Jan 30, 2008
Executives
Angie Freeman - Director of IR John P. Wiehoff - CEO and Chairman of the Board Chad M.
Lindbloom - Sr. VP and CFO
Analysts
Justin Yagerman - Wachovia Securities Michael Halloran - Robert W. Baird Edward M.
Wolfe - Bear, Stearns & Co. Tom Wadewitz - JP Morgan Jason Seidl - Credit Suisse Ken Hoexter - Merrill Lynch David Campbell - Thompson Davis & Company Nate Brochmann - William Blair & Company
Operator
Good afternoon, ladies and gentlemen and welcome to the C.H. Robinson fourth quarter 2007 conference call.
At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session.
[Operator Instructions] As a remainder, this conference is being recorded, Tuesday, January 29, 2008. Now, I would like to turn the conference over to Angie Freeman, C.H.
Robinson, Director of Investor Relations. Please go ahead Ms.
Freeman.
Angie Freeman - Director of Investor Relations
Thank you. On our call today will be John Wiehoff, CEO and Chad Lindbloom, Senior Vice President and CFO.
John will provide some prepared comments on the highlights of our fourth quarter and full-year performance, and we will follow that with a question-and-answer session. I would like to remind you that comments made by John, Chad, or others representing C.H.
Robinson may contain forward-looking statements, which are subject to risk and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management’s expectations.
With that, I will turn the call over to John.
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Thank you Angie and thanks to everybody who is taking the time to listen to our fourth quarter conference call. About an hour ago, we sent our press release that shares our results for the fourth quarter and year-to-date of 2007.
I would like to start by highlighting just a couple of the key financial metrics that you see on that release. For the fourth quarter ended December 31, 2007 our gross revenues increased 18.8% to $1.9 billion.
Our net revenues increased by 15.9% to $322 million. Our income from operations increased 20.4% to $132 million for the quarter.
Net income increased 18.7% to $85 million. And fully diluted EPS increased by 19.5% to $0.49 per share.
Our year-to-date numbers for all of 2007, our gross revenues increased 11.6% to just over $7.3 billion. Our net revenues increased 14.9% to $1.2 billion.
Our income from operations increased 22% to $509 million for the year. Net income increased by 21.5% to $324 million.
And our fully diluted EPS increased by 21.6% to $1.86 per share for 2007. Overall, we were very happy with our fourth quarter results.
We exceeded our long-term growth target of 15% in all of the financial metrics that I just referenced, despite the fact that market conditions in a lot of our service offerings presented some challenges. During the fourth quarter for the first time in a while our gross revenue growth exceeded the growth rates of our net revenues.
The press release that we sent out gives some details by each of the service offerings to help explain the drivers of that, however, I want to highlight a few of the more significant factors. Significant fuel price increases for the quarter was one contributing item, a decline in truckload gross profit margins and higher commodity prices for some items in our Sourcing business.
We’ve discussed many times before that given the variety of ways that we price our services that it is not possible for us to be precise in the impact of fuel, however, we can't quantify the impact in some areas and we can estimate it in others. We do know that we experienced significant fuel cost increases in all the modes of transportation during the quarter, which helped to drive gross revenue increases.
For about a year now, we have been stating that our gross profit margins for truckload services were at the high-end of the range based upon our historical experience. We did see a slight decline in gross margin percentages for the fourth quarter of 2007 compared to the fourth quarter of 2006.
The primary driver of our growth for the fourth quarter of 2007 was the volume growth in our North America truckload offerings. Overall, volume growth was in the mid-teens.
And as a reminder, the way we report in our truck services, that category includes all forms of truckload services, which would include dry van, flatbed, refrigerated, as well as less than truckload and European truckload services. Volume growth for the truckload services category was in the mid-teens.
The growth for the individual components of the truck category did vary, however, we believe that we were able to grow our market share of transaction volumes in all of the services by growing our volume when industry data suggest that overall volume and demand was generally close to flat or down for some of the services. I will talk more in my 2007 year-to-date comments about our volume growth and why we believe we were able to achieve those results.
Also during the fourth quarter of 2007, we were able to grow our earnings faster than our net revenues. There is a variety of contributing factors to us leveraging our earnings growth.
Most of them are consistent with the previous quarters and we've discussed them in the past. A primary contributor during the fourth quarter and during all of 2007 was our variable incentive plans, including our equity awards, which reward growth.
While our total personnel expense for the fourth quarter of 2007 increased by more than $15 million from the fourth quarter of 2006, it did represent a lower percentage of our net revenues allowing us to grow our operating income at 20%. We think our incentive plans do a great job of balancing employee and shareholder rewards.
Those are my prepared thoughts specifically addressing the quarter. So, moving to some prepared thoughts or comments for the 2007 year-to-date results.
Again, the press release details some of the computation and actual results for the year-to-date similar to some of the previous numbers that I highlighted. When you look at our results for the year, I think there is a couple of themes worth mentioning.
The first one that I want to talk a little bit about is our long-term focus. We think the results for all of 2007 were pretty solid, just like we felt good about the fourth quarter.
Even though we didn't grow as fast as some recent years, given the overall market conditions in the fourth quarter and for all of 2007, in some ways our achievements this year may have been harder to do accomplish than previous years. For those of you who follow our story, we talk a lot about our long-term focus.
Examples of that would include the fact that we focus only on long-term earnings growth goals. We want to build long-term relationships with our customers and carriers.
Our incentive plans have very long-term components to them. We are taking a longer-term approach to building out the global network.
I could go on with a lot more examples, but it's a very defining part of our culture that we try to stay very focused on the long-term. When you look at the 2007 results, our team worked really hard to execute and deliver the 2007 results, but it is also pretty clear that when you study it that the foundation that we laid in previous years and decisions that were made in the past were really what enabled the growth during 2007.
The fact that we were investing in people and relationships, building systems, we opened new offices, went into a lot of new services and new parts in the network, all of those things were in place and really helped us grow in a tough market during 2007. Robinson has always tried to keep focus on the long-term, we think we are still doing that today, and we think it really helps us to stay focused and execute in all market conditions.
I don't believe that we really did anything radically different this year. We just stayed focused on our plan of selling and executing, and we think we were able to do pretty well in what were generally tougher conditions.
Another component of our long-term approach is our balance sheet. A lot of people challenge us periodically as to why we don't consider more aggressive financial leverage or capital management and the way we run the business.
We think it's always been a competitive strength for Robinson that our customers and carriers can count on us being there for the long-term with full investments and resources to grow in all market conditions. So, as economic uncertainty escalates and economic challenges cause others to have to scale back, we think we are in great position to continue to invest in our people and our network with new offices, new technologies, keep looking at acquisitions, keep offering quick pay programs to our carrier partners, and a lot of other investments like that, that help us grow and reinforce our commitments to be there in all markets.
Having a long-term focus is a big part of the success and we think that really made a difference in 2007. Also when looking at 2007, another theme that we would like to highlight is our diversification of services.
While our primary source of revenue continues to be North American truckload services, we've worked hard to find new ways to serve customers and suppliers. We continue to expand our capabilities within all the truckload offerings, while developing some high service offerings and other modes and services.
We think there are more ways today that we can help our customers than ever before and it gives us a lot of opportunities to grow our business. So, when we are out in the marketplace selling, we think the diversification of our services and capabilities has helped us be effective in all market cycles by having a lot of different things to offer and we think that was also a contributor in 2007.
Having a long-term focus, diversifying our services, having good people, a lot of these are consistent themes that we've talked about in the past, but we think they really made a difference for us in 2007. Lastly, a few prepared thoughts on 2008 before I open it up to questions.
As most of you know, we do not give specific quantified guidance for future periods other than our long-term growth goal of 15%. Our goal is that we want to share with you how we are thinking and what we believe our business will do in varying environments.
So, here are some thoughts I will share with you within that framework. First is that, we're going to continue that long-term approach.
We plan to continue opening offices and hiring people regardless of the economic environment. We do adjust the hiring rate based upon productivity metrics and growth rates, but we think it's as good time as any to continue to invest in our network and our people.
We plan to open five to ten new offices and we'll continue to look to use our capital to make the right kind of acquisitions to add new people, new expertise, new services, and new geographies to the team. While our long-term growth goal remains 15%, we know that our actual growth rates in the past and our future growth rates will continue to fluctuate given the market conditions and the business fluctuations that occur.
Sometimes, the markets will make achieving the goals easier and sometimes it will be a little more difficult. We've talked in the past that our growth in truckload services is driven by three things, our volume growth, our pricing, and our gross margin percentages.
As I mentioned earlier, we feel pretty good about the strength of our offerings today and our momentum to find ways to help customers. We will continue to sell and build on these relationships to try to grow our volume.
We are going to work hard to continue to capitalize on that momentum. A portion of our truckload volume continues to be unplanned or transactional freight opportunities.
A current weakness in the US economy and related freight demand makes growing that portion of our volume more challenging, but we have good opportunities to grow all of our truckload services in more contractual ways. After several years of generally seeing price increases, the softening of demand in the past 18 months has caused flat to declining prices going into 2008 for most of our services.
While nobody knows for sure what the supply and demand relationship will do in 2008, the current market as we see it for pricing is soft with decreases more likely than increases. As far as gross margin percentages goal, while we did see some decline in the fourth quarter of 2007, we do generally remain towards the high-end of our historic ranges.
We do have some risk for continued decline in gross margin percentages for 2008, as we will continue to the comparative periods where our margins where at the high-end of the range. Putting those comments and data points together, we continue to feel very confident about our long-term approach, relationships, and the market penetration of our services and business model.
However, it is no secret that market conditions around demand and relating pricing are fairly soft right now and we'll continue to feel some of those impacts during 2008. Those are our prepared thoughts and with that we would like to open it up to your questions.
Question and Answer
Operator
Thank you, Mr. Wiehoff.
Ladies and gentlemen, at this time we will begin the question-answer session. [Operator Instructions].
Our first question comes from the line of Justin Yagerman with Wachovia Securities. Please go ahead.
Justin Yagerman - Wachovia Securities
Hi, good afternoon, John and Chad. How are you?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Good.
Justin Yagerman - Wachovia Securities
The 16% or so growth in the truckload services that you alluded to in the press release and in your remarks, very impressive in this kind of environment. Can you go into a little bit more color on where you are able to find that kind of growth?
You listed off a number of the different service offerings that are housed in that division, where you are seeing pockets of strength and pockets of weakness. And then, I guess, a sense of how much of that business is transactional versus contractual at this point and how you see that shift moving?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
You are right in that, you know, all of the different truckload services that we rattled-off were all contributors. In terms of where we saw the growth, it was fairly strong across the board and I would say that the primary thing that we’d try to focus on in all of 2007 is really just getting out in the marketplace and being active and selling and touching our customers.
As we've talked in the past, Justin, there is a lot of definitional differences around what is less than truckload, what is truckload, all the rest of that that makes it difficult for us to be too precise in terms of how we share those things. But, it was pretty widespread across the board in terms of double-digit growth opportunities from a volume standpoint and we think it was more about our model and our approach to just continuing to build relationships and try to find ways to help in markets that are difficult for shippers to deal with.
Justin Yagerman - Wachovia Securities
You guys have been talking about 7% to 8% growth for the last several quarters and that means basically growth rate doubling in the fourth quarter here while everybody else in the asset-based world is talking about things having slowed down. I mean are you taking share in a particular market or are you seeing more customers flocked to your model for a specific reason?
Are you hearing any reason why you guys would see this massive share shift, because it doesn't feel like that's translating into other people's businesses?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
I think when we studied that, it's part of the reason why we came back with the message that this is really the manifestation of a bunch of long-term things because we didn't do anything different or see anything really out of the ordinary during the quarter. It was just the fact that we've opened offices and put good people in place and they did well during the quarter.
We've been investing in our LTL offerings for more than ten years and they had a lot of success in helping people try to figure out what to do in a pretty uncertain environment. So, it was pretty widespread across the board.
We reviewed the customer stuff and there was nothing really wacky. It was just good overall growth, might have been that last fourth quarter was a little bit weaker from a volume standpoint.
That's hard to tell precisely, but we think we had a little bit of an easier comparison. I think if you look at the sequential volume growth that wouldn't be quite as impressive.
But, really nothing that we can identify as being individually driving higher growth rate for the quarter.
Justin Yagerman - Wachovia Securities
Got it. Switching gears a little bit.
Everybody is always trying to get you guys to gauge what's going on in the capacity market and I know you are reluctant to say or it's hard for you guys to tell. Some comment you've got there would be useful, but I guess getting at it a slightly different way, curious to hear if you have seen an uptick in truckload carriers… or trucking carriers in general who are taking advantage of your early payment option and are using you guys as kind of cash flow source in this tough environment.
I know you guys are able to make a margin on that and I am just curious to hear if that has been helping you out and also from the carrier angle if more people have been taking advantage of that?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Obviously, that is one of the big advantages for small carriers to do business with us. But, we did not see a significant change in the percentage of our truckload payments going out through a quick-pay program.
And as far as kind of the overall capacity marketplace goes, the reason why we try to deflect ourselves is being any sort of a leading indicator is when we sign up a carrier to do business with us, if we don't see them for a year, we will put them out of our active carrier base, but if they stop doing business with us, we don't necessarily know why that is right away. So, we don't know if they went out of the business for sure or where that was at.
But, one of the biggest indicators that we can see is when, in general, the larger truck lines become more aggressive about offering their available capacity that we'll see that in the marketplace as a symptom, I guess, of kind, of generally more capacity being out there and we have seen that throughout all of 2007, and in the fourth quarter that capacity was certainly available in the marketplace. As we highlighted in our press release, you also adjusted for fuel, see some modest price declines in the truckload side, which is also indicative of that.
So, there is no question that there is a softer market from a demand out there and that it’s having some impact on the capacity side. But, exactly how impact it is to that smaller career base in a shorter period of time like the fourth quarter, it’s really hard for us to get a feel for that.
Justin Yagerman - Wachovia Securities
Chad, quick question, tax rate has fluctuated a bit over last several quarters. Where would you see that for 2008, if you can comment on that?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
We expect our tax rate to be around 38%, maybe a little bit higher than that, 38% to 38.5% on a normal basis. One of the big fluctuations this year was really related to last year we had a one-time foreign tax credit that was harvested related to Mexico that we highlighted last year.
Justin Yagerman - Wachovia Securities
Got it. And I guess last question before I turn it over to someone else, I’d be [inaudible] I didn't ask you about what you're going to do with cash filing up on your balance sheet.
I know you alluded to a bunch of different options, but if you don't see any acquisition opportunity on the horizon, do you step up share buybacks or are you kind of comfortable at the pace you've been moving on those types of uses of cash flow?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
We finished the year with approximately the same amount of cash as the year before and we did during 2007 accelerate that share repurchase activity. As we've talked a lot in the past, first priority is to reinvest in the business and hopefully we will find more opportunities and be able to acquire things that we feel good about, expand the menu of services, hopefully, the marketplace will give us some more opportunity in that area.
But, if it doesn't, we will likely stay kind of in the same neighborhood of share repurchase activity. As we’ve said in the past, we don't want to let that accumulated capital grow, but we think the amount of money that we have on hand gives us some good flexibility where we're at today.
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
And also like every other year, this year there is $100 million, a little bit more than that of accrued compensation, all of which will be funded early in the first quarter. So, our cash balance will dip and then start to build up like it has in the previous years.
Justin Yagerman - Wachovia Securities
Got it. Thanks a lot for your time.
I appreciate it.
Operator
Thank you. Our next question comes from the line of Alex Brand with Stephens Inc.
Please go ahead.
Unidentified Analyst
Hi, this is actually George for Alex. I'm sorry if I missed it John or Chad.
Did you all buyback any shares in the quarter?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Yes, we did. We bought back 880,000 shares, I believe.
Unidentified Analyst
Okay. What was the average price?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
It was just over $50... $50.08.
Unidentified Analyst
This may seem like a silly question after 16% volume growth, but going forward throughout the rest of '08, are you still comfortable that the mid-to-high single digit volume growth that we’ve talked about in the past?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
I think we still feel comfortable with, kind of, a broader parameters that we've laid out before that in our long-term target of 15% that there is a permanent kind of market share number in there of mid- to-high single digits that we think we can keep expanding and growing in that 7% to 8% type range and that the other portion to get the 15% fluctuates based upon market swings and opportunities. But, obviously those are kind of long-term averages because during the fourth quarter we did have higher volume growth despite the fact that the market was flatter, now that could swing the other way on us, who knows.
But, yes that... if the economy's demand stays soft and we continue to work hard to sell into that that, that would be our growth goal in general during that period of time.
Unidentified Analyst
One more question. When you are looking at acquisitions, specifically international ones, does the weakness in the US dollar affect any of your decisions or ability to make any of these acquisitions?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Yes. Obviously, as the dollar weakens, our offers are less attractive to foreign people because when you look at translating those foreign earnings into dollars, they are worthless, as well as our dollars being worthless.
So, it can impact our competitiveness in the market. It will make deals more expensive in essence
Unidentified Analyst
But, do you think it has, I guess, that's more of my question?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Since we haven't done any deals in the last... over the last couple of years, we have put offers in on some opportunities that were not priced in US dollars that I do believe we were less competitive on because of that, so yes.
Unidentified Analyst
Okay. Great.
Thank you for your time.
Operator
Thank you. Our next question comes from the line of Jon Langenfeld with Robert W.
Baird. Please go ahead.
Michael Halloran - Robert W. Baird
Actually, this is Mike Halloran stepping in for Jon. I know you had a little pressure on the gross margin side this quarter, but kind of more broadly speaking, when you look at that range going forward, is there anything that you see out there that could move you ahead of that historical range or do you think that you've kind of got to the point where [inaudible]?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
We don't really see anything that's going to move that range from a long-term perspective. I think during 2004, 2005, one of the things that we talked a lot about was the fact that meaningful price increases were very positive for us and that we had not experienced to those in the past.
But, if you look at sort of the underlying economics of the cost structure for carriers and sales and marketing and the spreads between pricing and purchasing, it sort of appeals to us like those margin ranges will likely stay fairly consistent.
Michael Halloran - Robert W. Baird
Fair enough. And then on the intermodal side, there is some pressure on growth rate there.
Could you talk a little about what was that was due to and whether or not any of that was divergent towards your truck offering?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
So, within our intermodal business, we are always pursuing convergent opportunities that tend to be more transactional where if we can substitute or offer intermodal services at a lesser cost that some shippers will take advantage of that when and how they can. So, in general, we would refer to that as more transactional type convergent freight.
More traditional intermodal higher volume freight is generally priced more aggressively with higher volume shipments and less margin opportunity for us, So, what we’ve tried to described during the quarter was compared to a year ago a little less convergent or transactional type opportunity made up for in part by a little bit higher volume of more committed or contractual traditional type intermodal freight. So, our volumes went up a little bit because of that, but overall margins were hurt because of that blend of types freight.
Michael Halloran - Robert W. Baird
And then on the miscellaneous line item, growth is still pretty strong there, but it has slowed relative to the last couple of years. Was that really more due to comparisons or is there some slowing in the core business there?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
The management fee business, we talk [ph] about, that's been primary driver there. It did continue to grow not as fast as it has in previous quarters and that...
like we said in the release, that was offset by a slight decline in our customs business.
Michael Halloran - Robert W. Baird
And then lastly, as you've noted you guys have been getting some pretty meaningful margin expansion mostly driven by that personnel line given how the incentive comp is trending, is there a point here in '08 were this benefit gets anniversaried or when you look at the current environment, does that allow for more additional opportunities there?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
The general expectation around that is that we have done longer-term equity awards periodically, like every three years for the last five years, and that if we stick to that, which is our plan, then near the end of '08 and early '09, there would be additional equity awards. So, we would...
we don't know for sure because those expenses are driven by performance and a lot of other things we can't control. But, perhaps the most likely scenario is that during '08, it would be easier to keep the relationships constant.
But, then during '09, there could be additional equity expense from new awards.
Michael Halloran - Robert W. Baird
All right. I appreciate the time, gentlemen.
Operator
Thank you. Our next question comes from the line of Ed Wolfe with Bear, Stearns.
Please go-ahead.
Edward M. Wolfe - Bear, Stearns & Co.
Thanks. Hi guys.
First of all, Chad, any guidance for CapEx?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Next year, we expect it to be probably in the neighborhood of $25 million. That assumes that we do not start construction on another building.
The next building that we build will have a data center in it and we are not quite sure when we're going to start that building.
Edward M. Wolfe - Bear, Stearns & Co.
What does that mean that it has a data center? Is that going to change your depreciation going forward?
I mean is that a massive expense?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
It is a massive expense from the cost of the building and the infrastructure. It just means the building will cost more per square foot.
But, the life on those assets will be pretty long, so it wouldn't have that meaningful of an impact.
Edward M. Wolfe - Bear, Stearns & Co.
Okay. And then what kind of...
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Pretty soon [ph] will make sure that we inform everybody what the plans are.
Edward M. Wolfe - Bear, Stearns & Co.
And is that in Eden Prairie or where is that?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Yes, that would be immediately adjacent to our other two buildings that we are in.
Edward M. Wolfe - Bear, Stearns & Co.
Okay. What kind of expense are we looking at, $50 million kind of thing?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
The building, we are still estimating how big of a building we would build for the next building and what the data center is going to cost. So, I can't tell you exactly or give you a good prediction.
Edward M. Wolfe - Bear, Stearns & Co.
Okay. But, you own the property?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
There is a good chance that that will not start until 2009 or after.
Edward M. Wolfe - Bear, Stearns & Co.
And do you own the property?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Yes. We already own the land.
Edward M. Wolfe - Bear, Stearns & Co.
John, try as I may, other than fuel being up, I'm having trouble understanding with pricing down 3%, why the gross yields would be down year-over-year, is that the right answer, it's because fuel is up so much?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
We probably don't make the same amount of margin on fuel. Again, it's impossible for us to know, so that would be one partial explanation.
The other explanation is, like we talked about last year's fourth quarter, they were as high as we… they being the margins on our truckload business were as high as we remember seeing them. So, it's a tough comparison.
Edward M. Wolfe - Bear, Stearns & Co.
Okay. But, is it fair… I did read somewhere that pricing in the truck division was down 3% year-over-year.
Is that right?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Correct. That's in the release.
Excluding fuel, correct.
Edward M. Wolfe - Bear, Stearns & Co.
Okay. And there is no major change in the mix of your business in that business.
Is it where there is so much more flatbed or something that that could impact it?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
No, that rate was on a per mile basis. It was pretty consistent if you looked at just van or all of truckload in North America.
Edward M. Wolfe - Bear, Stearns & Co.
Sure. That minus three, what did that look like the third and second quarter for instance year-over-year?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Third quarter... I am going by my memory here, but I think third quarter was about 3% down compared to last year's third quarter.
I don't remember what second quarter was. I believe it was modest decreases for most of the year.
Edward M. Wolfe - Bear, Stearns & Co.
Okay. So, no big change there?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
No.
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
No.
Edward M. Wolfe - Bear, Stearns & Co.
Are you seeing any change in the economy, generally, is there a sense things are stable, worse, better?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
If I had insight on that, I would... no it's really hard.
There is just… I think uncertainty is probably at an all-time high. It is just really hard to gauge.
Edward M. Wolfe - Bear, Stearns & Co.
Based on your working capital, it doesn't look like there is an increase in bad debt, am I missing that somewhere?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
No, we had a good year in 2007.
Edward M. Wolfe - Bear, Stearns & Co.
Okay.
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
I think that is definitely going to be an area of focus for us going forward though.
Edward M. Wolfe - Bear, Stearns & Co.
And SG&A expenses, you talked about there was $15 million of incentive bonus more than a year ago, but that was a lower percent than year ago. Am I seeing that correctly?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Well, that was total personnel. Total personnel dollars were $15 million more than a year ago, however, it was a lower percentage of net revenues.
I am trying to highlight the fact that while our total compensation is growing and we have more people and many people made meaningfully more money during the year, it was actually a lower percentage of net revenue at the personnel line.
Edward M. Wolfe - Bear, Stearns & Co.
What drove that lower percentage? Obviously, you are growing business faster than you are growing heads, but is some of this reduction in incentive comp and what else is in there?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Most of the largest quantifiable item is the fact that we have growth pools based on earnings growth and restricted stock vesting based up on earnings growth. And while we think we had a very good year, our growth percentages were not as high as they were in 2006 over 2005, so we have less expense.
Edward M. Wolfe - Bear, Stearns & Co.
And is that materially more… and that’s an event more in the fourth quarter than the rest of the year, or is it pretty accrued evenly?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
We have been talking about that all the year and it was pretty even across the year.
Edward M. Wolfe - Bear, Stearns & Co.
Okay. There was no true-up or anything like that in those?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
No.
Edward M. Wolfe - Bear, Stearns & Co.
Okay. Would you look at any large acquisition?
It has been a while since Backhaulers and even something larger than that at the right opportunity? Or are you pretty much at this point said we are doing it on our own and a tuck-in here or there, a couple million here, a couple million there, that's the model?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
We look at most things. I think we have, as we've always said, a pretty strong filter on everything that we look at to see if what's the risk and does it fit right and is it culturally compatible.
And I think for a lot of those reasons larger deals become far less likely than the smaller deals, but we are not close-minded to any sort of opportunity. But, we do feel pretty good about the momentum that we have on a lot of our growth areas like global forwarding and intermodal and some of the other offerings that we have that we think we can make some pretty good progress by building it ourselves and selling and integrating it.
So, we will keep looking and we will stay open-minded, but we have been and remain today principally focused on organic growth.
Edward M. Wolfe - Bear, Stearns & Co.
I don't want to nitpicky on such a great quarter, but intermodal net revenue down 4%, is that really the trend going the way you want it to go? Can you talk a little bit about that?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
We talked a little bit earlier that there was less conversion freight and less transactional opportunity. So, overall that hurt the margin growth on the intermodal side.
But, some of that is driven by the fact that the actual carriers were offering some different services than they were a year ago. And so, when we think about representing the shippers in the marketplace and finding the best answers for them, sometimes when we lose some volume opportunities like that, it's just reflective of a change in the marketplace versus our capabilities or competencies in executing that are growing it.
And I think that's how we felt about intermodal during the fourth quarter. We didn't get any weaker at selling it or executing it, it's just that some of the opportunities in the marketplace didn't price out that way, which is a good example of why I chose to highlight diversification of services and why we think that's continuing to make us more effective in the marketplace at growing, because the...
what's right for any given customer at any given time can fluctuate.
Edward M. Wolfe - Bear, Stearns & Co.
Okay, fair enough. Just last one...
the recent trend in the last four or five quarters, $40 million, $50 million a quarter of share repurchases, is that fair to assume going forward?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Again, we look at it and assess it quarterly based on our cash flow. It's a safe assumption.
It is good as the assumption as you have, but we will adjust it quarterly.
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
And what I had mentioned earlier Ed is that, first priority is look for good acquisition investment opportunities. So, if we can find those, we would do those first and those would adjust the share repurchase.
So, assuming our intent is to keep the capital balance similar and if we don't find the acquisition opportunities then you'd be back to what Chad spoke of, [inaudible] similar.
Edward M. Wolfe - Bear, Stearns & Co.
Makes a lot of sense. Thanks for the time, I appreciated it.
Operator
Thank you. Our next question comes from the line of Tom Wadewitz with JP Morgan.
Please go ahead.
Tom Wadewitz - JP Morgan
Yes, good afternoon. Wanted to ask you a little bit about headcount.
If I look at the increase in headcount in '05 and '06, It looks like it was up something on the order of 18%, 19% year-over-year and then in second half of '07 you got it up more 8% or 9% year-over-year. So, intuitively that make sense given that the domestic economy is weaker, but I am wondering at some point does that lower headcount addition affect your ability to put up the gross revenue growth or the volume growth, or is there enough available capacity in your headcount that we shouldn't think of it that way?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
One of the things that we really pride ourselves in is the constant pipeline of recruiting people and the ability to get a man and train him and get him up productive fairly quickly. So, we like to think that headcount number is going to flex with the market pretty real-time and adjust to what the opportunity is.
So, yes, if things stays slower, our headcount growth will stay slower, but we also feel like we've got the disciplines in place that when transaction volume picks back up, we will be all over it and be ready to grow with it.
Tom Wadewitz - JP Morgan
So, you don't think… I mean if you look out a couple of quarters, it's not an issue that the pace of growth at that point that you haven't added at... that you've added headcount at a lower pace for a few quarters?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
No, I don't think that is an issue. I think if the market changed abruptly and there was a lot more opportunity starting tomorrow, I think we could respond very well.
Tom Wadewitz - JP Morgan
Okay. When you look at where you are going to focus your additional offices, I think you said five to ten and in light of an uncertainty in US economy, do you look to open offices more in Europe or open more forwarding offices or how would you think about where you expand the capacity in light of US uncertainty?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Probably an even mixture all around. We think there is still markets in North America that we can be successful in.
Remember, when we're opening offices that's generally with two or three people and it's not a real significant capital requirement of us. So, it's more about having the people ready and being able the expand the network into a new geographic region or a new city within the United States where we think we can do a better job of penetrating it locally by opening the office.
So, for us, those office opening decisions are really more about the bench strength of the people and the perpetuity of building out the network, and that's really what the origin of the comments that I made earlier that we feel pretty good about that, and we are going to keep driving those openings and building out the network even if the freight demand stays a little bit softer, it won't be a huge financial risk for us to do that, and we think we have the bench strength to take advantage of it now. So all the above, forwarding officers, European and North American surface truck transportation offices.
Tom Wadewitz - JP Morgan
Okay. Do you have any thought specific to how Europe is doing?
How big Europe is as a percent of the truck business right now?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Sure. Europe is between 3% and 4% of truck or about 3% of overall net revenues.
It has been doing well. We had a very good year in Europe.
They did increase both their volume, as well as their margins. So, we have huge upside there we believe.
We are continuing to penetrate the marketplace and do believe it is a good market, very fragmented, carrier based just like it is here.
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
We are still as positive as ever about the long-term growth potential for the Robinson European network to be of comparable size and skill someday as the North American network. We just know that it's going to take a while to get there.
It's all about having the right people and training them and building relationships and it takes a long time to do that. So, we are just doing all we can to get the right people on board and to train them and to build it and grow, but the actual opportunity itself and our confidence in the long-term success of it feels very good.
Tom Wadewitz - JP Morgan
Okay. Great.
Thank you for the time.
Operator
Thank you. The next question comes from the line of Jason Seidl with Credit Suisse.
Please go ahead.
Jason Seidl - Credit Suisse
Hi, John. Hi, Chad.
How are you guys today?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Good.
Jason Seidl - Credit Suisse
A couple of quick questions. As I look at your gross revenue growth in the quarter, extremely impressive, it's 20%, but you did have a year-over-year easier comp in the 4Q ‘06.
I think only grew about almost 2.5%. How much of it was market conditions, how much of it was an easier comp in terms of just picking up from the 2Q and 3Q growth rates that where pretty much double-digits?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
As John outlined in his prepared comments, fuel was a big part of the Transportation gross revenue growth. In truckload, it added probably 6% and then we had volume growth in the mid-teens.
Jason Seidl - Credit Suisse
Okay. That's good.
If we go to intermodal, you highlighted a little bit about transitioning from some transactional business to more contractual. Should we expect that to continue here into 2008?
And if so, for how long?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
It gets difficult to predict because we don't really know what variations in pricing and service offering, the rails will come out with or how the truck versus rail pricing will look on a conversion basis, it literally can change day-to-day depending upon if new pricing is introduced. We definitely have plans to continue to grow our dedicated contractual type intermodal business.
So, we would hope to continue to see that volume come in and that's at a higher volume, lower margin relationship. The part that's really difficult to predict is what the truck-rail relationship will be like, and how those transactional conversion opportunities will trend up or down, it's really difficult to know that part.
Jason Seidl - Credit Suisse
Okay fair enough. I know you guys don't give specific guidance, but considering that here we are in 2008 in the first quarter when we are still seeing fuel on a year-over-year basis still up fairly significantly.
Should we expect, if nothing changes, continued pressure on the gross profit margins due to fuel?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
To the extent that fuel stays high, yes, you would expect higher gross revenue growth than net revenue growth. So, from an overall standpoint, yes, that would be a pressure on margins for us.
If you think of it as kind of a pass-through cost, we certainly have to manage it, but that doesn't become a real driver into our ultimate earnings, it's really more just the relationship at the gross revenue and gross marginal level.
Jason Seidl - Credit Suisse
Okay fair enough. Gentlemen, as always, thanks for your time.
Operator
Thank you. The next question comes from the line of Ken Hoexter with Merrill Lynch.
Please go ahead.
Ken Hoexter - Merrill Lynch
Hi, good afternoon. If we look at the net...
or I guess the gross revenue growth, adding almost $100 million sequentially, on the net revenue basis, I guess, you added about 7% net revenue per employee, is there any strain [inaudible] to the system at that point, I think that was the fastest level it's grown in two years? I understand that a lot of the growth side was fuel, but looking on the net revenue per employee also up fairly rapidly.
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Nothing, I don't think we can identify or highlight. Our approach and practices and internal productivity metrics were fairly comparable to the previous periods.
Nothing individual that I think we can identify.
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
The amount of backlog changes day-by-day, but I didn't hear of any branches that were significantly understaffed or complaining about. And again, people are incented for profitability.
So, they are making more money when they are busier.
Ken Hoexter - Merrill Lynch
I just want to understand, did you say that you believe these kind of... at these levels, the net margins are kind of at peak levels over what you have seen in the last few years.
I guess looking back over kind of the past decade, it’s kind of consistently increased on a net margin basis from 13% up to 17%. Are you saying we should see that come down, particularly if fuel stays high or when business rebounds you could continue to see that net margin expand as it has for the past nine, ten years?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
A big part of that margin expansion is the service line mix.
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
We you look at especially the relationship between sourcing and Transportation. Sourcing has a much lower margin than Transportation.
So, Sourcing has become a smaller percentage of it, that's been one of the primary driving forces of the margin expansion. In addition to that, within Transportation those different modes of services have different margin percentages and most notably the miscellaneous category, most of the things that fall into that category are 100% margin based where the gross revenue equals the net revenue.
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
The margins have been fluctuating on the individual service lines with a slight uptick in truck, as we get bigger, we get more efficient, or more likely to have a better match of a load with the truck.
Ken Hoexter - Merrill Lynch
Okay. And if I look at personnel expenses, I just want to understand what you were mentioning on the stock pay.
Looks like personnel expense per employee was actually up 3.3%, I guess, versus the decreases you were mentioning. Is that what you are getting at when you are saying, yes, we are paying more stock to the individuals?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
I guess the message was that even though our personnel expense as a percent of net revenue declined, compared to the previous year, that we have the same incentive plans and the growth in compensation for most of our people did impact increase just as you pointed out. So, yes, when we get larger, we are able to leverage our network and oftentimes grow our earnings faster than our net revenues, but that doesn't mean that our incentive plans weren't lucrative and our people didn't make more money.
Ken Hoexter - Merrill Lynch
Okay. Helpful.
Thanks for the time.
Operator
Thank you. The next question comes form the line of David Campbell with Thompson Davis & Company.
Please go ahead.
David Campbell - Thompson Davis & Company
Yes. Thank you very much.
My questions have been answered except for one and I don't really know if it’s a good question, but anyway I'll try it. Have you ever thought of would make acquisitions of asset based trucking...
truckload or to less-than-truckload [ph] companies?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Not very much. Over than last couple of years when a lot of people have asked us about asset based carriers getting into brokerage and third-party businesses, we have made the statement that today we don't really understand the value proposition or the benefit to the customer of offering both third-party and asset base trucking services.
If the marketplace evolved where it was proven that that was a more optimum model to serve customers, we would certainly consider that in order to serve our customers that way. We go out and invest in some very good trucking assets, if somebody proved to us that that was a better way to serve the marketplace.
But, we don't think that's the case today and so we really don't spend much time thinking about it.
David Campbell - Thompson Davis & Company
I was thinking that you could buy a truckload or less-than-truckload company and just convert all the business to non-asset transactions?
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
Or we can just go compete in the marketplace and sell. So, what you are saying is just buy the customer base…?
David Campbell - Thompson Davis & Company
Right.
Chad M. Lindbloom - Senior Vice President and Chief Financial Officer
We think that would be a large premium compared to continue to execute what we do.
David Campbell - Thompson Davis & Company
Okay. Thank you very much.
Operator
Thank you. The next question comes from the line of Nate Brochmann with William Blair & Company.
Please go ahead.
Nate Brochmann - William Blair & Company
Congratulations on a great quarter, gentlemen. I just had one question kind of pertaining to the international forwarding businesses.
I know in the past that those businesses have been fairly lumpy with just ten key customers, now moving to maybe 20 to 30, but that business has definitely been supporting some more consistent gross profit growth for you. I was just wondering whether that was because of market conditions, better penetration within those key customers or a bigger, broader effort that you are kind of doing globally?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
Hopefully, it's a little bit of all the above that you just mentioned. We've been building that business for about 15 years, I believe, now and as you have seen over the years, we have sown in some small acquisitions in different parts of the world, and our hope is that as that network gets bigger and more capable that it allows us to compete more aggressively on more lanes and more regions and different types of freight.
We did have a very good year in 2007. That division of Robinson grew organically at a very nice rate and we felt they made some really good progress in the marketplace in terms of selling their capabilities and building up volume and density.
It is a very competitive marketplace though and there still are shorter list of customers compared to the rest of our business that make up a pretty meaningful percentage of the mix. So, I don't think the lumps are completely gone, but as we get larger, we do think that we will be able to grow it at a more consistent rate and be able to expand the offerings that they participate in.
Nate Brochmann - William Blair & Company
Great. Thank you very much.
Operator
Thank you. And the last question comes from the line of [inaudible].
Please go ahead.
Unidentified Analyst
Thank you. You answered my questions, but I have one question about the contract side of the Transportation business.
Is there a certain part of the calendar year when the bulk of your long-term agreements come up for renewal? Is it the first quarter or is it evenly distributed throughout the year?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
It's fairly evenly distributed. Most of the customers that we deal with will do their transportation bids and related contracting on a fairly random basis depending upon when they think it is the best time to approach the market.
There are some who do fairly regular calendar bids and some do fairly regular bids on a deferring cycle. But, a vast majority of them are going to the marketplace for bids for components of their business at different times throughout the year.
And when we look at it, it tends to... the net result of that is that longer-term pricing agreements would generally tend to be spread throughout the year.
Unidentified Analyst
Okay. In your comments about pricing, are you seeing a disproportionate amount of that type of biding activity going on now than normal?
John P. Wiehoff - Chief Executive Officer and Chairman of the Board
During the price increases of 2004, 2005, 2006, there was noticeably less bid activity than in typical years just because, I think when prices are raising rapidly that shippers are more inclined to try to hang on to their rates rather than go re-price them in the marketplace. Starting in the end of 2006 and probably most notably the first half of 2007, there was quite a bit more bid activity in terms of shippers going to the marketplace and looking to re-price or stabilize some of their stuff.
It was fairly high throughout all of 2007, but maybe even tapering off as the year wore on.
Unidentified Analyst
Okay. Great.
Thank you very much.
Angie Freeman - Director of Investor Relations
Thank you for participating in our fourth quarter 2007 conference call. This call will be available for replay in the Investor Relations section of the C.H.
Robinson website at www.chrobinson.com. It will also be available by dialing 800-405-2236 and entering the pass code 11105696 pound.
The replay will be available at approximately 7.00 P.M. Eastern Time today.
If you have additional questions, please call me, Angie Freeman, at 952-937-7847. Thank you.