What drove the strong 1995 revenue and earnings growth?

Growth came from higher airfreight volumes from the Far East to North America and Europe, pass-through of higher airline prices, and export growth. Ocean freight was especially strong, with net revenues up 56% from aggressive pricing on favorable carrier contracts and the ECMS consolidation software. Customs brokerage grew 21%, helped by distribution services and demand for computerized brokerage capabilities.

Is the company carrying significant debt or financial risk?

Not from debt. The company reported no long-term debt at December 31, 1995, and its $15M bank line was undrawn at year-end. It did have $12.8M in standby letters of credit and about $7.4M of contingent liabilities under a UK facility, which are off-balance-sheet guarantees. Currency controls in some countries limit its ability to hedge foreign exchange exposure.

Does the company own aircraft, ships, or heavy fixed assets?

No. The company does not own aircraft or steamships, and it relies on commercial airlines and ocean carriers. Capital requirements are light: 1995 capital expenditures were $9.3M, and it plans to spend about $25M in 1996, including a warehouse purchase in Nassau County, New York, that could be terminated without penalty.

What are the main risks and sources of seasonality for investors to consider?

Revenue is seasonal, with the first quarter typically weakest and the third strongest. It is also tied to retail consumer demand and just-in-time production schedules, and many customers ship late in a quarter, so shortfalls may surface late. Other risks include airline rate increases that could compress air freight margins, changes in carrier policies, government trade and customs regulation, and intense competition with industry consolidation under way.

EXPD 10-K FY1995 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 1, 1996. Cited figures are marked; the original filing is the authoritative source.

Expeditors International of Washington (EXPD) reported a strong 1995 for its FY ended December 31, 1995.

Total revenues rose about 30% to $584.7 million^a (from $450.6 million), and net earnings grew about 32% to $17.4 million, or $1.38 per share (from $1.08). Operating income climbed 26% to $26.9 million. Growth was broad-based across airfreight, ocean freight, and customs brokerage, with ocean freight net revenues up 56% and airfreight net revenues up 27%.

Because net revenues (revenues less freight consolidation costs) are the more meaningful measure of the business, net revenues rose 29% to $154.1 million^b, and operating margin on net revenues improved to 17% from 18%, which is roughly flat. Management attributes the results to a compensation model that ties branch staff pay to unit profitability, along with an expanding global office network, particularly in Latin America and Europe. The balance sheet is conservative.

The company had no long-term debt at year-end, working capital of $81.4 million^c, and cash plus short-term investments of about $37 million. Shareholders' equity grew to $117.2 million, and the company generated $23.5 million of operating cash flow. Accounts receivable, at $123.8 million, is the largest asset and grew faster than revenue, which is a point to watch.

The effective tax rate fell to 38.7% from 41%, partly because of lower California unitary taxes. The company paid a semi-annual dividend totaling $0.12^d per share. Key risks flagged in the filing include currency controls in many countries where the company cannot easily hedge, dependence on airlines and ocean carriers, pronounced seasonality (Q1 weakest, Q3 strongest), concentration of revenue in consumer-demand-linked industries, and the possibility that airline rate increases could compress air freight margins.

The company does not own aircraft or vessels and does not compete in domestic freight or small parcel. Competition is intense, and management expects continued industry consolidation. The filing also notes a 2-for-1 stock split in 1993 and an active small buyback under a non-discretionary repurchase plan.

02—Key points

Key Highlights

Total revenues rose 29.8% to $584.7M in 1995; net earnings rose 31.6% to $17.4M ($1.38 per share vs. $1.08).
Net revenues (after freight consolidation costs) grew 29% to $154.1M; airfreight net revenues +27%, ocean freight net revenues +56%, customs brokerage +21%.
Operating income rose 25.8% to $26.9M, with operating margin on net revenues steady at about 17%.
Balance sheet is debt-free: no long-term debt, $81.4M working capital, $117.2M shareholders' equity, and $36.1M cash.
Accounts receivable reached $123.8M (up 23%), absorbing much of the operating cash flow of $23.5M; this warrants monitoring.
Effective tax rate fell to 38.7% (from 41%), aided by California unitary tax changes and reversal of valuation allowances.
Geographic exposure is concentrated in the Far East, which generated $351M of the $585M in unaffiliated revenue (about 60%).

03—Questions

Frequently Asked Questions

What drove the strong 1995 revenue and earnings growth?
Growth came from higher airfreight volumes from the Far East to North America and Europe, pass-through of higher airline prices, and export growth. Ocean freight was especially strong, with net revenues up 56% from aggressive pricing on favorable carrier contracts and the ECMS consolidation software. Customs brokerage grew 21%, helped by distribution services and demand for computerized brokerage capabilities.
Is the company carrying significant debt or financial risk?
Not from debt. The company reported no long-term debt at December 31, 1995, and its $15M bank line was undrawn at year-end. It did have $12.8M in standby letters of credit and about $7.4M of contingent liabilities under a UK facility, which are off-balance-sheet guarantees. Currency controls in some countries limit its ability to hedge foreign exchange exposure.
Does the company own aircraft, ships, or heavy fixed assets?
No. The company does not own aircraft or steamships, and it relies on commercial airlines and ocean carriers. Capital requirements are light: 1995 capital expenditures were $9.3M, and it plans to spend about $25M in 1996, including a warehouse purchase in Nassau County, New York, that could be terminated without penalty.
What are the main risks and sources of seasonality for investors to consider?
Revenue is seasonal, with the first quarter typically weakest and the third strongest. It is also tied to retail consumer demand and just-in-time production schedules, and many customers ship late in a quarter, so shortfalls may surface late. Other risks include airline rate increases that could compress air freight margins, changes in carrier policies, government trade and customs regulation, and intense competition with industry consolidation under way.

04—Continue

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