Expeditors International of Washington, Inc. — Q2 2023 Form 10-Q
Business context and period. The company provides non-asset-based global logistics services, including air and ocean freight forwarding and customs brokerage. This filing covers the quarter and six months ended June 30, 2023; comparisons are with the same 2022 periods unless noted. Dollar amounts below are in millions except per-share data.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Revenue | $2,239.8 | $4,603.3 | −51% |
| Operating income | $248.5 | $506.0 | −51% |
| Operating margin | 11.1% | 11.0% | Approximately flat |
| Net earnings attributable to shareholders | $196.8 | $377.8 | −48% |
| Diluted EPS | $1.30 | $2.27 | −43% |
| Operating cash flow | $158.4 | $558.6 | −72% |
- For the first six months, revenue was $4,832.3 million (−48%), operating income $524.5 million (−46%), shareholder earnings $422.8 million (−42%), diluted EPS $2.75 versus $4.31, and operating cash flow $704.9 million versus $972.6 million.
- Q2 service revenue fell across the business: airfreight −53%, ocean freight and services −66%, and customs brokerage and other services −28%. Management attributed the freight declines principally to lower rates and weaker volumes.
- Cash and cash equivalents were $1,698.6 million at June 30, 2023, down from $2,034.1 million at year-end 2022. Working capital was $1,903 million. The company reported no long-term debt other than lease liabilities; borrowings on international credit lines were $45 million.
- Six-month capital expenditures were $20.6 million; full-year 2023 capital expenditures were estimated at $70 million. Financing cash use included $901.2 million of share repurchases and $102.3 million of dividends during the first half.
Material changes and management commentary
- Management cited a global economic and trade slowdown, elevated customer inventories, and transportation capacity exceeding demand. Air and ocean buy and sell rates continued to decline; volumes also weakened. Q2 shareholder earnings were down 13% from Q1 2023, according to management.
- Airfreight tonnage declined 15% in Q2 and containers shipped in ocean freight consolidation declined 13%. Management said rates and freight volumes could decline further in 2023.
- Customs brokerage and other services benefited from lower congestion-related costs and the absence of most prior-year cyber-attack costs. Q2 2022 included approximately $20 million of incremental demurrage charges and $6 million of other cyber-incident costs; the corresponding 2023 charges were insignificant. The company said cumulative additional cyber-attack expenses reached $60 million and lost revenue could not be quantified.
- Overhead costs decreased 13% in Q2, including a 4% reduction in headcount. Management expects to align staffing and overhead with activity, while continuing investment in technology and cybersecurity.
Outlook, risks, and contingencies
- The filing provides no specific earnings or revenue guidance. Management expects continued rate pressure and describes the outlook as uncertain, citing economic conditions, customer demand, carrier capacity, fuel prices, inflation, interest rates, trade policy, and geopolitical developments.
- Management believes cash and operating cash flows are sufficient to meet liquidity needs for at least the next 12 months and the foreseeable future. The company had $68 million of contingent exposure under standby letters of credit and guarantees, principally supporting foreign subsidiary obligations.
- The effective tax rate was 26.4% for Q2 2023 versus 24.9% a year earlier. Higher foreign income taxes, principally withholding taxes exceeding available U.S. foreign tax credits, adversely affected the quarter. Tax audits and assessments could change tax contingencies; the company could not estimate a range of possible outcomes.
- Ordinary-course legal matters were not expected by management to have a significant effect; additional possible losses beyond recorded amounts could not be estimated.
- Disclosure controls were deemed ineffective at quarter-end because of a previously disclosed material weakness in IT program change management. Remediation was ongoing, with completion expected before year-end 2023; supplemental review procedures were being performed.
Key facts for investors to verify
- Whether freight volumes and buy/sell rates stabilize or continue to decline, and how that affects operating income and margins.
- Whether operating cash flow remains adequate as working capital and seasonal shipment patterns change, alongside substantial repurchases and dividends.
- Progress and testing results for remediation of the material weakness, particularly amid the multiyear worldwide accounting-system implementation.
- Developments in tax audits and contingencies, and any further costs or customer effects related to the 2022 cyber-attack.
- Changes in carrier capacity, inflation, fuel costs, foreign exchange, trade restrictions, and customer credit quality that could affect results.