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|Expeditors International of Washington, Inc. |(EXPD – NYSE) |$71.68 |

Note: FLASH REPORT; more details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.

Reason for Report: FLASH UPDATE: 1Q18 Earnings Update; Beats Expectations

Prev. Ed.: 4Q17 Earnings Update

Flash News Update [Note: earnings update in progress; final report to follow]

On May 8, 2018, Expeditors International of Washington, Inc. (EXPD) reported better-than-expected earnings and revenues in the first quarter.

The company’s earnings of 76 cents per share, surpassed the Zacks Consensus Estimate of 64 cents. Also, the bottom line increased more than 45% on a year-over-year basis. Results were aided by higher revenues.

Revenues came in at $1,854.3 million outpacing the Zacks Consensus Estimate of $1,702.4 million. The top line improved 20% from the year-ago figure. The earnings report pleased investors. Consequently, the stock gained in early trading.

Growth was witnessed across all major divisions of the company. Volumes with respect to airfreight tonnage and ocean container both increased 5% on a year-over-year basis.

Gross profit (net revenues) increased 21% year over year in the first quarter of 2018 to $635.84 million. Gross margin (yield) came in at 34.3% compared with 34.14% in the year-ago quarter.

In the first quarter, the company repurchased 2.7 million shares at an average price of $64.76 per share. The company exited the quarter with cash and cash equivalents of $1.13 billion compared with $1.05 billion at the end of 2017.

Segmental Revenues

Airfreight Services revenues improved 18.8% year over year to $731.23 million in the first quarter. Ocean Freight and Ocean Services revenues increased 5.5% year over year to $520.88 million. Customs Brokerage and Other Services revenues increased 38.2 % year over year to approximately $602.16 million.

MORE DETAILS WILL COME IN THE IMMINENT EDITIONS OF ZACKS RD REPORTS ON EXPD

Portfolio Manager Executive Summary

Expeditors International of Washington, Inc. (EXPD) provides non-asset-based global third-party logistics (3PL) services. The company provides services through three segments- Airfreight, Ocean Freight, and Customs Brokerage and Other Services. Ancillary services include distribution management, vendor consolidation, cargo insurance, purchase order management, and customized logistics information.

Of the ten firms covering Expeditors, eight provided neutral ratings while one each rated the stock positively and negatively. The target prices range from $55.00–$72.00, with the average being $63.88. The firms expect an average return of -0.8% from the current price.

The following is a summarized opinion of the diverse brokerage viewpoints:

Bullish: Buy or equivalent outlook (1/10 firms): These firms are bullish about the company based on its long-term growth trajectory. According to these firms, Expeditors enjoys a strong position in the freight forwarding business and has solid exposure to the growing trade lane between the U.S. and Asia, which bodes well for expansion. Further, an improved overall airfreight market and import activities compel the company to remain optimistic about further recovery within the segment. The firms also believe that Expeditors’ strong operating efficiency and expansion of high margin Customs Brokerage business will enhance profitability, going ahead.

Cautious: Neutral or equivalent outlook (8/10 firms): These firms believe that Expeditors’ market share gains in the airfreight market and best-in-class execution will likely drive top-line results. Stabilizing airfreight yield and increased imports also bode well for the company. However, the firms opine that the company has already benefitted to the fullest from the West Coast port disruption.

Bearish: Sell or equivalent outlook (1/10 firms): The firm believes that net margin is under pressure. Moreover, ocean rates from Hong Kong to Los Angeles have fallen sharply on a year over year basis.

The firms believe that the following additional factors should also be taken into consideration before investing in the stock:

A) Expeditors International is one of the most profitable and sizable international third-party logistics (3PL) providers offering international air and ocean freight forwarding services.

B) Expeditors International acts as travel agent for heavy freight movement for cargo mostly over 150 pounds by locating space on container ships, trucks or airlines for freight moved from the airport of origin to the airport of destination. Expeditors International has a large exposure to both Asia and Europe, putting it in a good position to take advantage of a shipping rebound.

General Outlook

The firms believe that the company is poised to benefit from increasing global trade, market share gains, productivity improvement and growing presence in international trade. Over the long term, the company has been investing in new opportunities and services, including those in the aerospace, pharmaceutical/healthcare, aviation, and energy verticals. Thus, Expeditors is well positioned to augment its top line. Further, over the long term, these firms expect Expeditors to outperform its peers backed by its strategic initiatives, better-quality business and increasing supply chains.

Apr 20, 2018

Overview

Based in Seattle, WA, Expeditors International (EXPD or the company) provides logistics services in the United States and internationally. It provides air and ocean freight forwarding and customs brokerage services through a global network of over 460 offices located in close proximity to airports, ports or important border crossings. The company also provides supply chain management solutions, including distribution management, vendor consolidation, cargo insurance, purchase order management, and customized logistics information. Expeditors International has three main business segments: Airfreight, Ocean Freight, and Customs Brokerage and Other Services. Airfreight uses core group of carriers to transport international freight. Ocean Freight provides less-than-container load (LCL) consolidation and end-to-end vendor consolidation services. Customs Brokerage and Other Services operates globally, and expeditiously and efficiently processes shipments through customs and provide full range of distribution services allowing integrated door-to-door logistics coverage. The firms have identified the following factors to evaluate the investment merits of EXPD:

|Key Positive Arguments |Key Negative Arguments |

|International Logistics Leader: Expeditors is one of the most profitable |Competitive Markets: Global transportation markets are highly competitive.|

|and sizable international third-party logistics (3PL) providers. |Economic Sensitivity: Expeditors depends on economic growth and global |

|Diversification: Expeditors caters to a diversified group of customers, |trade. Anything that hinders these items (e.g., recession, trade |

|both in terms of industry specialization and geographic location. |restrictions and geopolitical issues) could negatively affect its growth |

|International Presence: Expeditors with its integrated international |and profitability. |

|presence is well positioned to benefit from the secular growth trends in |Regulated Market: The company must operate amid the various regulations |

|Asia-Pacific and China. |that exist in the international transportation market for airfreight, |

|Compelling Returns and Strong Balance Sheet: The company’s financial |ocean freight, customs brokerage, and import services. |

|strength is a compelling attribute amid the current turbulent market. |Dependent on Asset-based Carriers: Expeditors International depends on |

|Attractive Long-Term Growth Prospects: Positive secular drivers such as |asset-based transportation providers, as it does not own transportation |

|new customer wins, greater penetration with existing customers, and |assets. Inability to properly handle these relationships could permanently|

|increasing trade volume between the U.S. and Asia are likely to perpetuate|damage EXPD's brand and reputation. |

|solid freight volume growth. | |

Further information on the company is available at its website: .

Note: The company fiscal references coincide with the calendar year.

Apr 20, 2018

Long-Term Growth

Expeditors’ business is well positioned and highly valued in the Asian and U.S. trade lanes. According to the firms, the company has attractive long-term growth prospects, but global trade growth, multinational supply chains, technology innovation and trade regulations have complicated logistics operations. Shippers will continue to increase their reliance on leading logistics partners to simplify these growing complications. As a global leader with an integrated international network, the firms believe Expeditors will grow faster than the overall market. Over the long term, the company’s strategic initiatives, superior business and growing supply chains should help it outperform its peers.

Further, the company has numerous internal opportunities for long-term growth, including expansion in new areas (e.g., oil and gas, aerospace and defense), increasing its presence in new regions (e.g., intra-China), expanding operations within its Asia-to-Europe freight lane, and further development of new service offerings (e.g., domestic transportation).

The firms expect the company to outperform its peers based on strategic initiatives like expanding its customer base, enhancing its relationship with existing customers and implementing cost control measures.

Expeditors generates over 40% of its business through airfreight. Although the airfreight business has rebounded somewhat, it has shown little growth in the last couple of years. As global economic condition recovers, the company’s freight forwarding business will benefit. The firms believe that new service offerings will be accretive to the company’s long-term growth as customers continue to look for multimodal solutions with greater supply chain efficiencies. The firms believe that continuous market share gains in ocean and airfreight business could provide an upside for long-term growth. Further, the company’s customs brokerage business will also benefit as global trade activity picks up. Cargo needs to clear customs irrespective of the mode of its movement. Expeditor’s ability to increase its customs brokerage business will aid margin growth going forward.

International revenue constitutes almost 70% of Expeditors revenues with the Asia-Pacific contributing a significant part of it. The continued strength in trade activity between U.S. and China bodes well for the company. However, some firms advocate that the China-U.S. trade lane should experience lower growth rate over the next 5-10 years than it had in the past 20-30 years. The primary reason for this decline is the downside in high-tech shipment, which is the largest driver of trans-Pacific airfreight volumes. Tonnage has been significantly affected due to technology shift from PC to tablets that apparently weighed on airfreight business across the freight industry. As a result, margin growth is expected to remain lackluster compared to the historical levels.

Jul 20, 2017

Apr 20, 2018

Feb 1, 2018

Target Price/Valuation

Provided below is the summary of valuation and ratings:

|Rating Distribution |

|Positive |10% |

|Neutral |80% |

|Negative |10% |

|Avg. Target Price |$63.88↑ |

|Maximum Target |$72.00↑ |

|Minimum Target |$55.00↑ |

|Avg. Return |-0.8% |

|No. of Analysts with price target/Total |8/10 |

Key risks to the target price include weak consumer and business demand, dependence on asset-based carriers, economic sensitivity, exposure to foreign markets, regulatory risks, capacity availability and increased competition.

Recent Events

Earnings Update – Feb 20, 2018

On Feb 20, 2018, Expeditors International reported 4Q17 financial results. Key highlights are as follows:

• Total revenue of $1.9 billion surpassed the Zacks Consensus Estimate of $1.8 billion. The top line improved 16% from the year-ago figure.

• Fourth-quarter 2017 earnings per share (EPS) of 71 cents per share increased 16.4% on a year- over-year basis. Earnings were above the Zacks Consensus Estimate of 64 cents.

Revenue

According to the company press release, total revenue of $1.9 billion surpassed the Zacks Consensus Estimate of $1.8 billion. The top line improved 16% from the year-ago figure. Growth across all segments contributed to the improvement.

Details of the revenue segments as per the press release are as follows:

Airfreight Services (44.9% of 4Q17 revenues): Revenues in 4Q17 improved 24% year over year to $854.45 million.

Ocean Freight and Ocean Services (27.4%): Revenues increased 3.6% year over year to $521.32 million.

Customs Brokerage and Other Services (27.6%): Revenues climbed 16.8% year over year to $525.61 million.

Outlook

The firms believe Expeditors is one of the largest freight forwarders, with a leading foothold in the international freight forwarding business, mostly airfreight, which is among the most profitable modes of transportation. However, the firms believe that meaningful volume improvement rather than price serves as the primary growth driver for the company. Currently, they do not foresee any meaningful improvement therein, given the current competitive and volatile markets.

Further, the company is also seeking expansion in customs-brokerage business that depends on growing global trade and increased import and export activity around the globe. Expeditor’s ability to expand its Customs Brokerage business will not only drive growth but will also provide high earnings for the company. Rise in global trade and increase in import-export activity will boost the company’s Customs Brokerage business. Other growth avenues for the company include new business areas like oil and gas, aerospace and defense. In addition, the company remains well positioned in the construction material market. Given the recovery in housing and construction, the firms expect significant revenue growth over the near term from these businesses.

However, sluggish global growth and trade is a reason for concerns. In addition, an overcapacity situation as compared to demand within the industry indicates a seasonal slowdown thus putting pressure on the carrier’s rate. This rate volatility could affect Expeditors’ performance. Moreover, weak consumer and business demand and delay in manufacturing might affect the company’s revenues. Further, intensifying competition in the international air and ocean freight forwarding and customs brokerage business might also hurt the company’s top line. Also, the company’s dependence on asset-based transportation providers to move its shipments might affect performance in the near term.

Margins

According to the company press release, Gross profit (net revenue) increased 15% year over year in the fourth quarter to $628.81 million. Gross margin (yield) declined to 33.1% in the reported quarter.

Outlook

The firms believe Expeditors’ growing supply chains and cost-control measures should support margin expansion going forward. In addition, Expeditor’s ability to increase its Customs Brokerage business will lead to margin expansion in the future. The firms believe that the global trade market provides an attractive opportunity for Expeditors and should help the company boost its earnings. Moreover, the company’s asset light model with diversified freight forwarding solutions provides more earnings flexibility in an economic downturn. Also, these firms expect a stabilizing trend in airfreight yield, which could be accretive for margin growth.

Earnings per Share

Expeditors reported 4Q17 EPS of 71 cents per share, beating the Zacks Consensus Estimate of 64 cents. Earnings increased 16.4% on a year-over-year basis.

Outlook

The bullish firms believe that Expeditors’ integrated operating system lends it a competitive advantage over its peers. Also, the company’s strategic initiatives, superior business and growing supply chains will allow the company to outperform its peers. Further, sustained market share gains, healthy operating leverage and accelerating capital deployment will provide upsides for long-term EPS growth. The firms also believe that the company’s financial strength will allow it to deploy share buybacks, which in turn will improve earnings. However, changing shipping patterns and global economy concerns might hamper earnings growth. Moreover, volumes have declined over several sectors in the transportation sector, which is a matter of concern going forward.is a matter of concern going forward.

|Research Analyst |Eshani Haque |

|Content Ed |Maharathi Basu |

|Reason for Update |earnings |

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May 11, 2018

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