Expeditors Reports Fourth Quarter 2019 EPS of $0.79

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: [e-mail]. 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.

 

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