Expeditors International of Washington, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Expeditors is a non-asset-based global logistics provider offering air and ocean freight, customs brokerage, and related services.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $2.593 billion | $4.664 billion | Down 44% |
| Operating income | $276 million | $462 million | Down 40% |
| Operating margin | 10.6% | 9.9% | Up 0.7 percentage points |
| Net earnings attributable to shareholders | $226 million | $346 million | Down 35% |
| Diluted EPS | $1.45 | $2.05 | Down 29% |
| Net cash from operating activities | $546 million | $414 million | Up 32% |
Net margin was 8.7%, versus 7.4% in Q1 2022. Higher interest income helped: other income, net was $24.6 million, compared with $9.4 million. The effective tax rate was 24.8%, versus 25.8%.
By service, airfreight revenue fell 43%, ocean freight and ocean services fell 65%, and customs brokerage and other services fell 9%. Management attributed the freight declines to lower volumes and sharply lower buy and sell rates as capacity exceeded softened demand. Airfreight tonnage declined 6%; ocean containers shipped declined 26%.
Liquidity, cash flow, and capital
Cash and cash equivalents were $2.351 billion at March 31, 2023, up from $2.034 billion at year-end. Working capital was $2.497 billion. The company reported no long-term debt; recorded lease liabilities totaled approximately $521 million, including current and noncurrent amounts. Borrowings under short-term credit lines were $44 million, with $67 million of contingent standby letters of credit and guarantees.
Operating cash flow rose primarily due to collections of accounts receivable. Investing cash use was $9.6 million, including $10.1 million of capital expenditures. Financing cash use was $226.6 million, including $213.5 million of cash repurchases; 1.959 million shares were repurchased at an average $108.98 per share. The board declared a $0.69-per-share semiannual dividend payable June 15, 2023.
Material changes, outlook, and risks
- Management reported softening global demand, elevated customer inventories, easing port congestion, and excess transportation capacity. Average freight rates had declined since Q2 2022 and management expected further downward pressure in 2023; pricing volatility may persist.
- Management estimated 2023 capital expenditures at $100 million. It stated existing cash and operating cash flows should meet liquidity needs for at least the next 12 months and the foreseeable future. No specific earnings or revenue guidance was provided.
- The 2022 cyber-attack caused approximately $42 million of incremental demurrage charges and approximately $20 million of other costs in Q1 2022. Cumulative additional expenses since the attack were $60 million, net of recoveries and estimate adjustments; lost revenue could not be quantified. Q1 2023 related charges were insignificant.
- Disclosure controls were deemed ineffective at quarter-end due to a previously disclosed material weakness in IT program change management. Remediation was ongoing, with completion expected before year-end 2023; supplemental reviews continue.
- Risks include economic weakness, inflation and rising operating costs, reduced freight volumes and rates, customer credit deterioration, carrier capacity and financial stability, fuel-price volatility, foreign exchange exposure, trade restrictions, and cybersecurity. Management said ordinary-course legal matters were not expected to materially affect the company; tax contingencies may increase, but a range of possible outcomes could not be estimated.
Important facts for investors to verify
- Whether freight volumes and rates stabilize or continue declining, particularly in ocean and air services.
- Progress and testing results for remediation of the material weakness in IT change-management controls.
- Cash conversion and working-capital trends as customer billings and collections respond to seasonality and softer demand.
- Developments in cyber-attack-related claims, tax examinations, and any changes to recorded contingencies.
- Capital spending against the $100 million estimate and future share repurchases and dividends.