8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (May 18, 2015)

Filed May 18, 2015For Securities:EXPD

Summary

This 8-K filing from Expeditors International of Washington Inc. (EXPD) on May 18, 2015, primarily addresses inquiries received through February 27, 2015, offering insights into the company's operational performance and strategic outlook. A key takeaway is the improved profitability in Asia, driven by increased productivity focus, a more discerning approach to business selection, and a strong U.S. dollar benefiting Asian exports. The report also discusses the impact of the U.S. West Coast port situation, noting that while difficult to quantify precisely, it presented an opportunity for skilled logistics professionals to demonstrate their capabilities. The company emphasizes its focus on net revenue growth and profitable operations over sheer volume, particularly in the airfreight segment, where it highlights strategic adjustments to evolving market dynamics and product shifts.

Key Highlights

  • 1Improved profitability in Asia attributed to increased productivity, strategic business selection, and a strong U.S. dollar boosting exports.
  • 2Difficult to quantify the direct impact of the U.S. West Coast port situation on air and ocean volumes in Q4 2014, but it highlighted the company's ability to manage disrupted supply chains.
  • 3Company emphasizes strategic focus on net revenue growth and profitable operations rather than just top-line volume expansion.
  • 4Anticipates continued focus on strategic initiatives for growth, aiming to grow at least at the relevant market growth rate for each segment.
  • 5Shifting emphasis within geographies, particularly growing import business in Asia as economies there become more affluent.
  • 6Capital allocation plans prioritize investing in the business, with dividends and stock repurchases making up the majority of excess free cash flow.
  • 7Strategic assessment is in the implementation phase, with a long-term focus through 2020.
  • 8Airfreight market dynamics have evolved due to changes in high-tech product shipments and airlines' increased focus on belly cargo capacity on passenger flights, leading to greater efficiency and stability.

Frequently Asked Questions

Improved profitability in Asia is driven by an increased focus on productivity by incorporating measures developed in other markets, a more strategic approach to selecting business to optimize freight mix and routings, and a strong U.S. dollar that has increased U.S. imports, thereby boosting Asian exports. The company is focusing on leveraging its existing operational efficiencies and market conditions.

Expeditors finds it difficult to precisely quantify the impact of the U.S. West Coast port situation on Q4 2014 airfreight volume growth, noting strong gains in both air and ocean products. The company views such disruptions as opportunities to showcase the capabilities of skilled logistics professionals. For early 2015, volumes were influenced by the timing of Chinese New Year, and the company felt positive about the outlook.

Expeditors prefers to assess growth based on net revenue rather than gross revenue, as net revenue (total revenue less direct transportation costs) is seen as a more representative measure of progress in their industry. While gross revenue for airfreight has grown, net revenue growth is highlighted as more significant, especially when comparing performance from 2009 to 2014. The company attributes historical challenges in airfreight to broader industry trends like a less robust global economy, shifts in high-tech product characteristics, and changes in airline fleet strategies.

Expeditors prioritizes investing in its business for the highest returns, with anticipated capital expenditures of $85 million in 2015. The company expects dividends and continued stock repurchases to constitute the majority of its use of excess free cash flow, though specific targets are not provided. The Board has authorized repurchases down to a level of 188 million shares.