Expeditors International of Washington (EXPD)

QUOTE AND NEWS
TheStreet.com  Nov 5  Comment 
NEW YORK (TheStreet) -- Shares of Expeditors International of Washington Inc. are down 1.98% to $43.51 in early afternoon trading after the company was downgraded to "underperform" from "neutral" at Credit Suisse earlier on Wednesday. The...
Benzinga  Nov 5  Comment 
In a note released Wednesday, Credit Suisse analyst Allison Landry downgraded shares of Expeditors International of Washington (NASDAQ: EXPD) from Neutral to Underperform and lowered the price target from $43 to $41. Landry commented, "We...
Forbes  Nov 4  Comment 
In early trading on Tuesday, shares of Expeditors International of Washington (EXPD) topped the list of the day's best performing components of the Nasdaq 100 index, trading up 3.1%.  Year to date, Expeditors International of Washington has lost...
newratings.com  Nov 4  Comment 
SEATTLE (dpa-AFX) - Logistics company Expeditors International of Washington Inc. (EXPD) Tuesday posted a 11 percent increase in its third-quarter earnings to $102.38 million from $92.40 million last year. Earnings per share rose to $0.53 from...
Market Intelligence Center  Oct 23  Comment 
For a hedged play on Expeditors International of Washington Inc (EXPD) MarketIntelligenceCenter.com’s patented trade-picking algorithms recommend the Dec. '14 $40.00 covered call for a net debit in the $38.77 area. That is also the break-even...
Market Intelligence Center  Oct 20  Comment 
Friday’s trading in Expeditors International of Washington Inc (EXPD) gives options traders an opportunity for a 8.11% return. By selling the Jan. '15 $39.00 call and buying the Jan. '16 call at the $25.00 level for a net debit of $12.95,...
Market Intelligence Center  Oct 15  Comment 
Tuesday’s trading in Expeditors International of Washington Inc (EXPD) gives options traders an opportunity for a 8.43% return. By selling the Jan. '15 $39.00 call and buying the Jan. '16 call at the $30.00 level for a net debit of $8.30,...
Forbes  Sep 26  Comment 
Investors in Expeditors International of Washington, Inc. (NASD: EXPD) saw new options become available this week, for the May 2015 expiration. One of the key data points that goes into the price an option buyer is willing to pay, is the time...
SeekingAlpha  Sep 25  Comment 
By Celan Bryant: Expeditors International of Washington (Nasdaq: EXPD) is undervalued. Even though net revenues are concentrated in Customs and not Trucking, based on its financial strength, EXPD should be selling at a premium in the market. ...
Benzinga  Sep 10  Comment 
Analysts at Barclays initiated coverage on Expeditors International of Washington (NASDAQ: EXPD) with an Underweight rating and $38 price target Wednesday. Brandon Oglenski stated,”Seemingly constant pressure on Expeditors has led many to...




 
TOP CONTRIBUTORS

Expeditors International of Washington (NASDAQ: EXPD) provides shipping services to manufacturing and retail customers. The company does not own transportation assets (i.e. ships, trucks, planes), and instead uses third parties to ship goods.[1] While EXPD does not compete for overnight courier or small parcel business, the logistics company does provide ocean and air freight services, along with customs brokerage service. EXPD uses its size and volume to negotiate prices with third-party carriers and consolidate shipments for customers.[2]

At the end of September of 2007, Expeditors International of Washington ran 174 full-service offices and had operations in over 30 countries.[3] Shipping goods internationally creates potential government and global economic risks. Changing tariff or trade regulations (possibly resulting from terrorist acts) could impact EXPD's business. Also, with a large portion of revenues coming from retailers, a decline in consumer demand would likely hurt operating income.[4]

Business Overview

Expeditors International of Washington specializes in transporting goods internationally. Manufacturers and retailers outsource their shipping to EXPD in order to focus on their core business, letting EXPD handle the complex logistics of moving goods between multiple international locations. Expeditors International of Washington will buy cargo space on planes and aircraft and then resell this space to its customers. EXPD's net revenue comes from the difference between the sell rate (what it bills its customers) and the buy rate (what it pays carrier to ship goods). In many instances, clients ship loads that don't fill containers, and EXPD consolidates their freight with other customers in order to increase shipping efficiencies and lower costs. EXPD also sells customs brokerage services. The firm can clear shipments, calculate tariffs, complete documentation, and arrange inspections by government agencies.[5]

Here's an example of EXPD's operating model: The company could help several small Chinese manufacturers ship their goods to American retailers. These smaller companies don't have major purchasing power and may not be able to fill an entire cargo compartment. As a result, individually they'd have to pay a premium for shipping companies to transport their good. However, EXPD can fill a container by consolidating the shipments of multiple companies. EXPD buys the cargo space, consolidates the shipments, and turns a profit due to the discount it receives on the cargo space and the efficiency of its shipments. EXPD can then help the companies clear customs both in China and the USA, which can be complex because of changing government port and trade regulations. So EXPD charges the firms the same rate that it would cost to ship the goods themselves, but it ships them at lower cost, and the difference becomes the firm's profit.

Operating Segment

Expeditor's revenue can be broken down into three main segments:

  1. Airfreight (48% of 2006 revenue): EXPD can act as a freight consolidator, which means it purchases and resells air cargo space. It can also be an agent, receiving customer shipments, consolidating and forwarding them to the transporting airline.
  2. Ocean Services (34%): EXPD acts as Non-Vessel Operating Common Carrier (NVOOC). EXPD consolidates, prepares documentation, and provides insurance for shipping goods by sea. Similar to airfreight, EXPD buys bulk cargo space and sells the space to customers for a profit.
  3. Customs Brokerage (18%): EXPD uses technical knowledge of varying custom rules and government regulations to provide custom clearing and other related services to customers.

International shipping is complex, and customers may use only one of EXPD's services or may opt to use all[6]. The following table shows each segment's contribution to total revenue and total operating income.

Revenue & Operating Income[7].

Revenue (in $thousands) 2006 % Increase 2005 % Increase 2004
Airfreight2,229,54522.0%1,827,00917.6%1,553,881
Ocean freight and ocean services1,553,04813.0%1,374,19716.6%1,178,975
Customs brokerage843,37320.4%700,57519.8%584,643
TOTAL REVENUE:4,625,96618.6%3,901,78117.6%3,317,499
TOTAL OPERATING INCOME:375,11638.4%271,05328.2%211,424

Financial Overview & Performance

Net revenue is a good gauge of EXPD's business strength. Net revenue indicates the difference in payment received from customers and expense paid to third-party carriers. This chart shows net revenue over the past three years for each business segment of Expeditors International of Washington.

Net Revenue over the Past 3 Years[8]. image:Expd2.JPG

Change in Net Revenues from 2004 to 2005[9]

  • Airfreight's net revenue increased 12% primarily due to an overall increase in volume. North American exports experienced 13% growth as EXPD focused its sales activity at this market. Exports from Asia rose 15%, while Europe saw a 8% gain.
  • Ocean Freight's net revenue rose 18% due to market share gains in North America and Asia (22% and 31% increases in net revenue, respectively). Net revenues from Europe fell 1% as European currencies appreciated (decreasing the relative value of European goods) and resulted in declining export volume.
  • Customs brokerage experienced a 18% rise in net revenue as international shipping customers favored EXPD's computerized capabilities and dedication to regulatory compliance.

Change in Net Revenues from 2005 to 2006[10]

Each segment experienced an increase of 20% in net revenues in 2006 compared with 2005.

  • Airfreight: Focused sales activity in North America led to a 19% rise in net revenue. Asia and Europe experienced 22% and 18% gains, respectively as sales efforts helped boost volume and pricing.
  • Ocean Freight: North America (28% rise in net revenue), Asia (24%), and Europe (12%) all grew primarily as a result of market share expansion.
  • Customs Brokerage: Similar to 2005, net revenues rose as customers continued to favor EXPD's focus on regulatory compliance and sophisticated computerized capabilities.

Geographic Sales Distribution

image:Expd3.JPG[11]

Strategy

Expeditors International of Washington has a history of organic growth, growing its business by building internally rather than acquiring competitors. EXPD tries to retain and deepen talent by promoting from within the company and using performance-based pay structures for its employees. The company also allows great flexibility among its executive management in order to let each manager decide how best to increase operating profit. In 2007, EXPD hopes to expand its Asian operations by opening an additional 10 offices.[12]

Key Trends & Forces

  • Movement to full-service transportation services: Transportation companies are increasingly implementing and expanding a logistics arm to complement their existing transportation of goods business. YRC Worldwide (YRCW), uses its subsidiary YRC Logistics, and likewise Conway Inc (CNW) uses its Menlo Logistics branch. EXPD depends on buying available cargo space from third-party carriers, but these carriers are increasingly funneling business to themselves through their own logistic branches. Hence, cutting out the middle man (Expeditors International of Washington) could resulting in a more competitive environment for EXP and its competitors like UTi Worldwide (UTIW).
  • Sensitivity to Global Economic Conditions: A slowing U.S. Economy would result in lower total shipping tonnage, since lower spending would cause less movement of goods and materials. Because a large portion of EXPD's revenue is derived from the retail industry, decline in consumer demand of goods in the United States could adversely effect shipping volume and EXPD's revenue.[13] EXPD also moves raw materials and finished products from manufacturing sites. If the global economy were to slow, less products would be shipped internationally, and EXPD's growth may stall. The blue line in the 'TSI Image' shows the U.S. Transportation Service Index. The Index measures the movement of freight. As one can see, during weaker GDP periods (early 90's, 1995, and 2000-01), total freight shipments were flat.
[14]
  • Vulnerability to Government Trade Policy and Regulations: EXPD moves shipments internationally. Terrorism, protectionism, and other factors could increase tariffs, prevent trade, or add regulations (i.e. required documents/inspections). These factors, which EXPD cannot control for, could decrease international shipping volumes and/or increase the cost of shipping between nations. This could potentially hurt EXPD's business.[15]
  • Dependency on Third-Party Equipment and Services: EPXD does not own the planes or ships that it uses to transport goods. The company agrees to ships goods and contracts out the work. Disruption of or lack of access to cargo space could impact shipments of EXPD's customers. Subsequently, customers may opt to temporarily or permanently use another transportation company.[16] In addition, some of the vendors that EXPD uses for cargo space are building their own third-party logistics teams to compete with EXPD, and the firm may have to find new vendors when these firms start funneling their cargo space to their internal branches.
  • Global Sourcing Trend: Many companies manufacture products to sell in another country. As global outsourcing rises, the volume of international shipping will likely increase. This rise in volume would build the market in which EXPD competes. For instance, EXPD exports natural resources from Australia to emerging markets for production (usually China).[17] China then manufacturers goods from the raw materials, and ships the finished products for sale in the United States. An increase in the international movement of goods would benefit EXPD. The following tables shows how imports and exports have continued to rise over the past three years.

U.S. Exports[18]

' 2004 Exports 2005 Exports 2005/2004 % 2006 Exports 2006/2005 % 2007 Exports 2007/2006 %
Canada190.2211.311.1%230.69.1%248.97.9%
China34.741.820.5%55.232.1%65.218.1%
Mexico110.81208.3%134.211.8%136.51.7%
Japan54.455.41.8%59.67.6%62.75.2%
Germany31.434.18.6%41.321.1%49.720.3%
Total, All Countries819904.310.4%1,037.3014.7%1,163.3012.1%

U.S. Imports[19]

' 2004 Imports 2005 Imports 2005/2004 % 2006 Imports 2006/2005 % 2006 Imports 2007/2006 %
Canada255.9287.912.5%303.45.4%313.13.2%
China196.7243.523.8%287.818.2%321.511.7%
Mexico155.8170.29.2%198.316.5%210.86.3%
Japan129.6138.16.6%148.17.2%145.5-1.8%
Germany77.284.89.8%89.15.1%94.45.9%
Total, All Countries1,4711,671.4013.6%1,855.4011.0%1,953.605.3%

Competition

EXPD competes with approximately 15-20 main competitors. Of those main competitors, 3 are behemoth asset-based integrators, 7-10 are foreign-based non-asset based, and the remainders are mid-sized US non-asset based logistic companies like EXPD.[20] Asset based logistic companies, which own transportation vehicles, include YRC Worldwide (YRCW) and Conway Inc (CNW). Non-asset logistics, like Expeditors International of Washington, do not own ships, planes, or trucks and include C.H. Robinson Worldwide (CHRW), UTi Worldwide (UTIW), and Pacer International (PACR). These firms compete for shipping orders and logistic management from customers primarily based on price, reliability, technological solutions, and breadth of services available. EXPD does not compete for small parcel and next-day courier service.[21]

Air Delivery & Freight Service[22][23][24][25][26][27]

Company 2006 Sales Net Income 1-Yr Sales Growth Growth Rate (5 Yr) # of Countries With Business Operations Facilities/Offices Operating Margins Return on Investment
United Parcel Service (UPS) 47,547 M4,202 M11.7%12.1%200N/A13.99%12.11%
FedEx (FDX) 35,214 M3,016 M9.0%14.7%220N/A8.93%15.22%
C.H. Robinson Worldwide (CHRW) 6,556.2 M266.9 M15.2%16.2%232146.95%18.06%
Expeditors International of Washington (EXPD) 4,626 M235.1 M18.6%17.5%503208.27%13.26%
UTi Worldwide (UTIW) 3,561 M107.9 M27.8%17.5%65*6403.79%5.38%
Pacer International (PACR) 1,889 M68.3 M1.5%10.5%3205.21%11%
Hub Group (HUBG) 1,610 M48.7 M5.1%19.9%3205.32%11.12%
ABX Air (ABXA) 1,260 M90.1 M-13.9%N/A1153.67%4.29%
  • 143 if one adds 78 countries with only independent-offices being ran




Competitive Strengths

Management believes its compensation structure for managers provides incentive for growth and retention of key employees. EXPD believes its focus on customer service, aggressive sales effort, and technological innovation positions the company to out-pace its competitors. EXPD sees customers needing great technological solutions over a worldwide network in the long term. EXPD believes its attention to these factors have contributed to its success[28].

References

  1. EXPD Form 10-K, "Executive Summary", Page 64
  2. EXPD Form 10-K, FY 2006, "Executive Summary", Page 64
  3. EXPD Website
  4. EXPD Form 10-K, FY 2006, "Executive Summary", Page 64
  5. EXPD Form 10-K, FY 2006, "Executive Summary", Page 64
  6. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Revenue Recognition", Page 41-42
  7. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Consolidated Statement of Earnings", Page 34
  8. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Results of Operations", Page 69
  9. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "2005 compared with 2004", Page 71
  10. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "2006 compared with 2005", Page 69-70
  11. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Note 9", Page 58
  12. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Letter to Our Shareholder's"
  13. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Executive Summary", Page 64
  14. Bureau of Transportation Statistics
  15. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Executive Summary", Page 64
  16. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Executive Summary", Page 64
  17. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "South Pacific", Introduction
  18. US Census Bureau
  19. http://www.census.gov/foreign-trade/statistics/highlights/top/top0612.html
  20. Expeditors International of Washington (NASDAQ: EXPD) Form 8-K, 11/29/07, "Question 5", Page 4
  21. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Executive Summary", Page 64
  22. Hoovers
  23. Yahoo! Finance
  24. CHRW Company Website
  25. Hoovers
  26. Hoovers
  27. PACER International (PACR) From 10-K FY 2006, "Our Service Offerings" Page 4-6
  28. Expeditors International of Washington (NASDAQ: EXPD) Form 10-K, FY 2006, "Executive Summary", Page 64
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