Expeditors International of Washington, Inc. — Q1 2010 Form 10-Q
Reporting period: Three months ended March 31, 2010; comparisons are with Q1 2009 unless noted. Expeditors is a non-asset-based global logistics provider, offering air and ocean freight forwarding, customs brokerage and related services.
Financial performance
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Total revenue | $1,201.1 million | $912.7 million | +31.6% |
| Net revenue | $361.8 million | $336.5 million | +7.5% |
| Operating income | $100.5 million | $91.5 million | +9.9% |
| Operating income / net revenue | 27.8% | 27.2% | +0.6 percentage points |
| Net earnings attributable to shareholders | $61.2 million | $59.3 million | +3.4% |
| Diluted EPS | $0.28 | $0.27 | +3.7% |
| Operating cash flow | $127.1 million | $172.3 million | Down $45.2 million |
Revenue growth reflected recovering shipment volumes from exceptionally low Q1 2009 levels. Airfreight net revenue rose 6%, ocean net revenue was essentially flat, and customs brokerage and other services net revenue increased 13%. Airfreight tonnage increased 41%, while net revenue per kilo declined 33%. Ocean consolidation net revenue fell 12%, with a 23% decline in net revenue per container partly offset by 15% higher volume.
Operating expenses rose with activity; salaries and related costs increased 7%, including higher bonuses and stock compensation. Other income declined to $2.3 million from $8.1 million, reflecting lower interest income and foreign-exchange losses versus gains in the prior-year quarter. The effective income tax rate was approximately 40.4% in both periods.
Balance sheet, liquidity and cash flow
- Cash and cash equivalents were $1,041.6 million at March 31, 2010, up from $925.9 million at December 31, 2009; short-term investments were $0.7 million.
- Working capital was approximately $1,145 million. The company reported no long-term debt and no amounts outstanding on its credit lines.
- Operating cash flow was $127.1 million; investing cash outflow was $7.7 million, including $7.6 million of capital expenditures; financing cash outflow was $1.8 million. Cash increased $115.7 million during the quarter.
- Management estimated 2010 capital expenditures at $90 million, including additional real estate development, and said cash, financing arrangements and operating cash flows should meet foreseeable requirements.
- International bank lines totaled $25 million, plus an $11 million UK facility for standby letters of credit. The company was contingently liable for $81 million in standby letters and guarantees.
Material changes, outlook and risks
- Management reported that air and ocean volumes had improved since Q4 2009, but could not predict whether the recovery would continue. Carrier capacity constraints and rising buy rates pressured unit profitability; pricing remained competitive.
- Seasonality is significant: Q1 has historically been the weakest quarter, while peak activity typically begins in late Q2 or early Q3. Customer demand, manufacturing schedules, economic conditions and late-quarter shipping patterns affect results.
- Foreign-exchange losses were approximately $2 million in Q1 2010, compared with gains of approximately $3 million in Q1 2009. The company had no foreign-currency derivatives outstanding. Management estimated that a hypothetical 10% weakening of the U.S. dollar would have raised quarterly operating income by about $7 million; a 10% strengthening would have reduced it by about $6 million.
- Ongoing DOJ and European Commission antitrust investigations and a related U.S. class action could result in substantial fines, damages or conduct remedies. The company said it could not estimate a potential loss range; unfavorable outcomes could materially affect its business and financial results. Legal and associated costs for these matters were $0.6 million in Q1 2010, and about $15 million cumulatively since proceedings began.
- After quarter-end, the board declared a semi-annual cash dividend of $0.20 per share, payable June 15, 2010 to holders of record June 1.
- The filing reported no material changes in risk factors from the 2010 Form 10-K. Management stated disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- Whether the volume recovery continues and whether carrier capacity and higher buy rates further pressure net revenue per shipment.
- How working-capital movements affect operating cash flow as activity rises, and whether the $90 million capital-spending estimate changes.
- Developments and potential financial exposure in the DOJ, EC and class-action matters; the filing provides no clear estimate of possible losses.
- Whether foreign-exchange movements, customer credit quality, or carrier financial and operating stability materially affect results.