Business context and reporting period
Expeditors International of Washington, Inc. is a non-asset-based global logistics provider offering airfreight, ocean freight and services, customs brokerage, and related services. This unaudited Form 10-Q covers the three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021 unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $4.664 billion | $3.199 billion | +46% |
| Operating income | $461.8 million | $385.5 million | +20% |
| Net earnings attributable to shareholders | $346.1 million | $287.2 million | +21% |
| Diluted EPS | $2.05 | $1.67 | +23% |
| Cash from operating activities | $413.9 million | $355.8 million | +16% |
| Capital expenditures | $14.4 million | $8.4 million |
Calculated operating margin was approximately 9.9%, down from 12.1%; calculated net margin was approximately 7.5%, down from 9.0%. Revenue less directly related transportation and service expenses was $1.148 billion, versus $951.5 million. The effective tax rate was 25.8%, compared with 26.3%.
At March 31, 2022, cash and cash equivalents were $2.140 billion, working capital was $3.241 billion, and total equity was $3.849 billion. The company reported no long-term debt; operating lease liabilities totaled approximately $469.8 million, including current and noncurrent portions. Borrowings on credit lines were not significant. Cash increased $410.9 million during the quarter.
Material changes and drivers
- Airfreight revenue rose 21%; average sell and buy rates increased 50% and 47%, respectively, while tonnage declined 18%.
- Ocean freight and ocean services revenue rose 107%; ocean consolidation rates increased sharply, while containers shipped declined 3% overall.
- Customs brokerage and other services revenue increased 19%, but related expenses increased 41%. Salaries and related costs rose 19%, reflecting higher commissions and bonuses and a 10% increase in headcount.
- Management attributed higher revenues primarily to unusually high freight rates amid constrained carrier capacity, strong demand, port congestion, and supply-chain disruption. Directly related operating expenses increased 56%, faster than revenue, weighing on operating margin.
Outlook, risks and unusual items
- Cyber-attack: Discovered February 20, 2022, the attack led the company to shut down most global connectivity, operating, and accounting systems. Operations were limited for approximately three weeks. The company recorded about $60 million of related expenses: approximately $40 million in incremental demurrage charges and $20 million in investigation, recovery, remediation, and estimated shipment-claim costs. Lost shipment volumes and the attack’s ultimate financial impact cannot be quantified; further costs or customer losses could materially affect results, cash flows, and reputation.
- Operating outlook: Management expected pandemic-related disruption, including China lockdowns, to continue through the end of 2022. It also expected port congestion, capacity constraints, and pricing volatility to persist, with continued pressure on ocean buy rates. Management cautioned that current historically high rates are not expected to be sustained long term and that lower demand or rates could materially reduce revenue, expenses, and operating income. No specific earnings or revenue guidance was provided.
- Capital and liquidity: Management said cash and operating cash flows should meet liquidity needs for at least the next 12 months and the foreseeable future. Estimated 2022 capital expenditures were $100 million, including continued technology and facilities investments; the company spent $3 million on cyber-attack remediation technology equipment and software in Q1.
- Other risks: Inflation, higher fuel and labor costs, geopolitical uncertainty, foreign-exchange movements, carrier capacity and stability, customer credit exposure, and trade policy changes could affect results. The filing says ordinary-course legal matters were not expected to have a significant financial effect; additional cyber-related claims could not be estimated.
- Subsequent event: On May 2, 2022, the board declared a semi-annual dividend of $0.67 per share, payable June 15 to shareholders of record June 1, and amended the repurchase authorization to allow repurchases down to 150 million shares. No shares were repurchased in Q1 2022.
Important facts for investors to verify
- How much of revenue and operating income growth reflects freight-rate inflation versus sustainable volume, and how margins respond if rates normalize.
- The continuing financial and operational effects of the cyber-attack, including additional remediation expense, claims, lost customers, and shipment volumes.
- Whether congestion, capacity constraints, China restrictions, and other supply-chain disruptions persist as management expected.
- Execution of the $100 million 2022 capital expenditure plan and maintenance of cash generation and liquidity.
- Exposure to inflation, fuel costs, customer credit risk, and changes in carrier capacity and financial stability.