8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Mar 30, 2018)

Filed March 30, 2018For Securities:EXPD

Summary

Expeditors International of Washington Inc. (EXPD) filed an 8-K on March 30, 2018, primarily addressing investor inquiries related to the implications of the U.S. Tax Cuts and Jobs Act of 2017 and operational aspects of their business. A significant portion of the filing focuses on clarifying the company's expected 2018 effective income tax rate, which is guided to be between 31% and 34%. The company explains that this rate is influenced by a combination of U.S. and foreign tax considerations, including withholding taxes on intercompany payments, state income taxes, and non-deductible expenses, which offset the benefits of the lower U.S. statutory rate. The filing also touches on operational trends, including pricing transparency in the freight forwarding market, with EXPD stating that increased transparency has had no material impact on medium to large customers. They reiterate their commitment to their decentralized, customer-centric model and their intention to maintain all current office locations. The company also provided updates on capital expenditures, highlighting the completion of a European building construction and the sale of property in Miami, and indicated continued investment in their internal technology platform.

Key Highlights

  • 1Expeditors' projected 2018 effective income tax rate is anticipated to be between 31% and 34%, influenced by U.S. tax reform, foreign taxes, and withholding taxes.
  • 2The company clarified that the U.S. Tax Cuts and Jobs Act of 2017, while lowering the U.S. corporate rate, has several components that contribute to their effective tax rate, preventing a direct correlation to the 21% statutory rate.
  • 3Expeditors does not foresee significant near-term changes to its business model due to increased pricing transparency in the freight forwarding market, stating it has no material impact on their larger clients.
  • 4The company confirmed its strategy includes maintaining its global network of locations, emphasizing the importance of local representation and proximity to customers.
  • 5Expeditors completed the sale of land and buildings in Miami for approximately $84 million, realizing a $4 million gain.
  • 6Anticipated capital expenditures for 2018 are estimated at $75 million, down from $95 million in 2017, with significant investments continuing in technology and the completion of a European building.
  • 7The company views its internally developed technology platform as a key competitive advantage and will continue to invest in it.

Frequently Asked Questions

Expeditors projects an effective income tax rate for 2018 to be between 31% and 34%. This rate is influenced by several factors beyond the new 21% U.S. federal corporate tax rate, including foreign income taxes, withholding taxes on intercompany dividends and payments, U.S. state income taxes, and the impact of expenses that will no longer be deductible under the new tax law. These combined factors result in an effective rate higher than the U.S. statutory rate.

Expeditors stated that increased pricing transparency in the freight forwarding market, such as through e-commerce portals, has had no material impact on their medium to large customers. They note that these customers have historically had access to pricing information through bid processes and other channels, and the company continues to adapt its quoting and handling of business to meet customer needs and margin requirements.

Expeditors intends to maintain all of its current locations. The company believes its global network and local representation are critical to understanding and serving customer needs, reinforcing their decentralized approach supported by technology.

In 2017, capital expenditures were primarily directed towards technology investments, the substantial completion of a building in Europe, and office equipment. A significant event was the sale of land and buildings in Miami for approximately $84 million, which resulted in a $4 million gain. For 2018, total anticipated capital expenditures are estimated at $75 million, with continued focus on technology and operational improvements.