EXPEDITORS INTERNATIONAL OF WASHINGTON INC quarterly report, Q1 FY2024

Expeditors International of Washington, Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Expeditors is a non-asset-based global logistics provider.

Financial performance

MetricQ1 2024Q1 2023Change
Revenue$2.207 billion$2.593 billionDown 15%
Operating income$214.8 million$276.0 millionDown 22%
Operating margin9.7%10.6%Down 0.9 percentage points
Net earnings attributable to shareholders$169.2 million$226.0 millionDown 25%
Diluted earnings per share$1.17$1.45Down 19%
Net cash from operating activities$256.9 million$546.4 millionDown $289.5 million

Revenue fell across all three principal service categories: airfreight down 16% to $759.4 million; ocean freight and ocean services down 18% to $570.8 million; and customs brokerage and other services down 11% to $876.5 million. Airfreight tonnage increased 4% and ocean containers shipped increased 2%, but lower rates more than offset volume growth. Operating expenses declined 14%, while overhead expenses declined 7%. The effective tax rate rose to 26.9% from 24.8%.

Cash and cash equivalents were $1.370 billion at March 31, 2024, versus $1.513 billion at year-end 2023. Working capital was $1.547 billion. The company reported $35 million outstanding on short-term credit lines and no long-term debt other than operating lease liabilities. Operating lease liabilities totaled approximately $564.9 million. Q1 capital expenditures were $10.2 million; management estimated 2024 capital expenditures at approximately $100 million.

Material changes and management commentary

  • Management attributed lower revenue and earnings primarily to lower air and ocean buy and sell rates as transportation capacity exceeded demand, following the easing of supply-chain congestion. Volumes improved from a weak Q1 2023.
  • Airfreight average sell and buy rates fell 22% and 24%, respectively. Ocean consolidation sell and buy rates fell 26% and 20%, respectively.
  • Cash from operations declined mainly because of lower earnings and working-capital movements; Q1 2023 had benefited from customer collections exceeding billings.
  • The company repurchased 3.0 million shares for $360.5 million in cash, compared with 2.0 million shares for $213.5 million in Q1 2023. Outstanding shares were 141.1 million at quarter-end.
  • After quarter-end, the board declared a semi-annual dividend of $0.73 per share, payable June 17, 2024.

Outlook, risks and contingencies

  • No earnings or revenue guidance was provided. Management expects capacity and soft demand could continue to pressure freight rates in 2024; rate volatility may persist as carriers respond to fuel prices, security risks, regulation and capacity conditions.
  • Management said cash and operating cash flows should be sufficient to meet liquidity needs for at least the next 12 months and the foreseeable future.
  • Risks discussed include uncertain global economic and trade conditions, inflation and labor costs, interest rates, fuel-price changes, geopolitical conflicts, tariffs and trade restrictions, carrier capacity and stability, foreign exchange movements, and customer demand and creditworthiness.
  • Tax audits and examinations may change tax contingencies; the company could not estimate a range of possible outcomes. Management said ordinary-course legal matters are not currently expected to materially affect operations, cash flows or financial position, but additional possible losses could not be estimated.
  • Material internal-control weakness: Disclosure controls were deemed ineffective at quarter-end because of previously reported weaknesses involving controls over changes to custom databases and related IT controls. Management reported remediation efforts and expects necessary enhancements to be completed in 2024; the weaknesses are not considered remediated until controls operate effectively for a sufficient period and testing supports that conclusion. Management stated additional procedures were performed and the financial statements fairly present the results.

Key facts for investors to verify

  • Whether freight volumes improve enough to offset continued pressure on air and ocean rates and margins.
  • Progress and testing results for remediation of the material weaknesses in internal controls, including implications of the planned worldwide accounting-system implementation.
  • Cash-flow and working-capital trends compared with the unusually strong collection-related cash flow in Q1 2023.
  • Actual 2024 capital expenditures versus the approximately $100 million estimate, and the pace of share repurchases and dividends.
  • Developments in tax audits, trade policies, geopolitical disruptions, carrier capacity and foreign-exchange exposure.