What Expeditors International Does With Its Cash

Motley Fool Staff

In the quest to find great investments, most investors focus on earnings to gauge a company's financial strength. This is a good start, but earnings can be misleading and incomplete. To get a clearer understanding of a company's ability to earn money and reward you, the shareholder, it's often better to focus on cash flow. In this series, we tear apart a company's cash flow statement to see how much money is truly being earned, and more importantly, what management is doing with that cash.

Step on up, Expeditors International (NAS: EXPD) .

The first step in analyzing cash flow is to look at net income. Expeditors International's net income over the last five years has been impressive:

Normalized Net Income

$399 million

$353 million

$252 million

$312 million

$281 million

Source: S&P Capital IQ.

Next, we add back in a few non-cash expenses like the depreciation of assets, and adjust net income for changes in inventory, accounts receivable, and accounts payable -- changes in cash levels that reflect a company either paying its bills, or being paid by customers. This yields a figure called cash from operating activities -- the amount of cash a company generates from doing everyday business.

From there, we subtract capital expenditures, or the amount a company spends acquiring or fixing physical assets. This yields one version of a figure called free cash flow, or the true amount of cash a company has left over for its investors after doing business:

Free Cash Flow

$379 million

$353 million

$296 million

$349 million

$230 million

Source: S&P Capital IQ.

Now we know how much cash Expeditors International is really pulling in each year. Next question: What is it doing with that cash?

There are two ways a company can use free cash flow to directly reward shareholders: dividends and share repurchases. Cash not returned to shareholders can be stashed in the bank, used to invest in other companies and assets, or to pay off debt.

Here's how much Expeditors International has returned to shareholders in recent years:


$106 million

$85 million

$81 million

$68 million

$60 million

Share Repurchases

$112 million

$246 million

$85 million

$154 million

$208 million

Total Returned To Shareholders

$218 million

$331 million

$165 million

$222 million

$267 million

Source: S&P Capital IQ.

As you can see, the company has repurchased a decent amount of its own stock. But combined with other rounds of share issuance, shares outstanding have been flat:

Shares Outstanding (millions)






Source: S&P Capital IQ.

Now, companies tend to be fairly poor at repurchasing their own shares, buying feverishly when shares are expensive and backing away when they're cheap. Does Expeditors International fall into this trap? Let's take a look:


Source: S&P Capital IQ.

Not too bad. Expeditors' buybacks over the last five years have been sporadic, but it doesn't look like market swings have dictated management's behavior. That's what you want to see. Given reasonable valuations, these repurchases have likely been a decent deal for shareholders.

Finally, I like to look at how dividends have added to total shareholder returns:


Source: S&P Capital IQ.

Shares returned 13% over the last five years, which increases to 18% with dividends reinvested -- a small boost to top off otherwise low performance.

To gauge how well a company is doing, keep an eye on the cash. How much a company earns is not as important as how much cash is actually coming in the door, and how much cash is coming in the door isn't as important as what management actually does with that cash. Remember, you, the shareholder, own the company. Are you happy with the way management has used Expeditors International's cash? Sound off in the comment section below.

At the time thisarticle was published Fool contributorMorgan Houseldoesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Expeditors International of Washington. The Fool has created a butterfly spread position in Expeditors International of Washington. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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