Expeditors International of Washington’s (EXPD: 39.28 +2.12 +5.71%), provider of logistics services, raised its financial outlook on the second quarter of 2010 based on improved volume for airfreight and ocean freight businesses.The company now expects second quarter earnings to be in the range of 38 cents to 40 cents per share. The mid-point of 39 cents is well above the current Zacks Consensus Estimate of 30 cents. If second-quarter earnings meet the company’s current expectation, it will result in a whopping increase in the range of 52%–60% year over year.
The company’s first-quarter earnings were in line with the Zacks Consensus Estimate. While air and ocean volumes increased, yields declined dramatically during the quarter contracting gross margins. We are cautious on lower yields, which are expected to remain under pressure in the near term, limiting the potential upside to earnings per share estimates. As the freight recovers, we expect yields to stabilize at lower and more normal levels. However, a strong balance sheet with no debt is encouraging and provides flexibility for internal growth.
Expeditors is poised to grow both by gaining market share as well as by expanding its presence in international trade. We believe the company will try to take advantage of global economic recovery and sustained momentum in international trade. Expeditors will likely generate strong volumes going forward, but with higher transportation costs, which it will be able to pass on to its customers.
Continued capacity reductions over the past two years and an increase in air and ocean freight volumes have created a tight capacity environment, which we expect will act as a headwind for the company. Further, international air and ocean freight forwarding and customs brokerage are intensely competitive and are expected to remain so in the foreseeable future.
Over the long term, the company is poised for growth as it expands its presence and operations internationally and invests in new opportunities and services, including those in the aerospace, pharmaceutical/healthcare, aviation and energy verticals.
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