10-QPeriod: Q1 FY2007

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 10, 2007For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported a solid first quarter ended March 31, 2007, demonstrating consistent growth across its key service segments. Total revenues increased by 9% year-over-year, reaching $1,118.9 million. Net earnings saw a significant rise of 13.3% to $59.3 million, or $0.27 per diluted share, up from $52.4 million, or $0.24 per diluted share, in the prior year period. This growth was driven by strong performance in airfreight and customs brokerage services, alongside increased volumes in ocean freight, despite some yield pressures in the latter. The company continues to focus on organic growth, emphasizing superior customer service and employee development as core strategies. Despite a slight decrease in operating cash flow compared to the previous year, likely due to timing of payables and receivables, the company maintains a strong liquidity position with substantial cash and no long-term debt. Management expresses confidence in its ability to meet future capital and liquidity requirements.

Key Highlights

  • 1Net earnings increased by 13.3% to $59.3 million in Q1 2007 compared to Q1 2006.
  • 2Diluted earnings per share rose to $0.27 from $0.24 in the same period.
  • 3Total revenues grew by 9% to $1,118.9 million.
  • 4Airfreight net revenues increased by 16% due to higher tonnage and improved yields.
  • 5Customs brokerage and other services net revenues saw a 14% increase, driven by service quality and market consolidation.
  • 6Ocean freight volumes increased by 12%, though net revenues grew by only 3% due to lower yields and pricing.
  • 7Operating income improved to $94.5 million from $85.4 million.

Frequently Asked Questions

Revenue growth was primarily driven by a 16% increase in airfreight net revenues, fueled by higher tonnage and improved yields, and a 14% increase in customs brokerage and other services net revenues. Ocean freight also saw a 12% increase in volume, although net revenue growth was more modest due to yield pressures.

Total operating expenses increased by approximately 9% year-over-year, largely in line with revenue growth. Salaries and related costs rose by 14%, reflecting increased hiring and compensation levels, including higher stock-based compensation expense. Other overhead expenses increased by 10% but remained consistent as a percentage of net revenues, indicating successful cost containment efforts.

Expeditors maintained a strong liquidity position at March 31, 2007, with $576.8 million in cash and cash equivalents and short-term investments. The company has no long-term debt, and short-term borrowings were minimal at $224,000. Management believes its current cash position and operating cash flows are sufficient to meet future requirements.

The company operates in a highly competitive global logistics industry and is exposed to risks related to international trade policies, currency exchange rate fluctuations, and the dependency on maintaining strong relationships with airlines, ocean carriers, and governmental agencies. Competition, particularly from larger, consolidated firms, is also a significant factor.