Multi-modal freight forwarder and customs broker Expeditors International (NASDAQ:EXPD) reported solid fourth quarter results on February 19, with gross revenues up 18 percent to $2.23 billion, and net revenues, or revenues after the costs of purchased transportation, up 8 percent. Net revenues for the year was up 13 percent, with gross revenues rising 18 percent to $8.13 billion.
Net revenues decelerated through 2018, ending the fourth quarter at its low point of the year. Net revenue compression is often caused by rate pressure, a factor that Expeditors alluded to in a statement accompanying the results.
Airfreight revenues in the quarter climbed by $51.2 million to $905 million, with customs brokerage revenues up $189 million to $715 million, and ocean revenues up $94 million to $621 million. Airfreight expenses rose $47 million, while ocean freight expenses climbed by $84 million. Expeditors, whose trans-Pacific operations have long been viewed as a proxy for the health of the U.S.-Asian trade lanes, may have experienced significant activity from Asian businesses looking to get goods into the U.S. ahead of a threatened January 1 increase of tariffs on $200 billion of Chinese imports. That deadline was delayed until March 1 as U.S. and Chinese negotiators work to hammer out a revised trade deal.
In the statement, CFO Bradley S. Powell said net revenues in the fourth quarter grew at twice the rate of headcount and related expenses. In addition, operating income as a percentage of net revenue came in at 32 percent, its highest level since the second quarter of 2016 and a testament to the company’s operating efficiency, Powell said.
In a note published this evening, F. Bascome Majors, transport analyst for Susquehanna Financial Group, lauded the company’s full-year margin performance, and noted that it repurchased $644 million in stock last year, a record. However, Majors cited the sequential slowing in net revenue growth and “what feels like a more modest volume outlook for international trade looking beyond tariff-driven gyrations.” Expeditors, he said, “continues to exceed consensus expectations, and that could happen again in 2019. But the 2018 base is a high hurdle,” and a 21 multiple “doesn't leave much cushion for unexpected stumbles.”