Expeditors makes a small gain in profitability even as tonnage decreases

Expeditors International delivered solid profit growth compared to the third quarter of last year, with expenses and income developing broadly in line with the prior year.

Equity markets recognized Tuesday’s performance. According to Seeking Alpha, the company’s unadjusted EPS of $2.54 was 55 cents ahead of consensus. And Expeditors revenue was $150 million ahead of consensus. As of 10:40 a.m. Expeditors (NASDAQ: EXPD) is up 7.77% to $103.17.

Operating income increased 8% to $526.9 million, up $37.3 million. Expeditors revenue increased just 1% to $4.36 billion. But in dollar terms, the increase in sales was $42.9 million.

This $42.9 million resulted in an increase in operating income of $37.3 million as transportation costs, while relatively flat as a percentage, increased $8.8 million. Throw in a small drop in the cost of salaries and other expenses, and the end result is a company that has made a small amount of additional revenue and turned most of it into operating profit.

The decrease in salaries and other expenses by approximately $3.2 million occurred even as the company’s workforce increased from 19,034 to 20,269.

But looking ahead, comments from Expeditors officials in their earnings statement were largely dovish. Expeditors does not conduct conference calls with analysts.

“Based on what we’re currently seeing, these changing conditions, which include a slowdown in demand and an overall drop in rates, are likely to continue through the remainder of 2022 and into 2023,” said CEO Jeffrey Musser in the explanation.

The decline comes with a silver lining: a reduction in congestion and other capacity bottlenecks. Musser said Expeditors “sees air capacity returning to higher levels as Hong Kong and other launch sites in Asia reopen. In addition, the largely land- and port-based restrictions that had so severely impacted the maritime market have improved significantly, with airlines beginning to manage capacity on specific trade lanes again to meet falling demand while maintaining falling rates.”

The drop in tonnage has been severe for Expeditors. The company said its monthly decline in air freight, measured in kilos, was 11%, 14% and 15% for July, August and September, respectively. That resulted in a quarterly decline of 13%.

For ocean freight, it was down 9%, 11%, and 10% for a quarterly average of 10%.

And according to Musser, it should continue. “Based on what we’re currently seeing, these changing conditions, which include a slowdown in demand and an overall drop in rates, are likely to continue through the remainder of 2022 and into 2023,” he said in the statement .

Bradley Powell, the company’s senior vice president and CFO, also added an outlook on weak markets ahead. “We now think we’re seeing a shift towards falling volumes and falling interest rates,” he said. “We are poised to continue to align with a post-COVID environment of higher inflation and falling demand.”

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