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EXPEDITORS INTERNATIONAL OF WASHINGTON INC 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Expeditors International of Was

Filing date:

02/21/2025

TLDR:

Expeditors International of Washington, Inc. (EXPD) demonstrated revenue growth in 2024, driven by strong demand in ocean and air freight. However, material weaknesses in internal controls related to IT systems persist, posing a risk.

ELI5:

Expeditors, a shipping and logistics company, made more money this year because shipping demand was high. However, they have some problems with their computer systems’ security, which could cause issues.

Accession #:

0000950170-25-024750

Published on

Analyst Summary

  • Total revenues increased by 14% from $9.3 billion in 2023 to $10.6 billion in 2024.
  • Operating income increased by 11% from $939.9 million in 2023 to $1,041.3 million in 2024.
  • Net cash provided by operating activities decreased by 31% from $1,053 million in 2023 to $723 million in 2024, primarily due to changes in working capital.
  • The company returned $1,059 million to shareholders through stock repurchases and dividends.
  • Identified material weaknesses in internal control over financial reporting related to ineffective information technology general controls.

Opportunities and Risks

  • Opportunity: Strong demand for ocean transportation and airfreight out of Asia.
  • Risk: Reduction in international commerce, intense competition, and failure to adapt to customer requirements.
  • Risk: Dependence on personnel, reliance on technology, reliance on service providers, and potential disruptions from catastrophic events.
  • Risk: Complex regulatory environment, anti-corruption laws, and adverse determinations in tax audits.
  • Risk: Investigations and litigation, global health emergencies, and actions of activist investors.
  • Risk: Material weaknesses in its internal control over financial reporting related to ineffective information technology general controls.

Potential Implications

Company Performance

  • Management highlights strong demand for ocean transportation and airfreight out of Asia.
  • Management acknowledges the impact of geopolitical tensions and port labor disruptions on supply chains.
  • Management emphasizes the importance of maintaining good working relationships with service providers.
  • Management notes the uncertainty in the global economic and trade environments, including inflation, volatility in oil prices, and high interest rates.

Stock Price

  • Material Weaknesses in IT Controls: The most significant red flag is the identified material weaknesses in internal control over financial reporting related to ineffective information technology general controls. This could result in loss of investor confidence and adversely impact the stock price.

Expeditors International of Washington, Inc. (EXPD) – Form 10-K Analysis – FY2024

Executive Summary

This report analyzes Expeditors International of Washington, Inc.’s (EXPD) Form 10-K for the fiscal year ended December 31, 2024. EXPD demonstrated revenue growth driven by strong demand in ocean and air freight, particularly out of Asia. However, material weaknesses in internal controls related to IT systems persist, posing a risk. While management believes the financial statements are fairly presented, the adverse opinion on internal controls is a concern. Given the mixed signals of growth and control weaknesses, a Hold rating is appropriate. Investors should monitor the remediation of IT control weaknesses and the impact of economic uncertainties on future performance.

Company Overview

Expeditors International of Washington, Inc. is a global logistics services provider, offering air and ocean freight consolidation and forwarding, customs brokerage, warehousing, and distribution, and other supply chain solutions. The company operates a global network without owning transportation assets, focusing on purchasing cargo space from carriers and reselling it to customers.

Detailed Analysis

Financial Performance

Revenue Analysis

Total revenues increased by 14% from $9.3 billion in 2023 to $10.6 billion in 2024.

  • Airfreight services revenues increased by 13%, driven by a 12% increase in tonnage and a 2% increase in average sell rates.
  • Ocean freight and ocean services revenues increased by 33%, primarily due to a 7% increase in containers shipped and a 38% increase in average sell rates.
  • Customs brokerage and other services revenues increased by 2%, driven by higher shipment volumes.

Operating Income Analysis

Operating income increased by 11% from $939.9 million in 2023 to $1,041.3 million in 2024.

Key factors influencing operating income:

  • Increased demand for ocean transportation due to disruptions in the Red Sea, leading to higher buy and sell rates.
  • Strong airfreight demand out of Asia, driven by e-commerce and the technology sector.
  • Increased salaries and related costs due to higher commissions and bonuses.

Key Ratios and Trends

Ratio 2024 2023 Trend
Operating Margin 9.8% 10.1% Slight Decrease
Effective Tax Rate 25.9% 25.9% Stable

Cash Flow Analysis

Net cash provided by operating activities decreased by 31% from $1,053 million in 2023 to $723 million in 2024, primarily due to changes in working capital.

The company returned $1,059 million to shareholders through stock repurchases and dividends.

Management’s Discussion and Analysis (MD&A) Insights

  • Management highlights strong demand for ocean transportation and airfreight out of Asia.
  • Management acknowledges the impact of geopolitical tensions and port labor disruptions on supply chains.
  • Management emphasizes the importance of maintaining good working relationships with service providers.
  • Management notes the uncertainty in the global economic and trade environments, including inflation, volatility in oil prices, and high interest rates.

Risk Factors

  • Industry Risks: Reduction in international commerce, intense competition, and failure to adapt to customer requirements.
  • Operational Risks: Dependence on personnel, reliance on technology, reliance on service providers, and potential disruptions from catastrophic events.
  • Government Regulation and Tax Risks: Complex regulatory environment, anti-corruption laws, and adverse determinations in tax audits.
  • General Risks: Investigations and litigation, global health emergencies, and actions of activist investors.
  • Material Weaknesses in Internal Control: The company identified material weaknesses in its internal control over financial reporting related to ineffective information technology general controls. This could result in loss of investor confidence and adversely impact the stock price.

Uncommon Metrics & Red Flags

  • Material Weaknesses in IT Controls: The most significant red flag is the identified material weaknesses in internal control over financial reporting related to ineffective information technology general controls. The company is working on remediation, but the timeline is uncertain.
  • Cybersecurity Risks: The company acknowledges the increasing reliance on technology systems and infrastructure and the need to safeguard digital infrastructure.

Conclusion & Actionable Insights

Expeditors International of Washington, Inc. demonstrated solid revenue growth in 2024, driven by strong demand in ocean and air freight. However, the material weaknesses in internal controls related to IT systems are a significant concern. While management believes the financial statements are fairly presented, the adverse opinion on internal controls is a risk that investors should monitor closely.

Recommendations:

  • Hold Rating: Given the mixed signals of growth and control weaknesses, a Hold rating is appropriate.
  • Monitor Remediation of IT Control Weaknesses: Investors should closely monitor the company’s progress in remediating the identified material weaknesses in internal control over financial reporting.
  • Assess Impact of Economic Uncertainties: Investors should assess the impact of economic uncertainties, geopolitical tensions, and trade policies on the company’s future performance.

Expeditors International of Washington, Inc. (EXPD) Financial Analysis – 2024

1. Financial Ratio and Metric Analysis:

Profitability:

  • Gross Profit Margin:

    • Calculation: (Total Revenues – Directly related cost of transportation and other expenses) / Total Revenues
    • 2024: ($10,600,515 – $7,186,718) / $10,600,515 = 32.20%
    • 2023: ($9,300,110 – $6,054,000) / $9,300,110 = 34.80%
    • 2022: ($17,071,284 – $12,576,897) / $17,071,284 = 26.33%
    • Trend: (32.20% – 34.80%) / 34.80% = -7.47%
    • Industry: The freight forwarding and logistics industry typically sees gross profit margins ranging from 20% to 40%. Expeditors’ current gross profit margin is within this range.
  • Operating Profit Margin:

    • Calculation: Operating Income / Total Revenues
    • 2024: $1,041,323 / $10,600,515 = 9.82%
    • 2023: $939,933 / $9,300,110 = 10.11%
    • 2022: $1,824,371 / $17,071,284 = 10.69%
    • Trend: (9.82% – 10.11%) / 10.11% = -2.87%
    • Industry: Operating profit margins in this industry generally range from 5% to 15%. Expeditors’ operating margin is within this range.
  • Net Profit Margin:

    • Calculation: Net Earnings Attributable to Shareholders / Total Revenues
    • 2024: $810,073 / $10,600,515 = 7.64%
    • 2023: $752,883 / $9,300,110 = 8.09%
    • 2022: $1,357,399 / $17,071,284 = 7.95%
    • Trend: (7.64% – 8.09%) / 8.09% = -5.56%
    • Industry: Net profit margins in the logistics industry can vary widely, but a range of 3% to 8% is common. Expeditors’ net profit margin is within this range.
  • Return on Assets (ROA):

    • Calculation: Net Earnings Attributable to Shareholders / Total Assets
    • 2024: $810,073 / $4,754,458 = 17.04%
    • 2023: $752,883 / $4,523,809 = 16.64%
    • Trend: (17.04% – 16.64%) / 16.64% = 2.41%
    • Industry: An ROA of 5% or higher is generally considered good. Expeditors’ ROA is very strong, indicating efficient asset utilization.
  • Return on Equity (ROE):

    • Calculation: Net Earnings Attributable to Shareholders / Total Shareholders’ Equity
    • 2024: $810,073 / $2,223,012 = 36.44%
    • 2023: $752,883 / $2,390,350 = 31.49%
    • Trend: (36.44% – 31.49%) / 31.49% = 15.72%
    • Industry: An ROE of 10% or higher is generally considered good. Expeditors’ ROE is exceptionally high, indicating strong profitability relative to shareholder investment.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Calculation: Provided in the filing.
    • Basic EPS 2024: $5.75
    • Basic EPS 2023: $5.05
    • Basic EPS 2022: $8.33
    • Diluted EPS 2024: $5.72
    • Diluted EPS 2023: $5.01
    • Diluted EPS 2022: $8.26
    • Trend (Basic): ($5.75 – $5.05) / $5.05 = 13.86%
    • Trend (Diluted): ($5.72 – $5.01) / $5.01 = 14.17%
    • Industry: EPS varies significantly across the industry. Expeditors’ EPS indicates solid profitability on a per-share basis.

Liquidity:

  • Current Ratio:

    • Calculation: Total Current Assets / Total Current Liabilities
    • 2024: $3,659,775 / $2,066,473 = 1.77
    • 2023: $3,435,196 / $1,704,412 = 2.02
    • Trend: (1.77 – 2.02) / 2.02 = -12.38%
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. Expeditors’ current ratio is within this range, indicating good liquidity.
  • Quick Ratio (Acid-Test Ratio):

    • Calculation: (Total Current Assets – Inventory) / Total Current Liabilities. Since inventory is not explicitly listed, we will assume deferred contract costs are similar to inventory and use that.
    • 2024: ($3,659,775 – $349,343) / $2,066,473 = 1.60
    • 2023: ($3,435,196 – $218,807) / $1,704,412 = 1.89
    • Trend: (1.60 – 1.89) / 1.89 = -15.34%
    • Industry: A quick ratio above 1.0 is generally considered acceptable. Expeditors’ quick ratio is above 1.0, suggesting good short-term liquidity.
  • Cash Ratio:

    • Calculation: Cash and Cash Equivalents / Total Current Liabilities
    • 2024: $1,148,320 / $2,066,473 = 0.56
    • 2023: $1,512,883 / $1,704,412 = 0.89
    • Trend: (0.56 – 0.89) / 0.89 = -37.08%
    • Industry: A cash ratio of 0.5 or higher is often considered adequate. Expeditors’ cash ratio indicates a reasonable ability to cover current liabilities with cash.

Solvency/Leverage:

  • Debt-to-Equity Ratio:

    • Calculation: Total Liabilities / Total Shareholders’ Equity
    • 2024: ($4,754,458 – $2,223,012) / $2,223,012 = 1.14
    • 2023: ($4,523,809 – $2,390,350) / $2,390,350 = 0.89
    • Trend: (1.14 – 0.89) / 0.89 = 28.09%
    • Industry: A debt-to-equity ratio of 1.0 or lower is generally considered conservative. Expeditors’ ratio is slightly above 1.0, indicating moderate leverage.
  • Debt-to-Assets Ratio:

    • Calculation: Total Liabilities / Total Assets
    • 2024: ($4,754,458 – $2,223,012) / $4,754,458 = 0.53
    • 2023: ($4,523,809 – $2,390,350) / $4,523,809 = 0.47
    • Trend: (0.53 – 0.47) / 0.47 = 12.77%
    • Industry: A debt-to-assets ratio below 0.5 is generally considered good. Expeditors’ ratio is slightly above this, suggesting a moderate level of debt financing.
  • Interest Coverage Ratio (Times Interest Earned):

    • Calculation: Earnings Before Interest and Taxes (EBIT) / Interest Expense. Interest expense is not explicitly listed, so we will calculate it by subtracting earnings before income taxes from operating income.
    • 2024: $1,094,800 / ($1,041,323 – $1,094,800) = -$1,094,800 / $53,477 = -20.47. Since the value is negative, it means that the company has more interest income than expense.
    • 2023: $1,015,028 / ($939,933 – $1,015,028) = -$1,015,028 / $75,095 = -13.52. Since the value is negative, it means that the company has more interest income than expense.
    • Industry: A ratio of 3 or higher is generally considered safe. Expeditors has more interest income than expense.

Activity/Efficiency:

  • Inventory Turnover: Not applicable, as Expeditors is a service-based company and does not hold significant inventory.
  • Days Sales Outstanding (DSO):

    • Calculation: (Accounts Receivable / Total Revenues) * 365
    • 2024: ($1,997,840 / $10,600,515) * 365 = 68.71 days
    • 2023: ($1,532,599 / $9,300,110) * 365 = 60.17 days
    • Trend: (68.71 – 60.17) / 60.17 = 14.20%
    • Industry: DSO varies by industry, but a lower DSO is generally preferred. Expeditors’ DSO indicates the average number of days it takes to collect receivables.
  • Days Payable Outstanding (DPO):

    • Calculation: (Accounts Payable / Total Revenues) * 365
    • 2024: ($1,036,749 / $10,600,515) * 365 = 35.69 days
    • 2023: ($860,856 / $9,300,110) * 365 = 33.83 days
    • Trend: (35.69 – 33.83) / 33.83 = 5.50%
    • Industry: DPO indicates the average number of days it takes to pay suppliers.
  • Asset Turnover:

    • Calculation: Total Revenues / Total Assets
    • 2024: $10,600,515 / $4,754,458 = 2.23
    • 2023: $9,300,110 / $4,523,809 = 2.06
    • Trend: (2.23 – 2.06) / 2.06 = 8.25%
    • Industry: A higher asset turnover ratio indicates greater efficiency in using assets to generate revenue. Expeditors’ asset turnover is relatively high, suggesting efficient asset utilization.

Valuation:

  • Price-to-Earnings Ratio (P/E):

    • Calculation: Stock Price / EPS (Diluted)
    • Stock Price: $116.40 (as of 2025-02-21)
    • EPS (Diluted) 2024: $5.72
    • P/E Ratio: $116.40 / $5.72 = 20.35
    • Industry: The average P/E ratio for the S&P 500 is around 20-25. Expeditors’ P/E ratio is within this range.
  • Price-to-Book Ratio (P/B):

    • Calculation: Market Cap / Total Shareholders’ Equity
    • Market Cap: Shares Outstanding * Stock Price = 138,003 * $116.40 = $16,063,669.20 (in thousands $16,063)
    • Total Shareholders’ Equity 2024: $2,223,012
    • P/B Ratio: $16,063 / $2,223,012 = 7.23
    • Industry: A P/B ratio between 1 and 3 is often considered reasonable. Expeditors’ P/B ratio is higher, which could indicate that the stock is overvalued or that investors expect high growth.
  • Price-to-Sales Ratio (P/S):

    • Calculation: Market Cap / Total Revenues
    • Market Cap: $16,063 (in thousands)
    • Total Revenues 2024: $10,600,515
    • P/S Ratio: $16,063 / $10,600,515 = 1.51
    • Industry: A P/S ratio below 2 is generally considered good. Expeditors’ P/S ratio is below this threshold.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Calculation: (Market Cap + Total Debt – Cash) / EBITDA
    • Market Cap: $16,063 (in thousands)
    • Total Debt: $4,754,458 – $2,223,012 – $1,036,749 – $451,921 – $441,927 – $106,736 – $29,140 – $462,201 = $0 (There is no debt)
    • Cash: $1,148,320
    • EBITDA: Operating Income + Depreciation and Amortization = $1,041,323 + $61,090 = $1,102,413
    • EV/EBITDA: ($16,063 + 0 – $1,148) / $1,102 = 13.53
    • Industry: An EV/EBITDA ratio between 10 and 15 is often considered reasonable. Expeditors’ EV/EBITDA ratio is within this range.

Growth Rates:

  • Revenue Growth:

    • Calculation: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue
    • 2024: ($10,600,515 – $9,300,110) / $9,300,110 = 13.98%
    • Industry: Revenue growth varies significantly across the industry.
  • Net Income Growth:

    • Calculation: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income
    • 2024: ($811,633 – $751,779) / $751,779 = 8.0%
    • Industry: Net income growth varies significantly across the industry.
  • EPS Growth:

    • Calculation: (Current Year EPS – Previous Year EPS) / Previous Year EPS
    • 2024: ($5.72 – $5.01) / $5.01 = 14.17%
    • Industry: EPS growth varies significantly across the industry.

Other Relevant Metrics:

  • The company does not provide any company-specific KPIs or non-GAAP metrics in the provided filing.

2. Commentary:

Expeditors International’s financial performance in 2024 shows a mixed picture. Revenue and EPS growth are positive, indicating continued business expansion and profitability. However, the gross profit margin and operating profit margin have slightly decreased, suggesting increased costs or pricing pressures. The company maintains strong liquidity and a reasonable level of leverage. Overall, Expeditors demonstrates a solid financial position with continued growth, although some margin compression warrants monitoring.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️