10-QPeriod: Q2 FY2023

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Quarterly Report for Q2 Ended Jun 30, 2023

Filed August 8, 2023For Securities:EXPD

Summary

Expeditors International of Washington Inc. (EXPD) reported a significant year-over-year decline in revenues and net earnings for the second quarter and first half of 2023, largely attributable to a softening global economy and normalization of supply chains post-pandemic. Revenues were down across all major service segments, particularly airfreight and ocean freight, driven by substantial decreases in both average buy and sell rates, reflecting improved carrier capacity and reduced demand. While customs brokerage and other services saw a smaller revenue decline, overall profitability was impacted by these macroeconomic trends. The company has returned significant capital to shareholders through stock repurchases and dividends, while also managing its working capital effectively. Despite the current challenging environment, management believes its liquidity position and operating cash flows are sufficient to meet its needs.

Financial Highlights

44 data points
Beta

Revenue

$2.24B

Net Income

$195.79M

8.7% Net Margin

EPS (Diluted)

$1.30

Total Assets

$4.56B

Cash & Equivalents

$1.70B

Free Cash Flow

$158.45M

Financial Statements
Beta
Revenue$2.24B
Operating Expenses$1.99B
Operating Income$248.50M
Interest Expense$395K
Net Income$195.79M
EPS (Basic)$1.31
EPS (Diluted)$1.30
Shares Outstanding (Basic)150.44M
Shares Outstanding (Diluted)151.56M

Key Highlights

  • 1Total revenues declined by 53% year-over-year for the three months ended June 30, 2023, and by 48% for the six months ended June 30, 2023, driven by significant rate declines in airfreight and ocean freight services.
  • 2Net earnings attributable to shareholders decreased by 48% for the second quarter of 2023 and 42% for the first six months of 2023 compared to the prior year.
  • 3Operating income saw a substantial decrease of 51% for the second quarter and 46% for the first six months of 2023, reflecting lower revenues and the impact of higher operational costs in some areas.
  • 4The company returned $790 million to shareholders through common stock repurchases ($901 million year-to-date) and dividends during the first six months of 2023.
  • 5Cash from operating activities was $158 million for the second quarter and $705 million for the first six months of 2023, a decrease from the prior year due to lower income and working capital changes.
  • 6The company reported a material weakness in internal control over financial reporting, related to IT program change management processes, with remediation expected by the end of 2023.

Frequently Asked Questions

The primary reasons for the decline are a softening global economy, reduced customer demand, and the normalization of supply chains post-pandemic. This has led to a significant decrease in average buy and sell rates for airfreight and ocean freight services, as carrier capacity has increased and demand has decreased. Additionally, the company experienced a decline in tonnage and shipments across its services.

Expeditors is actively returning capital to shareholders through its Discretionary Stock Repurchase Plan, repurchasing shares in the open market. For the first six months of 2023, the company used $901 million for stock repurchases and also paid dividends. Management believes its current cash position and operating cash flows are sufficient to meet its liquidity and capital requirements.

The cyber-attack in the first quarter of 2022 had significant cost impacts in 2022, including incremental demurrage charges and investigation/recovery expenses. While the company incurred some ongoing, though now insignificant, charges in early 2023, the substantial negative financial impacts seen in the prior year's second quarter related to the cyber-attack have largely subsided. Costs related to the cyber-attack in Q2 2023 were insignificant compared to Q2 2022.

The company anticipates continued pressure on rates and volumes due to ongoing global economic uncertainties, including inflation and rising interest rates. While supply chain congestion has eased, softening demand and excess carrier capacity are expected to further depress sell and buy rates. Management is focused on aligning headcount and overhead expenses with transactional volumes and expects to continue investing in technology and strategic growth areas.