10-QPeriod: Q1 FY2018

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 9, 2018For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported strong financial performance for the first quarter of 2018, with total revenues increasing by 19.8% to $1.85 billion and net earnings attributable to shareholders soaring by 45.5% to $135.7 million, or $0.76 per diluted share. This growth was driven by robust performance across all major service segments: airfreight, ocean freight, and customs brokerage. The company benefited from increased volumes and favorable pricing in airfreight, coupled with solid growth in ocean freight and customs brokerage services. Operationally, the company managed its expenses effectively, with salaries and related costs increasing proportionally with revenue growth, a testament to its performance-driven compensation model. Overhead expenses also saw a modest increase, but as a percentage of net revenues, they decreased. The effective income tax rate was lower in Q1 2018 compared to Q1 2017, primarily due to the impact of the 2017 Tax Act. Management expects continued strong performance, supported by its global network, experienced workforce, and a culture focused on superior customer service.

Financial Highlights

41 data points
Beta

Revenue

$1.85B

Net Income

$135.69M

7.3% Net Margin

EPS (Diluted)

$0.76

Total Assets

$3.21B

Cash & Equivalents

$1.13B

Free Cash Flow

$235.48M

Financial Statements
Beta
Revenue$1.85B
Operating Expenses$1.66B
Operating Income$192.82M
Net Income$135.69M
EPS (Basic)$0.77
EPS (Diluted)$0.76
Shares Outstanding (Basic)175.90M
Shares Outstanding (Diluted)179.42M

Key Highlights

  • 1Total revenues increased by 19.8% year-over-year to $1.85 billion in Q1 2018.
  • 2Net earnings attributable to shareholders grew significantly by 45.5% to $135.7 million, or $0.76 per diluted share.
  • 3Airfreight services saw a 19% increase in revenue, driven by tonnage growth and higher sell rates.
  • 4Ocean freight and ocean services revenue increased by 5%, with net revenues up 11%.
  • 5Customs brokerage and other services revenue rose by 38%, with net revenues up 21%.
  • 6Salaries and related costs, as a percentage of net revenues, decreased slightly to 54%, reflecting efficient cost management.
  • 7The effective income tax rate decreased to 31.1% in Q1 2018 from 37.3% in Q1 2017, primarily due to the 2017 Tax Act.

Frequently Asked Questions

Expeditors experienced significant revenue growth driven by strong performance across all its key service segments: airfreight, ocean freight, and customs brokerage. This growth was fueled by increased shipping volumes and favorable pricing, particularly in the airfreight segment, which saw higher sell rates due to increased buy rates from carriers.

The 2017 Tax Act led to a lower effective income tax rate for Expeditors in Q1 2018 (31.1%) compared to Q1 2017 (37.3%). This reduction was primarily due to the lower U.S. federal corporate income tax rate and the shift towards a territorial tax system.

Net revenues are a non-GAAP measure that Expeditors considers a better indicator of operational performance than total revenues. Total revenues include carrier charges for freight consolidation, while net revenues represent the fees and commissions earned by Expeditors. This metric highlights the company's ability to negotiate favorable buy rates from carriers and leverage its purchasing power effectively.

Expeditors employs a performance-driven compensation philosophy where a significant portion of employee compensation is tied to the profitability of the business units they control. This system aligns employee incentives with shareholder interests, ensuring that salary and related costs increase proportionally with operating income, leading to a decrease in their percentage of net revenues, as seen in Q1 2018.