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Expeditors Reports Fourth Quarter 2018 EPS of $1.02

Expeditors International of Washington, Inc. (NASDAQ:EXPD) today announced fourth quarter 2018 financial results including the following highlights compared to the same quarter of 2017:

  • Diluted Net Earnings Attributable to Shareholders per share (EPS1) increased 11% to $1.02
  • Net Earnings Attributable to Shareholders increased 7% to $179 million
  • Operating Income increased 9% to $217 million
  • Revenues increased 18% to $2.24 billion
  • Net Revenues2 increased 8% to $681 million
  • Airfreight tonnage volumes increased 2% and ocean container volumes increased 10%

“The fourth quarter marked a strong finish to a record year of growth in revenues, net revenues, volumes, and profitability,” said Jeffrey S. Musser, President and Chief Executive Officer. “The air and ocean markets have continued to be highly unpredictable, with ongoing shifts in the balance of supply and demand requiring extra attention to address the needs of each individual customer. These are the conditions when our people really prove themselves, as they did in Q4 and throughout the year. I commend them for continuing to grow volumes in ocean and air, with a determined focus on profitability. During the quarter, our air and customs brokerage segments were particularly strong once again. In addition, we further improved our ocean business by growing volumes while adjusting sell rates. We accomplished all of this in spite of ongoing rate pressure, as the industry evolves and carriers continue to test the supply/demand imbalance.

“Throughout 2018, we did a terrific job of growing net revenues ahead of headcount and related costs,” Mr. Musser continued. “We also generated improved efficiencies, while establishing a selective mix of business partners who value an elevated level of customer service. Our ability to perform well comes from our deeply ingrained, core culture that puts customer service at the forefront.”

Bradley S. Powell, Senior Vice President and Chief Financial Officer, added, “We carefully managed expenses as net revenues grew during the quarter, demonstrating the effectiveness of our processes and technology. During the quarter, net revenues grew at roughly twice the rate of headcount and related expenses, and, at nearly 32%, our fourth quarter operating efficiency (operating income as a percentage of net revenue) was the highest since Q2 2016.”

Mr. Powell noted that the Company’s effective tax rate for the full year was 24.3%, compared to 31.8% in 2017. The Company’s lower effective tax rates were principally due to the lower U.S. federal tax rate that resulted from the 2017 Tax Act, significant share-based compensation deductions, U.S. federal tax credits from withholding taxes related to our foreign operations, and deductions for foreign-derived intangible income. Mr. Powell reiterated that the Company’s effective tax rate will be largely dependent upon the mix of pretax earnings that are generated in its U.S. versus foreign operations, as well as any further interpretations and guidance issued on the tax law in the future.

Expeditors is a global logistics company headquartered in Seattle, Washington. The Company employs trained professionals in 176 district offices and numerous branch locations located on six continents linked into a seamless worldwide network through an integrated information management system. Services include the consolidation or forwarding of air and ocean freight, customs brokerage, vendor consolidation, cargo insurance, time-definite transportation services, order management, warehousing and distribution and customized logistics solutions.

________________________
1 Diluted earnings attributable to shareholders per share.
2 Non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal services. See reconciliation on the last page of this release.
NOTE: See Disclaimer on Forward-Looking Statements on the following page of this release.
Expeditors International of Washington, Inc.
4th Quarter 2018 Earnings Release, February 19, 2019
Financial Highlights for the Three months and Years ended
December 31, 2018 and 2017 (Unaudited)

(in 000's of US dollars except per share data)

Three months ended
December 31,
Years ended
December 31,
20182017% Change20182017% Change
Revenues $ 2,235,597 $ 1,901,371 18% $ 8,138,365 $ 6,920,948 18%
Net revenues3 $ 680,675 $ 628,809 8% $ 2,620,373 $ 2,319,189 13%
Operating income $ 217,007 $ 199,011 9% $ 796,563 $ 700,260 14%
Net earnings attributable to shareholders4 $ 179,210 $ 166,967 7% $ 618,199 $ 489,345 26%
Diluted earnings attributable to shareholders $ 1.02 $ 0.92 11% $ 3.48 $ 2.69 29%
Basic earnings attributable to shareholders $ 1.04 $ 0.94 11% $ 3.55 $ 2.73 30%
Diluted weighted average shares outstanding 175,935 180,635 177,833 181,666
Basic weighted average shares outstanding 172,493 177,523 174,133 179,247
_______________________
3 Non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal services. See reconciliation on the last page of this release.
4 Net earnings in the fourth quarter of 2017 include a $39 million net income tax benefit that resulted from the effect of the 2017 Tax Cut and Jobs Act. This amount was composed of the remeasurement of net deferred tax liabilities and assets, based on the new lower U.S. corporate tax rate, the recording of a provisional estimate of the one-time mandatory tax on the undistributed earnings of the Company's non-U.S. subsidiaries, and the effects of the transition to a territorial tax system in the U.S.

During the three and twelve-month periods ended December 31, 2018, the Company repurchased 1.3 million and 9.0 million shares of common stock at an average price of $71.82 and $71.61 per share, respectively. During the three and twelve-month periods ended December 31, 2017, the Company repurchased 2.1 million and 8.2 million shares of common stock at an average price of $64.52 and $58.16 per share, respectively.

Employee Full-time Equivalents
as of December 31,

20182017
North America 6,833 6,091
Europe 3,375 3,050
North Asia 2,607 2,593
South Asia 1,643 1,623
Middle East, Africa and India 1,520 1,503
Latin America 839 814
Information Systems 912 884
Corporate 352 386
Total 18,081 16,944

Year-over-year percentage
increase/(decrease) in:

Airfreight kilosOcean freight FEU
2018
October 7 % 21 %
November (2 )% 6 %
December 1 % 4 %
Quarter 2 % 10 %
_______________________

Investors may submit written questions via e-mail to: investor@expeditors.com. Questions received by the end of business on February 22, 2019 will be considered in management's 8-K “Responses to Selected Questions.”

Disclaimer on Forward-Looking Statements:

Certain portions of this release contain forward-looking statements, which are based on certain assumptions and expectations of future events that are subject to risks and uncertainties, including comments on delivering customer satisfaction and profitable growth; our ability to perform well; the effectiveness of our processes and technology; our ability to predict our effective tax rates; volatility in equity markets; energy and fuel prices; political changes; foreign exchange rates; regulatory actions or changes or the unpredictable acts of competitors and other risks; and risk factors and uncertainties detailed in our Annual Report as updated by our reports on Form 10-Q, filed with the Securities and Exchange Commission.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)

December 31,
2018

December 31,
2017

Assets

Current Assets:
Cash and cash equivalents $ 923,735 $ 1,051,099
Accounts receivable, net 1,581,530 1,414,741
Deferred contract costs 159,510
Other current assets 70,041 75,612
Total current assets 2,734,816 2,541,452
Property and equipment, net 504,105 525,203
Goodwill 7,927 7,927
Deferred Federal and state taxes, net 40,465 13,207
Other assets, net 27,246 29,219
$ 3,314,559 $ 3,117,008

Liabilities and Equity

Current Liabilities:
Accounts payable $ 902,259 $ 866,305
Accrued expenses, primarily salaries and related costs 215,813 206,320
Contract liabilities 190,343
Federal, state and foreign income taxes 18,424 20,494
Total current liabilities 1,326,839 1,093,119
Noncurrent Federal income tax payable 29,516
Commitments and contingencies
Shareholders’ Equity:
Preferred stock; none issued
Common stock, par value $0.01 per share; issued and outstanding 171,582 shares at December 31, 2018 and 176,374 shares at December 31, 2017 1,716 1,764
Additional paid-in capital 1,896 546
Retained earnings 2,088,707 2,063,512
Accumulated other comprehensive loss (105,481 ) (73,964 )
Total shareholders’ equity 1,986,838 1,991,858
Noncontrolling interest 882 2,515
Total equity 1,987,720 1,994,373
$ 3,314,559 $ 3,117,008
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
Three months endedTwelve months ended
December 31,December 31,
2018201720182017
Revenues:
Airfreight services $ 905,606 $ 854,455 $ 3,271,932 $ 2,877,032
Ocean freight and ocean services 615,053 521,315 2,251,754 2,107,045
Customs brokerage and other services 714,938 525,601 2,614,679 1,936,871
Total revenues 2,235,597 1,901,371 8,138,365 6,920,948
Operating Expenses:
Airfreight services 683,410 636,344 2,410,793 2,126,761
Ocean freight and ocean services 464,281 380,689 1,664,168 1,543,740
Customs brokerage and other services 407,231 255,529 1,443,031 931,258
Salaries and related costs 350,839 336,961 1,393,259 1,267,120
Rent and occupancy costs 39,627 31,906 152,813 119,732
Depreciation and amortization 13,186 13,069 54,019 49,310
Selling and promotion 12,961 11,814 45,346 44,290
Other 47,055 36,048 178,373 138,477
Total operating expenses 2,018,590 1,702,360 7,341,802 6,220,688
Operating income 217,007 199,011 796,563 700,260
Interest income 4,982 3,639 19,153 13,204
Other, net 256 2,547 2,613 5,131
Other income, net 5,238 6,186 21,766 18,335
Earnings before income taxes 222,245 205,197 818,329 718,595
Income tax expense 42,668 37,742 198,539 228,212
Net earnings 179,577 167,455 619,790 490,383
Less net earnings attributable to the noncontrolling interest 367 488 1,591 1,038
Net earnings attributable to shareholders $ 179,210 $ 166,967 $ 618,199 $ 489,345
Diluted earnings attributable to shareholders per share $ 1.02 $ 0.92 $ 3.48 $ 2.69
Basic earnings attributable to shareholders per share $ 1.04 $ 0.94 $ 3.55 $ 2.73
Dividends declared and paid per common share $ 0.45 $ 0.42 $ 0.90 $ 0.84
Weighted average diluted shares outstanding 175,935 180,635 177,833 181,666
Weighted average basic shares outstanding 172,493 177,523 174,133 179,247
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Three months endedTwelve months ended
December 31,December 31,
2018201720182017
Operating Activities:
Net earnings $ 179,577 $ 167,455 $ 619,790 $ 490,383
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for losses on accounts receivable 1,576 2,169 3,808 5,356
Deferred income tax expense (benefit) 5,491 (27,695 ) (12,031 ) (43,695 )
Stock compensation expense 12,976 11,872 56,147 50,908
Depreciation and amortization 13,186 13,069 54,019 49,310
Other (123 ) (4,234 ) 647 (4,382 )
Changes in operating assets and liabilities:
Increase in accounts receivable (58,650 ) (60,981 ) (214,971 ) (184,771 )
(Decrease) increase in accounts payable and accrued expenses (41,824 ) 18,499 86,036 114,631
Decrease (increase) in deferred contract costs 9,138 (42,097 )
(Decrease) increase in contract liabilities (5,221 ) 43,928
(Decrease) increase in income taxes payable, net (10,433 ) 5,450 (19,691 ) 16,264
(Increase) decrease in other current assets (3,643 ) 782 (2,781 ) (5,365 )
Net cash from operating activities 102,050 126,386 572,804 488,639
Investing Activities:
Purchase of property and equipment (9,832 ) (27,413 ) (47,474 ) (95,016 )
Proceeds from sale of property and equipment 143 84,062 215 84,405
Other, net (182 ) 161 (1,140 ) (1,074 )
Net cash from investing activities (9,871 ) 56,810 (48,399 ) (11,685 )
Financing Activities:
Proceeds from issuance of common stock 13,166 42,311 182,732 205,092
Repurchases of common stock (92,138 ) (137,522 ) (647,898 ) (478,258 )
Dividends paid (77,660 ) (74,769 ) (156,840 ) (150,495 )
Payments for taxes related to net share settlement of equity awards (33 ) (3,248 )
Purchase of noncontrolling interest (75 ) (904 ) (688 ) (904 )
Distribution to noncontrolling interest (1,163 ) (1,796 )
Net cash from financing activities (157,903 ) (170,884 ) (627,738 ) (424,565 )
Effect of exchange rate changes on cash and cash equivalents (1,153 ) 5,343 (24,031 ) 24,275
Increase (decrease) in cash and cash equivalents (66,877 ) 17,655 (127,364 ) 76,664
Cash and cash equivalents at beginning of period 990,612 1,033,444 1,051,099 974,435
Cash and cash equivalents at end of period $ 923,735 $ 1,051,099 $ 923,735 $ 1,051,099
Supplemental Cash Flow Information:
Cash paid for income taxes $ 55,811 $ 58,793 $ 239,255 $ 249,704
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Business Segment Information
(In thousands) (Unaudited)

UNITED
STATES

OTHER
NORTH
AMERICA

LATIN
AMERICA

NORTH
ASIA

SOUTH
ASIA

EUROPE

MIDDLE
EAST,
AFRICA
and
INDIA

ELIMI-
NATIONS

CONSOLI-
DATED

Three months ended December 31, 2018:
Revenues from unaffiliated customers $ 637,358 94,452 30,388 814,206 209,025 334,291 115,877 2,235,597
Transfers between geographic areas 51,585 4,144 4,296 6,711 8,768 18,107 5,605 (99,216 )
Total revenues $ 688,943 98,596 34,684 820,917 217,793 352,398 121,482 (99,216 ) 2,235,597
Net revenues $ 294,016 39,442 16,337 145,815 49,480 102,616 33,481 (512 ) 680,675
Operating income $ 97,228 14,528 1,363 68,376 16,833 13,552 5,132 (5 ) 217,007
Identifiable assets $ 1,689,950 161,604 53,542 533,071 152,646 513,744 206,367 3,635 3,314,559
Capital expenditures $ 5,640 239 143 434 248 1,648 1,480 9,832
Depreciation and amortization $ 8,114 479 370 1,311 578 1,838 496 13,186
Equity $ 1,339,673 72,941 26,007 200,371 100,706 157,003 123,228 (32,209 ) 1,987,720
Three months ended December 31, 2017:
Revenues from unaffiliated customers $ 496,584 68,362 27,349 703,578 186,715 307,432 111,351 1,901,371
Transfers between geographic areas 31,807 3,581 3,693 6,266 6,479 14,008 5,532 (71,366 )
Total revenues $ 528,391 71,943 31,042 709,844 193,194 321,440 116,883 (71,366 ) 1,901,371
Net revenues $ 270,999 34,441 14,565 137,776 45,816 93,458 31,294 460 628,809
Operating income $ 86,565 11,548 1,615 64,907 15,623 12,302 6,437 14 199,011
Identifiable assets $ 1,595,140 151,181 55,431 458,152 137,279 501,711 215,495 2,619 3,117,008
Capital expenditures $ 8,720 497 964 1,264 516 15,237 215 27,413
Depreciation and amortization $ 8,628 383 347 1,331 559 1,361 460 13,069
Equity $ 1,337,568 60,705 26,546 240,721 94,516 142,971 123,600 (32,254 ) 1,994,373

UNITED
STATES

OTHER
NORTH
AMERICA

LATIN
AMERICA

NORTH
ASIA

SOUTH
ASIA

EUROPE

MIDDLE
EAST,
AFRICA
and
INDIA

ELIMI-
NATIONS

CONSOLI-
DATED

Twelve months ended December 31, 2018:
Revenues from unaffiliated customers $ 2,336,681 340,122 141,196 2,860,876 748,858 1,268,757 441,875 8,138,365
Transfers between geographic areas 143,131 15,680 15,658 25,446 29,005 61,608 22,196 (312,724 )
Total revenues $ 2,479,812 355,802 156,854 2,886,322 777,863 1,330,365 464,071 (312,724 ) 8,138,365
Net revenues $ 1,126,888 139,049 62,813 570,496 185,938 403,416 133,862 (2,089 ) 2,620,373
Operating income $ 310,071 44,099 8,843 281,481 60,882 65,446 25,731 10 796,563
Identifiable assets $ 1,689,950 161,604 53,542 533,071 152,646 513,744 206,367 3,635 3,314,559
Capital expenditures $ 21,732 4,259 1,042 3,057 2,182 10,815 4,387 47,474
Depreciation and amortization $ 33,511 1,847 1,508 5,309 2,257 7,727 1,860 54,019
Equity $ 1,339,673 72,941 26,007 200,371 100,706 157,003 123,228 (32,209 ) 1,987,720
Twelve months ended December 31, 2017:
Revenues from unaffiliated customers $ 1,851,395 256,359 97,096 2,576,971 661,878 1,072,028 405,221 6,920,948
Transfers between geographic areas 111,163 11,827 14,766 21,405 22,999 43,296 20,848 (246,304 )
Total revenues $ 1,962,558 268,186 111,862 2,598,376 684,877 1,115,324 426,069 (246,304 ) 6,920,948
Net revenues $ 1,008,841 119,071 58,199 509,235 163,450 335,702 121,267 3,424 2,319,189
Operating income $ 277,821 38,131 9,964 248,422 53,057 48,491 24,365 9 700,260
Identifiable assets $ 1,595,140 151,181 55,431 458,152 137,279 501,711 215,495 2,619 3,117,008
Capital expenditures $ 28,212 1,563 4,612 3,756 1,688 53,954 1,231 95,016
Depreciation and amortization $ 32,017 1,546 1,277 5,326 2,215 5,068 1,861 49,310
Equity $ 1,337,568 60,705 26,546 240,721 94,516 142,971 123,600 (32,254 ) 1,994,373

Net Revenues (Non-GAAP measure)

We commonly refer to the term “net revenues” when commenting about our Company and the results of its operations. Net revenues are a Non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal services. We believe that net revenues are a better measure than are total revenues when analyzing and discussing our effectiveness in managing our principal services since total revenues earned as a freight consolidator include the carriers' charges to us for carrying the shipment, whereas revenues earned in other capacities include primarily the commissions and fees earned by us. Net revenue is one of our primary operational and financial measures and demonstrates our ability to concentrate and leverage purchasing power through effective consolidation of shipments from customers utilizing a variety of transportation carriers and optimal routings. Using net revenues also provides a commonality for comparison among various services. The following table presents the calculation of net revenues.

Three months endedTwelve months ended
December 31,December 31,
(in thousands)2018201720182017
Total revenues $ 2,235,597 $ 1,901,371 $ 8,138,365 $ 6,920,948
Expenses:
Airfreight services 683,410 636,344 2,410,793 2,126,761
Ocean freight and ocean services 464,281 380,689 1,664,168 1,543,740
Customs brokerage and other services 407,231 255,529 1,443,031 931,258
Net revenues $ 680,675 $ 628,809 $ 2,620,373 $ 2,319,189

Contacts:

Jeffrey S. Musser
President and Chief Executive Officer
(206) 674-3433

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