A third-party logistics provider, Expeditors International of Washington Inc. (EXPD) reported robust first quarter 2011 results on May 4. Adjusted earnings per share outpaced the Zacks Consensus Estimate by a nickel and were 14 cents above the year-ago earnings.
First Quarter Review
Expeditors’ net income shot up roughly 50% year over year. Revenues improved comprehensively owing to market share gains and were ahead of the Zacks Consensus Estimate. Airfreight Services, Ocean Freight and Ocean Services and Customs Brokerage and Other Services revenues remained healthy during the quarter.
Gross income as well as operating income showed a whopping growth on the back of operating efficiency and strong cost control measures. Gross margin (yield) also improved from the year-ago quarter.
(Read our full coverage on this earnings report: Expeditors Outperforms, Profit Ups)
Agreement of Analysts
The trend noticed over the last 30 days shows the analysts’ positive bias in estimate revisions for the upcoming quarter and 2 fiscal years. Estimates remained unchanged in the last 7 days.
For the upcoming quarter, out of 16 analysts, 14 made upward revisions to their estimates while 1 moved in the opposite direction.
Similarly, 15 out of 18 analysts revised their estimates upward for fiscal 2011 and 12 out of 16 analysts made the same revision for fiscal 2012. None of the analysts moved in the opposite direction for both the years.
The analysts believe Expeditors International is poised to benefit from increasing global trade, market share gains, productivity improvement and a growing presence in international trade.
The analysts expect Expeditors to show continued improvement throughout 2011. Gross margin (yield) will improve going forward owing to increases in air and ocean freight capacity. Operating margin expansion will grow moderately on increased hiring. Though hiring will maintain better service levels and support future growth, it will lead to increased employee bonuses. In addition, the ongoing operating efficiencies and Expeditors’ ability to pass on the higher rates to customers will drive profitability.
Further, the analysts are encouraged by the company’s sound balance sheet. The company’s asset-light business model allows it to maintain a debt-free balance sheet. The company’s cash balance is expected to grow as it focuses on organic growth and return a portion to shareholders in the form of increased dividends or share repurchases. In the past years, the company increased its dividend constantly and will pay an annual dividend of 50 cents per share in 2011, representing a dividend yield of 0.96%.
The dividend yield is higher than its rival FedEx Corporation (FDX) but lower than United Parcel Service Inc. (UPS).
Over the long term, Expeditors is investing in new opportunities and services, including those in the aerospace, pharmaceutical/health care, aviation, and energy verticals. Thus, the company is well positioned to grow its top line in the ongoing economic recovery.
Magnitude –– Consensus Estimate Trend
The Zacks Consensus Estimate for the second quarter remained stable at 46 cents over the last 7 days but increased by 2 cents over the last 30 days. The estimate represents a 10.57% increase year over year.
Similarly, for fiscal 2011, the Zacks Consensus Estimate remained static at $1.91 over the last 7 days but increased from $1.83 in the last 30 days. The estimate represents a substantial 20.16% increase year over year.
For fiscal 2012, the Zacks Consensus Estimate remained unchanged at $2.18 over the last 7 days but increased by 8 cents over the last 30 days, representing an increase of 14.33% annually.
Earning Surprises
With respect to earnings surprises, the company’s fairly good track record is expected to continue in the coming quarters. Expeditors produced a positive average earnings surprise of 9.51% over the last four quarters, which suggests that it outpaced the Zacks Consensus Estimate by that amount over the last year.
Neutral Recommendation
We expect Expeditors to benefit from a slow and steady economic recovery as capacity constraints ease. Expeditors is focused on gaining market share, expanding gross profits, easing capacity constraints as well as increasing operational efficiency. Additionally, Expeditors’debt-free balance sheet, superior executionand ability to return cash to shareholders in the form of dividends make it attractive for investment. This substantiates the short-term (1-3 months) Buy rating with the Zacks # 2 (Buy) Rank.
However, competitive threats as well as the company’s dependence on asset-based transportation providers may hinder its profitability in the long term. Hence, we are maintaining our long-term Neutral rating on Expeditors International.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
EXPEDITORS INTL (EXPD): Free Stock Analysis Report
FEDEX CORP (FDX): Free Stock Analysis Report
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