EXPD Expeditors International of Washington Inc

Expeditors International of Washington, Inc. (NASDAQ:EXPD) today announced fourth quarter 2018 financial results including the following highlights compared to the same quarter of 2017:

• Diluted Net Earnings Attributable to Shareholders per share (EPS1) increased 11% to $1.02
• Net Earnings Attributable to Shareholders increased 7% to $179 million
• Operating Income increased 9% to $217 million
• Revenues increased 18% to $2.24 billion
• Net Revenues2 increased 8% to $681 million
• Airfreight tonnage volumes increased 2% and ocean container volumes increased 10%

“The fourth quarter marked a strong finish to a record year of growth in revenues, net revenues, volumes, and profitability,” said Jeffrey S. Musser, President and Chief Executive Officer. “The air and ocean markets have continued to be highly unpredictable, with ongoing shifts in the balance of supply and demand requiring extra attention to address the needs of each individual customer. These are the conditions when our people really prove themselves, as they did in Q4 and throughout the year. I commend them for continuing to grow volumes in ocean and air, with a determined focus on profitability. During the quarter, our air and customs brokerage segments were particularly strong once again. In addition, we further improved our ocean business by growing volumes while adjusting sell rates. We accomplished all of this in spite of ongoing rate pressure, as the industry evolves and carriers continue to test the supply/demand imbalance.

“Throughout 2018, we did a terrific job of growing net revenues ahead of headcount and related costs,” Mr. Musser continued. “We also generated improved efficiencies, while establishing a selective mix of business partners who value an elevated level of customer service. Our ability to perform well comes from our deeply ingrained, core culture that puts customer service at the forefront.”

Bradley S. Powell, Senior Vice President and Chief Financial Officer, added, “We carefully managed expenses as net revenues grew during the quarter, demonstrating the effectiveness of our processes and technology. During the quarter, net revenues grew at roughly twice the rate of headcount and related expenses, and, at nearly 32%, our fourth quarter operating efficiency (operating income as a percentage of net revenue) was the highest since Q2 2016.”

Mr. Powell noted that the Company’s effective tax rate for the full year was 24.3%, compared to 31.8% in 2017. The Company’s lower effective tax rates were principally due to the lower U.S. federal tax rate that resulted from the 2017 Tax Act, significant share-based compensation deductions, U.S. federal tax credits from withholding taxes related to our foreign operations, and deductions for foreign-derived intangible income. Mr. Powell reiterated that the Company’s effective tax rate will be largely dependent upon the mix of pretax 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 services, order management, warehousing and distribution and customized logistics solutions.

________________________ 1 Diluted earnings attributable to shareholders per share. 2 Non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal services. See reconciliation on the last page of this release. NOTE: See Disclaimer on Forward-Looking Statements on the following page of this release.     Expeditors International of Washington, Inc. 4th Quarter 2018 Earnings Release, February 19, 2019   Financial Highlights for the Three months and Years ended December 31, 2018 and 2017 (Unaudited)

(in 000's of US dollars except per share data)

      Three months endedDecember 31,         Years endedDecember 31,     2018     2017 % Change 2018     2017 % Change Revenues $ 2,235,597 $ 1,901,371 18% $ 8,138,365 $ 6,920,948 18% Net revenues3 $ 680,675 $ 628,809 8% $ 2,620,373 $ 2,319,189 13% Operating income $ 217,007 $ 199,011 9% $ 796,563 $ 700,260 14% Net earnings attributable to shareholders4 $ 179,210 $ 166,967 7% $ 618,199 $ 489,345 26% Diluted earnings attributable to shareholders $ 1.02 $ 0.92 11% $ 3.48 $ 2.69 29% Basic earnings attributable to shareholders $ 1.04 $ 0.94 11% $ 3.55 $ 2.73 30% Diluted weighted average shares outstanding 175,935 180,635 177,833 181,666 Basic weighted average shares outstanding 172,493 177,523 174,133 179,247 _______________________ 3 Non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal services. See reconciliation on the last page of this release. 4 Net earnings in the fourth quarter of 2017 include a $39 million net income tax benefit that resulted from the effect of the 2017 Tax Cut and Jobs Act. This amount was composed of the remeasurement of net deferred tax liabilities and assets, based on the new lower U.S. corporate tax rate, the recording of a provisional estimate of the one-time mandatory tax on the undistributed earnings of the Company's non-U.S. subsidiaries, and the effects of the transition to a territorial tax system in the U.S.  

During the three and twelve-month periods ended December 31, 2018, the Company 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. During the three and twelve-month periods ended December 31, 2017, the Company repurchased 2.1 million and 8.2 million shares of common stock at an average price of $64.52 and $58.16 per share, respectively.

   

Employee Full-time Equivalentsas of December 31,

2018     2017 North America 6,833 6,091 Europe 3,375 3,050 North Asia 2,607 2,593 South Asia 1,643 1,623 Middle East, Africa and India 1,520 1,503 Latin America 839 814 Information Systems 912 884 Corporate 352 386 Total 18,081 16,944      

Year-over-year percentageincrease/(decrease) in:

Airfreight kilos     Ocean freight FEU 2018 October 7 % 21 % November (2 )% 6 % December 1 % 4 % Quarter 2 % 10 %   _______________________

Investors may submit written questions via e-mail to: investor@expeditors.com. Questions received by the end of business on February 22, 2019 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, which are based on certain assumptions and expectations of future events that are subject to risks and uncertainties, including comments on delivering customer satisfaction and profitable growth; our ability to perform well; the effectiveness of our processes and technology; our ability to predict our effective tax rates; volatility in equity markets; energy and fuel prices; political changes; foreign exchange rates; regulatory actions or changes or the unpredictable acts of competitors and other risks; and risk factors and uncertainties detailed in our Annual Report as updated by our reports on Form 10-Q, filed with the Securities and Exchange Commission.    

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES   Condensed Consolidated Balance Sheets (In thousands, except per share data) (Unaudited)  

 

   

December 31,2018

   

December 31,2017

Assets

Current Assets: Cash and cash equivalents $ 923,735 $ 1,051,099 Accounts receivable, net 1,581,530 1,414,741 Deferred contract costs 159,510 — Other current assets 70,041   75,612   Total current assets 2,734,816   2,541,452   Property and equipment, net 504,105 525,203 Goodwill 7,927 7,927 Deferred Federal and state taxes, net 40,465 13,207 Other assets, net 27,246   29,219   $ 3,314,559   $ 3,117,008  

Liabilities and Equity

Current Liabilities: Accounts payable $ 902,259 $ 866,305 Accrued expenses, primarily salaries and related costs 215,813 206,320 Contract liabilities 190,343   —   Federal, state and foreign income taxes 18,424   20,494   Total current liabilities 1,326,839   1,093,119   Noncurrent Federal income tax payable — 29,516 Commitments and contingencies Shareholders’ Equity: Preferred stock; none issued — — Common stock, par value $0.01 per share; issued and outstanding 171,582 shares at December 31, 2018 and 176,374 shares at December 31, 2017 1,716 1,764 Additional paid-in capital 1,896 546 Retained earnings 2,088,707 2,063,512 Accumulated other comprehensive loss (105,481 ) (73,964 ) Total shareholders’ equity 1,986,838   1,991,858   Noncontrolling interest 882   2,515   Total equity 1,987,720   1,994,373   $ 3,314,559   $ 3,117,008       EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES   Condensed Consolidated Statements of Earnings (In thousands, except per share data)   (Unaudited)       Three months ended     Twelve months ended December 31, December 31, 2018     2017 2018     2017 Revenues:     Airfreight services $ 905,606 $ 854,455 $ 3,271,932 $ 2,877,032 Ocean freight and ocean services 615,053 521,315 2,251,754 2,107,045 Customs brokerage and other services 714,938 525,601 2,614,679 1,936,871 Total revenues 2,235,597 1,901,371 8,138,365 6,920,948 Operating Expenses: Airfreight services 683,410 636,344 2,410,793 2,126,761 Ocean freight and ocean services 464,281 380,689 1,664,168 1,543,740 Customs brokerage and other services 407,231 255,529 1,443,031 931,258 Salaries and related costs 350,839 336,961 1,393,259 1,267,120 Rent and occupancy costs 39,627 31,906 152,813 119,732 Depreciation and amortization 13,186 13,069 54,019 49,310 Selling and promotion 12,961 11,814 45,346 44,290 Other 47,055 36,048 178,373 138,477 Total operating expenses 2,018,590 1,702,360 7,341,802 6,220,688 Operating income 217,007 199,011 796,563 700,260   Interest income 4,982 3,639 19,153 13,204 Other, net 256 2,547 2,613 5,131 Other income, net 5,238 6,186 21,766 18,335 Earnings before income taxes 222,245 205,197 818,329 718,595 Income tax expense 42,668 37,742 198,539 228,212 Net earnings 179,577 167,455 619,790 490,383 Less net earnings attributable to the noncontrolling interest 367 488 1,591 1,038 Net earnings attributable to shareholders $ 179,210 $ 166,967 $ 618,199 $ 489,345 Diluted earnings attributable to shareholders per share $ 1.02 $ 0.92 $ 3.48 $ 2.69 Basic earnings attributable to shareholders per share $ 1.04 $ 0.94 $ 3.55 $ 2.73 Dividends declared and paid per common share $ 0.45 $ 0.42 $ 0.90 $ 0.84 Weighted average diluted shares outstanding 175,935 180,635 177,833 181,666 Weighted average basic shares outstanding 172,493 177,523 174,133 179,247     EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES   Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)       Three months ended     Twelve months ended December 31, December 31, 2018     2017 2018     2017 Operating Activities: Net earnings $ 179,577 $ 167,455 $ 619,790 $ 490,383 Adjustments to reconcile net earnings to net cash from operating activities: Provision for losses on accounts receivable 1,576 2,169 3,808 5,356 Deferred income tax expense (benefit) 5,491 (27,695 ) (12,031 ) (43,695 ) Stock compensation expense 12,976 11,872 56,147 50,908 Depreciation and amortization 13,186 13,069 54,019 49,310 Other (123 ) (4,234 ) 647 (4,382 ) Changes in operating assets and liabilities: Increase in accounts receivable (58,650 ) (60,981 ) (214,971 ) (184,771 ) (Decrease) increase in accounts payable and accrued expenses (41,824 ) 18,499 86,036 114,631 Decrease (increase) in deferred contract costs 9,138 — (42,097 ) — (Decrease) increase in contract liabilities (5,221 ) — 43,928 — (Decrease) increase in income taxes payable, net (10,433 ) 5,450 (19,691 ) 16,264 (Increase) decrease in other current assets (3,643 ) 782   (2,781 ) (5,365 ) Net cash from operating activities 102,050   126,386   572,804   488,639   Investing Activities: Purchase of property and equipment (9,832 ) (27,413 ) (47,474 ) (95,016 ) Proceeds from sale of property and equipment 143 84,062 215 84,405 Other, net (182 ) 161   (1,140 ) (1,074 ) Net cash from investing activities (9,871 ) 56,810   (48,399 ) (11,685 ) Financing Activities: Proceeds from issuance of common stock 13,166 42,311 182,732 205,092 Repurchases of common stock (92,138 ) (137,522 ) (647,898 ) (478,258 ) Dividends paid (77,660 ) (74,769 ) (156,840 ) (150,495 ) Payments for taxes related to net share settlement of equity awards (33 ) — (3,248 ) — Purchase of noncontrolling interest (75 ) (904 ) (688 ) (904 ) Distribution to noncontrolling interest (1,163 ) —   (1,796 ) —   Net cash from financing activities (157,903 ) (170,884 ) (627,738 ) (424,565 ) Effect of exchange rate changes on cash and cash equivalents (1,153 ) 5,343   (24,031 ) 24,275   Increase (decrease) in cash and cash equivalents (66,877 ) 17,655 (127,364 ) 76,664 Cash and cash equivalents at beginning of period 990,612   1,033,444   1,051,099   974,435   Cash and cash equivalents at end of period $ 923,735   $ 1,051,099   $ 923,735   $ 1,051,099   Supplemental Cash Flow Information: Cash paid for income taxes $ 55,811 $ 58,793 $ 239,255 $ 249,704     EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES Business Segment Information (In thousands) (Unaudited)      

UNITEDSTATES

   

OTHERNORTHAMERICA

   

LATINAMERICA

   

NORTHASIA

   

SOUTHASIA

   

EUROPE

   

MIDDLEEAST,AFRICAandINDIA

   

ELIMI-NATIONS

   

CONSOLI-DATED

Three months ended December 31, 2018: Revenues from unaffiliated customers $ 637,358 94,452 30,388 814,206 209,025 334,291 115,877 — 2,235,597 Transfers between geographic areas 51,585 4,144 4,296 6,711 8,768 18,107 5,605 (99,216 ) — Total revenues $ 688,943 98,596 34,684 820,917 217,793 352,398 121,482 (99,216 ) 2,235,597 Net revenues $ 294,016 39,442 16,337 145,815 49,480 102,616 33,481 (512 ) 680,675 Operating income $ 97,228 14,528 1,363 68,376 16,833 13,552 5,132 (5 ) 217,007 Identifiable assets $ 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 Three months ended December 31, 2017: Revenues from unaffiliated customers $ 496,584 68,362 27,349 703,578 186,715 307,432 111,351 — 1,901,371 Transfers between geographic areas 31,807 3,581 3,693 6,266 6,479 14,008 5,532 (71,366 ) — Total revenues $ 528,391 71,943 31,042 709,844 193,194 321,440 116,883 (71,366 ) 1,901,371 Net revenues $ 270,999 34,441 14,565 137,776 45,816 93,458 31,294 460 628,809 Operating income $ 86,565 11,548 1,615 64,907 15,623 12,302 6,437 14 199,011 Identifiable assets $ 1,595,140 151,181 55,431 458,152 137,279 501,711 215,495 2,619 3,117,008 Capital expenditures $ 8,720 497 964 1,264 516 15,237 215 — 27,413 Depreciation and amortization $ 8,628 383 347 1,331 559 1,361 460 — 13,069 Equity $ 1,337,568 60,705 26,546 240,721 94,516 142,971 123,600 (32,254 ) 1,994,373                                      

UNITEDSTATES

OTHERNORTHAMERICA

LATINAMERICA

NORTHASIA

SOUTHASIA

EUROPE

MIDDLEEAST,AFRICAandINDIA

ELIMI-NATIONS

CONSOLI-DATED

Twelve months ended December 31, 2018: Revenues from unaffiliated customers $ 2,336,681 340,122 141,196 2,860,876 748,858 1,268,757 441,875 — 8,138,365 Transfers between geographic areas 143,131 15,680 15,658 25,446 29,005 61,608 22,196 (312,724 ) — Total revenues $ 2,479,812 355,802 156,854 2,886,322 777,863 1,330,365 464,071 (312,724 ) 8,138,365 Net revenues $ 1,126,888 139,049 62,813 570,496 185,938 403,416 133,862 (2,089 ) 2,620,373 Operating income $ 310,071 44,099 8,843 281,481 60,882 65,446 25,731 10 796,563 Identifiable assets $ 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 Twelve months ended December 31, 2017: Revenues from unaffiliated customers $ 1,851,395 256,359 97,096 2,576,971 661,878 1,072,028 405,221 — 6,920,948 Transfers between geographic areas 111,163 11,827 14,766 21,405 22,999 43,296 20,848 (246,304 ) — Total revenues $ 1,962,558 268,186 111,862 2,598,376 684,877 1,115,324 426,069 (246,304 ) 6,920,948 Net revenues $ 1,008,841 119,071 58,199 509,235 163,450 335,702 121,267 3,424 2,319,189 Operating income $ 277,821 38,131 9,964 248,422 53,057 48,491 24,365 9 700,260 Identifiable assets $ 1,595,140 151,181 55,431 458,152 137,279 501,711 215,495 2,619 3,117,008 Capital expenditures $ 28,212 1,563 4,612 3,756 1,688 53,954 1,231 — 95,016 Depreciation and amortization $ 32,017 1,546 1,277 5,326 2,215 5,068 1,861 — 49,310 Equity $ 1,337,568 60,705 26,546 240,721 94,516 142,971 123,600 (32,254 ) 1,994,373  

Net Revenues (Non-GAAP measure)

We commonly refer to the term “net revenues” when commenting about our Company and the results of its operations. Net revenues are a Non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal services. We believe that net revenues are a better measure than are total revenues when analyzing and discussing our effectiveness in managing our principal services since total revenues earned as a freight consolidator include the carriers' charges to us for carrying the shipment, whereas revenues earned in other capacities include primarily the commissions and fees earned by us. Net revenue is one of our primary operational and financial measures and demonstrates our ability to concentrate and leverage purchasing power through effective consolidation of shipments from customers utilizing a variety of transportation carriers and optimal routings. Using net revenues also provides a commonality for comparison among various services. The following table presents the calculation of net revenues.

        Three months ended Twelve months ended December 31, December 31, (in thousands) 2018     2017 2018     2017 Total revenues $ 2,235,597 $ 1,901,371 $ 8,138,365 $ 6,920,948 Expenses: Airfreight services 683,410 636,344 2,410,793 2,126,761 Ocean freight and ocean services 464,281 380,689 1,664,168 1,543,740 Customs brokerage and other services 407,231 255,529 1,443,031 931,258 Net revenues $ 680,675 $ 628,809 $ 2,620,373 $ 2,319,189

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Jeffrey S. MusserPresident and Chief Executive Officer(206) 674-3433

Bradley S. PowellSenior Vice President and Chief Financial Officer(206) 674-3412

Geoffrey BuscherDirector - Investor Relations(206) 892-4510