Bolstered by significant gains in air and ocean freight volume on a year-to-year basis, Expeditors International’s third-quarter earnings report showed higher numbers in almost every key category.
For the quarter ended Sept. 30 airfreight kilograms handled by 3PL Expeditors were up by 19% on a year-to-year basis. Ocean freight measured in 40-foot equivalent units rose 12%.
Notable about the volume performance is that it mostly strengthened as the quarter went on. Year-on-year airfreight kilo growth was 20% in July, 17% in August and another 20% in September. Year-on-year growth in ocean freight was 8% in July, 14% in August and 15% in September.
Those increases helped lead to stronger profits for Expeditors, even though revenues did not rise at the same rate as the cost of securing transportation.
Transportation cost was up 49%, to just over $2 billion from $1.4 billion a year earlier. Revenues rose 37%, to $3 billion from $2.19 billion.
But sales and other operating expenses were up only 6%, which enabled profits to rise despite the cost of transportation outpacing revenues.
Operating income for the quarter was $301.5 million, up from $216 million a year ago. That led to earnings per share of $1.63 versus $1.16 a year earlier.
Expeditors, in its business description, said of the company that it provides “a broad range of transportation services and customer solutions, such as customs brokerage, order management, time-definite transportation, warehousing and distribution, temperature-controlled transit, cargo insurance, specialized cargo monitoring and tracking, and other customized logistics and consulting solutions.”
Expeditors (NYSE: EXPD) does not hold an earnings call with analysts. But President and CEO Jeffrey Musser does release a relatively lengthy statement in connection with the earnings.
The impact of real and potential strikes
He acknowledged that the strong results may have been in part because of “pull-forward” business in anticipation of a port strike on the East Coast and Gulf Coast, which did begin Oct. 1 but was over quickly. However, ongoing strikes or lockouts are impacting ports in Montreal and British Columbia.
“We have worked hard over this past year to gain additional volumes and grow our business by winning new customers and gaining additional business with current customers,” Musser said in the statement. “These positive third-quarter results reflect those efforts in securing higher tonnage and volumes, which were further boosted as some shippers pulled freight forward out of concern over port actions and geopolitical disruptions, and in advance of fourth quarter holiday sales.”
The other commentary by Musser focused heavily on markets for airfreight and ocean freight that are strong, particularly in comparison to what is going on in trucking.
Higher rates everywhere
Musser said that air tonnage and rates “increased across all regions.”
“Direct e-commerce continued to absorb available air freight capacity and boost rates on North Asia exports, and manufacturing relocations and sea-to-air conversions drove higher rates on exports from South Asia,” he said. “Higher volumes moving through our network led to an increase in fees for customs brokerage and other ancillary services, in addition to new road freight business and growth in order management services.”
Musser said he would be “hard pressed” to identify an area of Expeditors’ business that didn’t perform well in the quarter. But he was cautious in projecting the future market, sort of Expeditors’ version of “Past results do not guarantee future performance.”
“We believe that ocean rates may decline if demand softens and capacity increases, particularly if commerce on the Red Sea returns to normal,” he said. “We also believe that global freight markets and pricing are likely to remain volatile for some time. Unpredictable events seem to occur with such increased regularity as to make us wonder if disruption is the new state of normal.”
Better than the second quarter
Expeditors’ performance also was stronger sequentially. In the second quarter, revenues were $2.44 billion; third-quarter revenues were almost 23% higher. EPS in the second quarter was $1.24 compared to the third quarter’s $1.63.
But the costs of securing transportation climbed sharply sequentially as well. The $2 billion Expeditors spent on transportation costs in the third quarter was 21.9% more than the $1.64 billion from the second quarter.
Expeditors’ results beat the Street consensus, according to SeekingAlpha. The $1.63 net-income-per-share figure was 29 cents better than forecast, and $3 billion in revenue topped projections by $530 million. Despite that strong performance compared to what had been projected, Expeditors’ stock was up just 0.35% to $120.81 at approximately 11:10 a.m.
Expeditors’ stock is up a modest 7.4% in the past 12 months.
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