8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (May 22, 2013)

Filed May 22, 2013For Securities:EXPD

Summary

This 8-K filing from Expeditors International (EXPD) on May 22, 2013, primarily addresses investor inquiries regarding currency exposure, the CEO's tenure, business segments, and operational strategies. The company estimates approximately 60% of its business is US dollar denominated and explains its 'laissez-faire' approach to foreign exchange risk management, focusing on minimizing transaction exposure through accelerated settlements rather than hedging. Regarding its business segments, high-tech consumer products, while noted as a near-term detractor due to declining size and weight, still represent a significant portion of revenue (around 30% of top 200 accounts). Expeditors highlights its focus on integrated solutions, enhanced distribution services, and supply chain management tools for future growth. The filing also details the company's pricing philosophy, emphasizing profitable market share and service quality over price-based competition. It reiterates its commitment to core services like air and ocean freight forwarding and customs brokerage, viewing the latter as a strategic, long-term relationship ('marrying' the customs broker). Expeditors manages its substantial cash balance ($1.4 billion) through reinvestment in the business, dividends, and stock buybacks, prioritizing business investment. The company also provides insights into its expanding global network, including the growth of its intra-Asia airfreight business and the strategic importance of its Transcon domestic service.

Key Highlights

  • 1Expeditors estimates ~60% of its business is US dollar denominated, with a 'laissez-faire' approach to FX risk management, focusing on transaction exposure mitigation rather than hedging.
  • 2High-tech consumer products constitute roughly 30% of revenue from the top 200 accounts, though the segment faces near-term headwinds due to shrinking product size and weight.
  • 3The company's pricing strategy prioritizes profitable market share and service quality over aggressive price competition, believing this builds sustainable long-term growth.
  • 4Customs brokerage is viewed as a core, strategic competency, forming long-term customer relationships often described as a 'marriage' compared to the 'dating' of freight forwarders.
  • 5Expeditors holds a substantial cash balance of approximately $1.4 billion, with priorities for deployment including reinvestment in the business, dividends, and stock buybacks.
  • 6The intra-Asia airfreight business is experiencing significant growth (over 45% tonnage growth YOY for the first four months of 2013), becoming an increasingly important service offering.
  • 7The company's Transcon service, a domestic time-definite forwarding product with value-added services, is being actively rolled out globally to extend its reach and meet specific customer needs.

Frequently Asked Questions

Expeditors estimates that approximately 60% of its business is US dollar denominated. The company adopts a 'laissez-faire' approach to foreign exchange risk management, choosing not to hedge extensively. Instead, it focuses on minimizing transaction exposure by accelerating settlements among global subsidiaries and, in some cases, negotiating currency adjustment factors (CAFs) or building potential exposure into rates. Translation exposure, related to converting foreign financial statements to USD, is generally not actively managed.

High-tech consumer products represent approximately 30% of Expeditors' revenue from its top 200 accounts. While this segment faces near-term challenges due to the decreasing size and weight of products, Expeditors believes new opportunities will emerge. The company plans to focus on integrated solutions, enhancing distribution services, and leveraging its Order Management product to help customers manage their supply chains, aiming to offset potential revenue shifts from the 'post-PC' trend.

Expeditors maintains strong price discipline, believing that profitable market share is built on service quality and reliability, not aggressive pricing. The company avoids offering 'low-ball' rates or engaging in unsustainable procurement tactics. Instead, it focuses on providing consistent, reliable service at a reasonable price, believing that customers ultimately value this reliability over the lowest possible rate, even if it means losing some business temporarily.

As of the filing date, Expeditors held approximately $1.4 billion in cash and cash equivalents. The company deploys this cash primarily by reinvesting in its business (capital expenditures), paying dividends, and engaging in stock buybacks. Reinvestment in the business is its top priority, though it emphasizes doing so in a manner that drives operating income without forcing growth through excessive capital deployment.