Expeditors International of Washington, Inc. (NASDAQ:EXPD) today announced net earnings attributable to shareholders of $91,302,000 for the second quarter of 2014, as compared with $92,315,000 for the same quarter of 2013, a decrease of (1)%. Net revenues2 for the second quarter of 2014 increased 3% to $484,714,000 as compared with $471,872,000 for the same quarter in 2013. Total revenues and operating income were $1,599,141,000 and $142,443,000 in the second quarter of 2014, as compared with $1,503,224,000 and $143,579,000 for the same quarter of 2013, an increase of 6% and decrease of (1)%, respectively. Diluted net earnings attributable to shareholders per share for the second quarter were $0.46, as compared with $0.45 for the same quarter in 2013, an increase of 2%.

For the six months ended June 30, 2014, net earnings attributable to shareholders was $175,126,000, as compared with $172,630,000 in 2013, an increase of 1%. Net revenues for the six months increased to $949,300,000 from $919,879,000 for 2013, up 3%. Total revenues and operating income for the six months were $3,090,786,000 and $277,646,000 in 2014, as compared with $2,916,432,000 and $272,097,000 for the same period in 2013, increases of 6% and 2%, respectively. Diluted net earnings attributable to shareholders per share for the first two quarters of 2014 were $0.88, as compared with $0.83 for the same period of 2013, an increase of 6%.

“Our second quarter ocean and airfreight volume increases of 12% and 6%, respectively, provided encouraging revenue growth. We also saw strong revenue growth in our customs brokerage and other services product. While pricing volatility still presents challenges, we feel very good about expanding our ocean freight and airfreight market share in key markets,” said Jeffrey S. Musser, President and CEO. “From a geographic perspective, our efforts during the last year to expand our European-based business showed up in European operating income growth. These European results compensated for weaker Americas’ growth and an actual decline in Asia Pacific results. We did benefit from a favorable experience in our health insurance program which resulted in a $5.4 million reduction in salaries and related costs. Our other expense line item saw an increase of $6.0 million, none of which were individually significant. This also included the benefit of the transition to a value added tax system in certain jurisdictions in the second quarter of 2013; consulting fees and costs associated with the Company's current strategic assessment and recent organizational changes; and the accrual of claims, all which, in the aggregate, total approximately $3.5 million. Operating income as a percentage of net revenue was 29.4%, slightly below our target of 30%. We will be actively addressing the factors that contributed to this shortfall during the next several quarters,” Musser went on to say.

“Looking forward to the remainder of 2014, our priority will be to refine and implement the tactical plans supporting the outcome of our strategic assessment. We will also continue to focus on customer service, market share expansion and opportunities to leverage operating efficiencies,” Musser continued. “The assessment process will necessitate a reallocation of resources. This will require us to focus very carefully on optimizing existing resources to internally fund our strategic objectives without requiring excessive additions to overall headcount. We’re grateful for the enthusiasm with which our employees have embraced the organizational changes we’ve made thus far. We look forward to their further involvement and participation as we complete and implement the outcome of our strategic assessment. We understand that only through engaging with and effectively supporting our employees can we meet the requirements of our customers and the expectations of our shareholders. Our employees in turn understand that they become the primary beneficiaries of increased opportunities which result from satisfied customers and gratified shareholders. We're grateful for their continued loyalty and commitment,” Musser concluded.

Expeditors is a global logistics company headquartered in Seattle, Washington. The company employs trained professionals in 185 full-service offices and numerous satellite locations located on six continents linked into a seamless worldwide network through an integrated information management system. Services include the consolidation or forwarding of air and ocean freight, customs brokerage, vendor consolidation, cargo insurance, time-definite transportation, order management, warehousing distribution and customized logistics solutions.

1Diluted earnings attributable to shareholders per share.

2Non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal services. See reconciliation on the last page of this release.

3Operating margin is calculated as operating income divided by net revenues.

NOTE: See Disclaimer on Forward-Looking Statements on the following page of this release.

       
Expeditors International of Washington, Inc.
Second Quarter 2014 Earnings Release, August 5, 2014
Financial Highlights for the Three and Six months ended June 30, 2014 and 2013 (Unaudited)

(in 000's of US dollars except share data)

 
Three months ended June 30, Six months ended June 30,
  %   %
2014 2013 Change 2014 2013 Change
Revenues $ 1,599,141 $ 1,503,224 6% $ 3,090,786 $ 2,916,432 6%
Net revenues1 $ 484,714 $ 471,872 3% $ 949,300 $ 919,879 3%
Operating income $ 142,443 $ 143,579 (1)% $ 277,646 $ 272,097 2%
Net earnings attributable to shareholders $ 91,302 $ 92,315 (1)% $ 175,126 $ 172,630 1%
Diluted earnings attributable to shareholders $ 0.46 $ 0.45 2% $ 0.88 $ 0.83 6%
Basic earnings attributable to shareholders $ 0.46 $ 0.45 2% $ 0.88 $ 0.84 5%
Diluted weighted average shares outstanding 197,126,243 207,192,534 199,482,932 207,421,805
Basic weighted average shares outstanding 196,451,912 206,444,464 198,772,260 206,459,701
 

1Non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal services. See reconciliation on the last page of this release.

During the six month period ended June 30, 2014, the Company repurchased 7,516,397 shares of common stock, net of issuances.

 
Employee headcount as of June 30
2014   2013
North America 5,032 4,761
Asia Pacific 3,826 3,881
Europe and Africa 2,325 2,349
Middle East and India 1,229 1,213
Latin America 725 679
Information Systems 638 628
Corporate 307 270
Total 14,082 13,781
 
 
Year-over-year percentage increase in:
Airfreight kilos   Ocean freight FEU
2014    
April 2 10% 12%
May 5% 10%
June 2% 12%
Quarter 6% 12%
 

2Reported on an interim basis on June 10, 2014, Item 7.01 Regulation FD Disclosure on Form 8-K as 8% and subsequently revised to 10% as part of quarter-end review process.

Investors may submit written questions via e-mail to: investor@expeditors.com. Questions received by the end of business on August 8, 2014 will be considered in management's 8-K “Responses to Selected Questions” expected to be filed on or about August 18, 2014.

Disclaimer on Forward-Looking Statements:

Certain portions of this release contain forward-looking statements which are based on certain assumptions and expectations of future events that are subject to risks and uncertainties, including comments on ability to grow revenues, maintain margins during periods of pricing volatility, maintain or grow market share in key markets, expand European-based business, maintain or improve operating income as a percentage of net revenue, improve operational processes, leverage operating efficiencies or optimize existing resources, successfully reallocate resources, control costs and headcount, and successfully complete and implement comprehensive strategic reassessment to improve alignment and operations. Actual future results and trends may differ materially from historical results or those projected in any forward-looking statements depending on a variety of factors including, but not limited to, our ability to maintain consistent and stable operating results, future success of our business model, ability to control costs and perpetuate profits, changes in customer demand for Expeditors’ services caused by a general economic slow-down, customers’ inventory build-up, decreased consumer confidence, volatility in equity markets, energy prices, political changes, foreign exchange rates, regulatory actions or changes or the unpredictable acts of competitors and other risks, risk factors and uncertainties detailed in our Annual Report as updated by our reports on Form 10-Q, filed with the Securities and Exchange Commission.

   
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
 
June 30, December 31,
2014 2013

Assets

Current Assets:
Cash and cash equivalents $ 970,561 $ 1,247,652
Short-term investments 86,149 26,337
Accounts receivable, net 1,150,531 1,073,500
Deferred Federal and state income taxes 19,148 18,396
Other current assets 84,081   49,384  
Total current assets 2,310,470   2,415,269  
Property and equipment, net 556,228 563,064
Goodwill 7,927 7,927
Other assets, net 55,315   28,552  
$ 2,929,940   $ 3,014,812  

Liabilities and Equity

Current Liabilities:
Accounts payable 717,141 648,156
Accrued expenses, primarily salaries and related costs 220,753 200,301
Federal, state and foreign income taxes 24,337   21,743  
Total current liabilities 962,231   870,200  
Deferred Federal and state income taxes 70,572 58,281
 
Commitments and contingencies
 
Shareholders’ Equity:
Preferred stock; none issued — —
Common stock, par value $0.01 per share. Issued and outstanding 195,036,823 shares at June 30, 2014 and 202,553,220 shares at December 31, 2013 1,951 2,025
Additional paid-in capital 2,701 1,647
Retained earnings 1,893,771 2,087,376
Accumulated other comprehensive loss (3,609 ) (6,265 )
Total shareholders’ equity 1,894,814   2,084,783  
Noncontrolling interest 2,323   1,548  
Total equity 1,897,137   2,086,331  
$ 2,929,940   $ 3,014,812  
 
   
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
 
Condensed Consolidated Statements of Earnings
(In thousands, except share data)
(Unaudited)
 
Three months ended Six months ended
June 30, June 30,
2014   2013 2014   2013
Revenues:  
Airfreight services $ 667,257 $ 642,969 $ 1,314,395 $ 1,263,343
Ocean freight and ocean services 536,438 492,007 1,005,662 937,486
Customs brokerage and other services 395,446   368,248   770,729   715,603
Total revenues 1,599,141   1,503,224   3,090,786   2,916,432
Operating Expenses:
Airfreight services 503,213 483,016 986,095 947,935
Ocean freight and ocean services 423,716 380,727 791,091 725,650
Customs brokerage and other services 187,498 167,609 364,300 322,968
Salaries and related costs 260,767 255,569 516,709 503,986
Rent and occupancy costs 25,401 24,712 50,563 48,905
Depreciation and amortization 12,417 11,674 24,799 22,952
Selling and promotion 9,291 8,328 17,464 15,585
Other 34,395   28,010   62,119   56,354
Total operating expenses 1,456,698   1,359,645   2,813,140   2,644,335
Operating income 142,443   143,579   277,646   272,097
Other Income (Expense):
Interest income 2,764 3,070 5,461 6,313
Other, net 3,190   4,325   2,909   5,856
Other income, net 5,954   7,395   8,370   12,169
Earnings before income taxes 148,397 150,974 286,016 284,266
Income tax expense 56,669   58,311   110,093   110,993
Net earnings 91,728   92,663   175,923   173,273
Less net earnings attributable to the noncontrolling interest 426   348   797   643
Net earnings attributable to shareholders $ 91,302   $ 92,315   $ 175,126   $ 172,630
Diluted earnings attributable to shareholders per share $ 0.46   $ 0.45   $ 0.88   $ 0.83
Basic earnings attributable to shareholders per share $ 0.46   $ 0.45   $ 0.88   $ 0.84
Dividends declared and paid per common share $ 0.32   $ 0.30   $ 0.32   $ 0.30
Weighted average diluted shares outstanding 197,126,243   207,192,534   199,482,932   207,421,805
Weighted average basic shares outstanding 196,451,912   206,444,464   198,772,260   206,459,701
 
   
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
 
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Three months ended Six months ended
June 30, June 30,
2014   2013 2014   2013
Operating Activities:
Net earnings $ 91,728 $ 92,663 $ 175,923 $ 173,273
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for losses (recoveries) on accounts receivable 496 100 (619 ) 1,041
Deferred income tax expense 2,891 5,818 10,085 12,940
Excess tax benefits from stock plans (495 ) (584 ) (984 ) (1,683 )
Stock compensation expense 11,877 11,040 22,171 22,045
Depreciation and amortization 12,417 11,674 24,799 22,952
Other 68 241 206 449
Changes in operating assets and liabilities:
Increase in accounts receivable (84,618 ) (48,223 ) (72,390 ) (9,367 )
Increase in accounts payable and accrued expenses 61,377 45,080 90,923 43,690
Increase in income taxes payable, net (47,370 ) (33,692 ) (29,165 ) (15,474 )
Increase in other current assets (3,485 ) (91 ) (2,206 ) (576 )
Net cash from operating activities 44,886   84,026   218,743   249,290  
Investing Activities:
Decrease (increase) in short-term investments, net 342 (89,803 ) (59,812 ) (89,765 )
Purchase of property and equipment (9,635 ) (17,141 ) (18,395 ) (27,209 )
Escrow deposit for land acquisition (27,101 ) — (27,101 ) —
Other, net (1,536 ) 1,264   134   820  
Net cash from investing activities (37,930 ) (105,680 ) (105,174 ) (116,154 )
Financing Activities:
Proceeds from issuance of common stock 22,125 7,548 30,017 18,477
Repurchases of common stock (131,391 ) (21,600 ) (358,116 ) (39,281 )
Excess tax benefits from stock plans 495 584 984 1,683
Dividends paid (62,807 ) (61,899 ) (62,807 ) (61,899 )
Purchase of noncontrolling interest — — — (7,730 )
Distribution to noncontrolling interest —   —   (85 ) —  
Net cash from financing activities (171,578 ) (75,367 ) (390,007 ) (88,750 )
Effect of exchange rate changes on cash and cash equivalents 4,137   (11,557 ) (653 ) (19,119 )
(Decrease) increase in cash and cash equivalents (160,485 ) (108,578 ) (277,091 ) 25,267
Cash and cash equivalents at beginning of period 1,131,046   1,394,687   1,247,652   1,260,842  
Cash and cash equivalents at end of period $ 970,561   $ 1,286,109   $ 970,561   $ 1,286,109  
Taxes paid:
Income taxes $ 105,963 $ 85,195 $ 133,459 $ 112,146
 
               
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
 
Business Segment Information
(In thousands)
(Unaudited)
 
OTHER EUROPE MIDDLE
UNITED NORTH LATIN ASIA and EAST and ELIMI- CONSOLI-
STATES AMERICA AMERICA PACIFIC AFRICA INDIA NATIONS DATED
Three months ended June 30, 2014:
Revenues from unaffiliated customers $ 416,454 55,343 22,003 780,834 244,642 79,865 — 1,599,141
Transfers between geographic areas 22,408   2,587   5,567   12,393   9,468   5,238   (57,661 ) —
Total revenues $ 438,862   57,930   27,570   793,227   254,110   85,103   (57,661 ) 1,599,141
Net revenues $ 200,106 25,533 16,648 138,445 78,638 25,344 — 484,714
Operating income $ 59,780 7,001 4,676 51,436 14,219 5,331 — 142,443
Identifiable assets $ 1,328,312 110,498 57,588 743,190 511,149 173,425 5,778 2,929,940
Capital expenditures $ 5,547 422 171 1,907 1,262 326 — 9,635
Depreciation and amortization $ 7,879 296 227 2,108 1,471 436 — 12,417
Equity $ 1,044,386 72,681 35,578 481,899 204,952 94,390 (36,749 ) 1,897,137
Three months ended June 30, 2013:
Revenues from unaffiliated customers $ 395,495 56,626 21,421 749,282 206,020 74,380 — 1,503,224
Transfers between geographic areas 23,217     2,516   5,614   11,605   9,189   4,559   (56,700 ) —
Total revenues $ 418,712   59,142   27,035   760,887   215,209   78,939   (56,700 ) 1,503,224
Net revenues $ 193,509 25,440 15,522 141,439 71,068 24,894 — 471,872
Operating income $ 58,310 7,887 4,601 54,781 11,613 6,387 — 143,579
Identifiable assets $ 1,531,739 101,721 53,795 809,827 418,077 155,058 (6,552 ) 3,063,665
Capital expenditures $ 4,354 708 145 11,056 563 315 — 17,141
Depreciation and amortization $ 7,276 197 229 1,983 1,550 439 — 11,674
Equity $ 1,209,762 65,897 33,272 606,793 166,891 75,418 (36,091 ) 2,121,942
 
Six months ended June 30, 2014:
Revenues from unaffiliated customers $ 817,193 106,927 42,632 1,495,218 472,150 156,666 — 3,090,786
Transfers between geographic areas 42,419   4,962   10,771   24,402   18,425   10,100   (111,079 ) —
Total revenues $ 859,612   111,889   53,403   1,519,620   490,575   166,766   (111,079 ) 3,090,786
Net revenues $ 392,188 51,694 32,005 271,719 151,695 49,999 — 949,300
Operating income $ 111,678 15,376 9,535 104,277 25,285 11,495 — 277,646
Identifiable assets $ 1,328,312 110,498 57,588 743,190 511,149 173,425 5,778 2,929,940
Capital expenditures $ 9,475 686 472 5,033 2,114 615 — 18,395
Depreciation and amortization $ 15,731 576 439 4,216 2,963 874 — 24,799
Equity $ 1,044,386 72,681 35,578 481,899 204,952 94,390 (36,749 ) 1,897,137
Six months ended June 30, 2013:
Revenues from unaffiliated customers $ 769,869 108,355 41,285 1,443,419 408,533 144,971 — 2,916,432
Transfers between geographic areas 43,243     5,060   10,490   22,235   18,069   8,886   (107,983 ) —
Total revenues $ 813,112   113,415   51,775   1,465,654   426,602   153,857   (107,983 ) 2,916,432
Net revenues $ 373,852 49,221 29,933 276,989 141,682 48,202 — 919,879
Operating income $ 105,663 14,499 8,690 107,665 23,539 12,041 — 272,097
Identifiable assets $ 1,531,739 101,721 53,795 809,827 418,077 155,058 (6,552 ) 3,063,665
Capital expenditures $ 9,733 895 404 13,608 1,761 808 — 27,209
Depreciation and amortization $ 14,033 404 470 3,971 3,179 895 — 22,952
Equity $ 1,209,762 65,897 33,272 606,793 166,891 75,418 (36,091 ) 2,121,942
 

Net Revenues (Non-GAAP measure)

We commonly refer to the term “net revenues” when commenting about our Company and the results of its operations. Net revenues are a Non-GAAP measure calculated as revenues less directly related operations expenses attributable to the Company's principal services. We believe that net revenues are a better measure than are total revenues when analyzing and discussing our effectiveness in managing our principal services since total revenues earned as a freight consolidator must consider the carriers' charges to us for carrying the shipment, whereas revenues earned in other capacities include primarily the commissions and fees earned by us. Net revenue is one of our primary operational and financial measures and demonstrates our ability to concentrate and leverage purchasing power through effective consolidation of shipments from customers utilizing a variety of transportation carriers and optimal routings. Using net revenues also provides a commonality for comparison among various services. The following table presents the calculation of net revenues.

   
Three months ended Six months ended
June 30, June 30,
(in thousands) 2014   2013 2014   2013
Total revenues $ 1,599,141 $ 1,503,224 $ 3,090,786 $ 2,916,432
Expenses:
Airfreight services 503,213 483,016 986,095 947,935
Ocean freight and ocean services 423,716 380,727 791,091 725,650
Customs brokerage and other services 187,498   167,609   364,300   322,968
Net revenues $ 484,714   $ 471,872   $ 949,300   $ 919,879