Nothing Like Public Humiliation

Ooooooh, I wish that I could simply post this without comment, because there is really very little I can do to improve on it. Maybe just a little background:

Expeditors International (Nasdaq: EXPD  ) is a large global logistics company based in Seattle. The company has revenues of approximately $2 billion per year, plenty of cash, no debt whatsoever, and minimal capital-investment requirements. In other words, Expeditors International has very little use for Wall Street's investment banking services. What's great for the rest of us is that they have no problem at all saying so. In public filings.

Expeditors' monthly 8-K filings are cult classics, as anxiously awaited as Buffett's Berkshire Hathaway (NYSE: BRK.A  ) letter or Sports Illustrated's annual swimsuit issue. OK, not really, but people look forward to them. In the age of Fair Disclosure, management responds to questions each month in writing -- in an official SEC filing. When questions are stupid, CEO Peter Rose and CFO Jordan Gates have absolutely no problem saying so and "mock questions on occasion when it is obvious that little effort, much less thought, went into crafting the query."

This month's 8-K was a show stopper. Edward Wolfe, a Bear Stearns (NYSE: BSC  ) analyst who has a sell rating on Expeditors stock ("underperform," whatever), managed to get himself into a bit of a snit over Expeditors' failure to respond to his emails and requests for a visit. The entire response absolutely has to be read to be believed. And keep in mind, this is in a federal filing, not some company press release.

We have been trying to set up a visit to come see senior management at Expeditors in Seattle for over two months now and no one from Expeditors will return our many phone calls or emails. Are you too busy to respond to the sell side? Are you afraid the sell side's tarnish may somehow rub off on Expeditors? Or are we having this problem for the first time in the over five years we have covered Expeditors as a result of our current sell rating?

We were surprised to get a question like this and we spent some amount of time trying to decide whether or not you really wanted an answer. It was possible, after all, that this was really just another effort to get the appointment you have been seeking. But, then as you say it has been 5 years and so could we be safe in assuming that you know that a question like this one would be impossible to ignore?

So we were left wondering whether you knew us or not. We frankly still aren't sure and fear that we may be making a mistake, but we are going to answer anyway.

Let's start with the fact that for a couple of months we have been ignoring your calls and emails. This is true. Your calls and emails requesting a visit have been ignored. The message is one that any seventeen-year-old boy would understand; you are not going to get your date. We were hoping not to have to give reasons, but we certainly wanted you to get the message: no date.

We could stop here, and most seventeen-year-old girls likely would, but your question sets forth numerous incorrect assumptions as to why we aren't giving you the time and attention you seek. Each is incorrect and for the sake of other sell-side analysts and interested readers, we want to deal with each one in turn.

  • Are you too busy to respond to sell-side analysts?

The answer is no. We do speak with plenty of other sell-side analysts, so your plight is much more personal.

We regard talking with the analysts, sell-side or buy-side, as an important function. It is so important, in fact, that we delegate only two people to meet with the financial community -- our CEO and our CFO. While it is true that given the growth in our company, we are busier than we have ever been, we do try to cover all of our analyst bases. We've always said that "actions speak louder than words" and we honestly feel that the best thing we can do for the investors is to actually spend time making money through customer service, as opposed to spending a lot of time huddled in a conference room talking. As with many things, those who talk the most probably do the least.

  • Do you think that spending time with sell-side analysts will tarnish your reputation?

We've made our reputation as freight forwarders so the only folks we avoid are the competition.

Much has been made lately of abuses on Wall Street and the board rooms of Main Street. We applaud the efforts made by the SEC to recognize that it takes two to tango, and many more if you are going to host a dance. What we have to say about analysts, we will say. For a long time the rules rightly punished corporate insiders for any effort to profit from inside information, while looking the other way and allowing the sell side free reign to traffic in it. Honest analysis is valuable and we hope that the information put out in this forum gives everyone an equal opportunity to predict what our future holds.

  • Are we having this problem because of our sell recommendation on Expeditors stock?

No, you could raise your rating to strong buy and your problem would remain. Most of the sell-side analysts who follow us have had "sell" recommendations or their equivalent on Expeditors at one time or another. This includes one respected analyst who has been following this sector nearly forever. This particular analyst comes like clockwork and we welcome the visits -- even when this analyst has a "sell" rating on us.

We won't pretend that we like "sell" recommendations, but that having been said, we have never refused an analyst access to management on the basis of a negative recommendation.

  • So why won't you meet with me and my clients?

In fairness you did not ask this last question, but we think it is the one you still want answered. You have expressed your opinions and have done a great deal to advance your thesis. What you write gets out there for everyone to read, and that is fair enough. However, you do more and some of it has gotten back to us. From the messages you have left for people you likely assume are clients, it is clear that you have lost your objectivity. These are not our words, these are the words of your presumed clients. These same investors have gone on to urge that we have nothing more to do with you because of this loss of professional detachment. Now, it is true that the folks we talk with are likely long-term investors in Expeditors so maybe they are less than completely objective. But in the final analysis, you are asking us to take time out of our day, time that belongs to Expeditors and its shareholders, to meet with you and certain clients of yours. This is taking shareholder time to build value into your business and enhance your professional standing. More than one institutional investor thinks that this would be a huge waste, and we agree.

Basically it comes down to this: you can say whatever you want. We have no problem with that. However, when we feel that you have lost your objectivity to the point that whatever you say will be skewed and slanted to fit your own purposes, why should we provide you with the façade of legitimacy by permitting you to take up our time with a visit to our corporate office? Your clients are always welcome, they just need a new escort.

So, how about cutting the Dixie Chicks routine? You've said what you've said and taken the positions you've taken. You're allowed to do that and in fact we have no doubt we are in for another round as there is no way we could be lucky enough to have you drop coverage. So go ahead and huff and puff. This company was not built from straw or sticks. It is made of cash and bricks. You're not going to blow it down and you're not getting in -- not by the hairs of our chinny chin chin!

Wow. I give this a 10. Even the Russian judge is impressed. A quick read of the Expeditors International 8-K on a monthly basis does much more than tell you that this is a company that knows how to be mean to idiots -- it lets you in on the types of questions analysts are asking the companies they cover. And in many cases, they're not good ones.

Fool on!

Bill Mann, TMFOtter on the Fool Discussion Boards

Bill Mann owns shares of Berkshire Hathaway. He wonders how many of the questions asked Expeditors International amount to little more than performance art, though he's pretty sure that Wolfe wishes he hadn't pulled the trigger on this one. To find other straight-shooting, undercovered companies, consider subscribing to Tom Gardner's Motley Fool Hidden Gems.


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