Expeditors Reports First Quarter 2020 EPS of $0.71

May 05, 2020 08:30 am

SEATTLE --

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

Diluted Net Earnings Attributable to Shareholders per share (EPS¹) decreased 11% to $0.71
Net Earnings Attributable to Shareholders decreased 12% to $122 million
Operating Income decreased 15% to $159 million
Revenues decreased 6% to $1.9 billion
Airfreight tonnage volume decreased 7% and ocean container volume decreased 10%

“I offer my heartfelt appreciation to everyone throughout our organization for their tremendous efforts during the challenging conditions brought about as a result of the COVID-19 pandemic,” said Jeffrey S. Musser, President and Chief Executive Officer. “As befits our legacy and the culture of our organization, we put the health, safety, and welfare of our employees and their families ahead of all other concerns. In doing so, we were able to shift much of our staff to a virtual environment while still providing essential supply chain services to our customers. Achieving this during a time of such unparalleled crisis is impressive and I offer my sincerest thank you to our entire staff.”

Mr. Musser continued, “Our Q1 performance was better than we might have expected, given the contraction in demand across geographies, as well as the severity and suddenness of the collapse in air carrier belly space and reduction in containership sailings. While there is talk of various markets starting to come back on line, the impact of COVID-19 continues to have an enormous impact on the global economic environment, to both supply and demand, as well as to buy/sell rates. While we remain fully staffed and ready for when economies across the world start to regain their post-crisis footing, we do not know when, how quickly, or how uniformly that will take place. Until then, we remain steadfast in our commitment to our valued customers, our carrier partners, and to all of our dedicated employees around the world.”

Bradley S. Powell, Senior Vice President and Chief Financial Officer, added, “Operating income was negatively impacted by the disruption caused by COVID-19, which led to many factory shutdowns, commercial flight cancellations, and reduced ocean sailings as economies around the world diverted activities to fight the pandemic. As a result, we experienced a shift in the goods we handle with increased shipments of medical equipment and supplies to help combat COVID-19 and technology products to support social distancing and working remotely. Conversely, we saw a significant decline in shipments from our customers in retail, aerospace, automotive and the oil and energy sectors. Salaries and related expenses declined 4% compared to a year ago, primarily as a result of lower bonuses and commissions under our variable compensation plans. Importantly, we honored our commitment to not furlough or lay off our valuable employees around the world during this crisis. We expect disruptions from COVID-19 to continue for the remainder of 2020. Our balance sheet and cash flow are strong and we expect to continue to make investments in our people, processes and technology.”

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. First Quarter 2020 Earnings Release, May 5, 2020 Financial Highlights for the three months ended March 31, 2020 and 2019 (Unaudited) (in 000's of US dollars except per share data)

	Three months ended March 31,
	2020		2019		% Change
Revenues	$	1,901,864	$	2,020,051	(6)%
Directly related cost of transportation and other expenses¹	$	1,286,728	$	1,365,937	(6)%
Salaries and other operating expenses²	$	456,081	$	466,513	(2)%
Operating income	$	159,055	$	187,601	(15)%
Net earnings attributable to shareholders	$	122,344	$	139,699	(12)%
Diluted earnings attributable to shareholders per share	$	0.71	$	0.80	(11)%
Basic earnings attributable to shareholders per share	$	0.73	$	0.81	(10)%
Diluted weighted average shares outstanding		171,450		175,388
Basic weighted average shares outstanding		168,735		171,818

_______________________
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 March 31, 2020, we repurchased 4.0 million shares of common stock at an average price of $70.81 per share. During the three months ended March 31, 2019, we repurchased 0.6 million shares of common stock at an average price of $75.40 per share.

	Employee Full-time Equivalents March 31,
	2020		2019
North America		6,848		6,806
Europe		3,430		3,404
North Asia		2,429		2,540
South Asia		1,677		1,654
Middle East, Africa and India		1,536		1,541
Latin America		848		862
Information Systems		955		915
Corporate		379		380
Total		18,102		18,102

	First quarter year-over-year percentage decrease in:
	Airfreight kilos	Ocean freight FEU
2020
January	(7)%	(6)%
February	(4)%	(9)%
March	(10)%	(13)%
Quarter	(7)%	(10)%

Investors may submit written questions via e-mail to: [email protected]. Questions received by the end of business on May 8, 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 second quarter as a result of containment measures related to the Novel Coronavirus (COVID-19); uncertainty over if and when various markets may come back on line; the impact on the global economic environment, to both supply and demand, as well as to buy/sell rates; the duration of the COVID-19 pandemic; our continuing ability to make investments in people, process and technology throughout this period; 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, 2019 and as updated by our reports on Form 10-Q, filed with the Securities and Exchange Commission.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except per share data) (Unaudited)

	March 31, 2020			December 31, 2019
Assets:
Current Assets:
Cash and cash equivalents	$	1,111,973		$	1,230,491
Accounts receivable, less allowance for credit loss of $3,578 at March 31, 2020 and $11,143 at December 31, 2019		1,268,798			1,315,091
Deferred contract costs		143,986			131,783
Other		94,060			92,558
Total current assets		2,618,817			2,769,923
Property and equipment, less accumulated depreciation and amortization of $481,490 at March 31, 2020 and $478,906 at December 31, 2019		484,588			499,344
Operating lease right-of-use assets		372,748			390,035
Goodwill		7,927			7,927
Deferred federal and state income taxes, net		9,680			8,034
Other assets, net		16,207			16,621
Total assets	$	3,509,967		$	3,691,884
Liabilities:
Current Liabilities:
Accounts payable	$	700,944		$	735,695
Accrued expenses, primarily salaries and related costs		201,756			189,446
Contract liabilities		170,866			154,183
Current portion of operating lease liabilities		63,748			65,367
Federal, state and foreign income taxes		21,864			23,627
Total current liabilities		1,159,178			1,168,318
Noncurrent portion of operating lease liabilities		313,644			326,347
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, none issued		—		—
Common stock, par value $0.01 per share. Issued and outstanding: 166,193 shares at March 31, 2020 and 169,622 shares at December 31, 2019		1,662			1,696
Additional paid-in capital		682			3,203
Retained earnings		2,202,208			2,321,316
Accumulated other comprehensive loss		(169,746	)		(131,187	)
Total shareholders’ equity		2,034,806			2,195,028
Noncontrolling interest		2,339			2,191
Total equity		2,037,145			2,197,219
Total liabilities and equity	$	3,509,967		$	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 March 31,
	2020		2019
Revenues:
Airfreight services	$	709,039	$	714,901
Ocean freight and ocean services		493,427		568,641
Customs brokerage and other services		699,398		736,509
Total revenues		1,901,864		2,020,051
Operating Expenses:
Airfreight services		520,169		509,210
Ocean freight and ocean services		366,483		420,331
Customs brokerage and other services		400,076		436,396
Salaries and related		342,040		356,910
Rent and occupancy		42,524		41,523
Depreciation and amortization		12,660		13,393
Selling and promotion		8,243		11,076
Other		50,614		43,611
Total operating expenses		1,742,809		1,832,450
Operating income		159,055		187,601
Other Income (Expense):
Interest income		4,807		6,106
Other, net		3,384		1,665
Other income, net		8,191		7,771
Earnings before income taxes		167,246		195,372
Income tax expense		44,464		55,261
Net earnings		122,782		140,111
Less net earnings attributable to the noncontrolling interest		438		412
Net earnings attributable to shareholders	$	122,344	$	139,699
Diluted earnings attributable to shareholders per share	$	0.71	$	0.80
Basic earnings attributable to shareholders per share	$	0.73	$	0.81
Weighted average diluted shares outstanding		171,450		175,388
Weighted average basic shares outstanding		168,735		171,818

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)

	Three months ended March 31,
	2020			2019
Operating Activities:
Net earnings	$	122,782		$	140,111
Adjustments to reconcile net earnings to net cash from operating activities:
Provisions for losses (recoveries) on accounts receivable		1,820			(1,888	)
Deferred income tax (benefit) expense		(5,139	)		2,108
Stock compensation expense		11,156			13,382
Depreciation and amortization		12,660			13,393
Other, net		433			189
Changes in operating assets and liabilities:
Decrease in accounts receivable		16,680			230,477
Increase (decrease) in accounts payable and accrued expenses		917			(122,283	)
(Increase) decrease in deferred contract costs		(16,068	)		31,259
Increase (decrease) in contract liabilities		21,201			(36,725	)
Increase in income taxes payable, net		10,488			16,993
(Increase) decrease in other, net		(11,930	)		2,467
Net cash from operating activities		165,000			289,483
Investing Activities:
Purchase of property and equipment		(6,127	)		(9,435	)
Other, net		(143	)		255
Net cash from investing activities		(6,270	)		(9,180	)
Financing Activities:
Proceeds from issuance of common stock		23,399			27,190
Repurchases of common stock		(283,240	)		(44,334	)
Payments for taxes related to net share settlement of equity awards		(1,396	)		—
Net cash from financing activities		(261,237	)		(17,144	)
Effect of exchange rate changes on cash and cash equivalents		(16,011	)		2,535
Change in cash and cash equivalents		(118,518	)		265,694
Cash and cash equivalents at beginning of period		1,230,491			923,735
Cash and cash equivalents at end of period	$	1,111,973		$	1,189,429
Taxes Paid:
Income taxes	$	35,304		$	37,253

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 March 31, 2020:
Revenues¹	$	650,407		81,831		37,890		537,955		169,042		320,640		105,039		(940	)		1,901,864
Directly related cost of transportation and other expenses²	$	373,961		45,890		23,765		425,301		121,282		221,998		74,976		(445	)		1,286,728
Salaries and other operating expenses³	$	225,944		23,712		11,749		57,433		29,908		81,854		25,950		(469	)		456,081
Operating income	$	50,502		12,229		2,376		55,221		17,852		16,788		4,113		(26	)		159,055
Identifiable assets at period end	$	1,858,250		135,810		68,402		512,808		179,508		554,831		200,382		(24	)		3,509,967
Capital expenditures	$	4,497		61		102		325		188		645		309		—			6,127
Equity	$	1,369,580		63,378		28,020		237,255		102,001		159,222		113,349		(35,660	)		2,037,145
For the three months ended March 31, 2019:
Revenues¹	$	659,784		91,410		34,179		632,853		177,179		312,690		112,675		(719	)		2,020,051
Directly related cost of transportation and other expenses²	$	367,355		56,241		19,116		498,646		129,810		215,895		79,503		(629	)		1,365,937
Salaries and other operating expenses³	$	218,416		24,209		12,427		68,427		31,462		82,843		28,811		(82	)		466,513
Operating income	$	74,013		10,960		2,636		65,780		15,907		13,952		4,361		(8	)		187,601
Identifiable assets at period end	$	1,906,278		175,034		71,168		511,589		174,512		579,924		234,195		(9,788	)		3,642,912
Capital expenditures	$	6,915		228		93		344		176		982		697		—			9,435
Equity	$	1,401,450		82,170		28,581		238,518		114,290		165,718		126,953		(32,246	)		2,125,434

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 no impact on consolidated or segment operating income. The impact of these changes on reported segment revenues was immaterial and first quarter 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 first quarter 2020 were significantly impacted by the effects of the Novel Coronavirus (COVID-19) pandemic and are expected to be further impacted in the remainder of 2020. In the first quarter of 2020, North Asia and United States experienced the most significant declines in results due to the disruptions of trade to and from China, which impacted overall freight movement around the globe. Factories in China experienced extended closures and many airlines cancelled flights to and from China. Additionally, ocean carriers have reduced their capacity by anchoring vessels and skipping ports due to the decline in demand. As a result, starting in January certain of the Company’s central China offices experienced temporary closures and limited operations and shipments were rerouted or delayed by customers and service providers taking their own precautionary measures. Also, available airfreight capacity was reduced affecting the ability to efficiently route customers’ freight. In the first quarter 2020 and 2019, the People's Republic of China, including Hong Kong, represented 23% and 27%, respectively, of the Company’s total revenues and 25% and 29%, respectively, of the Company’s total operating income

View source version on businesswire.com: https://www.businesswire.com/news/home/20200505005232/en/

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

Bradley S. Powell
Senior Vice President and Chief Financial Officer
(206) 674-3412

Geoffrey Buscher
Director - Investor Relations
(206) 892-4510

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Expeditors Reports First Quarter 2020 EPS of $0.71