Expeditors International of Washington, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Expeditors is a non-asset-based global logistics provider. Comparisons are with Q1 2020 unless noted.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $3,357.5 million | $1,901.9 million | +76.6% |
| Operating income | $385.5 million | $159.1 million | +142% |
| Operating margin | 11.5% | 8.4% | +3.1 percentage points |
| Net earnings attributable to shareholders | $287.2 million | $122.3 million | +135% |
| Diluted EPS | $1.67 | $0.71 | +135% |
| Cash from operating activities | $355.7 million | $165.0 million | +$190.7 million |
Net margin was 8.6%, versus 6.4%. Effective tax rate was 26.3%, compared with 26.6%. Revenue and operating income rose across the three service categories; airfreight revenue grew 108%, ocean freight and services 94%, and customs brokerage and other services 32%. Airfreight tonnage increased 29%, while average air sell and buy rates each rose about 70%. Ocean containers shipped increased 29%; average ocean sell and buy rates rose 84% and 82%, respectively.
Liquidity, cash flow and capital
- Cash and cash equivalents were $1,793.4 million at March 31, up from $1,527.8 million at December 31, 2020. Working capital was $2,299 million; current assets were $4,494.2 million and current liabilities $2,195.0 million.
- Operating cash flow increased year over year, primarily reflecting higher freight revenues and working-capital changes. Accounts receivable growth used cash, partly offset by higher accounts payable, accrued expenses and contract liabilities.
- Capital expenditures were $8.4 million; management estimated 2021 capital expenditures of approximately $45 million.
- The company reported no long-term debt; recorded operating lease liabilities were $445.4 million in total. It had $71 million of contingent standby letters of credit and guarantees.
- Q1 share repurchases were $86.0 million, covering 925,000 shares at an average $92.98 per share. The board declared a subsequent semi-annual dividend of $0.58 per share, payable June 15, 2021.
Material changes, outlook and risks
Management attributed the exceptional year-over-year growth to strong freight demand alongside constrained carrier capacity, supply-chain disruptions and historically high sell and buy rates. The comparison was also affected by pandemic-related closures and weaker activity in North Asia in Q1 2020. China, including Hong Kong, accounted for 32% of Q1 2021 revenue and 27% of operating income, versus 23% and 25% a year earlier.
Management expected capacity imbalances and disruptive conditions to potentially continue through the remainder of 2021, but emphasized that the unusually high rates and operating conditions were not expected to be sustained long term. The filing provides no specific earnings or revenue guidance. Management said cash and operating cash flows should be sufficient for liquidity needs for at least the next 12 months and the foreseeable future.
Key risks include continued COVID-19 disruption, freight capacity and port congestion, volatile carrier pricing and fuel costs, customer demand and payment risk, trade and tariff changes, Brexit-related uncertainty, currency movements, and carrier financial stability. The company noted that pricing volatility or an inability to pass through higher fuel or transportation costs could reduce operating income. Ordinary-course legal matters were not expected to have a significant effect; potential additional tax assessments remain uncertain, and tax contingencies could increase in 2021. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether elevated freight rates and capacity constraints persist, and how their normalization affects revenue and operating margins.
- Whether shipment volumes, carrier costs and the company’s ability to pass costs through to customers support earnings after the unusually strong quarter.
- Cash-flow quality and working-capital movements, particularly receivables and customer-related advances.
- Concentration and performance in China and North Asia, which materially influenced year-over-year comparisons.
- Potential developments in tax examinations, trade policy, carrier capacity and other disclosed contingencies and risks.