How did Expeditors perform financially in 2003?

Revenue rose 14% to $2.62 billion and net earnings rose 8% to $121.95 million. Diluted EPS was $1.12, up from $1.03 in 2002. Net revenues, the company's preferred measure of business volume, grew 10% to $750.5 million, and operating income grew 9% to $186.8 million.

Which business lines drove growth, and which lagged?

Customs brokerage and import services were the standout, with net revenues up 20%, reflecting customers' preference for higher-tech brokers. Ocean freight net revenues grew 16% on strong container volumes, despite a 252 basis point decline in yields. Airfreight was the weak spot, with net revenues down 2% as airline rate increases could not be passed on fully.

Are there any one-time items that affect the comparison with 2002?

Yes. In Q4 2003, the company recorded a $9.5 million tax charge to provide U.S. taxes on $41.9 million of foreign earnings accumulated through 1992. It also reversed $8 million of previously accrued state taxes it determined were not owed. The net effect was a roughly $0.02 per share drag on Q4 results. Q4 operating income also benefited by about $0.03 per share from eliminating unnecessary intercompany accruals.

How strong is the balance sheet, and does the company carry debt?

The balance sheet is very strong. Cash and short-term investments totaled $296 million at year-end 2003, and the company had no long-term debt. Working capital was $370 million. Short-term borrowings were negligible at $0.2 million. Operating cash flow was $114 million, roughly flat versus 2002, as receivables grew with slower collections from large technology customers.

What are the main risks investors should monitor?

Key risks include airfreight yield pressure when carriers raise rates faster than the company can pass them through, volatility in ocean freight rates, and exposure to foreign currencies in operations across 56 countries. The company also depends on relationships with airlines, steamship lines and government agencies, and it notes that short-term demand is hard to forecast, which can cause quarterly results to miss analyst expectations. Its growth has been primarily organic, so future acquisition-led expansion would bring integration risk.

EXPD 10-K FY2003 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 15, 2004. Cited figures are marked; the original filing is the authoritative source.

Expeditors International of Washington (EXPD) reported a strong fiscal 2003, with revenues rising 14% to $2.62 billion^a and net earnings up 8% to $122.0 million, or $1.12 diluted EPS (up from $1.03).

Growth was driven mainly by customs brokerage (net revenues up 20%) and ocean freight (net revenues up 16% on 23% higher container volumes), while airfreight net revenues fell 2% as yields eroded. Operating income rose 9% to $186.8 million^b, and operating margin on net revenues held at roughly 25%. Salaries and other operating costs stayed flat as a percentage of net revenues, which management attributes to its branch-level incentive compensation model.

The balance sheet remains very strong, with $296 million^c in cash and short-term investments, no long-term debt, and shareholders' equity up 23% to $645.5 million. Operating cash flow was $114 million, roughly flat year over year, as receivables grew with slower collections from large technology accounts. Investors should note two items affecting 2003 results: a $9.5 million charge to provide U.S. taxes on $41.9 million of previously unremitted foreign earnings, and an $8 million tax reversal recognized in the fourth quarter.

Management also flagged risks tied to carrier pricing, currency exposure, and the difficulty of forecasting short-term customer demand. For investors, the filing describes a non-asset-based, organically grown global forwarder with a conservative capital structure and a consistent record of dividend increases and share repurchases. Key watch items going forward include airfreight yield pressure, ocean rate volatility, and whether the branch-level compensation model can keep costs proportional to revenue as volumes grow.

02—Key points

Key Highlights

Revenues grew 14% to $2.62 billion, and net earnings rose 8% to $121.95 million, or $1.12 per diluted share.
Customs brokerage and import net revenues increased 20% to $280.4 million, the fastest-growing segment, while ocean freight net revenues grew 16% to $191.1 million on 23% higher container volumes.
Airfreight net revenues declined 2% to $279.0 million as airline rate increases could not be fully passed through to customers.
Operating income increased 9% to $186.8 million, with operating margin on net revenues steady at 25%.
The balance sheet is conservative: $295.8 million in cash, no long-term debt, and shareholders' equity of $645.5 million (up 23%).
Fourth-quarter 2003 earnings absorbed a $9.5 million tax charge on $41.9 million of unremitted foreign earnings, partly offset by an $8 million tax reversal.
The company paid semi-annual dividends of $0.08 each in 2003 (up from $0.06) and repurchased 565,374 shares at an average price of $35.56.

03—Questions

Frequently Asked Questions

How did Expeditors perform financially in 2003?
Revenue rose 14% to $2.62 billion and net earnings rose 8% to $121.95 million. Diluted EPS was $1.12, up from $1.03 in 2002. Net revenues, the company's preferred measure of business volume, grew 10% to $750.5 million, and operating income grew 9% to $186.8 million.
Which business lines drove growth, and which lagged?
Customs brokerage and import services were the standout, with net revenues up 20%, reflecting customers' preference for higher-tech brokers. Ocean freight net revenues grew 16% on strong container volumes, despite a 252 basis point decline in yields. Airfreight was the weak spot, with net revenues down 2% as airline rate increases could not be passed on fully.
Are there any one-time items that affect the comparison with 2002?
Yes. In Q4 2003, the company recorded a $9.5 million tax charge to provide U.S. taxes on $41.9 million of foreign earnings accumulated through 1992. It also reversed $8 million of previously accrued state taxes it determined were not owed. The net effect was a roughly $0.02 per share drag on Q4 results. Q4 operating income also benefited by about $0.03 per share from eliminating unnecessary intercompany accruals.
How strong is the balance sheet, and does the company carry debt?
The balance sheet is very strong. Cash and short-term investments totaled $296 million at year-end 2003, and the company had no long-term debt. Working capital was $370 million. Short-term borrowings were negligible at $0.2 million. Operating cash flow was $114 million, roughly flat versus 2002, as receivables grew with slower collections from large technology customers.
What are the main risks investors should monitor?
Key risks include airfreight yield pressure when carriers raise rates faster than the company can pass them through, volatility in ocean freight rates, and exposure to foreign currencies in operations across 56 countries. The company also depends on relationships with airlines, steamship lines and government agencies, and it notes that short-term demand is hard to forecast, which can cause quarterly results to miss analyst expectations. Its growth has been primarily organic, so future acquisition-led expansion would bring integration risk.

04—Continue

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