Earnings Preview: Expeditors

Zacks

Expeditors International of Washington Inc. (EXPD), one of the leading third-party logistic (3PL) providers, is slated to release its second quarter 2012 results on Tuesday, August 7. The current Zacks Consensus Estimate for second quarter earnings is pegged at 43 cents per share, representing an annualized growth of a negative 1.42%.

First-Quarter Flashback

Expeditors’ first quarter adjusted earnings of 36 cents per share that missed the Zacks Consensus Estimate by a penny and deteriorated 14% from 42 cents earned in the year-ago quarter. A lackluster revenue performance across most of its segments was responsible for the downfall.

Total revenue also decreased 3% year over year to $1.4 billion, missing the Zacks Consensus Estimate of $1.5 billion, owing to lower-than-expected peak seasonal demand throughout the quarter.

Agreement of Estimate Revisions

Estimates revisions for the company mostly show a downward trend.

For the second quarter, no upward or downward change has been registered in last 7 days. Over the last 30 days, 4 analysts out of 16 have made downward revisions.

Similarly, for fiscal 2012, out of 17 analysts none made any change over the last 7 days. Over the last 30 days, none of the analysts made any upward revision but 4 moved down.

For fiscal 2013, out of 17 analysts, none moved in either direction over the last 7 days. Over the last 30 days, no positive change was registered but 2 analysts revised the stock negatively.

Given the bleak economic outlook that is affecting the demand trend, analysts remain conservative over the company’s earnings expectation.

Despite the company’s strong position in global 3PL market, we remain cautious on near-term softness in demand, particularly in ocean freight which has resulted in lower stockpiles. Further, lower demand from the Asian market would continue to be a significant headwind over the near term. Going forward, these emphasize on the rising freight rates by third party carriers, which may weigh on the company’s margin this year.

Magnitude of Estimate Revisions

Over the last 7 days, the magnitude of the second quarter estimates revisions remained unchanged at 43 cents. However, the earnings estimate dropped by a penny from 44 cents over the last 30 days.

For fiscal 2012, the Zacks Consensus Estimate remained static over the last 7 days at $1.79 but dropped by a penny over the last 30 days.

For fiscal 2013, the Zacks Consensus Estimate remained pegged at $2.10 over the last 7 days but dropped from $2.11 over the last 30 days.

Earnings Surprises

With respect to earnings surprise, over the trailing four quarters, Expeditors underperformed the Zacks Consensus Estimate, with the average surprise being a negative 3.38%.

The current Zacks Consensus Estimate for the ongoing quarter contains a downside risk of 2.33%. For fiscal 2012 and 2013, the Zacks Consensus Estimates’ downside risk is measured at 2.24% and 3.81%, respectively.

Our Recommendation

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 services.

However, intense competition from major rivals like CH Robinson Worldwide Inc. (CHRW), 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 (Hold).

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