10-QPeriod: Q3 FY2006

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 9, 2006For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported a solid third quarter for 2006, demonstrating robust revenue growth across its key service lines: airfreight, ocean freight, and customs brokerage. Total revenues grew to $1.23 billion, a 17.5% increase year-over-year, driven primarily by strong tonnage volume increases, particularly in airfreight and ocean freight. Net earnings also saw a significant increase of approximately 31.8% to $63.8 million, or $0.29 per diluted share. The company's financial condition remains strong, with substantial operating cash flow and no long-term debt. Management highlighted disciplined cost control measures contributing to operating income growth, and expressed confidence in the company's ability to meet future capital and liquidity requirements. Key strategic initiatives continue to focus on organic growth, enhancing customer service through technological advancements, and fostering a dedicated global culture within its workforce. The adoption of SFAS 123R for share-based payments has been implemented, with prior periods restated to reflect stock-based compensation expense. While competitive pressures and global economic factors remain, Expeditors is well-positioned due to its non-asset based model, strong carrier relationships, and focus on high-value logistics solutions.

Key Highlights

  • 1Total revenues increased by 17.5% to $1.23 billion for the three months ended September 30, 2006, compared to the prior year period.
  • 2Net earnings rose by 31.8% to $63.8 million ($0.29 per diluted share) for the three months ended September 30, 2006, compared to the prior year period.
  • 3Airfreight net revenues grew by 21% for the quarter, driven by a 17% increase in tonnage, indicating strong market share gains.
  • 4Ocean freight volumes increased by 23% in FEUs, with net revenues up 18%, boosted by fee-based order management and ocean forwarding services.
  • 5Customs brokerage and other services net revenues increased by 21%, reflecting the company's reputation for quality and increasing market consolidation.
  • 6Operating cash flow showed significant improvement, reaching $84.7 million for the quarter, up from $51.0 million in the prior year.
  • 7The company maintained a strong balance sheet with $499.5 million in cash and cash equivalents and no long-term debt as of September 30, 2006.

Frequently Asked Questions

Revenue growth was primarily driven by increases in shipment volumes across all major service lines. Specifically, airfreight tonnage increased by 17% and ocean freight container volumes (FEUs) rose by 23% compared to the same period in the previous year. This volume growth, coupled with strategic pricing and market share gains, led to the overall revenue increase.

Effective January 1, 2006, Expeditors adopted SFAS 123R, which requires the recognition of stock-based compensation expense. This adoption, using a modified retrospective method, resulted in the restatement of prior periods to include compensation expense for unvested stock options and share awards. This led to an increase in 'Salaries and related costs' and a corresponding increase in 'Stock compensation expense' in the reported periods, as well as adjustments to deferred tax assets and retained earnings.

Management remains focused on organic growth supplemented by strategic acquisitions. Key strategies include recruiting, training, and retaining superior personnel to ensure dedication to customer service, aggressive marketing, employee development, and the implementation of technological solutions. The company believes its non-asset based model and strong relationships with carriers and governmental agencies position it well in the competitive global logistics industry.

The company operates in an intensely competitive global logistics industry influenced by economic and political conditions, currency exchange rates, and international trade policies. Risks include potential changes in tariffs and trade restrictions, regulatory changes, maintaining strong working relationships with airlines, steamship lines, and government agencies, and the reliance on global economic health for shipping volumes. Management also emphasizes the internal challenge of perpetuating its unique corporate culture as a critical factor for continued success.