Expeditors Reports Fourth Quarter 2019 EPS of $0.79

By: Expeditors International of Washington, Inc. via Business Wire News Releases

February 18, 2020 at 08:30 AM EST

Expeditors International of Washington, Inc. (NASDAQ:EXPD) today announced fourth quarter 2019 financial results including the following highlights compared to the same quarter of 2018:

Diluted Net Earnings Attributable to Shareholders per share (EPS1) decreased 23% to $0.79
Net Earnings Attributable to Shareholders decreased 23% to $137 million
Operating Income decreased 17% to $180 million
Revenues decreased 9% to $2.0 billion
Airfreight tonnage volume decreased 6% and ocean container volume decreased 13%

“Our final financial results for the fourth quarter were within the range of earnings guidance we issued last month,” said Jeffrey S. Musser, President and Chief Executive Officer. “As noted in that guidance, we do not believe this comparatively soft fourth quarter is the result of a business performance issue, but is instead more closely tied to the business environment in which we are operating. Average sell rates declined faster than our average buy rates, and both air and ocean volumes declined as slowing trade to and from China impacted overall freight movement around the globe. In the year-ago fourth quarter, by comparison, we believe our volumes benefitted as shippers moved product ahead of scheduled tariff increases.”

Mr. Musser continued: “Our people and operations in China are a very important part of our global network. China imports and exports are interrelated to all of our other geographic regions and, on a stand-alone basis, represented 26% of our consolidated revenue and 27% of operating income in 2019. While we would normally expect softness in the first part of Q1 because of the Chinese Lunar New Year Holidays, this year has been much more pronounced due to the extended closures of factories in China in support of containing the Novel Coronavirus (COVID-19). There remains a great deal of uncertainty as to when factories will return to full production, and those delays will have a significant impact on freight volumes moved in Q1. In addition to traditional supply chain movements, we also believe this may have a further impact to global supply chains through potential shortages of raw materials, parts and supplies.

“Over our 40-year history, we have experienced many events that have disrupted supply chains. We have not, however, experienced a situation where manufacturing capability has been shut-down or severely hampered to such an extent, so it is difficult to predict how this will play out. However, we remain steadfastly optimistic that when the marketplace does return to normal, we are in an excellent position to take advantage of what could be a sharp rebound in trade.”

Bradley S. Powell, Senior Vice President and Chief Financial Officer, added, “Operating income in Q4 2019 was negatively impacted by lower volumes and lower average sell rates. The largest decline in volumes and rates were experienced in our China operations where revenues and operating income declined 27% and 23%, respectively, in the fourth quarter. We will continue to make important investments in people and technology to support our long-term growth initiatives.” Mr. Powell noted that the Company’s effective tax rate for the full year of 2019 was 25.6%, compared to 24.3% in 2018. The effect of higher average tax rates of our international subsidiaries, when compared to U.S. federal and state tax rates, were offset by U.S. foreign tax credits and U.S. income tax deductions for Foreign-derived intangible income (FDII). In addition, both 2019 and 2018 benefited from state income tax refunds. These benefits were partially offset by certain expenses that are no longer deductible under the 2017 Tax Act. Mr. Powell reiterated that the Company’s effective tax rate will be largely dependent upon the mix of pre-tax earnings that are generated in its U.S. versus foreign operations, as well as any further interpretations and guidance issued on the tax law in the future.

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.
Fourth Quarter 2019 Earnings Release, February 18, 2020
Financial Highlights for the Three and Twelve months ended December 31, 2019 (Unaudited)
(in 000's of US dollars except per share data)
	Three months ended December 31,					Twelve months ended December 31,
	2019		2018		% Change	2019		2018		% Change
Revenues	$	2,044,941	$	2,235,597	(9)%	$	8,175,426	$	8,138,365	—%
Directly related cost of transportation and other expenses1	$	1,398,638	$	1,554,922	(10)%	$	5,538,958	$	5,517,992	—%
Salaries and other operating expenses2	$	465,963	$	463,668	—%	$	1,869,776	$	1,823,810	3%
Operating income	$	180,340	$	217,007	(17)%	$	766,692	$	796,563	(4)%
Net earnings attributable to shareholders	$	137,326	$	179,210	(23)%	$	590,395	$	618,199	(4)%
Diluted earnings attributable to shareholders per share	$	0.79	$	1.02	(23)%	$	3.39	$	3.48	(3)%
Basic earnings attributable to shareholders per share	$	0.81	$	1.04	(22)%	$	3.45	$	3.55	(3)%
Diluted weighted average shares outstanding		173,401		175,935			174,209		177,833
Basic weighted average shares outstanding		170,339		172,493			170,899		174,133

_______________________________

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 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 Consolidated Statements of Earnings.

The three and twelve months ended December 31, 2019 include the effect of changing our presentation of certain import services from a net to a gross basis and our revised presentation of destination services, which increased revenues and directly related operating expenses in customs brokerage and other services but did not change operating income.

During the three and twelve months ended December 31, 2019, we repurchased 1.2 million and 5.3 million shares of common stock at an average price of $73.89 and $72.91 per share, respectively. During the three and twelve months ended December 31, 2018, we repurchased 1.3 million and 9.0 million shares of common stock at an average price of $71.82 and $71.61 per share, respectively.

	Employee Full-time Equivalents as of December 31,
	2019		2018
North America		6,905		6,833
Europe		3,459		3,375
North Asia		2,488		2,607
South Asia		1,697		1,643
Middle East, Africa and India		1,548		1,520
Latin America		855		839
Information Systems		961		912
Corporate		384		352
Total		18,297		18,081

	Fourth quarter year-over-year percentage decrease in:
	Airfreight kilos	Ocean freight FEU
2019
October	(6)%	(14)%
November	(6)%	(9)%
December	(7)%	(14)%
Quarter	(6)%	(13)%

_________________________________

Investors may submit written questions via e-mail to: [email protected]. Questions received by the end of business on February 21, 2020 will be considered in management's 8-K “Responses to Selected Questions.”

Disclaimer on Forward-Looking Statements:

Certain portions of this release contain forward-looking statements, including the impact on freight volumes in the first quarter as a result of the containment measures relating to the Novel Coronavirus (COVID-19) causing extended closures of factories in China; the further impact on downstream supply chains; our ability to take advantage of a rebound in trade; and the impact of the 2017 Tax Act and related interpretations on our effective tax rate. Forward-looking statements involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations include the length and severity of the Novel Coronavirus (COVID-19); our ability to contain costs; our ability to retain existing and attract new customers; our ability to use our broad market footprint to respond to and take advantage of a sudden shift in manufacturing capacity and associated trade; and risk factors and uncertainties detailed in our Annual Report on Form 10-K for the year ended December 31, 2018 and as updated by our reports on Form 10-Q, filed with the Securities and Exchange Commission. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES


Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
	December 31, 2019			December 31, 2018
Assets:
Current Assets:
Cash and cash equivalents	$	1,230,491		$	923,735
Accounts receivable, net		1,315,091			1,581,530
Deferred contract costs		131,783			159,510
Other		92,558			70,041
Total current assets		2,769,923			2,734,816
Property and equipment, net		499,344			504,105
Operating lease right-of-use assets		390,035			—
Goodwill		7,927			7,927
Deferred federal and state income taxes, net		8,034			40,465
Other assets, net		16,621			27,246
Total assets	$	3,691,884		$	3,314,559
Liabilities:
Current Liabilities:
Accounts payable	$	735,695		$	902,259
Accrued expenses, primarily salaries and related costs		189,446			215,813
Contract liabilities		154,183			190,343
Current portion of operating lease liabilities		65,367			—
Federal, state and foreign income taxes		23,627			18,424
Total current liabilities		1,168,318			1,326,839
Noncurrent portion of operating lease liabilities		326,347			—
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, none issued		—			—
Common stock, par value $0.01 per share, authorized 640,000. Issued and outstanding: 169,622 shares at December 31, 2019 and 171,582 shares at December 31, 2018		1,696			1,716
Additional paid-in capital		3,203			1,896
Retained earnings		2,321,316			2,088,707
Accumulated other comprehensive loss		(131,187	)		(105,481	)
Total shareholders’ equity		2,195,028			1,986,838
Noncontrolling interest		2,191			882
Total equity		2,197,219			1,987,720
Total liabilities and equity	$	3,691,884		$	3,314,559

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES


Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
	Three months ended December 31,				Twelve months ended December 31,
	2019		2018		2019		2018
Revenues:
Airfreight services	$	757,954	$	905,606	$	2,929,882	$	3,271,932
Ocean freight and ocean services		519,730		615,053		2,217,554		2,251,754
Customs brokerage and other services		767,257		714,938		3,027,990		2,614,679
Total revenues		2,044,941		2,235,597		8,175,426		8,138,365
Operating Expenses:
Airfreight services		569,282		683,410		2,143,999		2,410,793
Ocean freight and ocean services		378,801		464,281		1,613,646		1,664,168
Customs brokerage and other services		450,555		407,231		1,781,313		1,443,031
Salaries and related		352,723		350,839		1,422,315		1,393,259
Rent and occupancy		41,775		39,627		166,182		152,813
Depreciation and amortization		12,494		13,186		50,950		54,019
Selling and promotion		11,150		12,961		44,002		45,346
Other		47,821		47,055		186,327		178,373
Total operating expenses		1,864,601		2,018,590		7,408,734		7,341,802
Operating income		180,340		217,007		766,692		796,563
Other Income (Expense):
Interest income		4,680		4,982		22,803		19,153
Other, net		477		256		6,299		2,613
Other income (expense), net		5,157		5,238		29,102		21,766
Earnings before income taxes		185,497		222,245		795,794		818,329
Income tax expense		47,749		42,668		203,778		198,539
Net earnings		137,748		179,577		592,016		619,790
Less net earnings attributable to the noncontrolling interest		422		367		1,621		1,591
Net earnings attributable to shareholders	$	137,326	$	179,210	$	590,395	$	618,199
Diluted earnings attributable to shareholders per share	$	0.79	$	1.02	$	3.39	$	3.48
Basic earnings attributable to shareholders per share	$	0.81	$	1.04	$	3.45	$	3.55
Weighted average diluted shares outstanding		173,401		175,935		174,209		177,833
Weighted average basic shares outstanding		170,339		172,493		170,899		174,133

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES


Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

	Three months ended December 31,						Twelve months ended December 31,
	2019			2018			2019			2018
Operating Activities:
Net earnings	$	137,748		$	179,577		$	592,016		$	619,790
Adjustments to reconcile net earnings to net cash from operating activities:
(Recoveries) provisions for losses on accounts receivable		(454	)		1,576			(1	)		3,808
Deferred income tax expense (benefit)		4,499			5,491			4,482			(12,031	)
Stock compensation expense		12,182			12,976			61,543			56,147
Depreciation and amortization		12,494			13,186			50,950			54,019
Other, net		129			(123	)		941			647
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		19,744			(58,650	)		265,919			(214,971	)
(Decrease) increase in accounts payable and accrued expenses		(40,788	)		(41,824	)		(181,987	)		86,036
Decrease (increase) in deferred contract costs		261			9,138			28,811			(42,097	)
(Decrease) increase in contract liabilities		(164	)		(5,221	)		(37,097	)		43,928
Increase (decrease) in income taxes payable, net		14,812			(10,433	)		(18,472	)		(19,691	)
Decrease (increase) in other, net		4,783			(3,643	)		4,830			(2,781	)
Net cash from operating activities		165,246			102,050			771,935			572,804
Investing Activities:
Purchase of property and equipment		(9,079	)		(9,832	)		(47,022	)		(47,474	)
Other, net		(518	)		(39	)		1,007			(925	)
Net cash from investing activities		(9,597	)		(9,871	)		(46,015	)		(48,399	)
Financing Activities:
Proceeds from issuance of common stock		28,055			13,166			148,245			182,732
Repurchases of common stock		(92,138	)		(92,138	)		(389,060	)		(647,898	)
Dividends Paid		(85,369	)		(77,660	)		(170,553	)		(156,840	)
Payments for taxes related to net share settlement of equity awards		—			(33	)		(6,674	)		(3,248	)
Distributions to noncontrolling interest		—			(75	)		—			(688	)
Purchase of noncontrolling interest		—			(1,163	)		—			(1,796	)
Net cash from financing activities		(149,452	)		(157,903	)		(418,042	)		(627,738	)
Effect of exchange rate changes on cash and cash equivalents		8,324			(1,153	)		(1,122	)		(24,031	)
Change in cash and cash equivalents		14,521			(66,877	)		306,756			(127,364	)
Cash and cash equivalents at beginning of period		1,215,970			990,612			923,735			1,051,099
Cash and cash equivalents at end of period	$	1,230,491		$	923,735		$	1,230,491		$	923,735
Taxes Paid:
Income taxes	$	25,914		$	55,811		$	222,083		$	239,255

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 December 31, 2019:
Revenues1	$	678,979		89,370		38,925		615,401		188,278		327,879		107,104		(995	)		2,044,941
Directly related cost of transportation and other expenses2	$	386,114		54,372		23,148		495,267		137,231		227,248		75,813		(555	)		1,398,638
Salaries and other operating expenses3	$	223,703		25,371		14,170		62,813		30,154		83,734		26,459		(441	)		465,963
Operating income	$	69,162		9,627		1,607		57,321		20,893		16,897		4,832		1			180,340
Identifiable assets at period end	$	1,978,307		153,813		72,677		538,526		178,336		551,576		219,953		(1,304	)		3,691,884
Capital expenditures	$	5,122		844		485		600		323		1,216		489		—			9,079
Depreciation and amortization	$	7,581		494		324		1,227		449		1,945		474		—			12,494
Equity	$	1,521,059		65,100		29,148		247,725		94,727		159,308		114,726		(34,574	)		2,197,219
For the three months ended December 31, 2018:
Revenues1	$	688,943		98,596		34,684		820,917		217,793		352,398		121,482		(99,216	)		2,235,597
Directly related cost of transportation and other expenses2	$	394,927		59,154		18,347		675,102		168,313		249,782		88,001		(98,704	)		1,554,922
Salaries and other operating expenses3	$	196,788		24,914		14,974		77,439		32,647		89,064		28,349		(507	)		463,668
Operating income	$	97,228		14,528		1,363		68,376		16,833		13,552		5,132		(5	)		217,007
Identifiable assets at period end	$	1,689,950		161,604		53,542		533,071		152,646		513,744		206,367		3,635			3,314,559
Capital expenditures	$	5,640		239		143		434		248		1,648		1,480		—			9,832
Depreciation and amortization	$	8,114		479		370		1,311		578		1,838		496		—			13,186
Equity	$	1,339,673		72,941		26,007		200,371		100,706		157,003		123,228		(32,209	)		1,987,720

	UNITED STATES		OTHER NORTH AMERICA		LATIN AMERICA		NORTH ASIA		SOUTH ASIA		EUROPE		MIDDLE EAST, AFRICA AND INDIA		ELIMI- NATIONS			CONSOLI- DATED
For the twelve months ended December 31, 2019:
Revenues1	$	2,712,067		354,405		150,202		2,494,556		743,406		1,280,669		443,487		(3,366	)		8,175,426
Directly related cost of transportation and other expenses2	$	1,528,815		212,369		87,297		1,970,662		544,873		884,968		311,997		(2,023	)		5,538,958
Salaries and other operating expenses3	$	859,946		101,654		55,512		271,594		127,478		342,073		112,844		(1,325	)		1,869,776
Operating income	$	323,306		40,382		7,393		252,300		71,055		53,628		18,646		(18	)		766,692
Identifiable assets at period end	$	1,978,307		153,813		72,677		538,526		178,336		551,576		219,953		(1,304	)		3,691,884
Capital expenditures	$	28,666		2,353		1,556		1,767		1,558		9,231		1,891		—			47,022
Depreciation and amortization	$	31,049		1,881		1,489		5,263		1,912		7,398		1,958		—			50,950
Equity	$	1,521,059		65,100		29,148		247,725		94,727		159,308		114,726		(34,574	)		2,197,219
For the twelve months ended December 31, 2018:
Revenues1	$	2,479,812		355,802		156,854		2,886,322		777,863		1,330,365		464,071		(312,724	)		8,138,365
Directly related cost of transportation and other expenses2	$	1,352,924		216,753		94,041		2,315,826		591,925		926,949		330,209		(310,635	)		5,517,992
Salaries and other operating expenses3	$	816,817		94,950		53,970		289,015		125,056		337,970		108,131		(2,099	)		1,823,810
Operating income	$	310,071		44,099		8,843		281,481		60,882		65,446		25,731		10			796,563
Identifiable assets at period end	$	1,689,950		161,604		53,542		533,071		152,646		513,744		206,367		3,635			3,314,559
Capital expenditures	$	21,732		4,259		1,042		3,057		2,182		10,815		4,387		—			47,474
Depreciation and amortization	$	33,511		1,847		1,508		5,309		2,257		7,727		1,860		—			54,019
Equity	$	1,339,673		72,941		26,007		200,371		100,706		157,003		123,228		(32,209	)		1,987,720

1In 2019, the Company revised its process to record the transfer, between its geographic operating segments, of revenues and the directly related cost of transportation 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. Prior year segment revenues have not been revised. The change in presentation had no impact on consolidated or segment operating income. The 2019 results also include the effect of changing the presentation of certain import services from a net to a gross basis, which increased segment revenues and directly related operating expenses but did not change operating income. The impact of these changes on reported segment revenues was immaterial and prior year 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 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 Consolidated Statements of Earnings.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200218005322/en/

Contacts:

Jeffrey S. Musser
President and Chief Executive Officer
(206) 674-3433