EXPD Expeditors International of Washington Inc

Expeditors International of Washington, Inc. (NASDAQ:EXPD) today announced second 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 32% to $0.79
• Net Earnings Attributable to Shareholders increased 29% to $141 million
• Operating Income increased 9% to $184 million
• Revenues increased 17% to $2.0 billion
• Net Revenues2 increased 14% to $643 million
• Airfreight tonnage volume increased 4% and ocean container volume increased 1%

“We continued to add profitable growth from new and existing customers during the quarter, particularly in air and some of our differentiated, best-in-class services, such as brokerage, Transcon, and order management,” said Jeffrey S. Musser, President and Chief Executive Officer. “Similar to the first quarter of this year, we remained disciplined on pricing in this strong economy. We experienced strong performance in our ocean forwarding and order management businesses, but ocean freight net revenues were down 5% on a 1% increase in volumes, as carriers took steps to mitigate the impact of volatile pricing, excess capacity, and higher fuel costs.

“We are continuing to invest in people and assets in the development and support of profitable revenue growth, most notably during Q2 in Europe and North America. While we have yet to see changes to supply chains as a result of possible trade wars, we are confident in the capabilities of our people throughout our global network to help our customers navigate the potential impact of new tariffs.”

Bradley S. Powell, Senior Vice President and Chief Financial Officer, added that the Company’s effective tax rate for the quarter was 25.8%, compared to 37.4% a year ago. The lower effective tax rate in the most recent quarter was principally due to the lower U.S. federal tax rate that resulted from the 2017 Tax Act, coupled with significant share-based compensation deductions from stock option exercises during the quarter. Mr. Powell emphasized that the Company’s effective tax rate in future periods will largely depend on the mix of pretax earnings that are generated in its U.S. versus foreign operations, as well as further interpretation of, and guidance to be issued on, the new tax law.

Expeditors is a global logistics company headquartered in Seattle, Washington. The Company employs trained professionals in 177 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, order management, warehousing and distribution and customized logistics solutions.

_______________________1Diluted earnings attributable to shareholders per share.2Non-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.Second Quarter 2018 Earnings Release, August 7, 2018Financial Highlights for the Six months ended June 30, 2018 and 2017 (Unaudited)(in 000's of US dollars except per share data)

	Three months ended June 30,											Six months ended June 30,
	2018				2017				% Change			2018				2017				% Change
Revenues1	$	1,957,559			$	1,672,279			17	%		$	3,811,821			$	3,217,411			18	%
Net revenues2	$	642,546			$	563,633			14	%		$	1,278,384			$	1,091,238			17	%
Operating income3	$	183,584			$	168,240			9	%		$	376,402			$	314,354			20	%
Net earnings attributable to shareholders	$	140,605			$	108,851			29	%		$	276,297			$	202,115			37	%
Diluted earnings attributable to shareholders per share	$	0.79			$	0.60			32	%		$	1.54			$	1.11			39	%
Basic earnings attributable to shareholders per share	$	0.80			$	0.60			33	%		$	1.58			$	1.12			41	%
Diluted weighted average shares outstanding	178,603				182,033							179,120				182,091
Basic weighted average shares outstanding	174,754				180,012							175,324				180,037

_______________________1Effective January 1, 2018, the Company adopted required new revenue recognition guidance, resulting in a $22 million net reduction to the opening balance of retained earnings. In addition, in conjunction with the adoption of new revenue recognition guidance, the Company also changed the presentation of certain warehouse and distribution revenues from a net to a gross basis, which increased both revenues and operating expenses in  customs brokerage and other services by approximately $50 million in both the first and second quarters of 2018. Comparative prior year revenues (and the related volume information in the table below) has not been adjusted and continue to be reported under the Company's historical policies. 2018 reported revenues (and the related volume information) are reported under the Company's new revenue recognition accounting policies.

2Non-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.

3The quarter and year-to-date periods ended June 30, 2017 include the recovery of certain legal and related fees totaling $8 million and the favorable resolution of an indirect tax contingency of $6 million.

During the three and six-month periods ended June 30, 2018, we repurchased 3.1 million and 5.8 million shares of common stock at an average price of $76.22 and $70.92 per share, respectively. During the three and six-month periods ended June 30, 2017, we repurchased 1.5 million and 2.5 million shares of common stock at an average price of $55.02 and $55.58 per share, respectively.

	Employee Full-time Equivalents as of June 30,
	2018			2017
North America	6,414			6,009
Europe	3,205			2,847
North Asia	2,616			2,698
South Asia	1,604			1,602
Middle East, Africa and India	1,466			1,531
Latin America	801			791
Information Systems	892			881
Corporate	351			390
Total	17,349			16,749

		Second quarter year-over-year percentage increase (decrease) in:
		Airfreight kilos		Ocean freight FEU
2018
April		1%		(2)%
May		6%		5%
June		6%		—%
Quarter		4%		1%

_______________________Investors may submit written questions via e-mail to: investor@expeditors.com. Questions received by the end of business on August 10, 2018 will be considered in management's 8-K “Responses to Selected Questions” expected to be filed on or about August 24, 2018.

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 our ability to generate profitable market growth; our ability to help our customers navigate the potential impact of new tariffs; the impact of the 2017 Tax Act on our effective tax rate; energy and fuel prices; political changes; changes and uncertainties in governmental policies and inter-governmental disputes; foreign exchange rates; regulatory actions or changes; 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)

	June 30, 2018				December 31, 2017
Assets
Current Assets:
Cash and cash equivalents	$	1,020,854			$	1,051,099
Accounts receivable, net	1,337,716				1,414,741
Deferred contract costs	136,133				—
Other current assets	69,438				75,612
Total current assets	2,564,141				2,541,452
Property and equipment, net	515,547				525,203
Goodwill	7,927				7,927
Deferred Federal and state income taxes, net	16,779				13,207
Other assets, net	28,438				29,219
	$	3,132,832			$	3,117,008
Liabilities and Equity
Current Liabilities:
Accounts payable	$	832,011			$	866,305
Accrued expenses, primarily salaries and related costs	227,148				206,320
Contract liabilities	161,870				—
Federal, state and foreign income taxes	19,244				20,494
Total current liabilities	1,240,273				1,093,119
Noncurrent Federal income taxes payable	—				29,516
Commitments and contingencies
Shareholders’ Equity:
Preferred stock; none issued	—				—
Common stock, par value $0.01 per share. Issued and outstanding 173,577 shares at June 30, 2018 and 176,374 shares at December 31, 2017	1,736				1,764
Additional paid-in capital	1,607				546
Retained earnings	1,977,121				2,063,512
Accumulated other comprehensive loss	(90,712		)		(73,964		)
Total shareholders’ equity	1,889,752				1,991,858
Noncontrolling interest	2,807				2,515
Total equity	1,892,559				1,994,373
	$	3,132,832			$	3,117,008

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings(In thousands, except per share data)(Unaudited)

	Three months ended								Six months ended
	June 30,								June 30,
	2018				2017				2018				2017
Revenues:
Airfreight services	$	801,761			$	671,868			$	1,532,988			$	1,287,413
Ocean freight and ocean services	530,008				528,585				1,050,891				1,022,344
Customs brokerage and other services	625,790				471,826				1,227,942				907,654
Total revenues	1,957,559				1,672,279				3,811,821				3,217,411
Operating Expenses:
Airfreight services	593,325				499,418				1,106,829				942,822
Ocean freight and ocean services	385,156				385,927				764,574				751,990
Customs brokerage and other services	336,532				223,301				662,034				431,361
Salaries and related costs	350,948				318,529				690,843				611,109
Rent and occupancy costs	38,071				29,163				74,984				57,293
Depreciation and amortization	13,576				12,042				27,498				23,969
Selling and promotion	10,788				10,953				21,753				21,868
Other	45,579				24,706				86,904				62,645
Total operating expenses	1,773,975				1,504,039				3,435,419				2,903,057
Operating income	183,584				168,240				376,402				314,354
Other Income (Expense):
Interest income	5,153				3,380				9,467				6,121
Other, net	1,167				2,190				1,791				2,488
Other income (expense), net	6,320				5,570				11,258				8,609
Earnings before income taxes	189,904				173,810				387,660				322,963
Income tax expense	48,958				65,055				110,514				120,641
Net earnings	140,946				108,755				277,146				202,322
Less net earnings (loss) attributable to the noncontrolling interest	341				(96		)		849				207
Net earnings attributable to shareholders	$	140,605			$	108,851			$	276,297			$	202,115
Diluted earnings attributable to shareholders per share	$	0.79			$	0.60			$	1.54			$	1.11
Basic earnings attributable to shareholders per share	$	0.80			$	0.60			$	1.58			$	1.12
Dividends declared and paid per common share	$	0.45			$	0.42			$	0.45			$	0.42
Weighted average diluted shares outstanding	178,603				182,033				179,120				182,091
Weighted average basic shares outstanding	174,754				180,012				175,324				180,037

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows(In thousands)(Unaudited)

	Three months ended								Six months ended
	June 30,								June 30,
	2018				2017				2018				2017
Operating Activities:
Net earnings	$	140,946			$	108,755			$	277,146			$	202,322
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for losses on accounts receivable	528				515				263				1,446
Deferred income tax expense	3,235				7,261				6,088				12,854
Stock compensation expense	18,002				17,203				29,269				27,826
Depreciation and amortization	13,576				12,042				27,498				23,969
Other, net	56				(174		)		104				(525		)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(46,876		)		(73,142		)		53,771				2,312
Decrease in accounts payable and accrued expenses	58,075				52,623				12,231				34,299
Increase in deferred contract costs	(20,019		)		—				(16,612		)		—
Decrease in contract liabilities	20,294				—				12,893				—
Decrease in income taxes payable, net	(38,059		)		(47,159		)		(18,550		)		(27,335		)
(Increase) decrease in other current assets	(1,202		)		3,290				(68		)		(275		)
Net cash from operating activities	148,556				81,214				384,033				276,893
Investing Activities:
Purchase of property and equipment	(12,113		)		(20,380		)		(25,909		)		(33,141		)
Other, net	(1,564		)		40				(1,995		)		(631		)
Net cash from investing activities	(13,677		)		(20,340		)		(27,904		)		(33,772		)
Financing Activities:
Proceeds from issuance of common stock	95,363				51,501				121,760				96,866
Repurchases of common stock	(235,572		)		(84,052		)		(407,932		)		(137,960		)
Dividends paid	(79,180		)		(75,726		)		(79,180		)		(75,726		)
Payments for taxes related to net share settlements	(3,215		)		—				(3,215		)		—
Net cash from financing activities	(222,604		)		(108,277		)		(368,567		)		(116,820		)
Effect of exchange rate changes on cash and cash equivalents	(24,322		)		6,270				(17,807		)		14,174
(Decrease) increase in cash and cash equivalents	(112,047		)		(41,133		)		(30,245		)		140,475
Cash and cash equivalents at beginning of period	1,132,901				1,156,043				1,051,099				974,435
Cash and cash equivalents at end of period	$	1,020,854			$	1,114,910			$	1,020,854			$	1,114,910
Taxes paid:
Income taxes	$	85,612			$	103,508			$	124,131			$	132,654

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.AND SUBSIDIARIESBusiness Segment Information(In thousands)(Unaudited)

	UNITEDSTATES				OTHERNORTHAMERICA			LATINAMERICA			NORTH ASIA			SOUTH ASIA			EUROPE			MIDDLEEAST,AFRICAAND INDIA			ELIMI-NATIONS			CONSOLI-DATED
Three months ended June 30, 2018:
Revenues from unaffiliated customers	$	567,271			80,268			38,697			674,101			172,696			315,950			108,576			—			1,957,559
Transfers between geographic areas	30,805				3,976			3,921			6,126			6,832			14,825			5,429			(71,914	)		—
Total revenues	$	598,076			84,244			42,618			680,227			179,528			330,775			114,005			(71,914	)		1,957,559
Net revenues	$	271,880			34,749			15,923			140,583			44,886			102,371			33,125			(971	)		642,546
Operating income	$	63,628			10,077			2,701			70,359			13,374			16,958			6,490			(3	)		183,584
Identifiable assets	$	1,488,060			153,827			54,186			540,954			157,479			526,607			217,716			(5,997	)		3,132,832
Capital expenditures	$	6,032			2,191			167			559			695			1,225			1,244			—			12,113
Depreciation and amortization	$	8,447			473			395			1,303			542			1,955			461			—			13,576
Equity	$	1,196,226			56,702			26,625			250,513			112,259			157,493			127,032			(34,291	)		1,892,559
Three months ended June 30, 2017:
Revenues from unaffiliated customers	$	452,217			62,554			23,463			620,050			157,698			259,533			96,764			—			1,672,279
Transfers between geographic areas	28,155				2,825			3,759			4,835			5,408			9,664			5,034			(59,680	)		—
Total revenues	$	480,372			65,379			27,222			624,885			163,106			269,197			101,798			(59,680	)		1,672,279
Net revenues	$	250,027			28,173			14,008			120,959			38,228			80,896			30,286			1,056			563,633
Operating income	$	64,265			12,317			2,246			58,093			12,513			13,419			5,390			(3	)		168,240
Identifiable assets	$	1,487,582			129,830			48,064			576,655			129,002			437,628			207,191			6,804			3,022,756
Capital expenditures	$	6,852			569			957			663			409			10,501			429			—			20,380
Depreciation and amortization	$	7,731			386			300			1,362			556			1,227			480			—			12,042
Equity	$	1,147,962			61,957			24,320			402,211			117,077			135,726			124,628			(35,244	)		1,978,637

	UNITED STATES				OTHER NORTH AMERICA			LATIN AMERICA			NORTH ASIA			SOUTH ASIA			EUROPE			MIDDLE EAST, AFRICA AND INDIA			ELIMI- NATIONS			CONSOLI- DATED
Six months ended June 30, 2018:
Revenues from unaffiliated customers	$	1,102,140			156,793			71,419			1,304,673			341,296			621,742			213,758			—			3,811,821
Transfers between geographic areas	59,686				7,538			7,308			12,143			13,382			29,013			10,784			(139,854	)		—
Total revenues	$	1,161,826			164,331			78,727			1,316,816			354,678			650,755			224,542			(139,854	)		3,811,821
Net revenues	$	549,065			65,196			30,668			277,791			89,292			201,006			66,326			(960	)		1,278,384
Operating income	$	133,276			19,095			5,071			140,282			28,506			36,236			13,928			8			376,402
Identifiable assets at period end	$	1,488,060			153,827			54,186			540,954			157,479			526,607			217,716			(5,997	)		3,132,832
Capital expenditures	$	9,203			3,719			672			1,343			1,024			8,416			1,532			—			25,909
Depreciation and amortization	$	17,212			871			763			2,679			1,125			3,931			917			—			27,498
Equity	$	1,196,226			56,702			26,625			250,513			112,259			157,493			127,032			(34,291	)		1,892,559
Six months ended June 30, 2017:
Revenues from unaffiliated customers	$	878,236			122,453			45,566			1,186,478			304,938			490,990			188,750			—			3,217,411
Transfers between geographic areas	52,468				5,464			7,394			9,886			10,839			18,986			9,998			(115,035	)		—
Total revenues	$	930,704			127,917			52,960			1,196,364			315,777			509,976			198,748			(115,035	)		3,217,411
Net revenues	$	480,812			53,966			28,924			232,792			76,223			156,854			60,017			1,650			1,091,238
Operating income	$	116,611			17,368			5,697			111,445			25,737			25,065			12,433			(2	)		314,354
Identifiable assets at period end	$	1,487,582			129,830			48,064			576,655			129,002			437,628			207,191			6,804			3,022,756
Capital expenditures	$	12,094			803			1,212			1,903			782			15,579			768			—			33,141
Depreciation and amortization	$	15,484			758			620			2,682			1,087			2,398			940			—			23,969
Equity	$	1,147,962			61,957			24,320			402,211			117,077			135,726			124,628			(35,244	)		1,978,637

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 operations 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 must consider 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 revenues are 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 ended								Six months ended
	June 30,								June 30,
(in thousands)	2018				2017				2018				2017
Total revenues	$	1,957,559			$	1,672,279			$	3,811,821			$	3,217,411
Expenses:
Airfreight services	593,325				499,418				1,106,829				942,822
Ocean freight and ocean services	385,156				385,927				764,574				751,990
Customs brokerage and other services	336,532				223,301				662,034				431,361
Net revenues	$	642,546			$	563,633			$	1,278,384			$	1,091,238

CONTACTS:

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

Bradley S. Powell
Senior Vice President and Chief Financial Officer
(206) 674-3412

Geoffrey Buscher
Director - Investor Relations
(206) 892-4510