10-QPeriod: Q1 FY2016

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 4, 2016For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported results for the first quarter ended March 31, 2016. Total revenues decreased by 15.4% year-over-year to $1.42 billion, primarily driven by lower revenues in airfreight services. Net earnings attributable to shareholders declined to $96.6 million, or $0.53 per diluted share, compared to $106.7 million, or $0.55 per diluted share, in the prior year's first quarter. The company experienced a notable increase in cash and cash equivalents, reaching $1.01 billion at the end of the quarter, up from $807.8 million at the end of 2015. This was supported by strong operating cash flows, which improved significantly year-over-year. Despite a revenue decline, the company maintained a solid operating income and demonstrated effective cost management, particularly in operating expenses for airfreight and ocean freight services, which saw decreases exceeding revenue declines in those segments. The company also continued its share repurchase program.

Financial Highlights

40 data points
Beta

Revenue

$1.42B

Net Income

$96.58M

6.8% Net Margin

EPS (Diluted)

$0.53

Total Assets

$2.66B

Cash & Equivalents

$1.01B

Free Cash Flow

$235.95M

Financial Statements
Beta
Revenue$1.42B
Operating Expenses$1.27B
Operating Income$151.83M
Net Income$96.58M
EPS (Basic)$0.53
EPS (Diluted)$0.53
Shares Outstanding (Basic)182.01M
Shares Outstanding (Diluted)183.02M

Key Highlights

  • 1Total revenues declined 15.4% year-over-year to $1.42 billion, impacted by softer demand and competitive pricing, particularly in airfreight services.
  • 2Net earnings attributable to shareholders decreased to $96.6 million ($0.53 per diluted share) from $106.7 million ($0.55 per diluted share) in Q1 2015.
  • 3Operating income decreased to $151.8 million from $168.9 million in the prior year's quarter, reflecting the revenue pressures.
  • 4Net revenues (a non-GAAP measure) saw a smaller decline of 2.3% to $517.1 million, indicating some margin resilience.
  • 5Cash and cash equivalents significantly increased to $1.01 billion from $807.8 million at year-end 2015.
  • 6Net cash provided by operating activities surged to $236.0 million from $134.4 million in Q1 2015, driven by favorable changes in working capital.
  • 7The company continued its share repurchase program, buying back approximately 1.5 million shares during the quarter.

Frequently Asked Questions

Total revenues decreased primarily due to a significant decline in airfreight services revenue (down 21%) and ocean freight and ocean services revenue (down 20%). This was attributed to lower average sell rates in response to competitive market conditions and, in the case of airfreight, a 9% decrease in tonnage. While customs brokerage and other services remained relatively flat, the overall decline in freight services heavily impacted total revenue.

Expeditors demonstrated effective cost management. Operating expenses decreased by 16% year-over-year, outpacing the revenue decline. Specifically, airfreight expenses fell 24% and ocean freight expenses decreased by 27%, largely due to lower average buy rates resulting from carrier overcapacity and reduced volumes. Overhead expenses, including salaries and related costs, saw a modest increase of 2%, reflecting a slight rise in employee count but demonstrating good control relative to revenue.

The company's liquidity position strengthened considerably. Cash and cash equivalents grew to $1.01 billion at March 31, 2016, from $807.8 million at December 31, 2015. This was fueled by a substantial increase in net cash from operating activities, which rose to $236.0 million from $134.4 million in the prior year's quarter, primarily due to favorable changes in working capital accounts. The company has no long-term debt, indicating a strong balance sheet.

Expeditors expects continued volatility in pricing for both airfreight and ocean freight markets. The airfreight market is anticipated to be affected by carrier overcapacity and the timing of new product launches, with customers focused on supply-chain efficiency and cost reduction. The ocean freight market is expected to see continued pricing volatility due to carrier liquidity challenges and competitive bidding. Management notes that while sell rates and buy rates may fluctuate, the focus on managing net revenues (yield) remains critical.