Expeditors (EXPD) Lags Q3 Earnings, Revenues; Stock Down

Expeditors International of Washington Inc.’s (NASDAQ:EXPD) third-quarter 2016 earnings of 59 cents per share fell short of the Zacks Consensus Estimate of 65 cents. Earnings also declined 5% on a year-over-year basis.

Revenues of $1,562 million missed the Zacks Consensus Estimate of $1,591 million. The top line also deteriorated 5.4% from the year-ago figure. Soft air freight and ocean freight revenues hurt the top line in the third quarter. The lackluster earnings report naturally displeased investors as evidenced by the stock price decline in the early trading session.

Gross profit (net revenue) decreased 4% year over year in the third quarter to $545.3 million. Gross margin (yield) improved marginally to 34.9% in the reported quarter. Expeditors exited the quarter with cash and cash equivalents of $1.04 billion compared with $807.8 million at the end of 2015. During the quarter, the company repurchased 2 million shares at an average price of $51.16 per share.

Expeditors is not the only transportation company to miss earnings estimates in the third quarter. Transportation stocks like Canadian Pacific Railway Ltd. (NYSE:CP) , Union Pacific Corp. (NYSE:UNP) had also reported lower-than-expected earnings in the quarter.

Segmental Revenues

Airfreight Services revenues declined 5.8% year over year to $621.6 million in the quarter under review. Ocean Freight and Ocean Services revenues decreased 11.2% year over year to $495.5 million. Nonetheless, Customs Brokerage and Other Services revenues inched up 3.2% year over year to approximately $445.4 million.

Our Take

We are disappointed by the company’s underperformance in the third quarter. However, we believe that the strengthening airfreight business due to growing trade between the U.S. and China should boost the company’s freight forwarding and customer brokerage business. Furthermore, we are encouraged by the company’s efforts to reward shareholders through dividend payments and buybacks.

Zacks Rank & A Key Pick

Currently, Expeditors has a Zacks Rank #4 (Sell). A better-ranked transportation stock is Copa Holdings (NYSE:CPA) , which sports a Zacks Rank #1 (Strong Buy). The 2016 Zacks Consensus Estimate has increased 12 cents to $4.67 over the last month for Copa Holdings. You can see the complete list of today’s Zacks #1 Rank stocks here.

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