Expeditors International (EXPD) Announced a Net Earnings Increase of 13%:

Expeditors International of Washington, Inc. (NASDAQ:EXPD - News) today announced net earnings of $59,288,000 for the first quarter of 2007, compared with $52,352,000 for the same quarter of 2006, an increase of 13%. Net revenues for the first quarter increased 12% to $334,136,000 as compared with $298,142,000 reported for the first quarter of 2006. Total revenues and operating income were $1,118,946,000 and $94,525,000 in 2007, compared with $1,026,537,000 and $85,401,000 for the same quarter of 2006, increases of 9% and 11%, respectively. Diluted net earnings per share for the first quarter were $.27 as compared with $.24 for the same quarter in 2006, an increase of 13%.

Analysts were expecting the company to report $0.27 in EPS on $1.14 billion in revenues. The slight revenue shortfall may have disappointed investors, who were net sellers in after-hours trading. The company does not issue guidance, but analysts currently expect earnings of $0.30 on $1.27 billion in revenues next quarter, which would mark an acceleration in the growth rate just as the economy appears to be slowing.

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

Shares of non-asset based transportation and logistics provider UTi Worldwide (UTIW) fell sharply today after the firm Reported Fiscal 2007 Fourth Quarter and Year-End Financial Results:

For the fourth quarter of fiscal 2007, gross revenues increased 31 percent to $951.3 million from $728.2 million in the prior-year fourth quarter. Net revenues also increased 31 percent to $331.2 million for the fourth quarter of fiscal 2007 from $253.7 million in the prior-year fourth quarter. Continued organic growth across all geographic regions, as well as contributions from the company’s March 2006 acquisition of Market Industries, Ltd., contributed to the fiscal 2007 fourth quarter revenue growth. After adjusting for the impact of acquisitions made by the company since November 1, 2005, as well as currency fluctuations on the comparison of UTi’s results, gross and net revenues each grew organically by 14 percent in the fiscal 2007 fourth quarter, when compared with the corresponding period a year ago.Operating income in the fourth quarter of fiscal 2007 rose to $32.8 million versus $17.5 million in the fiscal 2006 fourth quarter. Net income for the fiscal 2007 fourth quarter was $23.6 million, or $0.24 per diluted share, compared with $9.7 million, or $0.10 per diluted share, in the fiscal 2006 fourth quarter.

Consensus estimates called for $0.26 per share on $935 million in revenue. Because the miss related to cost issues rather than top-line growth, investors appeared to treat the miss as company specific, according to this Reuters report:

In a research note R.W. Baird & Co. transportation analyst Jon Langenfeld described the quarter as “disappointing, adding “top-line growth was solid and ahead of our expectations, but elevated costs drove meaningful earnings miss.”

Bear Stearns analyst Edward Wolfe also noted that revenue was stronger than expected, but added “UTIW has not yet straightened out its cost structure.”

However, we wouldn’t be so quick to attribute the revenue gains, more than half of which came from acquisitions, to a strong transportation environment. Recent data have shown a slowdown in trucking, a disappointment from FedEx (FDX - Annual Report), and other signs that fewer goods are being moved about. Meanwhile, the shares of companies similar to UTi such as Large Cap Watch List (Track at Marketocracy) member Expeditors International (EXPD) and Small Cap Watch List (Track at Marketocracy) and Mid Cap Watch List (Track at Marketocracy) member Landstar Systems (LSTR - Annual Report) have held up well.

It is quite possible that today’s disappointment will not spread to these other names, and we continue to like the non-asset based transportation names as long-term investment plays. However, in the short term we wouldn’t be surprised to see the weakness spread to more of the transports.

Update: We missed the fact that the railroads also had a setback, but apparently that, too, is company-specific.

We’ve always felt that the non-asset based transportation names were the ones to watch. Now it’s official, as anyone who benchmarks performance against the S&P 500 (which is to say practically everyone) will have to keep an eye on them. CH Robinson Worldwide (CHRW) to Join S&P 500: Financial News - Yahoo! Finance

Standard & Poor’s said Monday freight forwarder CH Robinson Worldwide Inc. will replace Health Management Associates Inc. in its widely followed S&P 500 index on Thursday.

We’ve seen that changes in the Dow are often turning points for the stocks involved, but we haven’t heard of such a relationship regarding the S&P 500 (anyone care to enlighten us?) At any rate, with the stock near its 52-week high shareholder’s are likely hoping it is a signal for even better things to come.

Stock Market Beat Large Cap Watch List (Track at Marketocracy) member Expeditors International (EXPD) reported earnings this morning, and the results would have looked really good had the market not expected better. Sales of $1.24 billion were below the $1.28 billion consensus figure, and earnings per share were $0.28 instead of the expected $0.31. As a result, the shares are down nearly 12%.
Expeditors Announces 23% Increase in 2006 Annual Earnings: Financial News - Yahoo! Finance

“We’ll take these fourth quarter results, particularly given the rather stiff comparisons we were up against,” said Peter J. Rose, Chairman and Chief Executive Officer. “Growth in airfreight was good, particularly viewed in context of the blowout 4th quarter of 2005. Ocean freight volumes were very strong throughout the entire quarter and our brokerage product just continues to reliably roll along, taking market share as it goes. Our ability to provide alternatives in both the air and ocean transportation markets, with consistent global service, quality and visibility standards coupled with a seamless brokerage product is providing some definite advantages,” Rose remarked.

These comments are somewhat puzzling given that Expeditors is in the business of… well… expediting global shipping. And that business appears to be booming, given today’s trade data. According to the Reuters report:

The monthly trade gap totaled $61.2 billion, up 5.3 percent from November as oil prices rebounded and Americans imported record amounts of consumer goods and autos and auto parts.

The December shortfall exceeded the median forecast of $59.5 billion made by Wall Street analysts surveyed before the report. It also marked the tenth time in 2006 that the monthly deficit exceeded $60 billion.

U.S. exports of goods and services, which have benefited recently from stronger foreign economic growth and a decline in the value of the dollar, totaled a record $125.5 billion in December.

If Americans are both importing and exporting record amounts of goods (and more than observers were expecting) how can Expeditors be taking share when they report less than observers were expecting? Without the answer to that puzzle, it is no mystery why Expeditors shares are falling today.

The Economic Calendar has a few potential market movers this week:

• Tuesday brings the International Trade figures (consensus -59.8 B).
• Wednesday we get the Retail Sales report (consensus 0.3%)
• On Thursday the really good stuff begins, with Industrial Production (consensus -0.1%) and Capacity Utilization (consensus 81.6%).
• And on Friday we get the PPI report (consensus -0.5%, 0.2% core.)

Furthermore, SEMI should put out the semiconductor equipment book/bill report on Thursday or Friday.
There are also several earnings reports among our Watch Lists.

Small Cap Watch List (Track at Marketocracy):

• Ingram Micro (IM) on Thursday. Estimates call for $8.55 billion revenue and $0.53 EPS, with guidance of $8.09 billion and $0.40.

Mid Cap Watch List (Track at Marketocracy):

• Dassault Systemes (DASTY) on Wednesday. Estimates call for $461 million revenue and $0.86 EPS.
• Ingram Micro (IM) on Thursday (see above).

Large Cap Watch List (Track at Marketocracy):

• Expeditors International (EXPD) on Tuesday. Estimates are for $1.28 billion revenue and $0.31 EPS with guidance of $1.16 billion and $0.28.

Disclosure: William Trent has a long position in SMH.

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Large Cap Watch List (Track at Marketocracy) (to be measured against the S&P 500) follows.

Astute observers will notice less overlap between this watch list and the names in the Small Cap Watch List and Mid Cap Watch List. This was not for lack of overlap, as the smallest S&P 500 name has a market capitalization of $600 million, which would allow for complete overlap with the Mid Caps if we chose. Instead we selected an arbitrary low of $2 billion for large-cap names, which cuts off five names that are actually in the S&P 500.
In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.