10-KPeriod: FY2023

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Annual Report, Year Ended Dec 31, 2023

Filed February 23, 2024For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported a significant decrease in revenue and net earnings for the fiscal year 2023, primarily driven by a normalization of global supply chain conditions following pandemic-induced disruptions. Volumes and average rates declined across airfreight and ocean services as capacity caught up with demand and customer inventory levels remained high, impacting profitability. The company's customs brokerage and other services also saw a revenue decrease, though operating results benefited from lower cyber-attack related costs and improved efficiency. Despite the challenging operating environment, Expeditors demonstrated resilience by generating substantial operating cash flow and returning significant capital to shareholders through share repurchases and dividends. The company is actively managing its cost structure, including salaries and bonuses, in alignment with revenue performance. A key concern highlighted is a material weakness in internal control over financial reporting related to IT general controls, which management is actively working to remediate. Investors should monitor the pace of this remediation and the company's ability to adapt to ongoing economic uncertainties and competitive pressures.

Financial Highlights

44 data points
Beta

Revenue

$9.30B

Net Income

$751.78M

8.1% Net Margin

EPS (Diluted)

$5.01

Total Assets

$4.52B

Cash & Equivalents

$1.51B

Free Cash Flow

$1.05B

Financial Statements
Beta
Revenue$9.30B
Operating Expenses$8.36B
Operating Income$939.93M
Interest Expense$4.80M
Net Income$751.78M
EPS (Basic)$5.05
EPS (Diluted)$5.01
Shares Outstanding (Basic)149.14M
Shares Outstanding (Diluted)150.19M

Key Highlights

  • 12023 revenues and net earnings experienced a substantial decline of 45% compared to 2022, reflecting a normalization of global shipping rates and softening customer demand.
  • 2Airfreight and ocean freight services saw significant revenue drops (45% and 64% respectively) due to decreased volumes and lower average buy and sell rates.
  • 3Customs brokerage and other services revenue decreased by 20%, influenced by a slowdown in the economy and customers diversifying their brokerage providers.
  • 4Operating cash flow remained strong at $1,053 million, with $1,595 million returned to shareholders via stock repurchases and dividends.
  • 5The company reported a material weakness in internal control over financial reporting related to IT general controls, with remediation expected to be completed in 2024.
  • 6Headcount was reduced by 9% in 2023, while base salaries and benefits increased by 1% due to inflationary pressures.
  • 7Expeditors continues its focus on organic growth, employee development, and maintaining a consistent global technology platform.

Frequently Asked Questions

The significant decline was primarily driven by a normalization of global supply chain conditions after the extraordinary disruptions of the COVID-19 pandemic. This led to a substantial decrease in both average shipping rates (buy and sell rates) and freight volumes as demand softened and carriers increased capacity. Additionally, customer inventory levels remained high, further impacting demand for new shipments.

Management has identified a material weakness related to IT general controls, specifically concerning unauthorized changes to custom databases and the systems used to log these changes. The company is actively implementing enhancements to strengthen IT program change management processes, increasing qualified personnel, performing supplemental reviews, and conducting additional training. Remediation is expected to be completed in 2024.

Expeditors focused on aligning its cost structure with transactional volumes. Salaries and related costs decreased by 17% in 2023, largely due to lower commissions and bonuses reflecting reduced operating income. While headcount decreased by 9%, base salaries and benefits saw a slight increase due to inflation. The company's incentive-based compensation structure is designed to link employee bonuses directly to business unit profitability.

Expeditors maintains a strong commitment to returning capital to shareholders. In 2023, the company returned $1,595 million to shareholders through common stock repurchases and dividend payments. The company also has an ongoing Discretionary Stock Repurchase Plan which allows for the repurchase of shares to reduce the number of outstanding shares.