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Analyst Blog

Expeditors International of Washington Inc.’s (EXPD - Analyst Report) quarterly performance lacked luster yet again. The company reported fourth quarter 2012 adjusted earnings of 40 cents per share that missed the Zacks Consensus Estimate and year ago earnings of 43 cents. Weak revenue from air freight segment was primarily responsible for the underperformance.

For the year, earnings per share decreased 12% year over year to $1.57.

Total revenue rose 2% year over year to $1.53 billion, ahead of the Zacks Consensus Estimate of $1.51 billion. However, revenues for the year dropped 3% year over year to $5.98 billion.  

Gross profit (net revenue) dropped 4% year over year in the fourth quarter as well as 2012 to $458.7 million and $1.82 billion, respectively. Gross margin (yield) was 27.9%, down from 32.6% in the year-ago quarter. Gross margin for the year was 29.1%, down from 32.6% in the year ago period.

Operating income declined 17% and 14% year over year to $128 million and $530.8 million in the fourth quarter and 2012, respectively.

Revenue Segments                                                         

Airfreight Services revenue fell 0.7% year over year to $700.8 million in the fourth quarter.

Ocean Freight and Ocean Services revenue increased 7.1% year over year to $472.3 million.

Customs Brokerage and Other Services revenues inched up 1.4% year over year to $359.9 million.

Liquidity

Expeditors’ exited the year with operating cash flows of $370.1 million compared with $457.1 million at the end of a year-ago.

Our Analysis

Despite the company’s strong position in the global 3PL market, we remain cautious on the near-term softness in demand, particularly in airfreight. We expect that lower demand from the Asian market will continue to be a significant headwind over the near term.

These negatives will eventually lead to freight rate hikes by third party carriers that may continue to weigh on the company’s margins. 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.

Expeditors has a Zacks Rank #4 (Sell).

Other Stocks

Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMAB - Snapshot Report) and Matson, Inc. (MATX - Snapshot Report), which have a Zacks Rank #1 (Strong Buy) and a Zacks Rank #2 (Buy), respectively, are stocks we believe worth considering in this sector.

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