10-QPeriod: Q2 FY2016

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 4, 2016For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported its financial results for the second quarter and the first half of 2016. While total revenues saw a decline year-over-year, primarily due to decreased air and ocean freight volumes and lower rates driven by competitive market conditions and carrier overcapacity, the company demonstrated resilience in its net revenue. Net revenues remained relatively flat for the quarter and saw a slight decrease year-to-date, reflecting the company's ability to manage sell rates against favorable buying opportunities. Operating income and net earnings attributable to shareholders experienced modest declines, consistent with the revenue trends. The company continues to focus on operational efficiency and cost management, as evidenced by stable overhead expenses as a percentage of net revenues. Management remains confident in the company's liquidity and ability to meet its financial obligations, supported by strong cash flows from operations and a healthy cash position.

Financial Highlights

42 data points
Beta

Revenue

$1.48B

Net Income

$116.05M

7.9% Net Margin

EPS (Diluted)

$0.63

Total Assets

$2.69B

Cash & Equivalents

$980.26M

Free Cash Flow

$105.18M

Financial Statements
Beta
Revenue$1.48B
Operating Expenses$1.30B
Operating Income$178.86M
Net Income$116.05M
EPS (Basic)$0.64
EPS (Diluted)$0.63
Shares Outstanding (Basic)181.75M
Shares Outstanding (Diluted)183.13M

Key Highlights

  • 1Total revenues decreased by 13% to $1.475 billion for the three months ended June 30, 2016, and by 14% to $2.894 billion for the six months ended June 30, 2016, compared to the prior year periods.
  • 2Net revenues, a non-GAAP measure, showed more stability, slightly increasing by 0.2% to $553.1 million for the three months ended June 30, 2016, and decreasing by 1% to $1.070 billion for the six months ended June 30, 2016.
  • 3Operating income decreased by 2.1% to $178.9 million for the three months ended June 30, 2016, and by 5.4% to $330.7 million for the six months ended June 30, 2016.
  • 4Net earnings attributable to shareholders declined by 1.4% to $116.1 million ($0.63 per diluted share) for the three months ended June 30, 2016, and by 5.3% to $212.6 million ($1.16 per diluted share) for the six months ended June 30, 2016.
  • 5Cash and cash equivalents increased to $980.3 million at June 30, 2016, from $807.8 million at December 31, 2015, indicating strong liquidity.
  • 6The company repurchased approximately 1.9 million and 3.4 million shares of common stock in the three and six-month periods ended June 30, 2016, respectively, demonstrating a commitment to returning capital to shareholders.
  • 7Salaries and related costs as a percentage of net revenues increased slightly to 53% for the three months and 54% for the six months, reflecting increased employee numbers partially offset by lower operating income impacting bonuses.

Frequently Asked Questions

The decrease in total revenues was primarily driven by lower average sell rates in airfreight services due to competitive market conditions and excess carrier capacity. Ocean freight and ocean services revenues also declined due to lower average sell rates and a slight decrease in container volume, influenced by carrier overcapacity and customers seeking lower-cost options.

Expeditors focuses on managing 'net revenues,' which represent revenues less directly related operating expenses. This metric remained stable or saw slight changes, indicating the company's ability to leverage its purchasing power and negotiate favorable rates with carriers, thereby maintaining its margins. Expense management, particularly in overhead costs which remained stable as a percentage of net revenues, also contributes to profitability.

The company maintains a strong liquidity position, with cash and cash equivalents increasing to $980.3 million as of June 30, 2016. Management believes this, along with operating cash flows, is sufficient to meet its liquidity needs. Expeditors is actively repurchasing its common stock, utilizing cash from operations and stock option exercises, signaling a commitment to returning value to shareholders.

Based on management's assessment and legal advice, none of the current claims, lawsuits, government investigations, or other legal matters are expected to have a significant effect on the company's operations, cash flows, or financial position. Accrued amounts for these matters are not significant.