Wednesday, August 3, 2016

DO EXPEDITORS' FINANCIALS MAKE THEM A TAKEOVER TARGET?

Expeditors 'a takeover target' as results and revenue prospects disappoint



Senior executives from Expeditors, North America’s largest freight forwarder, put on a brave face yesterday, releasing second-quarter and first-half results revealing revenue and profit on the decline.
Total revenues for group operations – air and sea freight forwarding and customs brokerage services – fell year-on-year in Q2 by 13% to $1.47bn, while net profit was down 1% to $116m.
The declines came despite a 2% growth in air freight tonnage. Ocean freight volumes declines by 1%.
However, there was a slight fillip towards the end of the quarter, in terms of volumes: air freight tonnage which decreased 1% year on year in April and were flat in May, grew 9% in June.
However, the same could not be said of container volumes, which reflected the general market weakness during the period. The company’s teu count was flat year-on-year on April and fell 1% and 2% in May and June respectively.
Over the half-year, Expeditors revenue declined 14% year-on-year to $2.89bn,  with operating profit down 6% $330m and net profit down 5% to $213m.
However, with a reduced share count after recent corporate buybacks, it did claim to deliver the best quarterly earnings per share to shareholders in the firm’s history.
President and chief executive Jeffrey Musser said: “We made significant progress in the second quarter, especially in Asia and the US, and continued to make the right investments with the right people to advance out strategic initiatives.
“When faced with the same challenges we experienced in the first quarter, our people did again what they do best, which is drive efficiency and provide highly optimised solutions for our customers.
“The global economic environment remains uncertain, particularly in Europe, and trade continues to slow. Despite these conditions, we continue to gain new customers and expand our market share, and we generated the best quarter of EPS in our history. We remain focused on implementing our strategic plan, with emphasis on markets to and within China and by further leveraging our strength in North America.”
Chief finance officer Bradley Powell added: “Even though rates remained volatile this quarter, we achieved an operating income margin as a percent of net revenues above 30%, as our people remain highly disciplined on costs and continue to take advantage of available capacity and rates in all parts of our business.
“We are investing in the growth of our company, but not without keeping an eye on our margins or allowing costs to impact out profitability, cash flow and returns to shareholders.”
Expeditors has long been a byword for a conservative approach to freight forwarding. It has generally eschewed acquisitions as a means of growth, preferring grow organically by opening up its own offices and internal staff development. It has also stayed away from contract logistics and supply chain management services that other forwarders have embraced as traditional freight forwarding margins have eroded.
Transport Intelligence’s recent Global Freight Forwarding 2016 Report identifies the company’s individualistic streak as both a weakness and strength.
“Expeditors’ long-term strategy has been to pursue organic development rather than growth through acquisition. It invests in training its staff and considers its qualified, experienced employees as one of its main competitive advantages.”
But that strategy could also leave it exposed during times of upheaval, Ti argues, and describes the company as possibly “lacking agility”.
And with the Chinese economy appearing to weaken by the quarter, Ti questions Expeditors’ future revenue streams, suggesting it could itself become a takeover target.
“The slowdown in China’s economy is very likely to curtail revenue growth for the company. Given its sector focus and profitability, there is a possibility that Expeditors may become a target.”