Episode Details

Expeditors International of Washington, Inc. (EXPD) Q2 2026 — Diluted EPS $2.03 vs a $1.68 consensus that had been RAISED 5.7% in 60 days. Revenue $3,502M, +32% - but net revenue, what Expeditors keeps after paying the carriers, was $1,085M, +20.8%. The stock closed +6.4% at $181.48. A freight forwarder books the whole freight bill as revenue, then books what it pays the airlines and shipping lines as a cost. That cost was $2,417M of the $3,502M. And ~40c of the $2.03 traces to an airfreight rate spike. THE CALL: SELL (3/5, AN EXCELLENT QUARTER, PRICED AS IF IT REPEATS FOREVER) — base-case value ~$139.0 vs ~$181.48 today. KEY METRICS: - CALL: SELL 3/5, fair value ~$139 vs the $181.48 close (-23.4%). Base DCF: $880M of normalised free cash flow compounded at 5% for ten years, terminal growth 2.5%, discounted at 9.0% = $16.75B enterprise value; plus $1.03B net cash = $17.79B equity; over 130.0M shares = $137. Multiple cross-check at 21x normalised EPS of $6.77 = $142. Weighted 60/40 we take ~$139. Bear $101, bull $192. The Street: Hold, $160 average (33 analysts, 5 buy / 20 hold / 8 sell), high $191, low $145 - their own average target is 11.8% BELOW the price. - GROSS REVENUE +32% BUT NET REVENUE ONLY +20.8%. Revenues $3,502.3M vs $2,651.9M. Directly related cost of transportation $2,416.8M vs $1,753.4M - up 38%, FASTER than revenue. Net revenues $1,085.5M vs $898.5M, +20.8%. Net revenue as a share of gross fell from 33.9% to 31.0%, down 289bp. The $557M revenue beat vs the ~$2,945M estimate is roughly two-thirds money that went straight back out to airlines and ocean carriers. Every check ties: 3,502.3 - 2,416.8 = 1,085.5; 349.6 / 1,085.5 = 32.20%; $266.226M / 131.372M diluted shares = $2.0265. - FORTY CENTS OF THE $2.03 IS AN AIR-RATE SPIKE. Airfreight net revenue $360.1M vs $253.4M, +42.1% - on kilos up only 14% (Apr +13%, May +14%, Jun +15%). Volume explains $35.5M of the $106.7M increase; the other $71.2M is yield. Taxed at the quarter's 25.4% over 131.4M shares that is about $0.40 a share, against a beat of $0.35 vs the $1.68 consensus. Management's own explanation: air rates were 'highly elevated' on 'constrained belly capacity due to the conflict in the Middle East'. Ocean net revenue FELL 6.9% ($179.0M vs $192.3M) on flat containers. - THE OPERATING LEVERAGE IS REAL - AND THE BAR WAS RAISED, NOT CUT. Operating income $349.6M, +41%, on salaries and other operating expenses up just 13%. Operating efficiency (operating income / net revenue) 32.2% vs 27.6%, +463bp - 33.0% once a $25M Global Technology restructuring charge and a $16M property gain are cleaned out. Headcount 20,389, +3.7%, flat vs Q1; net revenue per employee $53,239 vs $45,690, +16.5%. And the Zacks consensus had been revised UP 5.7% in the 60 days before the print. They cleared a raised bar by 21%. - THE CASH DID NOT FOLLOW THE EARNINGS. Net earnings +45% but operating cash flow was $178.6M vs $179.2M - flat - because accounts receivable rose $575.9M in the quarter (vs $58.0M a year ago). Over six months OCF was $487.9M vs $521.8M, DOWN 6.5%, while net earnings rose 28%. Capex $24.6M, so H1 free cash flow ~$463M - against $748M returned ($643M buybacks, $106M dividends), 1.6x what the business generated. Cash fell from $1,314M to $1,031M. No debt, and the buyback is well executed (4.3M shares at an average $148.87). What to watch: Changes our mind UP: two quarters of airfreight net revenue growing in line with kilos rather than 3x faster, or customs holding above 20% after the IEEPA filing surge. Confirms the bear: operating efficiency back under 30%. We'd buy at $130-$145. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.