Expeditors Underperforms

Expeditors International of Washington Inc. (EXPD - Analyst Report), a third-party logistics provider, has reported second quarter 2011 adjusted earnings of 44 cents per share, missing the Zacks Consensus Estimate of 46 cents. Earnings per share increased 5% from 42 cents in the year-ago quarter.

Total revenue upped 4% year over year to $1.58 billion but was below the Zacks Consensus Estimate of $1.64 billion.

On a year-over-year basis, revenues in the United States, Other North America, Latin America, Europe and Africa, Middle East, and India increased 16.7%, 14.9%, 15.3%, 31.5% and 0.3%, respectively. Revenue from Asia Pacific declined 6.5%.

Gross profit (net revenue) climbed 13% year over year to $472.6 million. Operating income rose 10% year over year to $152.3 million and operating expenses grew 3.7% year over year to $1,429.1 million in the reported quarter. The whopping growth in the operating income signifies operating efficiency and strict cost control measures undertaken by the company.

Revenue Segments

Airfreight Services revenue grew 2.3% year over year to $749.1 million in the second quarter.

Ocean Freight and Ocean Services revenue inched up 1.4% year over year to $486.8 million.

Customs Brokerage and Other Services revenues increased 18.7% year over year to $344.7 million.

Liquidity

Expeditors’ balance sheet remained solid with no debt and $1.2 billion in cash and cash equivalents at the end of the second quarter, reflecting an increase from $0.96 billion in the year-ago quarter.

Our Analysis

We believe Expeditors is focused on gaining market share, expanding gross profits, easing capacity constraints as well as increasing operational efficiency. Expeditors’ debt-free balance sheet, superior execution, and ability to return cash to shareholders in the form of dividends make it attractive for investment.

However, competitive threats from companies like United Parcel Service Inc. (UPS - Analyst Report), as well as the company’s dependence on asset-based transportation providers to move its shipments make us cautious on the stock for the long term.

We are currently maintaining our long-term Neutral recommendation on Expeditors International. The stock retains a Zacks #3 Rank (Hold) for the short term (1–3 months).

Read the full analyst report on EXPD

Read the full analyst report on UPS