Expeditors International of Washington, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. The unaudited filing covers the quarter and six months ended June 30, 2022. Expeditors is a non-asset-based global logistics provider. Dollar amounts below are USD millions unless noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $4,603.3 (+28%) | $3,609.1 | $9,267.6 (+36%) | $6,807.9 |
| Operating income | $506.0 (+23%) | $410.6 | $967.7 (+22%) | $796.2 |
| Net earnings attributable to shareholders | $377.8 (+19%) | $316.4 | $723.9 (+20%) | $603.6 |
| Diluted EPS | $2.27 | $1.84 | $4.31 | $3.52 |
| Operating margin | 11.0% | 11.4% | 10.4% | 11.7% |
| Net margin attributable to shareholders | 8.2% | 8.8% | 7.8% | 8.9% |
Margins are calculated from reported figures. Q2 revenue growth was led by ocean freight and ocean services (+60%); customs brokerage and other services rose 26%, while airfreight rose 5%. For the first half, the respective increases were 82%, 22%, and 12%. Management said higher average buy and sell rates, rather than shipment growth, drove much of the revenue expansion; shipment volumes were generally lower.
Cash flow and liquidity. First-half operating cash flow was $972.6, versus $386.1 in 2021; Q2 operating cash flow was $558.6, versus $30.3. Management attributed the increase principally to receivables collections and higher earnings. Cash and equivalents were $1,977.0 at June 30, up from $1,728.7 at year-end 2021; working capital was $2,919. The company reported no long-term debt, apart from operating lease liabilities, and $54 million of borrowings on short-term credit lines. Lease liabilities totaled $502.9, including current and noncurrent amounts. Management expects cash and operating cash flows to meet liquidity needs for at least the next 12 months.
First-half investing cash outflow was $52.6, primarily capital expenditures, compared with $14.8 in 2021. Financing cash outflow was $618.7, including $549.1 of share repurchases and $109.8 of dividends. The company repurchased 5 million shares at an average $109.81 per share and declared a semiannual dividend of $0.67 per share.
Material changes, outlook and risks
- Cyber-attack: A February 2022 attack led to a global systems shutdown and about three weeks of limited operations. The company recorded approximately $62 million of incremental demurrage costs in the first half and $26 million for investigation, recovery, remediation and estimated shipment-related claims, for $88 million total. It seeks recovery of demurrage charges but recognizes recoveries only when realized. Lost revenue and operating-income effects, potential customer losses and ultimate direct and indirect impacts cannot be estimated; additional costs or claims may arise.
- Operating environment: China lockdowns, port congestion, shortages of labor, equipment and warehousing, higher fuel prices, the Ukraine conflict and route restrictions constrained capacity and elevated rates. Management reported softer demand and modestly lower average buy and sell rates versus Q1. It expects volatility in rates to continue while these disruptions persist, and anticipates COVID-related disruptions through the end of 2022.
- Forward outlook and sensitivity: The filing gives no quantified earnings or revenue guidance. Management cautioned that historically high freight rates are not expected to be sustained long-term; lower demand or rates, or inadequate carrier capacity, could significantly reduce revenue, expenses and operating income. Inflation, fuel costs, currency movements, trade policy and customer credit deterioration also pose risks.
- Other items: Estimated 2022 capital expenditures were $80 million. Ordinary-course legal matters were not expected by management to materially affect the company, but additional possible cyber-related losses could not be estimated. Management reported disclosure controls effective at the reasonable-assurance level and no material change in risk factors other than the added global economic uncertainty risk.
Important facts for investors to verify
- Whether shipment volumes and customer relationships recover after the cyber-attack, and how further cyber-related costs or claims develop.
- Whether freight rates, port congestion, carrier capacity and fuel prices sustain the unusually high revenue and earnings environment.
- How much of operating cash flow reflects sustainable earnings versus working-capital timing, including receivables collections.
- Whether planned capital spending, buybacks and dividends remain consistent with liquidity needs as demand and rates change.
- Exposure to customer credit losses, foreign-exchange movements, inflation and potential additional legal or contingent liabilities.