Expeditors International of Washington, Inc. — FY2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022; it is not a standalone fourth-quarter report. Expeditors is a non-asset-based global logistics provider offering air and ocean freight, customs brokerage and related services. It does not own aircraft or ships.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $17.071 billion | $16.524 billion | +3% |
| Operating income | $1.824 billion | $1.909 billion | -4% |
| Operating margin | 10.7% | 11.6% | Down 0.9 percentage points |
| Net earnings attributable to shareholders | $1.357 billion | $1.415 billion | -4% |
| Diluted EPS | $8.26 | $8.27 | Approximately flat |
| Operating cash flow | $2.130 billion | $868 million | Up $1.262 billion |
Revenue less directly related transportation and service costs was $4.494 billion, compared with $4.465 billion in 2021; this contribution margin was approximately 26.3% of revenue versus 27.0%. The cash-flow increase was primarily driven by collections of accounts receivable.
- Revenue by service: Airfreight $5.887 billion, down 13%; ocean freight and ocean services $6.545 billion, up 18%; customs brokerage and other services $4.640 billion, up 10%.
- Airfreight tonnage declined 17%; average buy and sell rates each rose 3%. Ocean consolidation rates rose substantially year over year, but shipment volumes fell, and rates dropped sharply in the fourth quarter as capacity increased and demand softened.
- Operating expenses rose 4%. Management cited higher service-provider, rent, technology and other costs, along with cyber-attack-related expenses. Salaries and related costs were essentially flat despite a 4% headcount increase.
- Liquidity and obligations: Cash and cash equivalents were $2.034 billion and working capital was $2.464 billion at year-end. Long-term debt was zero; short-term foreign bank-line borrowings were approximately $58 million. Operating lease liabilities were $518 million, with $112 million due within 12 months.
- Operating cash flow funded $87 million of capital expenditures and substantial shareholder returns. The company repurchased 14.5 million shares for $1.582 billion and paid $214 million in dividends; FY2022 dividends were $1.34 per share.
Material changes versus FY2021
- Revenue growth slowed as freight volumes and rates weakened during the year; operating income and shareholder earnings each declined 4% after exceptionally strong 2021 results.
- Airfreight revenue fell while ocean and customs/other revenue increased. By the fourth quarter, supply-chain congestion had eased, carrier capacity exceeded demand in some markets, and buy and sell rates were falling.
- Operating cash flow more than doubled, mainly reflecting the reversal of the prior-year increase in receivables. Cash and cash equivalents increased by $305 million.
- Cash used for share repurchases rose substantially: 14.5 million shares in 2022 versus 4.4 million in 2021. The annual dividend per share increased from $1.16 to $1.34.
Outlook, risks and unusual items
- The company does not issue financial forecasts. Management expected freight buy and sell rates to decline further in 2023, potentially reducing revenue, expenses and operating income. It also anticipated continued pricing volatility as carriers adjust capacity, fuel costs and rates to demand.
- Management estimated 2023 capital expenditures at approximately $100 million and stated that cash and operating cash flows should be sufficient for liquidity needs for at least the next 12 months and the foreseeable future.
- A targeted cyber-attack beginning February 20, 2022 led to shutdowns of most global operating and accounting systems and limited operations for about three weeks. The company recorded approximately $47 million in incremental demurrage charges and $18 million in investigation, recovery, remediation and estimated shipment-claim costs. Management also cited $65 million of total cyber-attack expenses, net of recoveries, and an unquantified revenue loss. It did not expect further material adverse effects, but could not estimate the attack’s ultimate direct and indirect financial impact.
- Management identified a material weakness in IT general controls over database changes supporting financial reporting. A lookback and supplemental procedures found no evidence of improper changes or resulting financial-statement misstatements. Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2022; KPMG issued an adverse opinion on ICFR but an unqualified opinion on the financial statements. Remediation enhancements were expected before the end of 2023.
- The company recorded a $22 million non-income tax contingency in operating expenses and $22 million of related interest expense. It could not estimate the range of additional possible losses from tax matters or legal claims, including potential cyber-attack claims.
- Other key risks include economic slowdown and weaker trade, carrier capacity and rate volatility, inflation and labor costs, cyber and systems disruption, regulatory and tax changes, foreign-exchange exposure, and intense competition.
Important facts for investors to verify
- Progress and independent validation of remediation for the material weakness, including whether the planned 2023 timetable was met.
- Any subsequent cyber-attack-related claims, costs, customer losses or changes to management’s assessment of financial impact.
- Whether declining freight rates and volumes continued to pressure operating income and margins after year-end.
- Resolution or changes in the recorded tax contingency and other tax audits, claims or legal matters.
- Cash conversion and working-capital trends, alongside ongoing repurchases, dividends and capital spending.