New York, April 26, 2022 -- Moody's Investors Service ("Moody's") affirmed the Baa2 senior unsecured rating of freight brokerage company C.H. Robinson Worldwide, Inc. ("C.H. Robinson"). The outlook remains stable.
The affirmation of the rating reflects Moody's consideration of C.H. Robinson's disciplined approach to the balance sheet and leverage. Further, Moody's believes the company's strong market position in the U.S. freight brokerage market will continue to drive solid and consistent results despite challenges, including supply chain disruptions and rising fuel costs.
Moody's took the following actions:
Affirmations:
..Issuer: C.H. Robinson Worldwide, Inc.
....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2
Outlook Actions:
..Issuer: C.H. Robinson Worldwide, Inc.
....Outlook, Remains Stable
RATINGS RATIONALE
The Baa2 senior unsecured rating is supported by C.H. Robinson's large scale in the U.S. freight brokerage market, with revenue of over $23 billion, along with extensive data on transportation flows and truck availability that provides competitive advantages in a fragmented market. Further, the company operates a mostly asset-light business model and has a long history in truck brokerage. The asset-light model provides some flexibility to control costs and to protect cash flow during demand declines. However, the company's approach to provide a high level of customer service does require a high number of personnel and resulted in significant hiring in 2021. While margins are typically susceptible to pricing pressure given excess capacity and disruptions from competitive threats, Moody's believes the company will maintain EBITDA margin of around 5% over the next 12 months. The combination of size and scale will allow the company to capture a greater share of the market than smaller carriers that are unable to meet demand among tight labor conditions.
C.H. Robinson is exposed to the cyclicality of the transportation sector and demand in several of its end markets. Rising transport costs and a lag in timing from renegotiated contracts that should recoup inflationary costs, are also credit challenges. Further, increases in accounts receivable will be a use of cash for the first half of 2022, but should moderate later in the year as better pricing and working capital management take effect. Lastly, Moody's expects the company to maintain a conservative balance sheet given a disciplined approach to share repurchases and targeted acquisitions. Moody's expects adjusted debt-to-EBITDA to be sustained around 2.0x. The company's healthy cash flow also supports the credit profile.
Liquidity is good and Moody's expects cash balances will be maintained at around $200 million. In 2021, C.H. Robinson used revolver borrowings to fund an increase working capital and Moody's expect that this will reverse in 2022, becoming a significant source of cash. Hence, free cash flow (cash flow from operations minus capex minus dividends) will exceed $500 million in each of 2022 and 2023. In addition, the company has about $475 million available under its $1 billion revolving credit facility that expires in October of 2023. Moody's expects the company will refinance its revolving credit facility by the end of 2022.
The stable outlook reflects Moody's expectations of strong credit metrics that are consistent with the company's prudent financial policies and the maintenance of good liquidity in the face of challenging market conditions that are likely to continue into 2023.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating could be upgraded with operating margin approaching 10%. The company would also have to maintenance of a conservative financial policy related to share repurchases and dividends.
The rating could be downgraded with expectations of operating margin sustained below 5% or a material negative change in the cost structure or business model. A deterioration in liquidity, including recurring negative free cash flow or persistent working capital headwinds could also result in a rating downgrade. A more aggressive financial policy, including leveraging shareholder distributions or acquisitions that lead to debt-to-EBITDA above the company's upper target of 2.25x, or an inability to reduce leverage for a prolonged period following an acquisition would also pressure the ratings.
The principal methodology used in this rating was Surface Transportation and Logistics published in December 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1296092. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
C.H. Robinson Worldwide, Inc. is one of the largest global third-party logistics companies with consolidated total revenue of about $23 billion in 2021. The company provides freight transportation services and logistics solutions to a broad range of companies in a wide variety of industries.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Ron Neysmith
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Dean Diaz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
