01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
Expeditors International of Washington (EXPD) closed 2013 with revenues of $6.08 billiona (up 1.5% from $5.99 billion) and net revenues, the company's non-GAAP key operating metric, of $1.88 billion (up 2.6%).
Net earnings attributable to shareholders rose to $348.5 millionb, or $1.68 diluted EPS, up from $1.57 in 2012, though still below the $385.7 million (EPS $1.79) earned in 2011. Operating income increased 4% to $552 million, and the operating margin on net revenues held at 29%. Growth came mainly from airfreight tonnage (+4%) and ocean container volume (+6%), while per-unit pricing stayed soft as carrier capacity outpaced demand.
Customs brokerage was the strongest segment, with net revenues up 3% and a 43% share of total net revenues. The balance sheet remains very strong. The company held $1.27 billionc in cash and short-term investments, had no long-term debt, and generated $408 million in operating cash flow.
It returned capital through $123 milliond in dividends ($0.60 per share, up from $0.56) and $262 million in share repurchases. Management guided 2014 capital expenditures to about $75 million. The main investor watch items are leadership transition and margin pressure.
Chairman and CEO Peter Rose retires as CEO on March 1, 2014, with Jeffrey Musser succeeding him, and Rose's retirement bonus of roughly $8 million was expensed in Q4 2013. Management also flagged compressed unitary margins from competitive pricing and carrier rate volatility, particularly in ocean freight, and continued exposure to currency swings and regulatory costs.
02—Key points
Key Highlights
- Revenue grew 1.5% to $6.08 billion, while net revenues (a non-GAAP measure) rose 2.6% to $1.88 billion, the metric management prioritizes.
- Diluted EPS increased to $1.68 from $1.57 in 2012, but remained below the $1.79 earned in 2011.
- Airfreight tonnage rose 4% and ocean container volume rose 6%, but sell and buy rates fell amid excess carrier capacity, compressing unitary margins.
- Customs brokerage and other services delivered the strongest net revenue growth among the three lines, up 3% to $806.5 million, accounting for 43% of net revenues.
- The company ended 2013 with $1.27 billion in cash and short-term investments, no long-term debt, and $408 million in operating cash flow.
- Shareholder returns totaled roughly $385 million: $123 million in dividends ($0.60/share) and $262 million in buybacks (3.2 million shares repurchased in Q4 alone).
- CEO succession: Peter Rose steps down March 1, 2014, and Jeffrey Musser takes over; an approximately $8 million retirement bonus was recorded in Q4 2013.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $6.08B$5.99B | +1.5% |
| Operating Expenses | $5.53B$5.46B | +1.2% |
| Operating Income | $552.07M$530.80M | +4.0% |
| Net Income | $348.53M$333.36M | +4.5% |
| EPS (Basic) | $1.69$1.58 | +7.0% |
| EPS (Diluted) | $1.68$1.57 | +7.0% |
| Shares Outstanding (Basic) | 206.00M210.42M | −2.1% |
| Shares Outstanding (Diluted) | 206.90M211.94M | −2.4% |
05—Questions
Frequently Asked Questions
Why did earnings per share increase in 2013 while the company's margins were under pressure?
Diluted EPS rose to $1.68 from $1.57, mainly because net revenues grew 2.6% and the company repurchased shares, lowering the diluted share count to about 206.9 million from 211.9 million. Operating margin on net revenues was flat at 29%. Some 2012 items, including a €4.14 million European Commission fine and a $6 million withholding-tax adjustment, did not recur, which helped comparisons. Net earnings still trailed 2011, when EPS was $1.79.
How significant is the CEO transition, and what does it mean for investors?
Peter Rose, CEO for 25 years, retires March 1, 2014, and Jeffrey Musser, currently EVP and CIO, succeeds him. Rose stays as Chairman until May 2015. The company's compensation model is central to its culture and performance, and management flags the transition as a risk to retaining key executives. Investors should watch for continuity in the incentive structure and for any change in strategy or execution.
Is the company's balance sheet a source of risk?
The balance sheet is very conservative. Cash and short-term investments of $1.27 billion exceed total liabilities of about $929 million, and the company has no long-term debt. Standby letters of credit and guarantees total $82 million, mostly backing foreign subsidiary obligations to carriers and customs authorities. Management says current liquidity covers at least the next 12 months.
What are the main drivers and risks for future revenue and margins?
Management expects continued soft airfreight pricing as high-tech products get lighter and customers shift to deferred air or ocean freight. Ocean carriers' excess capacity has pushed sell and buy rates down, and the company has absorbed some carrier cost increases to hold share. Growth in order management and customs brokerage has offset weaker per-unit economics. The company also faces currency exposure, with a 10% USD move affecting operating income by about $33 to $40 million, and continued regulatory and security cost increases.
How is the company returning capital to shareholders?
In 2013 the company paid $0.60 per share in dividends (up from $0.56) and repurchased about 6.1 million shares for roughly $262 million, including 3.2 million in Q4. In February 2014 the board raised the discretionary buyback target from 200 million to 190 million outstanding shares. Remaining authorization covers about 16.6 million shares under the discretionary plan, and the dividend is paid semi-annually.
06—Continue