01—Abstract
Summary
Summary of the 10-K filed February 25, 2016. Cited figures are marked; the original filing is the authoritative source.
Expeditors International of Washington (EXPD) closed 2015 with revenues of $6.62 billiona (up 1% from $6.56 billion in 2014) and net revenues, the company's non-GAAP primary profitability measure, of $2.19 billion (up 10% from $1.98 billion).
Net earnings attributable to shareholders rose 21% to $457.2 millionb, and diluted EPS reached $2.40 versus $1.92 in 2014. Operating margin on net revenues improved to 33% from 30%, driven mainly by stronger ocean freight consolidation yields and favorable market buying opportunities, while airfreight net revenues grew 11% on higher tonnage. Customs brokerage net revenues also rose 6%, with North America up 10%.
The balance sheet remains very strong, with $808 millionc in cash and short-term investments, no long-term debt, and working capital of $1.13 billion. Management returned substantial capital to shareholders, repurchasing $630 million of stock (about 13.1 million shares) and paying $136 million in dividends ($0.72 per share, up from $0.64). Operating cash flow improved to $565 million from $395 million.
Total shareholders' equity declined to $1.69 billiond, largely because of buybacks and a $44 million foreign currency translation loss. The key risks for investors are the cyclical pressure on air and ocean carrier capacity and pricing, the 2015 decline in fuel-driven rates, and the company's heavy reliance on international trade flows and foreign operations, where a majority of revenue and operating income is generated.
Management also flagged competitive pricing pressure from customers seeking lower rates and expanded contract terms, and the upcoming transition to the CBP's ACE system and a new worldwide accounting system. Beyond these operational issues, the company says it expects a 2016 capex budget of about $100 million, including real estate.
02—Key points
Key Highlights
- Net revenues grew 10% to $2.19 billion, outpacing 1% revenue growth, which signals improved yield and margin quality rather than volume alone.
- Diluted EPS rose 25% to $2.40 from $1.92, and net earnings attributable to shareholders increased 21% to $457.2 million.
- Operating income climbed 21% to $721.5 million, lifting operating margin on net revenues to 33% from 30%.
- Ocean freight consolidation net revenues rose 31%, driven by a 27% increase in net revenue per container, while airfreight net revenues increased 11% on 6% tonnage growth.
- The company holds $808 million in cash and short-term investments with no long-term debt, and generated $565 million in operating cash flow (up from $395 million).
- Shareholder returns were substantial: $630 million in share repurchases (about 13 million shares) plus $136 million in dividends, with the quarterly dividend raised to $0.36 from $0.32.
- Key risks include carrier capacity and pricing volatility, fuel-related rate pass-through, reliance on international trade, currency controls, and an 11% decline in shareholders' equity to $1.69 billion from buybacks and FX translation losses.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 25, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $6.62B$6.56B | +0.8% |
| Operating Expenses | $5.90B$5.97B | −1.3% |
| Operating Income | $721.48M$594.65M | +21.3% |
| Net Income | $457.22M$376.89M | +21.3% |
| EPS (Basic) | $2.42$1.92 | +26.0% |
| EPS (Diluted) | $2.40$1.92 | +25.0% |
| Shares Outstanding (Basic) | 188.94M196.15M | −3.7% |
| Shares Outstanding (Diluted) | 190.22M196.77M | −3.3% |
05—Questions
Frequently Asked Questions
How did Expeditors perform on its core profitability measure in 2015?
Net revenues, the company's non-GAAP measure of revenue less directly related operating expenses, rose 10% to $2.19 billion. Operating income grew 21% to $721 million, and operating margin on net revenues improved to 33% from 30%, reflecting better ocean freight yields and favorable buying conditions.
Is the company's balance sheet strong enough to support its capital returns?
Yes. Expeditors held $808 million in cash and short-term investments at year-end 2015, had no long-term debt, and generated $565 million in operating cash flow. That covered $630 million of buybacks and $136 million of dividends, though shareholders' equity fell to $1.69 billion as buybacks and currency translation losses outweighed earnings.
What are the main risks to future earnings?
The main risks are volatility in airline and ocean carrier capacity and pricing, the pass-through of fuel price changes to customers, and dependence on international trade, where most revenue and operating income is generated. Management also cites rising competitive pressure on rates and contract terms, currency controls in some markets, and operational risk from the ACE customs system transition and a new global accounting system.
Why did revenue grow so little while net revenue grew much faster?
Total revenue includes the carrier charges Expeditors passes through when acting as a freight consolidator, so lower airfreight sell rates and carrier cost declines reduced reported revenue. Net revenue strips out those pass-through costs and better reflects the company's own economics, so it rose 10% while total revenue rose only 1%.
What is the outlook for capital spending and dividends?
Management estimates 2016 capital expenditures of about $100 million, including routine spending and additional real estate development. The quarterly dividend was raised to $0.36 per share from $0.32 in 2015, and the company continues to repurchase shares under its discretionary plan toward a 180 million share outstanding target.
06—Continue