Summary
Expeditors International of Washington Inc. (EXPD) filed an 8-K on May 20, 2020, providing updates and clarifications in response to investor inquiries during the early stages of the COVID-19 pandemic. The filing reassures investors about the company's financial stability, operational resilience, and commitment to returning capital. Despite the unprecedented global economic environment, Expeditors highlighted its continued investment in employees, processes, and technology, alongside its ongoing dividend growth and share repurchase programs. The company also addressed concerns regarding credit losses and operational disruptions, emphasizing its robust Business Continuity Plans and conservative financial management.
Key Highlights
- 1Expeditors repurchased 4.0 million shares of common stock in Q1 2020 and has an authorization to reduce outstanding shares down to 160 million.
- 2The company announced a semi-annual dividend of $0.52 per share on May 6, 2020, marking the 27th consecutive year of dividend increases.
- 3Expeditors expressed skepticism about the widespread adoption of index-linked contractual pricing for air cargo, citing its non-commodity nature and differing customer needs.
- 4The Transcon land-based transportation business was flat in Q1 2020, with no major North American capacity issues reported.
- 5While some PPE inspection backlogs in China caused minor delays, Expeditors reported no material disruption to its ability to move freight globally.
- 6The increase in 'Other expenses' in 1Q2020 was primarily due to higher bad debt expense (compared to a large recovery in 1Q2019), IT consulting, and claims/legal expenses.
- 7Expeditors believes its allowance for credit losses of $3.6 million against $1.3 billion in accounts receivable is adequate, despite disruptions in certain customer industries.
Frequently Asked Questions
Expeditors prioritizes investment in its people, processes, and technology, followed by growth strategies. The company is committed to growing its dividends, having increased its semi-annual payment for the 27th consecutive year. Share repurchases are considered after these priorities and global working capital needs, aiming to offset shares issued for equity compensation and further reduce outstanding shares. The Board has authorized repurchases down to 160 million outstanding shares, and repurchases are subject to insider trading policies and blackout periods.
Expeditors has implemented its Business Continuity Plans early on to mitigate the impact of COVID-19 and ensure the movement of essential goods. The company successfully transitioned over 80% of its employees to remote work. Additional costs were incurred for remote work setups and safety equipment/protocols (including PPE) in warehouse operations to maintain social distancing. Expeditors believes its allowance for credit losses is adequate, despite noting significant disruptions for customers in sectors like retail, aerospace, automotive, and oil/energy.
Expeditors is uncertain about the relevance and growth potential of indexed pricing in air cargo. They argue that airfreight is not a freely available commodity like oil or corn; its capacity varies significantly by lane, changes rapidly, and is perishable. Furthermore, customers view their supply chains as competitive advantages and are unlikely to accept pricing that aligns them with all competitors, preferring to leverage their volumes for cost advantages. Expeditors also noted that ocean freight's move towards indexed pricing is driven by a significant supply/demand imbalance not present in air cargo.
The increase in 'Other expenses' in 1Q2020 compared to 1Q2019 was primarily due to a substantial increase in bad debt expense. This was partly because 1Q2019 benefited from a large bad debt recovery. Additionally, increases in information technology consulting expense and claims and legal expense contributed to the higher 'Other expenses' figure.