Expeditors International of Washington

Successful supply chain optimizer & Dividend Aristocrat

We're on quite a wild roller coaster ride in the stock market right now. Over the last few days and weeks, I often found myself sitting in front of my computer, staring in amazement at prices that had plummeted. No question: plenty of stocks were surely massively overvalued in recent years or weren't really convincing in their latest quarterly reports, but in my eyes, some solid companies with promising long-term prospects were also unfairly punished. Well, that's the stock market, and if you want to be successful here in the long run, you have to be able to deal with it. Especially since I'd like to stress that, although many individual stocks have seen a significant crash, the overall market is still far from being a bear market. You'll have to get through times like these at some point, too. But with a well-diversified portfolio made up of promising, long-term-oriented companies, you'll usually be rewarded for your patience.

Today I'd like to introduce another company that has been operating successfully in the market for several decades and has consistently grown its profits along the way. The service company Expeditors International of Washington focuses on optimizing and coordinating customized supply chain solutions. In other words: it finds the most suitable logistics solution for its customers at a price they wouldn't have been able to get on their own.

The history and business model of Expeditors International of Washington Inc.

The origins of today's logistics service provider go back to John Kaiser, who grew up in Seattle (Washington). After finishing high school, he was stationed with the Marine Corps in California for three years. Afterwards he worked as a reporter for a while before finding his true calling in logistics, or more precisely, in the international freight business. Over the next 15 years he gained a lot of professional experience and gradually worked his way up at the Harper Group. In 1979 he finally decided to go into business for himself as a freight forwarder focusing on ocean freight. He returned to Seattle, rented a small office and founded Expeditors International of Washington Inc.. Although John Kaiser was the founder of the logistics group, it was mainly Peter J. Rose who played a decisive role alongside him. Peter was born in Montreal (Canada) in 1943. At that time his father worked as a freight forwarder for Canadian National Express, a subsidiary of the Canadian National Railway. At the tender age of 5, he was already helping his father at work, putting on his oversized work cap and delivering packages right to the front door while his father waited for him in the truck. Later he attended Westmount High School and studied at Sir George Williams University.

Peter actually dreamed of becoming a professional hockey player, but had to give up that dream. So he decided to follow in his father's professional footsteps. However, he started working at Canadian Pacific, the direct competitor of Canadian National. A few years later, in 1965, he emigrated to neighboring America, settled in Chicago and started working at Compass Agencies, a steamship coordinator. Shortly afterwards he was offered the position of branch manager at the Harper Group. He enjoyed the work, but increasingly felt an inner urge to build something of his own. In July 1981 he was chatting with his colleague James Wang in a bar on Lantau Island in Hong Kong. The two of them fantasized about revolutionizing the logistics industry. Without further ado, they sketched out their idea on a cocktail napkin for an international freight forwarding company that could also handle customs clearance. Back then it was common for companies to specialize either in freight or in customs. Together with a few other Harper executives, they joined John Kaiser's Expeditors International of Washington in 1981. Peter was immediately named Executive Vice President, and that same year sales offices were opened in San Francisco, Chicago, Hong Kong, Taipei and Singapore.

The young company deliberately chose not to own its own means of transportation. This saved a lot of capital investment and allowed it to focus entirely on comprehensive customer service. This concept worked surprisingly well, and soon they took the step of going public. With the new funds, they expanded their international logistics network further. In 1987 the company actually ranked among the 100 fastest-growing companies in the USA, thanks in part to major customers like Apple Computer, Nike or IBM. Over the following years globalization picked up even more, import and export business between Asia and the USA grew rapidly, and the need for a reliable logistics partner gave Expeditors excellent growth figures. Today it employs more than 19,000 people at around 350 locations in more than 100 countries. Besides the freight forwarding business with air and ocean freight, it still handles customs clearance and offers additional logistics services.

How can Expeditors International of Washington develop in the future?

First, I'd like to briefly sum up the logistics group's business model again. Expeditors International of Washington offers a whole range of different global logistics services: from consolidating and forwarding air and ocean freight, to customs services, all the way to warehousing, inventory management, cargo insurance, cargo monitoring and tracking, as well as special supply chain solutions for time-critical or temperature-sensitive shipments. With its services, Expeditors serves a number of different industries, including aerospace, automotive and mobility, fashion, healthcare, manufacturing, oil and energy, retail and technology.

Now let's take a look at the figures from the most recently published quarter (Q3 2021 - ended September 30, 2021). Total revenue in this reporting season came in at $4.32 billion, well above the result from the prior-year quarter. In Q3 2020 it had reported $2.35 billion - so we're looking at an incredible increase of 83.8 percent. Expeditors even increased its profit by 88 percent, from $191.3 million to $359.1 million now. Per share, that corresponds to earnings of $2.09 - in the prior-year quarter it was $1.12 per share. It was mainly the continued high demand that led to this record result, and mind you, at a time when the global infrastructure is still hopelessly overloaded. To me, that shows how efficiently Expeditors International of Washington operates and how it can handle even difficult times like these solidly. By the way, the logistics company's new figures will be published on February 22, 2022. I'm curious to see how the numbers turn out and, above all, how the market will react to them.

What about the dividend?

Since 1993, investors in Expeditors International of Washington Inc. have received a semi-annual dividend. Since then, the logistics service provider has also managed to pay the dividend every year while raising it at the same time, which makes it a Dividend Aristocrat. Looking at the last 10 years, the average dividend growth rate is a solid 8.4 percent. The current dividend yield is a little over 1.0 percent, and the low payout ratio of just 17.1 percent signals plenty of growth potential for the future.

Conclusion:
The supply chain optimizer Expeditors International of Washington is without a doubt solidly set up and perfectly positioned for the future in a competitive market. I'm optimistic that investors will enjoy this stock for many years to come. So if you're still looking for a logistics company for your portfolio, you should take a closer look at this one.