Expeditors International of Washington, Inc. — Q3 2010 Form 10-Q
Reporting period: Three and nine months ended September 30, 2010; year-over-year comparisons are with the corresponding 2009 periods. Expeditors is a non-asset-based global logistics provider. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Revenue | $1,667.6 | $1,037.3 | $4,385.4 | $2,845.4 |
| Net revenue | $458.7 | $346.5 | $1,239.4 | $1,013.1 |
| Operating income | $159.6 | $96.2 | $398.7 | $274.6 |
| Net earnings attributable to shareholders | $96.1 | $57.8 | $247.7 | $171.1 |
| Diluted earnings per share | $0.44 | $0.27 | $1.14 | $0.79 |
| Operating cash flow | $113.0 | $42.5 | $260.7 | $299.8 |
- Q3 revenue rose 61%, operating income 66%, and shareholder earnings 66%; for the first nine months, the respective increases were 54%, 45%, and 45%.
- Operating income as a share of net revenue improved to 34.8% from 27.8% in Q3, and to 32.2% from 27.1% for the nine-month period. The filing’s reported effective tax rates were 39.8% and 42.1% for Q3 2010 and 2009, and 39.9% and 41.2% for the nine-month periods.
- Airfreight net revenue increased 48% in Q3 and 31% year to date; ocean freight and services rose 32% and 16%; customs brokerage and other services rose 20% and 18%. Q3 air tonnage increased 32%, and ocean consolidation volume increased 27%.
- Cash and cash equivalents were $1,057.2 at September 30, versus $925.9 at December 31, 2009. Working capital was $1,262.4; current assets were $2,183.6 and current liabilities $921.3. The company reported no long-term debt.
- Year-to-date operating cash flow declined $39.1 versus 2009, primarily because of working-capital changes, including a $266.8 increase in accounts receivable. Cash used in investing was $26.0; capital expenditures were $26.7. Cash used in financing was $110.3, including $139.5 of share repurchases and $42.4 of dividends, partly offset by stock issuance proceeds and stock-plan tax benefits.
Changes, outlook and risks
- Management said air and ocean volumes had recovered from the exceptionally low levels of early 2009 and continued improving through the first nine months of 2010, but could not predict whether the trend would continue. Higher volumes drove growth, while carrier capacity constraints, price volatility, and competition pressured buying rates and unit profitability. Prior-year favorable spot-market buying opportunities also contributed to lower year-to-date air and ocean net revenue per unit.
- No quantified earnings or revenue guidance was provided. Management described the global economic outlook as uncertain and highlighted seasonality, customer demand and production patterns, carrier capacity and financial health, foreign exchange, and intense price competition as risks.
- Management estimated 2010 capital expenditures at approximately $60 million. A $27 million commitment for London office/warehouse development is expected to be funded with cash in 2010 and 2011. The board declared a subsequent semi-annual dividend of $0.20 per share on November 1, payable December 15.
- Antitrust matters remain a material contingency: a U.S. Department of Justice investigation, a U.S. class-action case, a European Commission proceeding, and a Brazilian proceeding. The company disputes the allegations and intends to defend itself; it could not estimate any loss range. Unfavorable outcomes, including fines or damages, could materially affect financial results and cash flows. Legal and related costs were about $0.9 million year to date, and about $15 million cumulatively since proceedings began.
- Foreign exchange produced a Q3 net loss of about $2.9 million, compared with a gain of about $0.3 million in Q3 2009. The company reported no foreign currency derivatives outstanding. Its sensitivity analysis estimated that a hypothetical 10% dollar weakening or strengthening over the first nine months would have increased operating income by about $28 million or reduced it by about $23 million, respectively.
- At quarter-end, $88 million of standby letters of credit and guarantees were outstanding, with no borrowings on the available credit lines. Management stated cash, financing arrangements, and operating cash flows were sufficient for foreseeable requirements. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether volume growth and carrier capacity/pricing conditions persisted after quarter-end, and how they affected net revenue per shipment.
- Subsequent operating cash flow and receivables collection, given the large year-to-date receivables-related cash use.
- Developments, potential outcomes, and costs of the antitrust investigations and litigation; the filing states that any loss range is not estimable.
- Actual 2010 capital expenditures and funding for the London facilities commitment, as well as execution of the announced dividend and repurchase activity.
- Foreign-exchange exposure and cash accessibility: $496 million of cash and cash equivalents was held by non-U.S. subsidiaries, including $74 million in U.S. banks.