10-QPeriod: Q1 FY2006

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 10, 2006For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported strong financial performance for the first quarter ended March 31, 2006. Total revenues increased by 24.2% year-over-year to $1,024.6 million, driven by robust growth across all key segments: airfreight, ocean freight, and customs brokerage. Net earnings saw a significant rise of 72.8% to $52.4 million, translating to basic earnings per share of $0.49 and diluted earnings per share of $0.47. The company's operational efficiency improved, with operating income increasing by 69.3% to $85.4 million, and operating income margin expanding to 29% from 22% in the prior year. This improvement was supported by strong tonnage growth in airfreight and ocean freight, alongside increased demand for customs brokerage services. The adoption of SFAS No. 123R for stock-based compensation resulted in a restatement of prior periods, impacting reported expenses and earnings per share, though the underlying operational performance remained strong.

Key Highlights

  • 1Total revenues surged by 24.2% to $1,024.6 million for Q1 2006 compared to Q1 2005.
  • 2Net earnings increased significantly by 72.8% to $52.4 million.
  • 3Operating income grew by 69.3% to $85.4 million, with operating margin improving from 22% to 29%.
  • 4Airfreight net revenues increased by 25%, driven by a 25% rise in tonnage.
  • 5Ocean freight net revenues grew by 39%, with volumes up 18% and strong contributions from market conditions and trade lane imbalances.
  • 6Customs brokerage and other services net revenues increased by 26%, reflecting strong service reputation and industry consolidation.
  • 7The company adopted SFAS No. 123R, recognizing stock-based compensation expense and restating prior periods.

Frequently Asked Questions

Revenue growth was driven by strong performance across all major segments. Airfreight revenues increased 25% due to higher tonnage, ocean freight revenues rose 39% reflecting improved market conditions and volume growth, and customs brokerage and other services increased 26% attributed to a strong reputation and industry consolidation.

The adoption of SFAS No. 123R, effective January 1, 2006, required the company to recognize stock-based compensation expense. The company elected a modified retrospective method, restating prior periods to include this expense. This resulted in adjustments to salaries and related costs, operating income, and earnings per share for prior periods. For the current quarter, stock compensation expense was $8.4 million.

Expeditors expects capital expenditures to be approximately $165 million for 2006, including normal expenditures and additional real estate acquisitions. The company's liquidity is strong, with $567.7 million in cash and cash equivalents at the end of the quarter. Management believes current cash flow, bank financing, and cash position are sufficient to meet future requirements.

Total operating expenses increased by 21.2% to $939.2 million. Salaries and related costs rose 21% due to increased hiring and compensation levels, and the inclusion of stock-based compensation expense. Other operating expenses increased 5%. However, as a percentage of net revenue, total operating expenses decreased from 78% in Q1 2005 to 71% in Q1 2006, indicating improved operational efficiency.