10-QPeriod: Q2 FY2003

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 14, 2003For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported a solid performance for the second quarter and first half of 2003, demonstrating consistent growth across its core business segments: airfreight, ocean freight, and customs brokerage. Total revenues increased by approximately 17% for the quarter and 19% for the first half compared to the prior year, reflecting strong demand for global logistics services. Net earnings also showed a healthy increase, up by about 18% for the quarter and 15% for the half. The company maintained efficient operations, with total operating expenses remaining at 77% of net revenues, indicating effective cost management despite increased personnel and IT investments. Financially, EXPD ended the quarter with a strong liquidity position, evidenced by a substantial increase in cash and cash equivalents and a healthy working capital balance. The company continued its strategy of organic growth, supplemented by strategic acquisitions, and managed its operations effectively, with a notable increase in net revenue and operating income from 'same store' comparisons. While the company faces competitive pressures and currency risks inherent in global operations, its management believes its current cash position, financing arrangements, and operating cash flows are sufficient to meet future capital and liquidity needs.

Key Highlights

  • 1Total revenues increased by 17% to $625.7 million for Q2 2003 and by 19% to $1.18 billion for the first half of 2003, compared to the same periods in 2002.
  • 2Net earnings grew by 18% to $27.9 million for Q2 2003 and by 15% to $53.0 million for the first half of 2003.
  • 3Ocean freight and ocean services net revenues saw a significant increase of 20% for the quarter and 19% for the half.
  • 4Customs brokerage and import services net revenues increased by 17% for the quarter and 18% for the half, consistent with higher freight volumes.
  • 5Operating income as a percentage of net revenue remained strong at 23% for both the quarter and the first half of 2003.
  • 6Cash and cash equivalents increased significantly, reaching $284.4 million at the end of Q2 2003, with a strong working capital of $305.8 million.
  • 7The company reported robust 'same store' net revenue growth of 14% for the quarter and 15% for the first half, indicating strong organic growth.

Frequently Asked Questions

Revenue growth was primarily driven by increased volumes and net revenues in airfreight, ocean freight, and customs brokerage services. Ocean freight and ocean services net revenues saw a notable 20% increase, while customs brokerage and import services increased by 17%, reflecting the overall growth in global logistics demand.

Expeditors International has maintained a stable operating expense ratio, with total operating expenses at 77% of net revenues for both Q2 2003 and the first half of the year. While salaries and related costs increased due to hiring and compensation adjustments, this was partially offset by focused cost-containment efforts and lower bad debt expense, contributing to a consistent operating margin.

The company's financial health appears strong, with a significant increase in cash and cash equivalents to $284.4 million and a healthy working capital of $305.8 million. They generated substantial cash flow from operations and have no long-term debt, indicating a solid liquidity position sufficient to meet foreseeable needs.

Yes, Expeditors International conducts business in many countries and currencies, leading to exposure to foreign exchange risk. While they have a policy of accelerating international currency settlements to manage this risk and do not heavily rely on hedging, a hypothetical 10% weakening of the U.S. Dollar could increase operating income by approximately $5.3 million, while a strengthening would reduce it by $4.4 million for the six-month period. The company reported a net foreign exchange gain of approximately $585,000 for Q2 2003.