Expeditors beat volatile market to post record results

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There was more good news than bad in Expeditors International’s fourth-quarter and annual results released at the end of February.

The US-based 3PL is growing and also investing to grow at a faster pace while carefully managing its cost base – management appears to know what it is doing and earnings growth is comfortably outpacing the rise in underlying revenues.

Latest quarterly figures, however, point to unfavourable market conditions for organic growth. Consequently, the next few quarters will be challenging at best and comparable quarterly figures could be hard to beat. That’s one reason why the company’s shares, which trade at 19 times projected earnings, look a bit expensive right now.

Fourth-quarter gross revenues for the three months ended 31 December dropped 10% to almost $1.6bn but net revenues, which strip out the fees it pays to airlines and shipping lines, rose 3% to $536m. For the full year, Expeditors reported flat revenues of $6.6bn, yet net revenues grew 10% to $2.1bn.

Its share count shrank following buybacks but on a constant share count basis its earnings per share (EPS) would have still risen above trend, outperforming net revenue growth, which testifies to a very solid performance and discipline in cost management as well as a balanced capital structure. EPS rose 19% in the fourth quarter and were up 26% to $2.42 for the full year.

In the fourth quarter, revenues from core airfreight services dropped 12% to $680m while its second revenue contributor, ocean freight and services, fared even worse down 14% to $491m. Its smallest unit, customs brokerage and other services, proved to be more defensive with flat revenues of $424m. In fact, revenues of all three units were essentially flat year-on-year in 2015.

Expeditors is cutting cost in its air and ocean freight divisions. These actions have determined a rise in operating income, which surged 21% from $594m in 2014 to $721m in 2015.

Elsewhere, cash and cash equivalents fell to $807m from $927m, but its debt-free balance sheet indicates that its current cash pile comfortably covers all the excess cash ($765m) that it spent in buybacks and dividends in 2015.

Stock repurchases amounted to 82% of the total capital it returned to shareholders last year, with a payout ratio of 30% its dividend is well covered. Operating cash flow rose 43% from $394m to $564m as working capital management contributed to positive cash inflow, adding just over $100m in cash to its record net earnings of $460m.

Its bottom line rose 21% for the year and only marginally declined in the fourth quarter.

Chief financial officer Bradley S. Powell said the annual results show, “we have adapted well to a rapidly changing environment to produce net revenue yields that are among the best in our history”.

“We generated these strong results even though both air and ocean volume growth softened in the latter part of the year, and average sell rates came under pressure,” he added.

Source: Transport Intelligence, 9th March 2016

Author: Alessandro Pasetti