Expeditors (EXPD)

Logistics and freight forwarding company Expeditors (NYSE:EXPD) met Wall Street’s revenue expectations in Q4 CY2025, but sales fell by 3.3% year on year to $2.86 billion. Its GAAP profit of $1.49 per share was 1.9% above analysts’ consensus estimates.

Company Overview

Expeditors (NYSE:EXPD) offers air and ocean freight as well as brokerage services.

The growth of e-commerce and global trade continues to drive demand for expedited shipping services, presenting opportunities for air freight companies. The industry continues to invest in advanced technologies such as automated sorting systems and real-time tracking solutions to enhance operational efficiency. Despite the advantages of speed and global reach, air freight and logistics companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Competitors offering similar products include UPS (NYSE:UPS), FedEx (NYSE:FDX), and C.H. Robinson (NASDAQ:CHRW).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Expeditors grew its sales at a sluggish 2.9% compounded annual growth rate. This was below our standards and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Expeditors’s annualized revenue growth of 9.1% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Airfreight and Ocean freight, which are 38.8% and 21.4% of revenue. Over the last two years, Expeditors’s Airfreight revenue (transport by plane) averaged 12% year-on-year growth while its Ocean freight revenue (transport by sea) averaged 11.7% growth.

This quarter, Expeditors reported a rather uninspiring 3.3% year-on-year revenue decline to $2.86 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 1.5% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.

Expeditors has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 13.6% gross margin over the last five years. That means Expeditors paid its suppliers a lot of money ($86.42 for every $100 in revenue) to run its business.

Expeditors produced a 15% gross profit margin in Q4, up 1.3 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Expeditors has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Expeditors’s operating margin decreased by 2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Expeditors generated an operating margin profit margin of 8.8%, down 1.4 percentage points year on year. Conversely, its gross margin actually rose, so we can assume its recent inefficiencies were driven by increased operating expenses like marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Expeditors’s EPS grew at an unimpressive 7.8% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Expeditors’s earnings to better understand the drivers of its performance. A five-year view shows that Expeditors has repurchased its stock, shrinking its share count by 21.6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Expeditors, its two-year annual EPS growth of 9.1% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.

In Q4, Expeditors reported EPS of $1.49, down from $1.68 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 1.9%. Over the next 12 months, Wall Street expects Expeditors’s full-year EPS of $5.95 to grow 1.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Expeditors has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.6% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Expeditors’s margin expanded by 3.6 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Expeditors’s free cash flow clocked in at $270.3 million in Q4, equivalent to a 9.5% margin. This result was good as its margin was 1.4 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Expeditors hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 71.2%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Expeditors’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Companies with more cash than debt have lower bankruptcy risk.

Expeditors is a profitable, well-capitalized company with $1.31 billion of cash and $570.6 million of debt on its balance sheet. This $743.7 million net cash position is 3.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Expeditors beat analysts’ EBITDA expectations this quarter. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 1.1% to $147.96 immediately following the results.

Before investing in or passing on Expeditors, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Expeditors isn’t a terrible business, but it doesn’t pass our quality test. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. While its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its low gross margins indicate some combination of competitive pressures and high production costs.

Expeditors’s P/E ratio based on the next 12 months is 25.3x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $140.47 on the company (compared to the current share price of $147.96), implying they don’t see much short-term potential in Expeditors.