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
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $2.207 billion | $2.593 billion | Down 15% |
| Operating income | $214.8 million | $276.0 million | Down 22% |
| Operating margin | 9.7% | 10.6% | Down 0.9 percentage points |
| Net earnings attributable to shareholders | $169.2 million | $226.0 million | Down 25% |
| Diluted earnings per share | $1.17 | $1.45 | Down 19% |
| Net cash from operating activities | $256.9 million | $546.4 million | Down $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.