10-QPeriod: Q2 FY2005

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q2 Ended Jun 30, 2005

Filed August 8, 2005For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported a strong performance for the quarter ended June 30, 2005, with significant growth in revenues and net earnings. Total revenues increased by 16% year-over-year to $928 million, driven by robust performance across all service segments: airfreight, ocean freight, and customs brokerage. Net earnings saw a substantial rise of 19% to $44.6 million, translating to diluted earnings per share of $0.40, up from $0.34 in the prior year period. The company's non-asset-based model continues to be a key strength, allowing it to benefit from freight volume increases while managing costs effectively. Despite a 14% increase in salaries and related costs, operating income grew by 17%, indicating strong operational leverage. The balance sheet remains solid with ample liquidity, as evidenced by $438.9 million in cash and cash equivalents and no short-term debt outstanding at the end of the quarter. Management remains focused on organic growth, superior customer service, and employee development as key drivers for future success.

Key Highlights

  • 1Total revenues increased by 16% to $927.0 million for the three months ended June 30, 2005, compared to $798.7 million in the prior year.
  • 2Net earnings grew by 19% to $44.6 million for the three months ended June 30, 2005, compared to $37.6 million in the prior year.
  • 3Diluted earnings per share rose to $0.40 from $0.34 for the same period.
  • 4Ocean freight volumes saw a significant increase of 19% in FEUs for the quarter.
  • 5Customs brokerage and other services net revenues increased by 18%, driven by strong demand and the company's reputation for quality service.
  • 6The company maintained a strong liquidity position with $438.9 million in cash and cash equivalents and no outstanding short-term debt.
  • 7Management expects the adoption of SFAS No. 123R (Share-Based Payment) in 2006 to materially impact future financial results by requiring the expensing of stock options.

Frequently Asked Questions

Revenue growth was driven by increases across all major service segments. Airfreight tonnage increased by 6%, ocean freight volumes (FEUs) rose by 19%, and customs brokerage and other services saw an 18% increase in net revenues. This broad-based growth reflects strong demand for global logistics services and the company's ability to capture market share.

Salaries and related costs increased by 14%, reflecting investments in personnel to support business growth. However, operating income still grew by 17% due to the company's efficient cost management and the leveraging of its non-asset-based model. Management's compensation philosophy, linking a portion of pay to operating profit, helps align employee incentives with company performance.

Expeditors maintains a very strong financial position. At June 30, 2005, the company had $438.9 million in cash and cash equivalents, a substantial increase from the previous year. Importantly, they had no short-term debt outstanding. This robust liquidity, combined with positive operating cash flow, suggests ample resources to fund operations, investments, and potential future opportunities.

Expeditors is required to adopt SFAS No. 123R (Share-Based Payment) in early 2006. This new standard mandates the expensing of the fair value of employee stock options and other share-based awards. Management anticipates this adoption will have a material impact on the consolidated results of operations and earnings per share, likely increasing 'salaries and related costs' as a percentage of net revenue due to the recognition of non-cash compensation expense.