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Expeditors International of Washington Inc.’s (EXPD - Analyst Report) quarterly performance lacked luster yet again. The company reported third quarter 2012 adjusted earnings of 42 cents per share that narrowly missed the Zacks Consensus Estimate of 43 cents and deteriorated 16% from 50 cents earned in the year-ago quarter. Weak revenues from air and ocean freight segments were primarily responsible for the underperformance.

Net income attributable to shareholders declined 17% year over year to $88.5 million in the reported quarter.

Total revenue decreased 5% year over year to $1.5 billion, and missed the Zacks Consensus Estimate of $1.6 billion. The decline in revenue was primarily due to lower shipments from air freight given poor global demand and lack of projects.

On a year-over-year basis, third quarter revenues from Other North America inched up 1%. Revenues from the United States, Latin America, Asia Pacific, Europe and Africa, as well as the Middle East and India declined 1.8%, 5.4%, 4.0%, 13.6% and 5.3%, respectively.

Quarterly gross profit (net revenue) dropped 6% year over year to $465.1 million, resulting in gross margin (yield) of 30.4%, down from 30.7% in the year-ago quarter.

Operating income declined 11% year over year to $145.1 million and operating expenses also fell 3.4% year over year to $1.39 billion in the reported quarter.

Revenue Segments                                                        

Airfreight Services revenue fell 15.5% year over year to $622.7 million in the third quarter.

Ocean Freight and Ocean Services revenue dropped 7.6% year over year to $549.3 million.

Customs Brokerage and Other Services revenues inched up 0.23% year over year to $359.7 million.


Expeditors’ exited the third quarter with operating cash flows of $69.2 million compared with $93.3 million at the end of the year-ago quarter.

Our Analysis

We are concerned about the uncertainty over the ocean freight businesses that are likely to restrict volume growth and affect near-term profitability for Expeditors. Further, we also expect a negative impact on the company’s margins due to freight rate increases by third party carriers. Additionally, competitive threats from peers like CH Robinson Worldwide Inc. (CHRW - Analyst Report) as well as dependence on asset-based transportation providers contribute to our negative stance on the company.

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

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