Expeditors 1Q17: Volume and revenue rise as net income drops

Although Expeditors International of Washington, Inc., transported significantly more air and oceanfreight during 1Q17, compared to 1Q16, Expeditors’ operating margin (operating income as a percentage of net revenue) fell below the company’s 30 percent benchmark, to 28 percent. Of course, most companies would kill for a 28 percent margin, but for Expeditors, falling below 30 percent is a rarity.

On the bright side, airfreight volumes jumped 16 percent, and even oceanfreight tonnage rose 7 percent y-o-y during the 1Q17. Larger volumes boosted net revenues, which rose 2.0 percent to $528 million, though operating income for the quarter dropped 3.8 percent to $146 million. Net income meanwhile, was 3.4 percent lower y-o-y, at $93 million.

Although it is reassuring that in monthly comparisons with 2016, Expeditors’ airfreight volumes saw double-digit growth each month during the first quarter of 2017 (and 20 percent in March), a tougher pricing environment caused expenses to rise more steeply than revenue. Expeditors is well-aware of the rate pressure, and said that it expects rates to eventually stabilize.

Regarding yields, CEO Jeffrey Musser said, “As expected and previously noted, we continued to experience the rate pressure that we have seen in recent quarters. Over the long term, we expect this rate volatility to subside and that we will return to more historical pricing patterns. Bradly Powell, SVP, and CFO added, “Operating income as a percentage of net revenue was 28 percent, which is below our 30 percent operating benchmark, largely due to volume increases being offset by lower average net rates.”