8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (May 31, 2005)

Filed May 31, 2005For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) filed an 8-K on May 31, 2005, addressing selected questions regarding their first-quarter 2005 results and related business trends. The report indicates sequential yield improvements in air and ocean freight during Q1 2005, consistent with historical seasonal patterns. Airfreight volumes showed strength in January and February but moderated in March. Ocean container volumes saw significant year-over-year growth in Q1. The company also provided updates on its tax rate, capital expenditure plans, and office network reclassification, clarifying the methodology for defining "full service offices." The filing also touches upon customer demand feedback, noting mixed signals across sectors but generally stable expectations for the remainder of 2005. Expeditors reiterated its focus on operating margin improvement, attributing it to a strong cost structure and compensation program rather than just aggressive expansion. Discussions on competitive pressures, capacity changes, and the impact of fuel prices on yields were also included, with the company emphasizing its flexible business model and ability to manage market shifts.

Key Highlights

  • 1Air freight yields increased sequentially in Q1 2005, and April 2005 saw about 12% year-over-year tonnage growth with stable yields.
  • 2Ocean container counts increased by 28% in Q1 2005, with slight sequential yield improvement but a year-over-year decrease, reflecting weakness in specific business segments.
  • 3Customer demand feedback for the remainder of 2005 is mixed by sector, with pockets of strength in high tech and retail, influenced by post-election year economic conditions.
  • 4The company anticipates an effective tax rate of approximately 36% for 2005, excluding the impact of Section 965 of the Internal Revenue Code.
  • 5Capital expenditure plans for 2005 are estimated at around $140 million.
  • 6Expeditors clarified its office count methodology, redefining "full service offices," "satellites," and "international service centers" to provide greater transparency.
  • 7The company discussed its strategy for mitigating margin pressure from rising fuel prices, emphasizing the need to pass costs on to customers as quickly as commercially possible.

Frequently Asked Questions

For air freight, yields increased sequentially in Q1 2005, with volumes strong in January/February but softer in March year-over-year. April 2005 saw about 12% year-over-year tonnage growth with yields similar to Q1. Ocean container counts rose 28% in Q1 2005, with slight sequential yield improvement but a quarter-over-quarter decrease, attributed to weakness in vendor consolidation and ocean forwarding. April 2005 ocean FEU counts were up 23% year-over-year with comparable yields.

Expeditors notes that customer feedback on demand for the remainder of 2005 is mixed across key end-markets. While some sectors like high tech and retail show strength, others are less robust compared to 2004. The company suggests that economic conditions, including a potential 'hangover' after a strong election year in 2004, are influencing purchasing plans.

If Section 965 of the Internal Revenue Code's ramifications are ignored, a 36% rate is considered a reasonable assumption for the combined tax rate in 2005. However, the company indicates this rate is likely too high once further guidance on the one-time benefit of Section 965 is digested, though the exact reduction is currently unknown.

Expeditors clarified that the change from 170 to 159 related to "full service offices," not all "service centers." The company has refined its definitions to "Office" (standalone P&L), "Satellite" (reliant on a larger office), and "International Service Center" (agent location with Expeditors' employee). This reclassification aimed for consistent methodology, impacting previous counts but ensuring clarity for future reporting.