How did Expeditors perform in 2001 given the weak global freight environment?

Total revenues declined about 2.5% because airfreight consolidation pass-through charges fell with lower prices and tonnage. Net revenues, which management views as the better performance measure, grew 11%. Net earnings rose 17% to $97.2 million as operating margins on net revenues improved to 24%.

Why is net revenue used instead of total revenue?

When Expeditors acts as a freight consolidator, total revenue includes the carrier's charges for transporting the cargo, which are passed through to customers. Net revenue removes these pass-through costs and reflects only the commissions and fees the company actually earns, making it a better gauge of business growth.

Does Expeditors carry significant debt or interest rate risk?

No. The company had no long-term debt at December 31, 2001, and short-term borrowings were only $1.7 million. Cash and short-term investments of about $219 million were held at variable rates, and management considers the impact of a 10% rate change to be insignificant.

What are the main risks investors should monitor?

Key risks include dependence on Far East trade lanes (Hong Kong and Taiwan each over 10% of revenue), reliance on third-party airlines and steamship lines, foreign currency exposure and exchange controls in many countries, and quarterly seasonality. The company also states that a shortfall relative to analyst expectations could hurt its stock price.

Is the company's growth coming from acquisitions or organic expansion?

Expeditors has primarily pursued organic growth. In 2001 it opened seven start-up offices and made one small acquisition in Caracas, with its growth largely coming from existing offices. Same-store net revenue growth slowed to 7%, so the company's expansion is increasingly dependent on opening new offices.

EXPD 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 1, 2002. Cited figures are marked; the original filing is the authoritative source.

Expeditors International of Washington (EXPD) reported a strong fiscal 2001 despite a sharp downturn in global air freight volumes.

Revenues fell about 2.5% to $1.65 billion^a from $1.70 billion, but net revenues (revenues less freight consolidation costs, the metric management emphasizes) rose 11% to $606.5 million. Net earnings climbed 17% to $97.2 million, and diluted EPS rose to $1.77 from $1.52. Operating margin on net revenues improved to 24% from 23%, driven by cost containment in other operating expenses and a 21% increase in ocean freight net revenues, which offset a 13% airfreight net revenue gain despite a 9% drop in worldwide airfreight tonnage.

The balance sheet remains very conservative. The company ended 2001 with $219 million^b in cash and short-term investments, no long-term debt, and shareholders' equity of $415 million, up 15%. Operating cash flow rose to $168 million, and the company repurchased about $60 million of stock, including a 1 million share discretionary buyback at an average of $45.12.

The dividend was raised to $0.20^c per share for the year from $0.14. Key considerations for investors include the company's heavy dependence on Far East trade lanes (Hong Kong and Taiwan each contributed over 10% of revenue), its non-asset-based model that relies on third-party carriers, currency and political risks across many emerging markets, and the seasonality of quarterly results. Same-store net revenue growth slowed sharply to 7% in 2001 from 23% in 2000, which suggests that the 2001 growth was more dependent on new office openings and margin gains than on organic volume expansion.

02—Key points

Key Highlights

Net revenues rose 11% to $606.5 million, while total revenues fell 2.5% to $1.65 billion as airfreight consolidation costs declined.
Net earnings increased 17% to $97.2 million; diluted EPS rose to $1.77 from $1.52.
Airfreight net revenues grew 13% despite a 9% decline in worldwide airfreight tonnage, as airfreight margins expanded about 5%.
Ocean freight and ocean services net revenues grew 21% to $138.9 million, with Far East ocean net revenues up 23%.
Balance sheet is strong: $219 million in cash and short-term investments, no long-term debt, and equity of $415 million (up 15%).
Returned capital to shareholders through $60 million in stock repurchases (including 1 million shares at $45.12) and a dividend increased to $0.20 from $0.14.
Same-store net revenue growth slowed to 7% from 23% in 2000, indicating weaker organic growth momentum.

03—Questions

Frequently Asked Questions

How did Expeditors perform in 2001 given the weak global freight environment?
Total revenues declined about 2.5% because airfreight consolidation pass-through charges fell with lower prices and tonnage. Net revenues, which management views as the better performance measure, grew 11%. Net earnings rose 17% to $97.2 million as operating margins on net revenues improved to 24%.
Why is net revenue used instead of total revenue?
When Expeditors acts as a freight consolidator, total revenue includes the carrier's charges for transporting the cargo, which are passed through to customers. Net revenue removes these pass-through costs and reflects only the commissions and fees the company actually earns, making it a better gauge of business growth.
Does Expeditors carry significant debt or interest rate risk?
No. The company had no long-term debt at December 31, 2001, and short-term borrowings were only $1.7 million. Cash and short-term investments of about $219 million were held at variable rates, and management considers the impact of a 10% rate change to be insignificant.
What are the main risks investors should monitor?
Key risks include dependence on Far East trade lanes (Hong Kong and Taiwan each over 10% of revenue), reliance on third-party airlines and steamship lines, foreign currency exposure and exchange controls in many countries, and quarterly seasonality. The company also states that a shortfall relative to analyst expectations could hurt its stock price.
Is the company's growth coming from acquisitions or organic expansion?
Expeditors has primarily pursued organic growth. In 2001 it opened seven start-up offices and made one small acquisition in Caracas, with its growth largely coming from existing offices. Same-store net revenue growth slowed to 7%, so the company's expansion is increasingly dependent on opening new offices.

04—Continue

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