EXPEDITORS INTERNATIONAL OF WASHINGTON INC (EXPD)·Q2 2024 Earnings Summary

Executive Summary

• Q2 2024 delivered solid top-line growth with revenues up 9% year over year to $2.439B, but profitability compressed: EPS fell 5% to $1.24, operating income declined 10% to $224M, and net income decreased 11% to $175M as buy rate increases outpaced sell rates amid capacity disruptions and rate volatility .
• Sequentially, volumes strengthened (air tonnage +10% vs Q1; ocean volumes up for a second quarter), but margins tightened as constrained air capacity (e-commerce) and Red Sea reroutings pressured pricing and efficiency .
• Management reiterated focus on achieving its 30% efficiency target (operating income as a percentage of revenue less directly related costs) and continued investing in technology and network security; compensation remained the largest and most variable operating expense .
• Shareholder returns totaled about $205M via dividends and buybacks in Q2; cash from operations was $127M as working capital movements offset earnings .
• Near-term stock catalysts likely hinge on freight rate dynamics (air e-commerce demand vs carrier capacity), Red Sea disruptions, and potential ILA labor outcomes; Expeditors’ non-asset model and wide carrier footprint position it to navigate volatility .

What Went Well and What Went Wrong

What Went Well

• Airfreight tonnage rose 15% YoY and 10% sequentially; management highlighted strong international direct e-commerce demand from North Asia and manufacturing relocations supporting air volumes. “Air tonnage improved 15% year-over-year and 10% sequentially… international direct e-commerce demand from North Asia outweighed increased carrier capacity” .
• Ocean volumes increased sequentially for the second quarter, with management adapting to Red Sea-related blank sailings and longer transits by keeping costs in check and pivoting operations as needed .
• Continued investment in technology and security, with increased IS headcount to “add critical enhancements to further bolster… technology solutions, network and security” and recent additions of a CISO and CTO to enhance critical systems .

What Went Wrong

• Profitability was pressured as buy rates outpaced sell rates in both air and ocean, compressing margins despite improved volumes: operating margin declined YoY and QoQ, and EPS and net income fell YoY .
• Expenses remained above the 30% efficiency target, with compensation the largest and most variable operating expense; management continues aligning shipment activity with headcount but notes this remains a work-in-progress .
• Macro and geopolitical disruptions (Red Sea, port congestion, blank sailings) reduced schedule reliability and increased transit times; management emphasized uncertainty in demand, capacity, and pricing, limiting visibility beyond day-to-day activity .

Financial Results

Key P&L Metrics and Margins

Notes: Operating and net margin percentages are calculated from cited revenue and income figures.

YoY context (Q2 2024 vs Q2 2023): Revenue +9%, EPS -5%, Operating Income -10%, Net Earnings -11% .

Service Segment Breakdown (Revenue)

Geographic Segment Operating Income

KPIs and Operational Metrics

Guidance Changes

Note: Expeditors does not provide formal quantitative revenue/EPS guidance; commentary focuses on efficiency, cost alignment, and operational investments .

Earnings Call Themes & Trends

Management Commentary

• CEO Jeffrey S. Musser: “Air market capacity has been constrained by e-commerce demand, and ocean routing has been significantly disrupted by geopolitical events in the Red Sea… We have continued to adjust to the disruptions and uneven demand, keeping costs in check while we work to bring efficiency back in line with historical expectations” .
• CEO Jeffrey S. Musser: “Air tonnage improved 15% year-over-year and 10% sequentially… The air markets have further been impacted by manufacturing relocations… Even though ocean volumes increased for a second sequential quarter, buy rate increases outpaced higher sell rates” .
• CFO Bradley S. Powell: “Expenses are still high compared to our 30% efficiency target… compensation being our largest and most variable operating expense. We continue to focus on alignment of shipment activity with headcount… we will continue to make important investments in people, processes and technology” .
• CFO Bradley S. Powell: Company returned $205M to shareholders in common stock repurchases and dividends during Q2 2024 .
• Reg FD Q&A: “Our incentive-based compensation structure is working as designed… Salaries and related costs declined 17% in 2023 compared to 2022, largely due to lower bonus and commissions” .

Q&A Highlights

• Headcount strategy: No mass layoffs; variable comp acts as regulator; majority of 2023 reductions were operational, with 2024 focusing on reallocation and readiness for volume growth .
• Efficiency metrics: Shipments-per-person near pre-pandemic levels; operating efficiency metric fell below 30% in late 2023, with efforts to re-adjust to pre-pandemic-like conditions .
• Technology investment: IS headcount up >30% over four years; additions of CISO and CTO reflect prioritization of system integration and cyber risk mitigation .
• Customs brokerage landscape: Core, profitable business with stable competitive dynamics; lower tonnage does not necessarily equate to fewer transactions .

Estimates Context

• S&P Global consensus for Q2 2024 EPS and revenue was unavailable at the time of request due to data access limits, so a beat/miss assessment vs Wall Street consensus cannot be provided. Management-reported EPS of $1.24 and revenue of $2.439B are used for factual comparison in this recap .
• Given margin compression and buy rates outpacing sell rates, near-term estimate revisions may focus on profitability rather than volumes until rate dynamics normalize .

Key Takeaways for Investors

• Stronger volumes, weaker margins: Revenue growth (+9% YoY) and air/ocean sequential volume gains were offset by buy/sell rate imbalances, driving EPS (-5% YoY) and margin compression—watch rate trends and carrier capacity additions for inflection signals .
• Efficiency focus: Management is prioritizing alignment of headcount and shipment activity and a return toward the 30% efficiency target; progress here is a key lever for earnings resilience in volatile markets .
• Tech/security investments continue: Elevated IS hiring and leadership additions (CISO/CTO) support integration and cyber risk management, anchoring operational reliability—likely a medium-term differentiator .
• Cash returns intact: ~$205M returned in Q2 via dividends and buybacks with ongoing balance-sheet flexibility; monitor free cash flow amid working capital swings .
• Macro/geopolitical risk: Red Sea rerouting, blank sailings, and potential U.S. ILA labor actions are key external variables impacting rates and capacity—Expeditors’ diversified carrier footprint and non-asset model help mitigate, but near-term volatility persists .
• Segment setup: Airfreight revenues +14.5% YoY and +13.3% QoQ; Ocean +9.7% YoY and +14.2% QoQ; Customs +3.6% YoY and +5.8% QoQ—volumes are improving but profitability depends on narrowing buy/sell spreads .
• Trading lens: Near-term catalysts include rate stabilization, schedule reliability improvements, and clarity on labor outcomes; sustained progress on efficiency and buy/sell rate balance would support margin recovery .