EXPD Expeditors International of Washington Inc

CH Robinson Worldwide Inc. (CHRW) has increased its quarterly dividend from 33 cents to 35 cents, representing a growth of 6% in dividend payments. The increased dividend will be paid on December 31, to shareholders of the record on December 17.

The company has continuously paid out dividends to shareholders for over twenty-five years. In December 2011, CH Robinson boosted its quarterly dividend by 13.8% from 29 cents paid previously.

In addition, in August, 2012 there was an increase in the company’s share repurchase program by up to 10 million shares. Currently, CH Robinson is authorized to buy back 2.3 million shares under its 2009 buyback program.

Apart from investor returns, the company raised its estimated capital expenditures to $46-$51 million from $40-$45 million, given increased investment (approximately $6 million) in intermodal container fleet.

We believe that the company’s increased investor return and capital expenditure stem from its continued growth despite uncertainties surrounding the truck market. Being a third party logistics company, CH Robinson’s asset-light model provides greater earnings flexibility during an economic downturn. In addition, its multi-modal solutions remain advantageous in the current freight market by providing a one-stop solution for shippers, hence leading to reduced overall shipping cost. Additionally, the company’s diversified transport solutions help it significantly despite a volatile truck market that constitutes a significant revenue contributor.

However, CH Robinson remains challenged by rising third party carrier cost. Given capacity issues, independent truck owners are expected to further increase prices that could in turn compress margins.  In addition, on November 1, 2012 the company entered a $500 million revolving unsecured credit facility in order to finance the acquisition of Phoenix International (privately-held global logistics company). We believe that the new debt position would add a certain interest burden to the company, which might not be very encouraging for earnings growth going forward.

Further, regulatory issues and competitive threats from logistics services companies such as Expeditors International of Washington Inc. (EXPD) also pose significant headwinds to the company’s profitability.

CH Robinson retains a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating. For the long term, we have a Neutral recommendation on the stock.

 
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