Expeditors International of Washington Inc.
), one of the leading third-party logistics (3PL) providers, is
slated to release its third quarter 2012 results on Tuesday,
November 6. The current Zacks Consensus Estimate for the quarter
is pegged at 43 cents per share, representing a year-over-year
increase of 10.6%.
Expeditors' second quarter adjusted earnings of 39 cents per
share missed the Zacks Consensus Estimate of 43 cents and
deteriorated 11% from 44 cents earned in the year-ago quarter.
Weak revenues from air and ocean freight segments were primarily
responsible for the underperformance.
Total revenue decreased 5% year over year to $1.5 billion, and
missed the Zacks Consensus Estimate of $1.6 billion.
Agreement of Estimate Revisions
Estimate revisions for the company mostly show a downward
For the third quarter, out of 17 estimates none moved upward,
while one estimate was revised downward in the last 7 days. For
the last 30 days, none of the estimates were revised upward,
while five downward revisions were made.
For 2012, out of 18 estimates, no upward or downward revisions
were made in the last 7 days. Over the last 30 days, no positive
estimate revisions were made but three estimates were revised
For 2013, out of 18 estimates, one was revised positively,
whereas no negative revision was registered in the last 7 days.
Over the last 30 days, one each was revised in either
We believe that if the company does not concentrate on higher
cost pass through to customers, poor margin scenario will likely
persist in the near term. We expect a negative impact on the
company's margins due to freight rate increases by third party
carriers, particularly across Asia-U.S. trading networks.
On July 11, 2012, 15 ocean carriers operating in the eastbound
Asia-to-U.S. trade represented by the Transpacific Stabilization
Agreement (TSA) announced their largest rate increases for 2012.
Ocean freight margins are further expected to be negatively
impacted as oceanliners are unlikely to offer any volume
discounts. This may lead to higher freight rates that will affect
freight forwarders' purchased transportation cost.
In addition, lower demand impacted by global economic slowdown
would remain a constant headwind in the remainder of the year,
resulting in below-average volume growth.
However, the company has been delivering solid net revenue and
operating income backed by strong cost-control measures despite
the downturn in global freight demand. These parameters could
continue aiding earnings improvements for the company in the near
term and beyond.
The company does not expect any headcount addition in the near
term in proportion to volume growth, which indicates margin
Magnitude of Estimate Revisions
Over the last 7 the magnitude of the third quarter estimate
revisions remained unchanged at 43 cents and dropped by a penny
over the last 30 days.
For fiscal 2012, the Zacks Consensus Estimate remained static
at $1.64 over the last 7 and 30 days.
Similarly, for fiscal 2013, the Zacks Consensus Estimate
remained was $1.92, unchanged over the last 7 and 30 days.
The company has delivered negative earnings surprises over the
trailing four quarters with an average miss of 4.62%.
We remain encouraged by the company's best in-class position
in the 3PL market. We expect Expeditors to benefit from growing
supply chains and capacity constraints in the freight market,
thereby supporting pricing gains. Further, the company's
debt-free balance sheet is encouraging and provides flexibility
for internal growth. Over the long term, Expeditors is poised for
growth as it plans to expand its presence and operations
internationally as well as invest in new opportunities and
However, intense competition from major rivals like
CH Robinson Worldwide Inc.
) and dependence on asset-based transportation providers may
hinder its profitability over the long term.
We are currently maintaining our long-term Neutral
recommendation on Expeditors International. The company retains a
Zacks #3 Rank (a short-term Hold rating).
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