10-QPeriod: Q2 FY2017

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 8, 2017For Securities:EXPD

Summary

Expeditors International of Washington Inc. (EXPD) reported solid financial results for the second quarter and first half of 2017, demonstrating revenue growth across its core services. Total revenues increased by approximately 13.5% for the quarter and 11.2% for the six months ended June 30, 2017, compared to the prior year periods. This growth was primarily driven by increased volumes in airfreight, ocean freight, and customs brokerage services, coupled with higher sell rates reflecting market conditions. While revenues grew, net revenues (a non-GAAP measure reflecting the company's margin) saw a modest increase of 1.9% for the quarter and 1.1% for the six months. This was primarily due to a decrease in net revenue per unit in airfreight and ocean freight services, impacted by rising carrier costs and competitive market pressures. Despite margin pressures, the company maintained strong operating income and net earnings, though both experienced slight declines year-over-year for the quarter and half-year. The company's balance sheet remains strong with significant cash and cash equivalents and no long-term debt, providing ample liquidity for operations and capital expenditures.

Financial Highlights

42 data points
Beta

Revenue

$1.67B

Net Income

$108.85M

6.5% Net Margin

EPS (Diluted)

$0.60

Total Assets

$3.02B

Cash & Equivalents

$1.11B

Free Cash Flow

$81.21M

Financial Statements
Beta
Revenue$1.67B
Operating Expenses$1.50B
Operating Income$168.24M
Net Income$108.85M
EPS (Basic)$0.60
EPS (Diluted)$0.60
Shares Outstanding (Basic)180.01M
Shares Outstanding (Diluted)182.03M

Key Highlights

  • 1Total revenues increased by 13.5% for Q2 2017 and 11.2% for the first six months of 2017 compared to the prior year.
  • 2Net revenues showed modest growth of 1.9% for Q2 and 1.1% for the first six months, indicating pressure on margins.
  • 3Airfreight services saw a 15% revenue increase in Q2 and 13% in the first six months, driven by volume and higher sell rates, but net revenue per kilo declined.
  • 4Ocean freight and ocean services revenue grew 14% in Q2 and 11% in the first six months, with volume increases partially offset by lower net revenue per container.
  • 5Customs brokerage and other services revenue increased by 10% for both periods, driven by higher volumes.
  • 6Operating income decreased slightly to $168.2 million for Q2 and $314.4 million for the first six months, compared to $178.9 million and $330.7 million in the prior year.
  • 7Net earnings attributable to shareholders were $108.9 million for Q2 and $202.1 million for the first six months, down from $116.1 million and $212.6 million in the prior year.
  • 8The company maintained a strong balance sheet with $1,114.9 million in cash and cash equivalents and no long-term debt at June 30, 2017.

Frequently Asked Questions

Expeditors reported an increase in total revenues for Q2 2017, driven by higher volumes and sell rates across its services. However, net revenues, which represent the company's margin, saw a slight increase, indicating some pressure on profitability per unit due to rising carrier costs and competitive market conditions. Consequently, net earnings attributable to shareholders decreased slightly year-over-year.

Net revenues (a non-GAAP measure of margin) are being impacted by several factors. In airfreight services, while tonnage increased, the net revenue per kilo declined due to competitive market conditions and higher average buy rates from carriers, especially in regions like North Asia and South Asia. Similarly, ocean freight consolidation saw lower net revenue per container. The company is experiencing increased carrier costs (buy rates) due to tighter capacity and higher market demand, which are not always fully passed on to customers (sell rates) due to competitive pressures.

Expeditors maintains a strong liquidity position with $1,114.9 million in cash and cash equivalents at June 30, 2017, and no long-term debt. Net cash provided by operating activities remains significant, although lower than the prior year due to working capital changes and earnings. The company believes its current cash position and operating cash flows are sufficient to meet its capital and liquidity requirements for at least the next 12 months and the foreseeable future.

Key risks include intense competition in the global logistics industry, which pressures pricing and margins. The company is also exposed to volatility in carrier capacity and pricing, influenced by factors like carrier financial stability, new ship deliveries, and global trade conditions. Furthermore, increasing reliance on systems elevates risks related to network continuity and cybersecurity. Changes in international trade policies, currency fluctuations, and economic conditions also pose potential challenges.