EXPD

S&P 500: +16.23 (+2.09%)

Expeditors International of Washington (EXPD) *contact for tearsheet*
Expeditors International of Washington Inc. is a global logistics company that derives revenue from air freight (36 percent), ocean freight (25 percent) and customs brokerage and import services (39 percent).

The global logistics services industry is a strong and growing industry, with a large number of companies competing in one or more segments of the industry. Expeditors, however, is one of the few firms with a global network that offers a full complement of logistics services.

The air and ocean segments act as a freight consolidator, purchasing cargo space from planes/ships and reselling it to customers at lower rates than customers could receive directly. They also act as agent by preparing documentation, procuring insurance, arranging packing and crating and providing consultation.

Expeditors does not own any aircrafts or ships themselves, which alleviates business risks their competitors face such as large capital outlays, increased fixed operating costs, problems of fully utilizing planes/ships and competition with airlines/freighters.

The company’s customs brokerage and import services assist importers in clearing shipments through customs by preparing documentation, calculating and providing payment of duties and arranging government inspections. Other services include temporary warehousing, inland transportation, inventory management and cargo insurance and distribution.

Expeditors’ low-cost business model drives the company’s ability to generate strong returns on invested capital (ROIC) – over 30 percent during the last five years – and steadily grow revenues at a double-digit pace. Expeditors’ balance sheet has no long term debt and nearly $750 million in cash, which is much more than required for operations. Unusually high cash levels and a low dividend payout ratio (22 percent) suggest the company will continue raising their dividend at a double-digit clip.

The valuations of many logistics companies already reflect worries about the economy, and any strengthening in the U.S. economy could drive improved sentiment. In the near term, customers are likely to continue to use lower-priced delivery methods and ship less due to rising cost of transportation. Longer term, demand for international shipping will be driven by export activity out of Asia and developing economies throughout the world.


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Peter Lazaroff, Junior Analyst