The operator introduces the C.H. Robinson Fourth Quarter 2023 Conference Call and announces the participants. Chuck Ives, Director of Investor Relations, introduces the speakers and mentions the purpose of the call. Dave Bozeman, President and CEO, will provide a summary of the fourth quarter results and expense guidance for 2024. Arun Rajan, COO, will discuss initiatives to improve the customer and carrier experience. Dave will also share findings from his initial diagnosis of the company. The earnings presentation slides and non-GAAP measures are mentioned, and Chuck reminds listeners of forward-looking statements. Dave thanks everyone for joining the call.

The company's fourth quarter results did not meet expectations due to poor demand and pricing. However, progress was made on important initiatives, including charting a path forward. Truck volumes followed a normal seasonal pattern, with a decline in the Cass Freight Shipment Index. Global Forwarding saw a decrease in ocean shipments, which is typical for the fourth quarter. The company's AGP and operating expenses also declined, contributing to a decrease in operating income.

In the third quarter, the company experienced a decline in adjusted EPS due to non-cash losses on foreign currency revaluation and a higher income tax rate. The North American Surface Transportation and Global Forwarding businesses also saw a decline in volume and profit due to a weak demand environment and excess carrier capacity. The company targeted more truckload volume in the spot market to capture more profit, leading to a sequential improvement in overall truckload AGP per load. However, profit per load declined in December due to higher costs of purchased transportation. The company had a mix of 65% contractual volume and 35% transactional volume in their truckload business during the quarter. Year-over-year, there was a 10.5% decline in average truckload line haul cost per mile paid to carriers, excluding fuel surcharges.

In the fourth quarter, the company saw a decrease in truckload line haul rates and AGP per load due to a decline in market conditions and lower fuel prices. To address this, they plan to focus on revenue management and use advanced pricing and contract management tools to achieve profitable growth. In the LTL business, shipments and AGP per order were down year-over-year but saw a slight increase sequentially due to temporary exits in the market. In the Global Forwarding business, results were impacted by soft demand and ample capacity, leading to a decrease in ocean forwarding AGP. However, the company has been able to grow market share by providing differentiated solutions and leveraging investments in technology and talent.

The ongoing conflict in the Red Sea and low water levels in the Panama Canal have caused disruptions in global supply chains and increased transit times and ocean rates. The Asia to Europe trade lane has been most affected, but the impact is spreading to other lanes. The strain on capacity and elevated rates are expected to continue through the Chinese New Year. As a global logistics provider, the company is working closely with customers to navigate the situation and ensure flexibility and resilience in supply chains. They expect ocean pricing to loosen in 2024 as new vessel capacity enters the market. The first quarter is typically characterized by a decrease in ground transportation volumes, but the company remains focused on providing superior service and streamlining processes to support their customers and carriers.

In the fourth quarter, C.H. Robinson saw a 17% improvement in NAST shipments per person per day, exceeding their target of 15%. This is a result of their efforts to remove waste and manual touches, which has also led to a 20% improvement in shipments per person per month in Global Forwarding. The company's focus on productivity improvement is part of their plan to optimize their enterprise-wide structural cost. They have also received high net promoter scores, indicating their commitment to delivering quality and continuous improvement to their customers. C.H. Robinson is seen as a reliable and stable partner for customers, with the ability to invest and provide innovative solutions through cycles in the freight market. They are focused on improving the customer experience and reducing costs to prepare for a rebound in the freight market.

The company is focused on a few key workstreams to improve customer experience and eliminate inefficiencies. These workstreams include utilizing Generative AI to speed up processes and improve order entry. The company is committed to continuously improving and becoming more agile in solving problems for customers and carriers. The next speaker, Arun, will provide more details on these efforts and how they aim to improve efficiency and operating leverage.

GenAI allows front-line teams to utilize large language models for customer orders, even if they are received via email. This technology also automates touchless appointments, saving time and money for shippers. These advancements improve the customer experience and increase digital execution, leading to productivity improvements and operating leverage. In Q4, the company surpassed their goal of a 15% year-over-year improvement in NAST shipments per person per day with a 17% improvement.

In the fourth quarter, the company saw a decline in total revenues and adjusted gross profit due to the soft freight market. They plan to deliver further process optimization and improved customer experience, and have set a goal for additional productivity improvements in 2024. Revenue management is a key focus, and the company has invested in pricing science and contract management technology to respond to dynamic market conditions. They plan to increase the rigor and discipline in the application of these tools in 2024. The company also saw a decline in personnel expenses due to a favorable restructuring charge adjustment.

In the fourth quarter, personnel expenses for the company were down 10.5% year-over-year due to cost optimization efforts and lower variable compensation. The average headcount also decreased by 13.3% year-over-year. However, there was a sequential increase in personnel expenses due to achieving certain bonus targets. SG&A expenses were also down 5.8% year-over-year, primarily due to reductions in contingent worker expenses. The company exceeded its cost-savings commitment for the year and expects to see long-term structural changes from these efforts. For 2024, the company has set a personnel expense guidance of $1.4 billion to $1.5 billion.

In 2024, the company expects a 0.2% increase in total expenses compared to 2023, with two offsetting factors being the restoration of target incentive compensation and continued productivity improvements. SG&A expenses are expected to be between $575 million to $625 million, with $90 million to $100 million in depreciation and amortization expense. Interest and other expenses in Q4 were down 10.1% year-over-year, driven by debt reduction and a loss on foreign currency revaluation. The FX impact was mainly due to non-cash gains and losses related to intercompany assets and liabilities, with an unfavorable impact of $18.4 million in Q4.

The company faced challenges in operating in Argentina due to strict monetary policies and currency devaluation. To mitigate these challenges, they divested their operations in Argentina and converted the business to a local independent agent. The company also had one-time tax expenses in Q4, including a tax settlement and expenses related to the divestiture. Excluding these expenses, their effective tax rate was lower in 2023 compared to 2022. They expect their effective tax rate to be in the range of 17% to 19% in 2024. Q4 adjusted earnings per share was $0.50, excluding one-time tax expenses, foreign currency losses, and a reversal of restructuring charges.

The company's cash flow in Q4 of 2023 was significantly lower compared to the same period in 2022 due to changes in net operating working capital. Capital expenditures were also lower in Q4 of 2023 and are expected to increase in 2024. The company returned less cash to shareholders in Q4 of 2023 due to the decline in cash from operations. The company's balance sheet shows a decrease in debt and an increase in liquidity. The company's focus on maintaining an investment grade credit rating has influenced their capital allocation strategy. The progress made on productivity initiatives in 2023 is seen as a positive sign for future growth.

The company is expecting significant productivity improvements in both NAST and Global Forwarding over the next two years, with a compounded improvement of 32% or better. They are actively working on reducing waste and driving structural cost changes to improve operating leverage and meet long-term margin expectations. The CEO has completed a diagnosis of the company and is taking actions to focus on both customer value and revenue generation, as well as reducing structural costs through lean practices and digital capabilities. This will make the company more efficient and the highest value provider.

In summary, C.H. Robinson is focused on meeting the increasingly complex logistics needs of their customers by leveraging their expertise and relationships in the freight market. They plan to drive profitable growth by reclaiming share in eroded segments and expanding their addressable market through value-added services. To achieve this, they will improve their go-to-market strategy and focus on driving synergies across their portfolio of services. The company has recently launched an Enterprise Strategy Program Management office and added a new senior leader with experience in continuous improvement to help drive their strategic priorities.

During the company's prepared remarks, the speaker expressed confidence in the company's potential for growth and creating shareholder value by improving their value proposition, increasing market share, reducing costs, and improving efficiency and profitability. The call then opened for a Q&A session, with the first question asking about the company's pivot towards the spot market and how this may impact their revenue management strategy. The response highlighted the company's opportunistic approach to finding profitable demand and the current soft market conditions.

In the short term, the company is not seeing any major changes in the market and is not triggering any major repricing. However, they are focused on grabbing as much volume as they can in the spot market. Their revenue management discipline will come into play if there is a sustained inflection in the market. The next question from an analyst was about the impact of the first quarter, with the winter storms and volatility in the Global Forwarding markets. The company is seeing some tightening in the market and potential squeeze on AGP, but the full impact is still uncertain.

The speaker discusses the seasonal cost increase in January due to capacity coming out of the market for the holidays. They mention that this typically settles down by mid-January, but adverse weather has caused cost and capacity pressures in affected markets. However, as the weather dissipates, costs are expected to return to normal. The speaker also mentions that they will honor commitments to customers unless the cost increase is sustained, in which case targeted repricing may occur. On the Global Forwarding side, there has also been volatility due to weather.

The elongated trough in the current market has caused a lot of contracts to be repriced, which is suppressing margins. On the ocean side, there are capacity disruptions and increased pricing, but this is likely temporary. The composition of the ocean business is also different, with only 20% of contracts being spot compared to 65% in truckload.

During a Q&A session, an analyst asks about the impact of the tough market on competitors and if there is any desperation among them. The company responds by stating that they are still investing in projects and trying to increase their clock speed, which they believe will make them stronger when the market turns. They do not comment on specific competitors but acknowledge that the market is stressed and they are seeing the implications of this. Another analyst then asks a question about the company's financial security and the potential risks and opportunities in the current market.

The company expects to maintain flat operating expenses in 2024, despite the added costs of COVID. This is due to the restoration of incentives and normal inflation. The company is focused on improving their cost structure and has seen significant productivity gains in both businesses. They also anticipate a rebound in the market in the second half of this year.

The speaker discusses the current bid environment and how customers have different approaches to pricing contracts. Some want resilient pricing while others want more aggressive pricing based on current market conditions. The company considers revenue management objectives, customer attributes, and the value proposition when determining pricing for contracts.

The speaker reiterates the importance of considering all factors when responding to customer requests in order to sustain the contract and meet objectives. They also mention the delay in capacity coming out of the market, but expect it to impact pricing in the future. They then address a question about the "core four" businesses and clarify that they will be focusing on those four and potentially simplifying their structure in order to drive growth.

The company's focus is on truckload, LTL, Ocean, and Air services, with a goal of maximizing the feed of these businesses. The CEO is constantly evaluating the company to ensure this focus is maintained. One of the company's main findings is the opportunity to drive better synergies across its portfolio, with half of its customers currently using both NAST and Global Forwarding services. The company sees potential for more wallet share by unlocking the potential of these services.

The speaker discusses the importance of showing up as a suite of services to solve complicated problems for customers, rather than offering individual solutions. They mention focusing on this approach and having structured plans in place to drive value. The speaker also addresses a question about guidance for the year, stating that they do not give AGP guidance due to the volatility of the business and difficulty in predicting macro demand and capacity elements.

The speaker discusses the current state of the company and provides guidance on pricing and the future outlook. They mention the difficulty of predicting with certainty and suggest that the second half of the year will bring a turnaround. The call is then concluded.

This summary was generated with AI and may contain some inaccuracies.