8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Jul 29, 2009)

Filed July 29, 2009For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) filed an 8-K on July 29, 2009, to address investor inquiries regarding the company's financial performance and operational outlook. The filing clarifies that despite some positive sequential freight trends and a long-term optimistic view, the company's second-quarter results were weaker than internal projections, leading to a pre-announcement to align with analyst expectations. This filing emphasizes that while they are not seeing further deterioration in year-over-year volume comparisons, the volumes themselves remain significantly down compared to the previous year, particularly in ocean freight. The company also elaborated on its pricing strategy, margin management, and its philosophy regarding headcount and long-term value creation, even during economic downturns.

Key Highlights

  • 1The company clarifies that its previous positive comments on sequential freight trends were accurate, but the overall year-over-year volumes, especially in ocean freight, remained significantly down, impacting second-quarter results.
  • 2Expeditors explains its infrequent practice of providing earnings guidance, stating it's done only when preliminary results are expected to fall outside analyst estimates.
  • 3The filing details a subtle improvement in year-over-year volume declines in airfreight from April to June 2009, but ocean freight saw less improvement.
  • 4Net revenue margins in both airfreight and ocean freight were higher than a year ago but slightly lower than the first quarter of 2009.
  • 5Expeditors acknowledges pricing pressure from customers but believes competitors focusing solely on cash flow without profit orientation are creating unsustainable models.
  • 6The company is actively participating in Request for Quotations (RFQs) and winning bids, including through aggressive pricing, but avoids taking on unprofitable business.
  • 7Expeditors reiterates its long-term management philosophy, emphasizing sustainable decisions over short-term gains, and highlights its strong cash position and debt-free status.

Frequently Asked Questions

The company explained that while sequential freight trends were showing less deterioration compared to earlier in the year (e.g., airfreight volume declines lessened from April to June), the absolute year-over-year volumes remained significantly down. This meant that while things weren't getting worse, they weren't yet good enough to meet internal projections, necessitating the EPS guidance pre-announcement.

Expeditors stated that while yields (net revenue margins) typically shrink somewhat as carriers raise rates due to increased volume and tighter capacity, their priority is to maintain profitability per unit (e.g., profit per kilo or net revenue per TEU). They provided an example where a lower yield percentage can still result in the same profit per unit if their own rates are adjusted upwards accordingly.

Expeditors described its headcount management as an ongoing process, emphasizing being deliberate in hiring and quick to remove those not fitting the company culture. However, they stressed that they do not manage the business on a short-term basis and would not trim headcount solely for short-term profitability goals, especially given their strong financial position and focus on long-term shareholder value and customer service.

Expeditors is observing some strengthening in domestic activity within China, but their primary focus remains on the international aspects of their China business. Domestic China freight is an area they aim to expand, similar to their strategy in the United States, but it does not yet constitute a significant enough portion of their total net revenue to be disclosed separately.