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Expeditors has strong quarter despite significant headwinds

Stock has been weak the last 3 months and reaction Tuesday was negative, though it is being hit with a cyberattack also

Equity markets haven’t been high on Expeditors International for the last several weeks — the stock is down more than 19% in the last three months — but the fourth-quarter financial report for the company was solid. 

Expeditors’ earnings release came as it is in the midst of a significant cyberattack. In the earnings release, the company repeated what it had said already about the attack, that the situation is “evolving.”

The company (NASDAQ: EXPD), which moves freight both through the air and over the ocean, faced significant pressures during the quarter from the cost of moving its shipments. During those three months, the cost of transportation and other expenses related to that rose 87% from the prior year’s fourth quarter, climbing to just over $4 billion. 

That cost increase grew faster than the growth in Expeditors’ revenues, which were up 81%. But the company kept salaries and other expenses in check, rising just 36%.

The end result was that operating income for Expeditors was up 121% from the fourth quarter of 2020. Diluted earnings per share rose 129% to $2.66 per share from $1.16 per share.

Expeditors’ performance outpaced consensus forecasts, which projected the company was going to earn 57 cents per share less than where it came in. Revenue of $5.39 billion was better than forecasts by $920 million, according to Seeking Alpha.

Despite what on the surface appears to have been a better quarter, equity markets continued their recent negative reaction to Expeditors’ performance. At approximately 10:30 a.m. EST Tuesday, Expeditors’ stock was down $4.76, or 4.48% on the day, to $101.74. The company’s 52-week high was just over two months ago, at $137.80.

Expeditors is the only transportation company that is considered a “dividend aristocrat,” defined as a company that has increased its dividend for 25 consecutive years. The company’s annual dividend of $1.16 per share yields just slightly more than 1%. Its most recent increase was last May.

The company does not hold an earnings call with analysts. Jeffrey Musser, its president and CEO, said in the company’s earnings statement that the performance of Expeditors faced some significant headwinds in the supply chain. 

“There is still too little international air capacity, as travelers have been kept from flying abroad; the ocean ports are too congested to accommodate many of the ships that need to load and unload their containers; and worker shortages are severely limiting overland capacity to support the freight that is able to arrive in port,” he said in the statement. 

The problems on the ocean were clear in statistics released by Expeditors. Comparing tonnage carried in the fourth quarter of 2020, October volume measured in forty-ton equivalents (FEU) was up 2% in October compared to the prior year but down 7% in November and December. For the quarter, shipments measured in FEUs were down 4%.

Airfreight performance headed in a different direction. Increases for each of the three months compared to the prior year were 13%, 13% and 12%, respectively.

“Despite the lack of space, we experienced record-high air tonnage in the fourth quarter, as we used more air charters than at any other time in our company’s history, even with extremely elevated rates,” Musser said in the statement. “Ocean container volumes, by contrast, declined during the quarter, as we were somewhat limited in our ability to secure necessary capacity from ocean carriers, and hampered by the time and resources required to process shipments and meet sharply growing customer demand.

Musser summed up the market Expeditors is facing: “There is simply not enough carrier capacity in the air or on the oceans to accommodate the heavy demand for cargo space, particularly from China to the U.S., where historically high average buy and sell rates have been the most elevated.”

The growth of Expeditors’ business year-over-year can also be seen in the accounts receivable it declared for the end of the quarter. A year ago, it was just under $2 billion at the end of the year. At the close of December 2021, it had ballooned to $3.8 billion.

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.