Business context and reporting period
Expeditors International of Washington, Inc. is a non-asset-based global logistics provider. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods unless noted.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4.319 billion | $2.349 billion | $11.127 billion | $6.604 billion |
| Operating income | $490 million | $252 million | $1.286 billion | $659 million |
| Net earnings attributable to shareholders | $359 million | $191 million | $963 million | $498 million |
| Diluted EPS | $2.09 | $1.12 | $5.61 | $2.92 |
| Operating cash flow | $177 million | $162 million | $563 million | $513 million |
- Q3 revenue rose 84%, operating income 94%, and shareholder earnings 88%. For nine months, increases were 68%, 95%, and 93%, respectively.
- Operating margin was approximately 11.3% in Q3 2021 versus 10.7% in Q3 2020, and 11.6% versus 10.0% for the nine-month periods.
- Q3 airfreight revenue increased 66% and ocean freight and services revenue 162%; customs brokerage and other services revenue increased 45%. For nine months, increases were 54%, 130%, and 42%, respectively.
- Cash and cash equivalents were $1.820 billion at September 30, 2021, up from $1.528 billion at December 31, 2020. Working capital was $2.836 billion.
- The company reported no long-term debt; operating lease liabilities were $456 million on the balance sheet. Cash flow from operations was partly absorbed by higher receivables and deferred contract costs.
- Capital expenditures were $25 million for the nine months. The company repurchased $225 million of shares and paid $98 million in dividends in that period.
Material changes versus prior comparable periods
- Results benefited from strong shipment volumes and historically high freight sell and buy rates amid demand-capacity imbalances. Q3 airfreight tonnage rose 28%, with average sell and buy rates up 32% and 36%; ocean consolidation containers shipped rose 15%, while average sell and buy rates rose 194% and 190%.
- Operating costs also rose sharply: transportation expenses and overhead increased with volumes and rates, employee commissions and bonuses, and a 6% increase in headcount. The revenue growth therefore reflects both higher activity and freight pricing, not solely increased shipment volume.
- The company corrected immaterial errors in prior-period revenue and transportation expense presentation. For Q3 2020, both were reduced by about $116 million; for the first nine months of 2020, both were reduced by about $344 million. The corrections did not affect operating income, net earnings, EPS, balance sheets, or cash flows.
Outlook, risks, contingencies and unusual items
- No specific financial guidance was provided. Management expected supply-chain and transportation disruptions, constrained capacity, port congestion, labor and equipment shortages, and high rate volatility to continue at least through the first half of 2022. It cautioned that conditions could reduce operating income and that unusually high rates and results were not expected to persist long term.
- Key risks include carrier capacity and financial stability, customers’ ability to obtain timely service, changing trade policies and tariffs, fuel and inflationary costs, foreign exchange exposure, competition, and employee retention. Management said it could not predict the effects of ongoing pandemic-related uncertainty on future results.
- Cash and operating cash flows were expected by management to meet liquidity needs for at least the next 12 months and thereafter for the foreseeable future. Estimated 2021 capital expenditures were $40 million.
- Contractual cash obligations totaled $919 million, including operating leases, unconditional purchase obligations and technology, equipment and construction commitments. The company also had $70 million of standby letters of credit and guarantees related to ordinary-course subsidiary obligations.
- Legal matters were not expected by management to have a significant effect; recorded accruals were not significant, and additional possible losses could not be estimated. Tax contingencies may increase, and tax audits or settlements could change recorded exposures.
- On November 1, 2021, the board declared a $0.58-per-share semi-annual dividend payable December 15, 2021.
Important facts for investors to verify
- Whether capacity constraints, port congestion and elevated freight rates persist as management anticipated, and how normalization affects margins and earnings.
- Whether increased receivables and contract-related working-capital needs continue to weigh on operating cash flow and collections.
- How much of reported revenue growth and future performance is attributable to freight rates versus shipment volumes; note the immaterial prior-period presentation corrections.
- Developments in tax audits and contingencies, and any changes in carrier capacity, trade policy, fuel costs, currency exposure or customer demand.
- Execution of planned capital spending and the company’s ability to maintain liquidity while meeting lease and purchase commitments.