talking to investors, analysts about this and just putting some framing on this. We're a data company. We like to talk in facts and data not kind of in a motion in a sense. So if you think about it, we've been public for 28 years or so, we've had a docket. Everyone has a docket that's in this industry. in doing that. And we manage our docket pretty well. And our current docket, it consists of, say, like tens of cases, that's on the lower end of tens of cases. But you got to put that over an overlay of what's our annual shipments, 37 million annual shipments. Over time, we manage hundreds of millions of shipments over a current document dotted of, say, tens of cases. Our point there is that we're very good at managing a docket defending ourselves about those things. And also, if you're going to have a lawsuit or think you got to have an accident. We don't have many in doing that. And so we do very good. We feel good about our carrier network. We feel good about our bedding processes. And again, we talk about numerator denominator, the actual math of what's happening, and that's the scale, tens of cases, hundreds of millions of shipments and you just have to like keep that in perspective when you're going through this.

Yes. And just a round out what Dave said, look, 98% of are docket, right? So these are -- so of our current docket, 90% historically in current of those cases get dismissed or settled and the settlement amount of that 98% is somewhere between the range of $1 million to $3 million, right? So historically speaking, legal liability has not been a material issue for C.H. Robinson. We do not believe it's going to be a material issue going forward. We believe the live case is an anomaly. Certainly, the industry standard is to settle cases, not to let them go to jury trial that ultimately, we believe, will be turned on appeal. So we feel that the historical precedent that we've set with having a very successful path of managing our legal docket successfully. That's going to continue going forward. I'll just add one element because it's probably on top of mind is related to insurance. Just to provide some baseline insurance stats and then talk about what we think the future holds. So automobile liability insurance today is only 25 bps of gross revenue for C.H. Robinson and so it's a relatively a material number to our cost structure. Even if you have inflation on that number going forward, we don't see that number being a material impact to our earnings potential going forward. So we certainly don't believe the earnings trajectory that we've been on, the outperformance that we've been on in any way is going to be derailed by insurance. We're in early discussions with our insurance carriers. I would call those discussions reasonable and fair. I don't believe some of the more bear-case scenarios that you've heard of insurance going up 100% is going to apply to C.H. Robinson. I think we'll ultimately end up in a situation that that everybody gets a sense of com once we're able to share some of those details.

And Stephanie, as you know, we always say, who has -- who's the best proxy for our current docket it's our insurance carriers, right? They have an intimate knowledge of our current legal document. They are -- they could be on the hook for that. And so at the end of the day, how we progress with any type of increase of insurance or the rate of that, it's our insurance carriers will be a good proxy for people listening to this on how you judge Robinson on going forward, and we feel pretty good about ourselves.

Yes. And one last comment, Stephanie, if you allow me. We're in a bit of fog of war right now with the legal environment. We believe once we get on the other side of providing clarity around the legal docket, clarity around the insurance, we actually think this is quite bullish for C.H. Robinson, right? We believe the average small and medium-sized broker is going to have a very difficult time surviving in the post Montgomery Post Life world. Certainly, that market share will accrete to companies like C.H. Robinson a consolidation event. So again, once we get through some of the unknowns and the clarity that's needed on the current legal environment, the insurance environment, right? We believe this is actually a bullish economic position for Robinson going forward.

I do want to touch on maybe the longer-term implications for the industry and the potential for further consolidation. Before we get to that, though, Dave, and I think you addressed we talked about this earlier today, and I did. But do you think that there needs to be as the leader in the industry as yourself, to go into Washington or kind of create some maybe oversight or some changes from a federal standpoint post these rulings that will ultimately help the industry?

Yes, I do. And actually, I'll be in Washington all week next week. I'm sure you guys have a lot of sympathy for me in doing that. But it's on 2 vectors here. Let me just explain. Our team, along with some of my industry colleagues as well who agree with us on this I'll be talking to FMCSA, administrative bar really kind of driving the conversations around a standard. And we have to really get back to what is that duty of care standard that needs to be established from the federal government. And we certainly, as Robinson and others, are talking to the FMCSA to establish that standard. And I think we're going to do that because we have to get that going and that won't solve all of this. Having the standard, you have to have a second vector and that's the legislative part. And we'll also be talking -- I'm going to talk to a number of different senators, congressmen and women in which we're now talking about with the legislative solution on this. And that has to be a bipartisan approach to this. We think that this is bipartisan when you look at both sides of it, and we'll be having that healthy dialogue all next week to make sure we're applying what is reasonable liability when it comes to the legislative part of this. And so it's a 2-vector approach because what Scott has did on Montgomery was essentially -- it wasn't really an indictment on Robinson is essentially saying, hey, the federal government really is not capable of kind of driving this right now. And so they put it out to the various states in the various jurisdictions. Obviously, that creates ambiguity, and we just want to help Congress act and drive some clarity in this space. And ultimately, I think that will bring everyone in the industry should welcome some of that, and we'll be having some of those conversations next week.

So maybe moving to some of the longer-term implications for the industry. Are you already seeing some of your enterprise shippers actively consolidate their broker list post this rolling?

We certainly are. I mean, that behavior, Stephanie, has started. Part of it, you have to just do the framing on here. You have shippers who are looking at their own liability when they see what's happening. And part of it is they're looking at us saying, hey, yesterday, we may have had 12 different dispersion of our freight going out and they say, hey, maybe we don't need that. We'll roll that up into 2. And we're seeing those calls come to us. We're seeing some of that call quality. So the behaviors of shippers, we've seen that, that has changed. And we don't -- we think that's going to continue to happen. And as Damon said, we'll have continued roll up within the industry. And you know what, listen, at the end of the day, over the last couple of years, just on the economics, 20% of brokers had really shut their doors anyway over the last couple of years. Now at Montgomery and life to it, we think that, that obviously can increase to almost 30%, 40% per se, if you're a small to medium broker, and there'll just ultimately be some consolidation within the industry.

Yes. And Stephanie, we believe that consolidation happens a couple of different ways. One is certainly shipper selection, right? So shippers want a higher-quality broker, one that can provide some liability, stability between them and the freight movement. But then I think there's also just going to be the lack of insurability with small and medium-sized brokers, right? So we believe the insurance industry will also dictate kind of who wins at loses in the go-forward environment as well. So I think shippers will have an impact. I think the insurance company is on who all actually ensure going forward. And then I think you're back to the economics again, right? I mean you're in an industry where many of the small and medium-sized brokers still do not turn a consistent profit. For them, a higher insurance cost is going to be a lot more demonstrable to profitability than it would be to a company like C.H. Robinson. So we just think you've got multiple angles of influence on why we believe the small- and medium-sized brokers will consolidate. And then ultimately, we'll be a beneficiary of that market share.

I guess maybe just given this quite recently could be maybe the biggest change to this industry that we've seen since deregulation are certainly in many, many years, how is C.H. positioned to capitalize on this change in this environment? So the consolidation, the potential pricing mechanisms that come from this? What's the strategy going forward?

Well, our strategy is -- you've seen us, Stephanie, over the last 2 years and starting this transformation. And what we said is that we were going to build the best model in the industry. And I think we're on our way to doing that. And we don't just say that ingest. We invite everyone to just look at our results and what we have built. We've introduced Lean AI into an industry that's kind of count as it's countercyclical in this industry to bring in lean manufacturing within an industry. And we've done that along with technology. We feel that, that has generated the best model within the industry on a couple of different fronts. Our strategy was simple. It was one, outgrow our end markets; and two, expand our operating margins. in which you're really told in this industry, you can't do both. You have to do one or the other. And we just don't believe that at Robinson. And I think looking back, it's been over a little bit over 3 years, believe it or not, being in the chair here. But we've had 13 quarters in a row of truckload outgrowth. We had 10 quarters in a row of beating EPS consensus. And that's not going to stop. I mean we're going to continue, why, because our model of our lean operating model is one that has unleashed our technology. It's unleashed our people. It allows this company to be a disruptor, move at a pace that the industry is not used to and really go to from an output-based company to an input-based company. So we, in a sense, are we act like a technology company in an industry that's been around a long time. And that's where you're seeing some of that disruption. And so we are well positioned in pole position to not only have -- when the market takes off, I think we will have an exponential curve, not a linear curve, and you'll see more of a demonstrable spread between ourselves and the industry. And I think we feel really good about the results we've had, but it's a lot more coming because we're in early innings on a lot of that transformation.

Yes. I would just add that we've had the question yesterday and today of, okay, if you're going to take the demonstrable share, you're going to have to add more cost and to support that demonstrable share? And the answer is no, right? I mean we've built processes. We've built sustainable processes at C.H. Robinson that can absorb substantial amounts of volume without adding incremental cost, right? We have decoupled headcount growth from volume growth at C.H. Robinson, right? So the share that we're talking about accumulating to Robinson as the industry consolidates, right, we will be able to absorb that volume with very little incremental cost to the business. Therefore, the operating leverage will be great. right? So as Dave mentioned, I don't know that we could be in a better position to take advantage of what's getting ready to occur with the industry.

A 2-part follow-up on -- about what is the level of incremental volume you can take on within NAST before adding incremental cost or head count?

Yes, it's substantial, right? So just to give you one example, one of our agents out of the hundreds that we have in operations. We have one agent today that we've said this publicly that today, if it's doing 600,000 requests for transactional freight quote and tomorrow, the market in flex, and that goes to 6 million request for transactional freight quotes, we don't have to add any incremental personnel to support a tenfold increase in volume. And that's one example. We have numerous examples of mature agents that are operating, many, if not most, of our back-office operations at C.H. Robinson that can absorb multiples of volume increase without adding incremental head count. So we're very confident, right? We get a question a lot, how does your model work when the market rebounds, when more volume comes into the system, and we answer that with, look, nobody is more excited than us to prove what this model can do when you get substantial volume into the system. We've said this publicly many times, we think our operating margins and our operating leverage were surpassed out of the assets when volume returns to the system, just Q2 alone in a very tepid quarter where the market was down 4.5%. Our operating leverage as a broker was 96%, right? I don't think anybody 2 years ago would have thought a broker would have had operating leverage in a market that was down 4.5%. So we're very compelled about what our capability is on absorbing tremendous levels of volume without incremental cost.

I think it's important for me and the team at Robinson is that this audience listening to this, that this is not a temporary change. This is a structural change. And so this is very sticky. I mean we've been purposeful about where we apply these changes. And for us, we looked at that order to cash process. We have attacked that order to cash process. We've augmented our people and upskilled our people as we've gone after the small and medium business segment. We've been very successful with that, enhancing our people on the verticals that we participate in. But that particular order to cash process, as Damon said, that's a structural change. And so it doesn't matter. The market stays where it is for longer we win in that scenario. If the market does an inflection, we certainly win in that environment because it's a structural change. And that's the important thing to know about Robinson today versus Robinson yesterday. This is just a different model.

Maybe on the incremental volumes and consolidation piece, you've also been public in talking about taking on incremental volumes via M&A. That might be a change in tone from what we heard a year or so ago, maybe that's wrong. But how would you view your return or as you look to evaluate going after that share organically and via M&A?

Yes. So it won't be an either/or strategy, right? I mean we'll continue down our path of organic growth, organic margin expansion, organic outgrowth and earnings growth. None of that would change if we introduced inorganic to the mix, right? I think certainly, we had to earn our right to do M&A. I think certainly 2 years ago, we didn't have an organization that was mature enough from an operating model perspective to successfully integrate a company. Our technology hadn't matured to the point where we feel comfortable putting another company on that platform. certainly, I'd say, the last 6 months, we've gotten very comfortable that now we're stable, both from a technology and an operating model perspective. And therefore, we think there's some very attractive opportunities that can drive real value for ourselves and investors from an inorganic perspective. I think it will show up in 2 different forms. One we've already demonstrated. So in Q2, we acquired a company called DeSpir Logistics, roughly a $75 million acquisition. DeSpir is an industry leader in high-value, high-risk goods, right? So think advanced safety, advanced track and trace, advanced security protocols. That's an area that Robinson, I would say, is underrepresented in today. DeSpir brings that industry-leading capability. We put the Robinson scale behind it. we think the ROI is going to be fantastic on that acquisition. So the strategic tuck-ins that gives us capability that we can immediately scale is an attractive area of M&A for us going forward. And then we've also said we're not going to roll out scaled acquisitions either, right? I mean certainly, if you think about what we've done with the lean operating model, the Lean AI approach, we have the best cost to serve model in the industry. we do feel that at the right price, with the right mix of business, that there's competitors that are at scale that have relatively healthy books of business, so think relatively healthy gross margin. It's just their cost to serve model is suboptimized, right? We believe we can take that book of business, put that on the Robinson operating model. And ultimately, in a couple of years' time, bring that book of business up to 40% operating margins like our NAS businesses today. So we believe that type of acquisition can drive tremendous value for investors as well. Now we won't make a mistake. We're going to be very disciplined. As Dave said before, we're not going to be a statistic as it relates to M&A, right? When we do an M&A deal you will know why we did it, it will be compelling. But I believe you'll see us demonstrate our muscles in both of those vectors over time.

And Stephanie, you may recall, I mean, we first started this journey. So none of this is hazard, right? This was -- I talked about a diagnosis talked about -- you've been in some of those meetings, right? And coming out and doing that under like the 4 Ps, right? It was people, product, process and portfolio. And so we've systematically built out this strategy and this transformation around that people, product, process and portfolio. So assembling a leadership team that is really made for this moment, that was part of the plan. And Damon coming over from GE Aerospace, with his pedigree, having a CFO that understands Lean, understands transformation at scale that was really purposeful. It's just having Jim Ruttlinger come in from Danaher, helping me to scale out our Lean operating model, put together our playbooks for potential M&A. I mean, all of that was putting together the team that we have today that I think is exceptional that puts the company in a position of optionality and or something that we purposely built over the last 3 years.