Expeditors Reports Third Quarter 2020 EPS Of $1.12

Rhea-AI Summary

Expeditors International (NASDAQ: EXPLD) reported its third quarter 2020 results, highlighting a 22% increase in diluted EPS to $1.12 and a 19% rise in net earnings to $191 million. Operating income also grew by 22% to $252 million, while revenues reached $2.5 billion, a 19% increase year-over-year. Despite challenges from COVID-19, airfreight tonnage and ocean container volumes showed resilience, though both fell 5%. The company faced ongoing supply/demand imbalances, particularly in airfreight, leading to higher rates.

Positive

• Diluted EPS increased 22% to $1.12.
• Net earnings rose 19% to $191 million.
• Operating income grew 22% to $252 million.
• Revenues reached $2.5 billion, up 19% year-over-year.

Negative

• Airfreight tonnage volume decreased 5%.
• Ocean container volume also fell by 5%.
• Ongoing volatility in air pricing due to supply/demand imbalances.

SEATTLE--(BUSINESS WIRE)--Expeditors International of Washington, Inc. (NASDAQ:EXPD) today announced third quarter 2020 financial results including the following highlights compared to the same quarter of 2019:

• Diluted Net Earnings Attributable to Shareholders per share (EPS¹) increased 22% to $1.12
• Net Earnings Attributable to Shareholders increased 19% to $191 million
• Operating Income increased 22% to $252 million
• Revenues increased 19% to $2.5 billion
• Airfreight tonnage volume and ocean container volume both decreased 5%

“Volumes started to recover across most of our products during the quarter, even as the global effects of COVID-19 continued to impact our business worldwide,” said Jeffrey S. Musser, President and Chief Executive Officer. “Similar to Q2, the pandemic caused an increase in demand for certain goods at the same time that air capacity remained tight due to travel restrictions and the limited schedule of domestic and international passenger flights. This caused continued imbalances between carrier capacity and demand, principally on exports out of North Asia, which was the only market in which air volumes increased during the third quarter. To meet the urgent transportation needs that could not be fulfilled with scheduled capacity, we utilized charter capacity for certain customers, resulting in higher average buy and sell rates. While airfreight buy and sell rates were generally lower in our third quarter than the extremes we experienced in the second quarter, they remained historically elevated and highly unpredictable due to ongoing supply/demand imbalances. We would expect air pricing to remain volatile until passenger traffic starts to return in a meaningful way.

“While our ocean freight business has not been nearly as impacted by supply constraints, carriers remain disciplined and are carefully managing capacity even as volumes have increased from the lows we saw earlier in this pandemic. Across most of our products in the third quarter, we experienced a steady recovery in demand as shippers adjusted to an altered marketplace and disrupted supply chains.

“Despite the challenges, we continue to serve our customers at the highest level throughout our organization, whether working from remote locations or on-site at one of our many warehouses, where we are following very strict safety protocols. Thanks to the ongoing implementation of our business continuity plans and the adaptability of our people, all of our offices remain open, connected, and are functioning extremely well. Our network is strong, and our people remain steadfast and highly flexible.”

Bradley S. Powell, Senior Vice President and Chief Financial Officer, added, “The effects of COVID-19 continued to impact volumes for all products, although not as significantly as in the prior sequential quarter. While we have experienced increased demand in many of our markets for a mix of products, capacity constraints in air, and to a lesser extent in ocean, have led to a continued buy/sell rate imbalance. While we remain uncertain about the pace, strength, or evenness of an economic recovery, we will continue to use our strong financial position to make important strategic investments that are necessary for our future growth, while continuing our focus on controlling costs and improving operational efficiencies. We appreciate the hard work of our District Managers and their leadership teams as they continue to execute at a high level, control operational expenses and limit the addition of headcount.”

Expeditors is a global logistics company headquartered in Seattle, Washington. The Company employs trained professionals in 176 district offices and numerous branch locations located on six continents linked into a seamless worldwide network through an integrated information management system. Services include the consolidation or forwarding of air and ocean freight, customs brokerage, vendor consolidation, cargo insurance, time-definite transportation, order management, warehousing and distribution and customized logistics solutions.

_______________________

1Diluted earnings attributable to shareholders per share.

NOTE: See Disclaimer on Forward-Looking Statements on the following page of this release.

Expeditors International of Washington, Inc. Third Quarter 2020 Earnings Release, November 3, 2020 Financial Highlights for the three and nine months ended September 30, 2020 and 2019 (Unaudited) (in 000's of US dollars except per share data)
		Three months ended September 30,													Nine months ended September 30,
		2020				2019				% Change					2020				2019				% Change
Revenues		$	2,464,797			$	2,074,855			19		%			$	6,947,293			$	6,130,485			13		%
Directly related cost of transportation and other expenses1		$	1,730,418			$	1,400,499			24		%			$	4,848,187			$	4,140,320			17		%
Salaries and other operating expenses2		$	482,434			$	467,806			3		%			$	1,440,480			$	1,403,813			3		%
Operating income		$	251,945			$	206,550			22		%			$	658,626			$	586,352			12		%
Net earnings attributable to shareholders		$	191,307			$	160,221			19		%			$	497,520			$	453,069			10		%
Diluted earnings attributable to shareholders per share		$	1.12			$	0.92			22		%			$	2.92			$	2.60			12		%
Basic earnings attributable to shareholders per share		$	1.14			$	0.94			21		%			$	2.96			$	2.65			12		%
Diluted weighted average shares outstanding			170,735				173,483									170,539			174,463
Basic weighted average shares outstanding			168,310				170,415									167,942			171,084

1Directly related cost of transportation and other expenses totals Operating Expenses from Airfreight services, Ocean freight and ocean services and Customs brokerage and other services as shown in the Condensed Consolidated Statements of Earnings.

2Salaries and other operating expenses totals Salaries and related, Rent and occupancy, Depreciation and amortization, Selling and promotion and Other as shown in the Condensed Consolidated Statements of Earnings.

During the three months ended September 30, 2020, we did not repurchase any shares of common stock and during the nine months ended September 30, 2020, we repurchased 4.4 million shares of common stock at an average price of $71.41 per share. During the three and nine months ended September 30, 2019, we repurchased 0.9 million and 4.1 million shares of common stock at an average price of $69.51 and $72.60 per share, respectively.

		Employee Full-time Equivalents as of September 30,
		2020				2019
North America			6,666				6,861
Europe			3,361				3,427
North Asia			2,406				2,483
South Asia			1,643				1,674
Middle East, Africa and India			1,509				1,565
Latin America			800				860
Information Systems			975				939
Corporate			383				383
Total			17,743				18,192

		Third quarter year-over-year percentage (decrease) increase in:
2020		Airfreight kilos				Ocean freight FEU
July		(12	)%			(13	)%
August		(5	)%			(5	)%
September		2	%			5	%
Quarter		(5	)%			(5	)%

Investors may submit written questions via e-mail to: investor@expeditors.com. Questions received by the end of business on November 6, 2020 will be considered in management's 8-K “Responses to Selected Questions.”

Disclaimer on Forward-Looking Statements:

Certain statements contained in this news release are “forward-looking statements” that involve risks and uncertainties, including statements such as our expectations of continued volatility in air pricing. Actual results could differ materially because of factors such as: the timing until passenger traffic starts to return in a meaningful way; the impact on our ocean volumes; the pace, strength, or evenness of the of an economic recovery; our employees’ ability to continue to perform at a high level; airfreight buy and sell rates; our access to carrier capacity; our ability to keep our global offices open and operating; employee retention; employee health and safety; our ability to execute our business continuity plans; the strength of our financial position and our ability to continue to make investments in our strategic initiatives; our ability to remain a strong, healthy, unified and resilient organization; our ability to control costs and improve operational efficiencies; our ability to control operational expenses and limit the addition of headcount. The COVID-19 pandemic could have the effect of heightening many of the other risks described in Item 1A of our Annual Report on Form 10-K, including, without limitation, those related to the success of our strategy and desire to maintain historical unitary profitability, our ability to attract and retain customers, our ability to manage costs, interruptions to our information technology systems, the ability of third-party providers to perform and potential litigation as updated by our reports on Form 10-Q, filed with the Securities and Exchange Commission. These and other factors are discussed in the Company’s regulatory filings with the Securities and Exchange Commission, including those in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in “Item 1A. Risk Factors” of the Company’s most recent Quarterly Report on Form 10-Q. The forward-looking statements contained in this news release speak only as of this date, and the Company does not assume any obligation to update them except as required by law.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES   Condensed Consolidated Balance Sheets (In thousands, except per share data) (Unaudited)
		September 30, 2020				December 31, 2019
Assets:
Current Assets:
Cash and cash equivalents		$	1,465,510			$	1,230,491
Accounts receivable, less allowance for credit loss of $5,171 at September 30, 2020 and $11,143 at December 31, 2019			1,582,424				1,315,091
Deferred contract costs			232,351				131,783
Other			129,617				92,558
Total current assets			3,409,902				2,769,923
Property and equipment, less accumulated depreciation and amortization of $510,103 at September 30, 2020 and $478,906 at December 31, 2019			499,189				499,344
Operating lease right-of-use assets			422,002				390,035
Goodwill			7,927				7,927
Deferred federal and state income taxes, net			3,130				8,034
Other assets, net			16,404				16,621
Total assets		$	4,358,554			$	3,691,884
Liabilities:
Current Liabilities:
Accounts payable		$	888,761			$	735,695
Accrued expenses, primarily salaries and related costs			236,826				189,446
Contract liabilities			267,266				154,183
Current portion of operating lease liabilities			70,755				65,367
Federal, state and foreign income taxes			33,100				23,627
Total current liabilities			1,496,708				1,168,318
Noncurrent portion of operating lease liabilities			357,373				326,347
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, none issued			—			—
Common stock, par value $0.01 per share. Issued and outstanding: 169,231 shares at September 30, 2020 and 169,622 shares at December 31, 2019			1,692				1,696
Additional paid-in capital			145,924				3,203
Retained earnings			2,489,694				2,321,316
Accumulated other comprehensive loss			(135,281	)			(131,187	)
Total shareholders’ equity			2,502,029				2,195,028
Noncontrolling interest			2,444				2,191
Total equity			2,504,473				2,197,219
Total liabilities and equity		$	4,358,554			$	3,691,884

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES   Condensed Consolidated Statements of Earnings (In thousands, except per share data) (Unaudited)
		Three months ended September 30,								Nine months ended September 30,
		2020				2019				2020				2019
Revenues:
Airfreight services		$	1,093,550			$	715,450			$	3,237,179			$	2,171,928
Ocean freight and ocean services			612,858				585,374				1,597,997				1,697,824
Customs brokerage and other services			758,389				774,031				2,112,117				2,260,733
Total revenues			2,464,797				2,074,855				6,947,293				6,130,485
Operating Expenses:
Airfreight services			833,689				522,868				2,450,931				1,574,717
Ocean freight and ocean services			455,072				424,215				1,185,154				1,234,845
Customs brokerage and other services			441,657				453,416				1,212,102				1,330,758
Salaries and related			373,613				356,331				1,110,760				1,069,592
Rent and occupancy			42,484				41,987				126,383				124,407
Depreciation and amortization			15,851				12,386				42,620				38,456
Selling and promotion			2,945				10,133				14,301				32,852
Other			47,541				46,969				146,416				138,506
Total operating expenses			2,212,852				1,868,305				6,288,667				5,544,133
Operating income			251,945				206,550				658,626				586,352
Other Income (Expense):
Interest income			1,504				5,501				8,870				18,123
Other, net			980				1,895				5,161				5,822
Other income, net			2,484				7,396				14,031				23,945
Earnings before income taxes			254,429				213,946				672,657				610,297
Income tax expense			62,710				53,319				173,968				156,029
Net earnings			191,719				160,627				498,689				454,268
Less net earnings attributable to the noncontrolling interest			412				406				1,169				1,199
Net earnings attributable to shareholders		$	191,307			$	160,221			$	497,520			$	453,069
Diluted earnings attributable to shareholders per share		$	1.12			$	0.92			$	2.92			$	2.60
Basic earnings attributable to shareholders per share		$	1.14			$	0.94			$	2.96			$	2.65
Weighted average diluted shares outstanding			170,735				173,483				170,539				174,463
Weighted average basic shares outstanding			168,310				170,415				167,942				171,084

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES   Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
		Three months ended September 30,								Nine months ended September 30,
		2020				2019				2020				2019
Operating Activities:
Net earnings		$	191,719			$	160,627			$	498,689			$	454,268
Adjustments to reconcile net earnings to net cash from operating activities:
Provisions for losses on accounts receivable			398				757				4,607				453
Deferred income tax (benefit) expense			(1,276	)			(5,822	)			2,872				(17	)
Stock compensation expense			12,297				12,155				45,091				49,361
Depreciation and amortization			15,851				12,386				42,620				38,456
Other, net			2,919				652				3,470				812
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable			(106,065	)			43,885				(274,440	)			246,175
Increase (decrease) in accounts payable and accrued expenses			94,263				(58,816	)			201,940				(141,199	)
(Increase) decrease in deferred contract costs			(81,486	)			10,301				(99,887	)			28,550
Increase (decrease) in contract liabilities			91,638				(13,211	)			112,244				(36,933	)
(Decrease) in income taxes payable, net			(41,286	)			(671	)			(10,644	)			(33,284	)
(Increase) decrease in other, net			(17,373	)			(744	)			(13,242	)			47
Net cash from operating activities			161,599				161,499				513,320				606,689
Investing Activities:
Purchase of property and equipment			(9,178	)			(15,521	)			(37,419	)			(37,943	)
Other, net			1,174				232				963				1,525
Net cash from investing activities			(8,004	)			(15,289	)			(36,456	)			(36,418	)
Financing Activities:
Proceeds from issuance of common stock			121,430				60,713				174,016				120,190
Repurchases of common stock			—				(61,999	)			(314,225	)			(296,922	)
Dividends paid			—				—				(86,815	)			(85,184	)
Payments for taxes related to net share settlement of equity awards			—				—				(10,566	)			(6,674	)
Net cash from financing activities			121,430				(1,286	)			(237,590	)			(268,590	)
Effect of exchange rate changes on cash and cash equivalents			10,030				(11,604	)			(4,255	)			(9,446	)
Change in cash and cash equivalents			285,055				133,320				235,019				292,235
Cash and cash equivalents at beginning of period			1,180,455				1,082,650				1,230,491				923,735
Cash and cash equivalents at end of period		$	1,465,510			$	1,215,970			$	1,465,510			$	1,215,970
Taxes Paid:
Income taxes		$	106,434			$	61,201			$	180,242			$	196,169

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES   Business Segment Information (In thousands) (Unaudited)
		UNITED STATES				OTHER NORTH AMERICA				LATIN AMERICA				NORTH ASIA				SOUTH ASIA				EUROPE				MIDDLE EAST, AFRICA AND INDIA				ELIMI- NATIONS				CONSOLI- DATED
For the three months ended September 30, 2020:
Revenues1		$	686,245				78,129				39,193				883,104				267,228				378,048				133,765				(915	)			2,464,797
Directly related cost of transportation and other expenses2		$	379,588				44,911				23,361				720,807				200,334				261,325				100,619				(527	)			1,730,418
Salaries and other operating expenses3		$	197,749				25,325				12,359				81,876				39,926				96,658				28,925				(384	)			482,434
Operating income		$	108,908				7,893				3,473				80,421				26,968				20,065				4,221				(4	)			251,945
Identifiable assets at period end		$	2,336,071				163,943				76,173				689,525				231,771				642,124				228,423				(9,476	)			4,358,554
Capital expenditures		$	4,703				483				180				1,075				665				1,780				292				—				9,178
Equity		$	1,791,658				77,915				31,324				246,557				97,564				185,352				110,714				(36,611	)			2,504,473
For the three months ended September 30, 2019:
Revenues1		$	692,229				88,088				38,341				624,351				196,569				320,769				115,397				(889	)			2,074,855
Directly related cost of transportation and other expenses2		$	389,254				51,420				22,990				489,195				145,345				221,149				81,592				(446	)			1,400,499
Salaries and other operating expenses3		$	210,767				25,731				14,547				70,410				32,482				86,156				28,151				(438	)			467,806
Operating income		$	92,208				10,937				804				64,746				18,742				13,464				5,654				(5	)			206,550
Identifiable assets at period end		$	2,059,345				128,336				72,029				489,322				164,976				563,289				226,657				2,499				3,706,453
Capital expenditures		$	7,644				513				833				523				631				5,119				258				—				15,521
Equity		$	1,578,682				60,526				27,217				216,061				77,733				169,450				111,355				(31,737	)			2,209,287

		UNITED STATES				OTHER NORTH AMERICA				LATIN AMERICA				NORTH ASIA				SOUTH ASIA				EUROPE				MIDDLE EAST, AFRICA AND INDIA				ELIMI- NATIONS				CONSOLI- DATED
For the nine months ended September 30, 2020:
Revenues1		$	1,975,883				234,274				114,636				2,538,117				660,583				1,086,118				340,415				(2,733	)			6,947,293
Directly related cost of transportation and other expenses2		$	1,108,173				132,250				69,827				2,054,023				481,971				754,863				248,503				(1,423	)			4,848,187
Salaries and other operating expenses3		$	631,396				74,320				36,220				236,480				109,018				274,269				80,063				(1,286	)			1,440,480
Operating income		$	236,314				27,704				8,589				247,614				69,594				56,986				11,849				(24	)			658,626
Identifiable assets at period end		$	2,336,071				163,943				76,173				689,525				231,771				642,124				228,423				(9,476	)			4,358,554
Capital expenditures		$	28,276				1,692				498				1,785				1,035				3,418				715				—				37,419
Equity		$	1,791,658				77,915				31,324				246,557				97,564				185,352				110,714				(36,611	)			2,504,473
For the nine months ended September 30, 2019:
Revenues1		$	2,033,088				265,035				111,277				1,879,155				555,128				952,790				336,383				(2,371	)			6,130,485
Directly related cost of transportation and other expenses2		$	1,142,701				157,997				64,149				1,475,395				407,642				657,720				236,184				(1,468	)			4,140,320
Salaries and other operating expenses3		$	636,243				76,283				41,342				208,781				97,324				258,339				86,385				(884	)			1,403,813
Operating income		$	254,144				30,755				5,786				194,979				50,162				36,731				13,814				(19	)			586,352
Identifiable assets at period end		$	2,059,345				128,336				72,029				489,322				164,976				563,289				226,657				2,499				3,706,453
Capital expenditures		$	23,544				1,509				1,071				1,167				1,235				8,015				1,402				—				37,943
Equity		$	1,578,682				60,526				27,217				216,061				77,733				169,450				111,355				(31,737	)			2,209,287

1Beginning in the second quarter of 2019, the Company revised its process to record the transfer, between its geographic operating segments, of revenues and the directly related cost of transportation and other expenses for freight service transactions between Company origin and destination locations. This change better aligns revenue reporting with the location where the services are performed, as well as the transactional reporting being developed as part of the Company’s new accounting systems and processes. The change in presentation had nine months ended September 30, 2019, segment revenues have not been revised.

2Directly related cost of transportation and other expenses totals Operating Expenses from Airfreight services, Ocean freight and ocean services and Customs brokerage and other services as shown in the Condensed Consolidated Statements of Earnings.

3Salaries and other operating expenses totals Salaries and related, Rent and occupancy, Depreciation and amortization, Selling and promotion and Other as shown in the Condensed Consolidated Statements of Earnings.

The Company’s consolidated financial results in the nine months ended September 30, 2020 was significantly impacted by the effects of the global pandemic and are expected to be further impacted in the remainder of 2020. The impact is affecting the Company’s geographical segments unevenly.

In the second and third quarter of 2020, North Asia experienced significant increases in airfreight services revenues and directly related expenses primarily as a result of demand for time-sensitive delivery of technology equipment and medical equipment and supplies from China, which combined with reductions in airfreight supply resulted in significantly higher rates. In the third quarter 2020 and 2019, the People's Republic of China, including Hong Kong, represented 30% and 26%, respectively, of the Company’s total revenues and 26% of the Company’s total operating income in both periods.

This is in contrast with slower activity in North Asia in the first quarter of 2020 as the global pandemic resulted in temporary closures and limited operations from the Company’s China offices and shipments that were rerouted or delayed by customers and service providers taking their own precautionary measures. In the nine months ended September 30, 2020 and 2019, the People's Republic of China, including Hong Kong, represented 31% and 26%, respectively, of the Company’s total revenues and 30% and 27%, respectively, of the Company’s total operating income.