01—Abstract
Summary
Summary of the 10-K filed February 19, 2021. Cited figures are marked; the original filing is the authoritative source.
Expeditors International of Washington (EXPD) reported a record-setting 2020 driven by the pandemic-induced freight market dislocation.
Total revenues rose 24% to $10.12 billiona from $8.18 billion, and operating income climbed 23% to $940 million from $767 million. Net earnings attributable to shareholders grew 18% to $696 million, and diluted EPS rose to $4.07 from $3.39. Airfreight drove the results: airfreight revenues jumped 63% on a 78% increase in average sell rates, while tonnage fell 3%.
Customs brokerage and ocean revenues were comparatively flat, with brokerage down 2%b and ocean up 6%. Management repeatedly stressed that these historically high buy and sell rates are unprecedented and not expected to be sustained long term, so investors should be cautious about extrapolating 2020 margins and earnings. The balance sheet and cash position remain very strong.
Cash and equivalents rose to $1.53 billionc, and the company carries no long-term debt. Operating cash flow was $655 million, down from $772 million, as a $647 million increase in accounts receivable absorbed cash from high freight rates and rising customer billings. Shareholder returns continued, with $175 million in dividends ($1.04 per share, up from $1.00) and $332 million in share repurchases.
Key risks flagged in the filing include carrier capacity and pricing volatility, customer credit exposure as receivables grow, a heavy concentration of revenue and operating income in China and North Asia, and an ongoing rollout of a new global accounting system. KPMG issued an unqualified opinion on both the financial statements and internal controls, and identified gross unrecognized tax benefits as a critical audit matter.
02—Key points
Key Highlights
- Revenue grew 24% to $10.12 billion, and operating income rose 23% to $940 million, driven primarily by airfreight, where revenue increased 63% on a 78% jump in average sell rates.
- Diluted EPS increased to $4.07 from $3.39 (+20%), and net earnings attributable to shareholders rose 18% to $696 million.
- Management described 2020 airfreight rate levels as unprecedented and not expected to be sustained long term, which argues against extrapolating peak-cycle margins.
- Balance sheet strength: $1.53 billion in cash and equivalents, no long-term debt, and $2.66 billion in shareholders' equity.
- Operating cash flow fell 15% to $655 million as accounts receivable grew $647 million, reflecting high freight rates and customer billings.
- Capital returned to shareholders: $175 million in dividends ($1.04/share, up 4%) and $332 million in buybacks (4.6 million shares at an average of $72.26).
- Concentration risk: Greater China (including Hong Kong) accounted for 32% of 2020 revenue and 29% of operating income; the company also disclosed a new worldwide accounting system rollout over several years.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 19, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $9.58B$7.94B | +20.7% |
| Operating Expenses | $8.64B$7.18B | +20.5% |
| Operating Income | $940.44M$766.69M | +22.7% |
| Interest Expense | $219K— | — |
| Net Income | $696.14M$590.39M | +17.9% |
| EPS (Basic) | $4.14$3.45 | +20.0% |
| EPS (Diluted) | $4.07$3.39 | +20.1% |
| Shares Outstanding (Basic) | 168.33M170.90M | −1.5% |
| Shares Outstanding (Diluted) | 170.90M174.21M | −1.9% |
05—Questions
Frequently Asked Questions
How did Expeditors perform in 2020 relative to 2019?
Revenue rose 24% to $10.12 billion and operating income rose 23% to $940 million. Net earnings attributable to shareholders increased 18% to $696 million, and diluted EPS was $4.07 versus $3.39. Growth was concentrated in airfreight, which benefited from severe capacity shortages and sharply higher rates during the pandemic.
Is the 2020 earnings surge likely to be sustainable?
Management explicitly said the historically high buy and sell rates are not expected to be sustained long term and that carrier capacity and pricing will remain volatile. Investors should treat 2020 as an exceptional year rather than a run-rate base, while noting that the company's incentive-based compensation model tends to flex with operating income.
What are the main balance sheet and liquidity considerations?
The company holds $1.53 billion in cash, has no long-term debt, and reports $2.07 billion in working capital. However, operating cash flow declined to $655 million because accounts receivable grew sharply with higher freight rates, and management acknowledged increased customer credit exposure and potential bad debt if customers' ability to pay weakens.
How much did the company return to shareholders, and at what pace?
In 2020 Expeditors paid $175 million in dividends ($1.04 per share, semi-annual at $0.52) and repurchased $332 million of stock, retiring 4.6 million shares. Remaining authorization under the discretionary plan was about 9.3 million shares as of December 2020.
What are the key risks highlighted in the filing?
Key risks include pricing volatility driven by carrier capacity constraints and port congestion, dependence on airlines and ocean carriers that face financial stress, customer bankruptcies and collection risk, heavy exposure to China and North Asia, currency volatility (net FX losses of about $25 million in 2020), tax audit outcomes across many jurisdictions, and execution risk in the multi-year rollout of a new accounting system.
06—Continue