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Focus On Efficiencies Powers Expeditors' Fourth Quarter; Net Revenue Decelerated Through 2018

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Focus On Efficiencies Powers Expeditors' Fourth Quarter; Net Revenue Decelerated Through 2018

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.

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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."

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