8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Mar 15, 2007)

Filed March 15, 2007For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) filed an 8-K on March 15, 2007, addressing various operational and financial inquiries received through February 15, 2007. A key focus was the explanation of a slight decline in operating income for the Far East and Australia/New Zealand region in Q4 2006 compared to Q4 2005. Management attributed this to a combination of factors, including a re-alignment of management fees in a joint venture, less significant year-over-year freight volume growth, and a less favorable market condition for airfreight yields compared to the exceptional performance in the prior year. The company emphasized that despite the marginal dip, the operating margin remained robust and not a cause for concern. The report also touched upon the anticipated increases in rail costs, with management stating they do not expect significant pressure on ocean yields as these are market realities that will be factored into pricing. The company provided updates on January volume and revenue trends, highlighting an 8% increase in airfreight tonnage and a 15% increase in airfreight net revenue, alongside a 3% increase in ocean freight container count and a 2% increase in ocean freight net revenues. Overall net revenues for January 2007 were up 14% year-over-year. The company also addressed its strong balance sheet, confirming plans to continue its historical practice of increasing dividends commensurate with earnings growth and maintaining its strategy of share repurchases to keep share count stable.

Key Highlights

  • 1Operating income in the Far East and Australia/New Zealand declined by approximately 4% in Q4 2006 year-over-year, explained by management as due to specific accounting adjustments, less robust volume growth compared to a very strong prior year, and market conditions affecting airfreight yields.
  • 2Management expects increased rail costs due to contract renegotiations but anticipates minimal pressure on ocean yields, viewing it as a market reality to be incorporated into pricing.
  • 3January 2007 saw positive trends with airfreight tonnage up over 8% and net revenue up about 15%. Ocean freight container count increased by 3% with a 2% rise in net revenues.
  • 4Overall net revenues for January 2007 increased by 14% compared to January 2006.
  • 5The company confirmed its commitment to a historical dividend increase policy, aligning with earnings growth, and intends to continue its share repurchase program to maintain a stable share count.
  • 6Full-time equivalent headcount increased by 9.2% year-over-year to 11,538 as of December 31, 2006.
  • 7Capital expenditure guidance for 2007 was set at $106 million, with a significant portion allocated to real estate and development activities.

Frequently Asked Questions

The decline was attributed to a combination of factors: a re-alignment of management fees in an Asian joint venture that increased expenses, freight volumes not growing as significantly year-over-year compared to the exceptional growth in the prior year, and less favorable market conditions for airfreight yields in December 2006 compared to December 2005, where rates did not see the same 'run-up'.

Expeditors anticipates that increased rail costs due to contract renegotiations will affect all market participants. Management believes these costs are a market reality and do not expect them to put significant pressure on ocean yields. They will be factored into the company's pricing strategy.

Expeditors plans to continue its historical practice of increasing dividends commensurate with earnings growth. They also intend to maintain their strategy of aggressively buying back shares to keep the share count relatively stable, as they have done over the past year.

As of December 31, 2006, Expeditors had a total of 11,538 full-time equivalent employees, representing a 9.2% increase from the 10,566 employees reported at the end of 2005.