Expeditors International of Washington, Inc. — 2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020; it is not a standalone Q4 filing. Expeditors is a non-asset-based global logistics provider, arranging air and ocean freight, customs brokerage, warehousing and related services. It reported approximately 17,500 employees and no customer representing 5% or more of revenue.
Key financial results
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Revenue | $10.116 billion | $8.175 billion | +23.7% |
| Operating income | $940.4 million | $766.7 million | +22.7% |
| Net earnings attributable to shareholders | $696.1 million | $590.4 million | +17.9% |
| Diluted EPS | $4.07 | $3.39 | +20.1% |
| Operating margin | 9.3% | 9.4% | Down slightly |
| Net cash from operating activities | $655.0 million | $771.9 million | Down $116.9 million |
Revenue growth was led by airfreight, where revenue rose 63% as average sell rates increased 78%, despite tonnage declining 3%. Airfreight buy rates rose 81%, outpacing revenue growth in that service. Ocean revenue increased 6%; customs brokerage and other services declined 2%. The effective tax rate was 27.0%, versus 25.6% in 2019.
For Q4 2020, revenue was $3.169 billion, operating income $281.8 million, net earnings attributable to shareholders $198.6 million and diluted EPS $1.16. Q4 2019 comparatives were $2.045 billion, $180.3 million, $137.3 million and $0.79, respectively.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1.528 billion at year-end, including $620 million held by non-U.S. subsidiaries; working capital was $2.071 billion.
- The company reported no long-term debt. Operating lease liabilities totaled $438.2 million, including $74.0 million current.
- Operating cash flow was $655.0 million; capital expenditures were $47.5 million. Management estimated 2021 capital expenditures of approximately $45 million.
- During 2020, the company repurchased 4.6 million shares for $332.4 million and paid $174.9 million in dividends ($1.04 per share). The dividend per share was $1.00 in 2019.
- Standby letters of credit and guarantees totaled $71.9 million. Contractual cash obligations were $625.1 million, including $506.5 million of operating lease payments.
Material changes and management commentary
- COVID-19 disrupted trade and freight capacity. Early-year volume declines were followed by exceptionally tight air and ocean capacity and higher demand in the second half, particularly in Q4.
- Reduced passenger flights constrained air cargo capacity; Expeditors used more charter flights and advance capacity purchases. Airfreight rates rose to unprecedented levels, especially on exports from North Asia.
- Ocean demand surged late in the year, with port congestion, equipment shortages and disrupted sailing schedules. Management expected elevated demand and rate pressure to continue into 2021.
- North Asia generated 38% of 2020 revenue and 37% of operating income. China, including Hong Kong, represented 32% of consolidated revenue.
- Operating cash flow declined primarily because of working-capital needs: high Q4 freight rates and activity increased receivables and customer billings ahead of collections.
- The company acquired a less-than-truckload digital online shipping platform in May 2020. It also continued a multi-year worldwide accounting-system implementation.
Outlook, risks and unusual items
Management said pandemic-related disruption was expected to continue into 2021, but did not provide financial guidance and stated that it does not issue forecasts or projections. It expects chartered aircraft use to continue until passenger air traffic recovers toward historical levels and anticipates approximately $45 million of capital expenditures in 2021.
- Key risks include persistent freight-rate and capacity volatility, carrier financial weakness, customer credit deterioration and higher bad-debt exposure. Receivables increased to $1.998 billion from $1.315 billion.
- Management warned that the unusually high 2020 airfreight rates and related results were not expected to be sustained long term. Higher carrier costs may not always be passed through to customers, potentially pressuring margins.
- Other risks include global trade and tariff changes, foreign exchange exposure, regulatory and tax uncertainty, cybersecurity and system disruption, and intense competition. Net foreign currency losses were $25.4 million in 2020, compared with $9.3 million in 2019.
- Legal claims and investigations in the ordinary course were not expected by management to have a significant financial effect; additional possible losses could not be estimated. No material off-balance-sheet arrangements were reported.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified assessment of gross unrecognized tax benefits as a critical audit matter.
Important facts for investors to verify
- Whether exceptional 2020 freight rates and capacity constraints persist, normalize or reverse, and how that affects unit profitability.
- Receivables, collections, customer credit quality and bad-debt provisions as freight rates and customer exposure change.
- Air and ocean volume trends by region and service, especially North Asia and China, and the cost and availability of charter capacity.
- Operating cash conversion and working-capital movements relative to earnings, alongside the company’s ongoing buybacks and dividends.
- Developments in tax audits, foreign exchange losses, carrier financial stability, and the accounting-system rollout.