10-QPeriod: Q3 FY2019

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q3 Ended Sep 30, 2019

Filed November 6, 2019For Securities:EXPD

Summary

Expeditors International of Washington, Inc. reported consistent revenue performance in the third quarter of 2019 compared to the prior year, with total revenues of $2.07 billion. While airfreight services saw a decline due to a softening global economy and trade disputes, this was offset by strong growth in customs brokerage and other services, along with stable ocean freight revenues. Net earnings attributable to shareholders were $160.2 million for the quarter, a slight decrease from $162.7 million in the prior year, resulting in diluted EPS of $0.92 for both periods. The company's balance sheet shows a robust cash position of $1.22 billion as of September 30, 2019. A significant change noted is the adoption of new lease accounting standards (ASC 842) which has resulted in the recognition of operating lease right-of-use assets and liabilities on the balance sheet. Overall, Expeditors demonstrates financial stability, navigating a challenging global trade environment with diversified service offerings.

Financial Highlights

43 data points
Beta

Revenue

$2.07B

Net Income

$160.22M

7.7% Net Margin

EPS (Diluted)

$0.92

Total Assets

$3.71B

Cash & Equivalents

$1.22B

Free Cash Flow

$161.50M

Financial Statements
Beta
Revenue$2.07B
Operating Expenses$1.87B
Operating Income$206.55M
Net Income$160.22M
EPS (Basic)$0.94
EPS (Diluted)$0.92
Shares Outstanding (Basic)170.41M
Shares Outstanding (Diluted)173.48M

Key Highlights

  • 1Total revenues for the third quarter of 2019 were $2.07 billion, a slight decrease of 0.8% year-over-year, indicating stable demand despite economic headwinds.
  • 2Airfreight services revenue decreased by 14% year-over-year due to softening market demand driven by a slowing global economy and trade disputes, impacting both tonnage and sell rates.
  • 3Customs brokerage and other services revenue increased by 15% year-over-year, driven by higher demand for brokerage services and time-definite road freight, showcasing a growing segment.
  • 4Net earnings attributable to shareholders for the quarter were $160.2 million, a marginal decrease of 1.5% from $162.7 million in Q3 2018, with diluted EPS remaining steady at $0.92.
  • 5The company maintained a strong liquidity position with cash and cash equivalents of $1.22 billion as of September 30, 2019, up from $923.7 million at the end of 2018.
  • 6Expeditors adopted new lease accounting standards (ASC 842) effective January 1, 2019, resulting in the recognition of significant operating lease right-of-use assets and liabilities on the balance sheet.
  • 7Operating income saw a modest increase of 1.8% to $206.6 million, driven by improved performance in customs brokerage and other services, and disciplined cost management.

Frequently Asked Questions

The company noted that ongoing inter-governmental trade disputes have contributed to a softening of the global economy and specifically impacted airfreight services revenue. These disputes have led to lower average sell rates and tonnage, particularly in regions like North Asia and North America. While this presents a headwind for airfreight, the company's diversification into customs brokerage and other services is helping to offset these effects.

Expeditors adopted new lease accounting guidance (ASC 842) effective January 1, 2019. This resulted in the recognition of operating lease right-of-use assets and lease liabilities on the balance sheet. For example, as of September 30, 2019, operating lease right-of-use assets were $374.2 million and noncurrent lease liabilities were $313.6 million. This adoption did not impact retained earnings at the adoption date and has led to the inclusion of operating lease costs within rent and occupancy expenses.

The outlook varies by segment. Airfreight services are facing pressure from a slowing global economy and trade disputes, leading to decreased volumes and rates. Ocean freight and ocean services showed stability with slight growth, but are subject to carrier pricing volatility. Customs brokerage and other services represent a growth area, driven by increased demand for these specialized services and value-added offerings, showing significant year-over-year revenue increases.

Expeditors maintains a strong liquidity position. Cash and cash equivalents increased significantly to $1.22 billion as of September 30, 2019, from $923.7 million at the end of 2018. Net cash provided by operating activities also increased year-over-year. Management believes its current cash position and operating cash flows are sufficient to meet its liquidity and capital requirements for at least the next 12 months and beyond.