Expeditors Earnings: Spiking Capacity Costs Hit Net Revenue, but Demand Shows Hints of Improvement

Expeditors International's second-quarter gross revenue flipped positive for the first time in more than a year, rising 9% year over year. Revenue came in modestly ahead of our forecast on stronger-than-expected airfreight tonnage. On the other hand, net revenue (gross revenue less capacity costs) fell and missed our forecast due to gross profit margin pressure from spiking buy rates for capacity. Net operating margin (EBIT/net-revenue) was slightly below our expected run rate, but not drastically. We are raising our DCF-derived fair value estimate to $109, from $107, due to the time value of money since our last update. The shares are fairly valued relative to our longer-term free cash flow growth forecasts.