01—Abstract
Summary
Summary of the 10-K filed February 26, 2015. Cited figures are marked; the original filing is the authoritative source.
Expeditors International of Washington (EXPD) closed 2014 with record results despite a challenging freight environment.
Total revenues rose 8% to $6.56 billiona and net revenues (the company's non-GAAP primary profitability measure) grew 5% to $1.98 billion. Net earnings attributable to shareholders increased 8% to $376.9 million, and diluted EPS rose to $1.92 from $1.68. Operating margin on net revenues improved to 30% from 29%, reflecting disciplined overhead control: salaries and related costs fell to 54% of net revenues from 55%.
Airfreight net revenues grew 6% on a 9% tonnage increase, ocean freight net revenues rose 6% on an 11% container volume increase, and customs brokerage net revenues grew 4%. The balance sheet remains exceptionally strong. The company carries no debt, holds $967 millionb in cash and short-term investments, and has working capital of $1.3 billion.
Management is returning significant capital to shareholders: it repurchased $551 millionc of stock in 2014 (about 13.1 million shares) and paid $0.64 per share in dividends. Total shareholders' equity fell to $1.87 billion from $2.08 billion, largely because buybacks exceeded earnings and currency translation losses hit other comprehensive income. Investors should weigh several forward-looking issues.
Management flagged that lower oil prices could prompt customers to seek rate reductions in 2015, and that carrier overcapacity and carrier financial stress persist, particularly in ocean freight. Net revenue per unit fell in airfreight and some ocean lanes as sell rates were cut to defend share.
The company also disclosed a 2015 capital expenditure plan of $85 milliond, including real estate development, and the planned retirement of President-Europe Rommel Saber at the end of Q1 2015. Overall, the filing portrays a financially resilient, debt-free company whose growth depends on volume gains outpacing pricing pressure.
02—Key points
Key Highlights
- Total revenues rose 8% to $6.56 billion; net revenues (non-GAAP) increased 5% to $1.98 billion, and net earnings attributable to shareholders grew 8% to $376.9 million.
- Diluted EPS was $1.92 in 2014, up from $1.68 in 2013, helped by share repurchases that cut weighted average diluted shares by about 5%.
- The company carries no debt and held $967 million in cash and short-term investments at year-end 2014, with working capital of $1.3 billion.
- Returned capital aggressively: $551 million spent on buybacks (about 13.1 million shares retired) plus $0.64 per share in dividends during 2014.
- Airfreight net revenues rose 6% on 9% tonnage growth, while ocean freight net revenues grew 6% on 11% container volume growth, though net revenue per unit declined in airfreight.
- Operating income rose 8% to $594.6 million, and operating margin on net revenues improved to 30% from 29%.
- Risk watch items include possible customer rate-reduction demands tied to lower oil prices, carrier overcapacity and carrier financial stress, and a 2015 capex plan of $85 million including real estate.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 26, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $6.56B$6.08B | +8.0% |
| Operating Expenses | $5.97B$5.53B | +8.0% |
| Operating Income | $594.65M$552.07M | +7.7% |
| Net Income | $376.89M$348.53M | +8.1% |
| EPS (Basic) | $1.92$1.69 | +13.6% |
| EPS (Diluted) | $1.92$1.68 | +14.3% |
| Shares Outstanding (Basic) | 196.15M206.00M | −4.8% |
| Shares Outstanding (Diluted) | 196.77M206.90M | −4.9% |
05—Questions
Frequently Asked Questions
How did Expeditors perform financially in 2014?
The company grew revenues 8% to $6.56 billion and net revenues 5% to $1.98 billion. Net earnings attributable to shareholders rose 8% to $376.9 million, and diluted EPS increased to $1.92 from $1.68. Operating income reached $594.6 million, up 8%.
Does Expeditors have significant debt or liquidity concerns?
No. The company reported no debt at December 31, 2014. It held $967 million in cash and short-term investments and $1.3 billion in working capital, and management expects liquidity to be sufficient for at least the next 12 months and beyond. Standby letters of credit and guarantees totaled about $74 million, primarily supporting foreign subsidiary obligations to carriers and customs authorities.
How is Expeditors returning capital to shareholders?
In 2014 the company repurchased about $551 million of common stock, including 11.6 million shares under the discretionary plan and 1.5 million under the non-discretionary plan, and paid $0.64 per share in dividends (two semi-annual payments of $0.32). The discretionary plan authorization was lowered to 188 million shares outstanding in February 2015.
What are the main risks to Expeditors' growth and margins?
Key risks include intense competition that pressures sell rates, reliance on asset-based carriers that are highly leveraged and have reduced capacity, possible rate reductions requested by customers as oil prices fall, and exposure to currency and foreign regulatory and anti-corruption compliance issues. The company also noted that carrier rate increases may not be passed on to customers quickly, which can compress margins, as seen in ocean freight in 2014.
Why does Expeditors emphasize net revenues over total revenues?
Total revenues include the carrier charges the company passes through when it acts as a freight consolidator, which can make revenue volatile and unrelated to value added. Net revenues (revenues less directly related transportation and customs costs) reflect the margin the company earns for its services, so management considers it a better measure of operating performance and pricing power.
06—Continue