8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (May 24, 2019)

Filed May 24, 2019For Securities:EXPD

Summary

Expeditors International of Washington Inc. (EXPD) filed an 8-K on May 24, 2019, primarily addressing inquiries related to their operational and financial performance through May 10, 2019. The company reiterated its commitment to its long-standing capital allocation strategy, which prioritizes reinvestment in the business, semi-annual dividend payments, and stock repurchases. While not opposed to M&A, particularly for technology, Expeditors favors organic growth due to its belief that consolidation can lead to employee and customer dissatisfaction. The filing also touched upon operational efficiency, highlighting ongoing efforts to refine processes and implement new technologies to improve performance, even as headcount has increased to manage record volumes. Key financial discussions included the sustainability of lower salaries and related costs as a percentage of net revenue, with the company emphasizing efficiency improvements as a primary objective. Regarding working capital, Expeditors explained that fluctuations are largely due to the timing of customer collections and payments to service providers, with a growing trend of larger clients requesting extended payment terms, a risk they manage through robust credit control procedures. The company also deferred providing specific tax rate guidance for 2019 due to ongoing regulatory interpretations.

Key Highlights

  • 1Expeditors remains committed to its capital allocation strategy: reinvestment, dividends, and stock repurchases, with a preference for organic growth over M&A.
  • 2The company is focused on improving operational efficiency through process refinement and technology implementation, even with increased headcount to support volume growth.
  • 3Salaries and related costs as a percentage of net revenue have decreased, with Expeditors emphasizing efficiency gains as a key driver.
  • 4Working capital fluctuations are primarily attributed to the timing of payments and collections, with an observed trend of extended payment terms from large clients.
  • 5Expeditors is not providing specific 2019 tax rate guidance due to ongoing regulatory interpretations of tax laws.
  • 6New innovations like Cargo Signal and Carrier Allocation are reported in the customs brokerage and other services segment on a gross basis.
  • 7Despite changes in the reporting of strategic initiatives, the company affirms its strong commitment to the North American market and its growth strategies in Transcon and Distribution services.

Frequently Asked Questions

The company attributes the decrease in salaries and related costs as a percentage of net revenue to a primary focus on improving operational efficiency through refining processes and implementing new technologies. While headcount has increased to manage record volumes, the emphasis remains on enhancing efficiency.

Expeditors' capital allocation priorities remain consistent: reinvesting in the business, making semi-annual dividend payments, and returning cash to shareholders through stock repurchases. They are also open to technology acquisitions but prioritize organic growth.

The company is deferring specific tax rate guidance for 2019 due to the expectation of additional guidance and interpretations from Federal and State tax authorities regarding the 2017 Tax Act and other tax laws. The effective tax rate will depend on the mix of pre-tax earnings generated in U.S. versus foreign operations.

No, Expeditors emphasizes that its commitment and focus on the North American market remain strong. The change in reporting language was due to achieving previous objectives and having processes in place for future success. Growth in North America, Transcon, and Distribution services continues to be a priority and generally outperform other products.