By sea and by air, Expeditors had a solid quarter and investors applaud

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Expeditors International is the latest logistics company that put out first quarter earnings and watched its stock rocket in reaction.

On Monday, the day before the company released its earnings, Expeditors stock closed at $63.97. That was down on the year; it closed at $64.98 on the first trading day of 2018 though it had climbed from about $52.30 one year ago.

But the Expeditors earnings beat the forecast by 11 cts per share, at $0.76 per share, meaning it topped forecasts by more than 15%. In reaction, the stock shot up on Tuesday to $69.58 at the close, and has traded today in excess of $70.

The Expeditors press release--there was no conference call with analysts--laid out the highlights of the asset-light company's performance in the quarter:

  • Diluted net earnings attributable to shareholders per share almost doubled to 76 cts
  • Net earnings attributable to shareholders were up 45%
  • Operating income was up 32%
  • Revenues were up 20%
  • Airfreight tonnage volume and ocean container volume both rose by 5%.

Analyst Jim Corridore at CFRA said his company was raising its target price on Expeditors to $75, an increase of $5. That would be a healthy multiple of 24.8 times what CFRA estimates will be the company's EPS of $3.03, and that figure was raised from an earlier projection of $2.87.

Corridore said his company's reaction to the earnings is that they were "better than we were expecting. Both airfreight and ocean freight tonnage and pricing strengthened. Operating margins benefited from the higher volumes and pricing as well."

Comparisons on Expeditors and other logistics companies are difficult, because the company does not get deeply involved in the domestic over-the-road business. According to CFRA's analysis, air freight was 42% of the company's business in 2017. It also serves as logistics coordinator for ocean-going vessels, but owns no planes or steamships, and is considered a Non Vessel Owning Common Carrier (NVOCC).

In essence, the company buys 100% of its transportation, which led Corridore to conclude, "We remain cautious on the potential for rising purchased transportation costs to hurt over the next year."

There was no breakout of purchased transportation, since it is effectively all purchased. But increases in airfreight services were only 15.8%, to $513.5 million from $443.4 million a year earlier, and ocean freight rose only 3.5%, to $379.1 million from $366 million. This occurred as revenue in both those segments rose at a slightly higher rate, 18.8% for airfreight, and 5.5% for ocean.

In the earnings release, Bradley Powell, the company's senior vice president and chief financial officer, said the company had realized its target of 30% for operating efficiency, described as operating income as a percentage of net revenue.