10-QPeriod: Q2 FY2022

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q2 Ended Jun 30, 2022

Filed August 4, 2022For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) reported strong revenue and net earnings growth for the six months ended June 30, 2022, compared to the prior year period. This growth was primarily driven by significant increases in average freight rates across both air and ocean services, reflecting continued tight carrier capacity, port congestion, and supply chain disruptions. Despite increased volumes in ocean freight and customs brokerage, overall shipment volumes experienced a slight decline, influenced by factors such as COVID-19 lockdowns in China and a softening customer demand. The company incurred significant expenses related to a cyber-attack in February 2022, which temporarily disrupted operations. While core systems have been restored, the company recorded approximately $88 million in related expenses for the first half of the year, including demurrage charges and investigation/remediation costs. Management is seeking recovery for some of these charges. Despite these headwinds, Expeditors demonstrated resilience with robust operating cash flow and a substantial return of capital to shareholders through stock repurchases and dividends.

Financial Highlights

44 data points
Beta

Revenue

$4.60B

Net Income

$377.81M

8.2% Net Margin

EPS (Diluted)

$2.27

Total Assets

$7.36B

Cash & Equivalents

$1.98B

Free Cash Flow

$558.65M

Financial Statements
Beta
Revenue$4.60B
Operating Expenses$4.10B
Operating Income$505.98M
Interest Expense$58K
Net Income$377.81M
EPS (Basic)$2.29
EPS (Diluted)$2.27
Shares Outstanding (Basic)165.09M
Shares Outstanding (Diluted)166.47M

Key Highlights

  • 1Total revenues increased by 36% to $9.27 billion for the six months ended June 30, 2022, compared to $6.81 billion in the prior year period.
  • 2Net earnings attributable to shareholders rose by 20% to $723.9 million for the six months ended June 30, 2022, compared to $603.6 million in the prior year period.
  • 3Ocean freight and ocean services revenue saw a substantial increase of 82% to $3.74 billion, driven by a 120% rise in average sell rates.
  • 4Airfreight services revenue grew by 12% to $3.20 billion, also benefiting from a 37% increase in average sell rates.
  • 5The company repurchased $549.1 million of its common stock and paid $109.8 million in dividends during the six months ended June 30, 2022.
  • 6Significant expenses of $88 million were incurred in the first half of 2022 due to a cyber-attack, impacting operations and incurring additional costs.
  • 7Despite revenue growth, tonnage in airfreight services decreased by 20% and containers shipped in ocean freight services decreased by 7% for the six months ended June 30, 2022, indicating a shift towards higher rates over volume.

Frequently Asked Questions

The primary driver of revenue growth was a significant increase in average freight rates, particularly in ocean and airfreight services. This was a result of persistent carrier capacity constraints, port congestion, and ongoing supply chain disruptions, which led to higher 'buy' and 'sell' rates for the company's services.

The cyber-attack led to a temporary shutdown of most of the company's operating and accounting systems for approximately three weeks. This resulted in lost revenue and additional expenses, including approximately $22 million and $62 million in incremental demurrage charges for the three and six months ended June 30, 2022, respectively, as well as $6 million and $26 million in investigation, recovery, and remediation costs. The total estimated expenses for the first half of the year related to the cyber-attack were $88 million. While core systems have been restored, the full impact on customer relationships and future business is still being assessed.

The company expects continued volatility in average buy and sell rates through the end of 2022 due to ongoing port congestion, labor and equipment shortages, and COVID-19 related restrictions. While demand has softened, capacity remains tight. The company anticipates that these unprecedented operating conditions, which have boosted revenues and profits, are not expected to be sustained long-term. A significant decrease in customer demand or rates could lead to a substantial decline in revenues, expenses, and operating income.

Expeditors generated strong operating cash flow of $973 million for the six months ended June 30, 2022, and maintained a healthy cash and cash equivalents balance of $1.98 billion. The company has no long-term debt other than lease liabilities. Management believes its current cash position and operating cash flows are sufficient to meet liquidity requirements for the foreseeable future, even with the effects of the cyber-attack. The company also continues to return capital to shareholders through significant stock repurchases and dividends.